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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, 2009 |
|                                                                                              |                                                                                                                                      |
| 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            o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No            o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
|                                          |                                                                                                    |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------|
| Large Accelerated Filer o                     |               Accelerated filer x |
| Non-accelerated filer o                       | 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 o No x.

The number of outstanding shares of the issuer’s $1.00 par value common stock as of November 3, 2009 was 215,449,549. 

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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** |   |
|                                                                                                                                                    |   |              |       |                                         |
|                                                                                                                                                    |   | **2009**          |       | **2008**                                     |   |       |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |
| **Assets**                                                                                                                                              |   |              |       |                                         |   |       |   |   |       |   |
| Cash and due from banks                                                                                                                                 |   | $                 | 418,585    |                                         | $      | 176,293    |   | $      | 292,219    |   |
| Interest-bearing bank balances                                                                                                                          |   |              | 124        |                                         |   | 35         |   |   | 166        |   |
| Securities                                                                                                                                              |   |              |       |                                         |   |       |   |   |       |   |
| Available for sale, at fair value                                                                                                                       |   |              | 2,079,394  |                                         |   | 1,995,681  |   |   | 2,107,194  |   |
| Held to maturity (fair value $140,514, $24,566, and $23,048, respectively)                                                                              |   |              | 138,277    |                                         |   | 24,518     |   |   | 22,709     |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Total securities                                                                                                                                        |   |              | 2,217,671  |                                         |   | 2,020,199  |   |   | 2,129,903  |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Loans held for sale (includes $0, $14,334, and $14,681, respectively, measured at fair value)                                                           |   |              | 8,071      |                                         |   | 37,575     |   |   | 30,963     |   |
| Loans held for investment                                                                                                                               |   |              | 8,874,234  |                                         |   | 10,299,640 |   |   | 10,192,072 |   |
| Less: Allowance for loan losses                                                                                                                         |   |              | (339,536   | )                                            |   | (200,748   | )      |   | (247,086   | )      |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Net loans held for investment                                                                                                                           |   |              | 8,534,698  |                                         |   | 10,098,892 |   |   | 9,944,986  |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Premises and equipment, net                                                                                                                             |   |              | 272,732    |                                         |   | 274,258    |   |   | 282,472    |   |
| Accrued interest receivable                                                                                                                             |   |              | 37,549     |                                         |   | 51,207     |   |   | 50,388     |   |
| Goodwill                                                                                                                                                |   |              | 213,797    |                                         |   | 461,458    |   |   | 224,161    |   |
| Other intangible assets, net                                                                                                                            |   |              | 16,809     |                                         |   | 23,112     |   |   | 21,859     |   |
| Other assets                                                                                                                                            |   |              | 580,756    |                                         |   | 552,149    |   |   | 625,209    |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Total assets                                                                                                                                            |   | $                 | 12,300,792 |                                         | $      | 13,695,178 |   | $      | 13,602,326 |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| **Liabilities and Shareholders’ Equity**                                                                                                          |   |              |       |                                         |   |       |   |   |       |   |
| Liabilities                                                                                                                                             |   |              |       |                                         |   |       |   |   |       |   |
| Deposits                                                                                                                                                |   |              |       |                                         |   |       |   |   |       |   |
| Noninterest-bearing retail and commercial deposits                                                                                                      |   | $                 | 1,091,439  |                                         | $      | 1,022,632  |   | $      | 1,041,140  |   |
| Interest-bearing retail and commercial deposits                                                                                                         |   |              | 6,298,309  |                                         |   | 6,412,343  |   |   | 6,455,810  |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Total retail and commercial deposits                                                                                                                    |   |              | 7,389,748  |                                         |   | 7,434,975  |   |   | 7,496,950  |   |
| Brokered deposits                                                                                                                                       |   |              | 2,099,040  |                                         |   | 2,573,833  |   |   | 1,908,767  |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Total deposits                                                                                                                                          |   |              | 9,488,788  |                                         |   | 10,008,808 |   |   | 9,405,717  |   |
| Short-term borrowings                                                                                                                                   |   |              | 288,751    |                                         |   | 1,188,929  |   |   | 1,626,374  |   |
| Long-term debt                                                                                                                                          |   |              | 1,126,393  |                                         |   | 773,109    |   |   | 707,769    |   |
| Accrued interest payable                                                                                                                                |   |              | 45,803     |                                         |   | 61,463     |   |   | 71,465     |   |
| Other liabilities                                                                                                                                       |   |              | 152,356    |                                         |   | 129,255    |   |   | 170,470    |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Total liabilities                                                                                                                                       |   |              | 11,102,091 |                                         |   | 12,161,564 |   |   | 11,981,795 |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Commitments and contingencies (Note 12)                                                                                                                 |   |              | —    |                                         |   | —    |   |   | —    |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Shareholders’ equity                                                                                                                              |   |              |       |                                         |   |       |   |   |       |   |
| Preferred stock-no par value; authorized 10,000,000 shares; issued and outstanding 351,650, 249,000, and 585,700 shares, respectively                   |   |              | 334,900    |                                         |   | 249,000    |   |   | 566,379    |   |
| Common stock-par value $1 per share; authorized 325,000,000 shares; issued and outstanding 215,371,687, 73,005,766, and 74,643,649 shares, respectively |   |              | 215,372    |                                         |   | 73,006     |   |   | 74,644     |   |
| Surplus                                                                                                                                                 |   |              | 1,343,987  |                                         |   | 1,104,697  |   |   | 1,135,920  |   |
| Retained (deficit) earnings                                                                                                                             |   |              | (745,043   | )                                            |   | 120,578    |   |   | (199,540   | )      |
| Accumulated other comprehensive income (loss), net of tax                                                                                               |   |              | 48,875     |                                         |   | (13,667    | )      |   | 42,558     |   |
| Other, net                                                                                                                                              |   |              | 610        |                                         |   | —    |   |   | 570        |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Total shareholders’ equity                                                                                                                        |   |              | 1,198,701  |                                         |   | 1,533,614  |   |   | 1,620,531  |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |
| Total liabilities and shareholders’ equity                                                                                                        |   | $                 | 12,300,792 |                                         | $      | 13,695,178 |   | $      | 13,602,326 |   |
|                                                                                                                                                    |   |              |       |                                         |   |       |   |   |       |   |

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 OPERATIONS            (in thousands, except per share data) (Unaudited)**

|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
|-------------------------------------------------------|--------|-------------------------------------------------------------|----------|------------------------------------------------------------|--------|----------|--------|----------|----------|--------|--------|----------|--------|
|                                                  |   | **Three Months Ended                        September 30,** |     | **Nine Months Ended                        September 30,** |   |
|                                                  |   |                                                        |     |                                                       |   |
|                                                  |   | **2009**                                                    |     | **2008**                                                   |   | **2009** |   | **2008** |     |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |
| **Interest Income**                                   |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Interest and fees on loans                            |   | $                                                           | 112,673  |                                                       | $      | 155,433  |   | $        | 358,615  |   | $      | 484,677  |   |
| Interest and dividends on securities:                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Taxable                                               |   |                                                        | 16,742   |                                                       |   | 20,186   |   |     | 55,430   |   |   | 61,169   |   |
| Exempt from federal income taxes                      |   |                                                        | 2,006    |                                                       |   | 2,422    |   |     | 6,312    |   |   | 7,594    |   |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Total interest and dividends on securities            |   |                                                        | 18,748   |                                                       |   | 22,608   |   |     | 61,742   |   |   | 68,763   |   |
| Interest on short-term investments                    |   |                                                        | —  |                                                       |   | 197      |   |     | 1        |   |   | 375      |   |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Total interest income                                 |   |                                                        | 131,421  |                                                       |   | 178,238  |   |     | 420,358  |   |   | 553,815  |   |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| **Interest Expense**                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Interest on deposits                                  |   |                                                        | 45,156   |                                                       |   | 69,071   |   |     | 149,540  |   |   | 209,357  |   |
| Interest on short-term borrowings                     |   |                                                        | 230      |                                                       |   | 6,171    |   |     | 2,020    |   |   | 31,017   |   |
| Interest on long-term debt                            |   |                                                        | 5,997    |                                                       |   | 7,377    |   |     | 17,812   |   |   | 24,911   |   |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Total interest expense                                |   |                                                        | 51,383   |                                                       |   | 82,619   |   |     | 169,372  |   |   | 265,285  |   |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| **Net Interest Income**                               |   |                                                        | 80,038   |                                                       |   | 95,619   |   |     | 250,986  |   |   | 288,530  |   |
| **Provision for Credit Losses**                       |   |                                                        | 224,179  |                                                       |   | 84,608   |   |     | 498,143  |   |   | 221,663  |   |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Net interest income after provision for credit losses |   |                                                        | (144,141 | )                                                          |   | 11,011   |   |     | (247,157 | )      |   | 66,867   |   |
| **Noninterest Income**                                |   |                                                        | 33,470   |                                                       |   | 28,665   |   |     | 89,483   |   |   | 91,955   |   |
| **Noninterest Expenses**                              |   |                                                        | 89,529   |                                                       |   | 94,157   |   |     | 315,958  |   |   | 450,140  |   |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Loss before income taxes                              |   |                                                        | (200,200 | )                                                          |   | (54,481  | )      |     | (473,632 | )      |   | (291,318 | )      |
| Income tax expense (benefit)                          |   |                                                        | 123,304  |                                                       |   | (29,526  | )      |     | 13,951   |   |   | (54,139  | )      |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| **Net Loss**                                          |   |                                                        | (323,504 | )                                                          |   | (24,955  | )      |     | (487,583 | )      |   | (237,179 | )      |
| Preferred stock dividends                             |   |                                                        | (4,454   | )                                                          |   | (6,250   | )      |     | (20,268  | )      |   | (12,083  | )      |
| Deemed dividend resulting from induced conversion     |   |                                                        | (11,927  | )                                                          |   | —  |   |     | (32,388  | )      |   | —  |   |
| Deemed dividend resulting from accretion of discount  |   |                                                        | (870     | )                                                          |   | —  |   |     | (2,571   | )      |   | —  |   |
| Amounts allocated to participating security holders   |   |                                                        | —  |                                                       |   | (7       | )      |     | (241     | )      |   | (151     | )      |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| **Net Loss Available to Common Shareholders**         |   | $                                                           | (340,755 | )                                                          | $      | (31,212  | )      | $        | (543,051 | )      | $      | (249,413 | )      |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
|                                                  |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| **Average Common Shares Outstanding, Basic**          |   |                                                        | 174,426  |                                                       |   | 72,755   |   |     | 116,217  |   |   | 72,606   |   |
| **Average Common Shares Outstanding, Diluted**        |   |                                                        | 174,426  |                                                       |   | 72,755   |   |     | 116,217  |   |   | 72,606   |   |
| **Loss Per Common Share, Basic**                      |   | $                                                           | (1.95    | )                                                          | $      | (0.43    | )      | $        | (4.67    | )      | $      | (3.44    | )      |
| **Loss Per Common Share, Diluted**                    |   |                                                        | (1.95    | )                                                          |   | (0.43    | )      |     | (4.67    | )      |   | (3.44    | )      |
| **Dividends per common share**                        |   |                                                        | —  |                                                       |   | 0.01     |   |     | 0.02     |   |   | 0.21     |   |

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                        (Deficit)                        Earnings                        and                        Other** |   | **Accumulated                        Other                        Comprehensive                        Income                        (Loss), Net** |   | **Total** |     |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |
| 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  | )      |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Common dividends declared ($0.21 per share)                             |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | (15,331  | )      |   | — |   |   | (15,331   | )      |
| Preferred dividends declared                                            |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | (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                                                                                                                                                |   |      | —  |   |   | — |   |   |      |   |
| 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 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                                                                                                                                                | )      |      | (50      | )      |   | — |   |   | (109      | )      |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Balance, September 30, 2008                                             |   |                                                                     | 73,005,766  |                                    | $      | 73,006                                     |   | $           | 249,000  |                                                                                                                                  | $      | 1,104,697                                                                                                                                          |   | $         | 120,578  |   | $      | (13,667 | )      | $      | 1,533,614 |   |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Balance, December 31, 2008                                              |   |                                                                     | 74,643,649  |                                    | $      | 74,644                                     |   | $           | 566,379  |                                                                                                                                  | $      | 1,135,920                                                                                                                                          |   | $         | (198,970 | )      | $      | 42,558  |   | $      | 1,620,531 |   |
| Net loss                                                                |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | (487,583 | )      |   | — |   |   | (487,583  | )      |
| Other comprehensive income, net of income tax of $4,611                 |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | —  |   |   | 6,317   |   |   | 6,317     |   |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Comprehensive loss                                                      |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | —  |   |   | — |   |   | (481,266  | )      |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Common dividends declared ($0.02 per share)                             |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | (2,693   | )      |   | — |   |   | (2,693    | )      |
| Preferred dividends declared                                            |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | (20,268  | )      |   | — |   |   | (20,268   | )      |
| Accretion of discount on preferred stock                                |   |                                                                     | —     |                                    |   | —                                    |   |        | 2,571    |                                                                                                                                  |   | —                                                                                                                                            |   |      | (2,571   | )      |   | — |   |   | —   |   |
| Common stock activity:                                                  |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Issuance of common stock                                                |   |                                                                     | 85,000,000  |                                    |   | 85,000                                     |   |        | —  |                                                                                                                                  |   | (5,275                                                                                                                                             | )      |      | —  |   |   | — |   |   | 79,725    |   |
| Conversion of preferred stock                                           |   |                                                                     | 54,892,158  |                                    |   | 54,892                                     |   |        | (234,050 | )                                                                                                                                     |   | 210,123                                                                                                                                            |   |      | (32,388  | )      |   | — |   |   | (1,423    | )      |
| Restricted stock plan                                                   |   |                                                                     | 352,589     |                                    |   | 353                                        |   |        | —  |                                                                                                                                  |   | 903                                                                                                                                                |   |      | —  |   |   | — |   |   | 1,256     |   |
| Director compensation                                                   |   |                                                                     | 144,763     |                                    |   | 145                                        |   |        | —  |                                                                                                                                  |   | 102                                                                                                                                                |   |      | —  |   |   | — |   |   | 247       |   |
| Dividend reinvestment plan                                              |   |                                                                     | 130,828     |                                    |   | 131                                        |   |        | —  |                                                                                                                                  |   | 81                                                                                                                                                 |   |      | —  |   |   | — |   |   | 212       |   |
| Employee stock purchase plan                                            |   |                                                                     | 117,317     |                                    |   | 117                                        |   |        | —  |                                                                                                                                  |   | 80                                                                                                                                                 |   |      | —  |   |   | — |   |   | 197       |   |
| Settlement of shareholder lawsuit                                       |   |                                                                     | 91,033      |                                    |   | 91                                         |   |        | —  |                                                                                                                                  |   | 15                                                                                                                                                 |   |      | —  |   |   | — |   |   | 106       |   |
| Common and preferred stock released by trust for deferred compensation  |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | 842      |   |   | — |   |   | 842       |   |
| Deferred compensation payable in stock                                  |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | —                                                                                                                                            |   |      | (802     | )      |   | — |   |   | (802      | )      |
| Stock option expense                                                    |   |                                                                     | —     |                                    |   | —                                    |   |        | —  |                                                                                                                                  |   | 2,028                                                                                                                                              |   |      | —  |   |   | — |   |   | 2,028     |   |
| Other, net                                                              |   |                                                                     | (650        | )                                       |   | (1                                         | )      |        | —  |                                                                                                                                  |   | 10                                                                                                                                                 |   |      | —  |   |   | — |   |   | 9         |   |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Balance, September 30, 2009                                             |   |                                                                     | 215,371,687 |                                    | $      | 215,372                                    |   | $           | 334,900  |                                                                                                                                  | $      | 1,343,987                                                                                                                                          |   | $         | (744,433 | )      | $      | 48,875  |   | $      | 1,198,701 |   |
|                                                                    |   |                                                                     |        |                                    |   |                                       |   |        |     |                                                                                                                                  |   |                                                                                                                                               |   |      |     |   |   |    |   |   |      |   |

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,** |       |
|                                                                                 |   |                                |       |
|                                                                                 |   | **2009**                            |       | **2008** |   |
|                                                                                 |   |                                |       |     |   |
| **Cash Flows from Operating Activities**                                             |   |                                |       |     |   |     |   |
| Net loss                                                                             |   | $                                   | (487,583   | )        | $      | (237,179 | )      |
| Adjustments to reconcile net loss to net cash provided by operating activities       |   |                                |       |     |   |     |   |
| Provision for credit losses                                                          |   |                                | 498,143    |     |   | 221,663  |   |
| Depreciation, amortization, and accretion, net                                       |   |                                | 28,187     |     |   | 28,233   |   |
| Impairment of long lived assets                                                      |   |                                | 18,122     |     |   | —  |   |
| Loss on other real estate owned                                                      |   |                                | 17,403     |     |   | 949      |   |
| Loss on nonmortgage loans held for sale                                              |   |                                | 11,258     |     |   | —  |   |
| Share-based compensation expense                                                     |   |                                | 3,953      |     |   | 6,061    |   |
| Goodwill impairment                                                                  |   |                                | 2,511      |     |   | 188,431  |   |
| Gain on sale of ancillary businesses                                                 |   |                                | (7,234     | )        |   | —  |   |
| (Gain) loss on early extinguishment of debt                                          |   |                                | (3,043     | )        |   | 339      |   |
| Gain on certain derivative activities                                                |   |                                | (3,817     | )        |   | (49      | )      |
| Gain on securities                                                                   |   |                                | (1,340     | )        |   | (1,547   | )      |
| Gain on sale of mortgage loans                                                       |   |                                | (1,894     | )        |   | (2,634   | )      |
| Loss on disposition of premises and equipment                                        |   |                                | 246        |     |   | 333      |   |
| Gain on Visa IPO share redemption                                                    |   |                                | —    |     |   | (1,904   | )      |
| Excess tax benefits from share-based compensation                                    |   |                                | —    |     |   | (6       | )      |
|    Deferred income tax valuation allowance                                 |        |                                     | 200,121    |          |        | —  |        |
| Deferred income tax benefit, excluding change in valuation allowance                 |   |                                | (155,388)  |     |   | (35,141  | )      |
| Origination of loans held for sale                                                   |   |                                | (257,918   | )        |   | (201,350 | )      |
| Sale of loans held for sale and principal repayments                                 |   |                                | 288,725    |     |   | 224,410  |   |
| Decrease (increase) in other assets                                                  |   |                                | 22,324     |     |   | (3,009   | )      |
| Decrease in other liabilities                                                        |   |                                | (21,885    | )        |   | (9,503   | )      |
|                                                                                 |   |                                |       |     |   |     |   |
| Net cash provided by operating activities                                            |   |                                | 150,891    |     |   | 178,097  |   |
|                                                                                 |   |                                |       |     |   |     |   |
|                                                                                 |   |                                |       |     |   |     |   |
| **Cash Flows from Investing Activities**                                             |   |                                |       |     |   |     |   |
| Sale of securities available for sale                                                |   |                                | 137,490    |     |   | 193,029  |   |
| Maturity, redemption, call, or principal repayments of securities available for sale |   |                                | 519,126    |     |   | 375,013  |   |
| Maturity, redemption, call, or principal repayments of securities held to maturity   |   |                                | 15,078     |     |   | 15,166   |   |
| Purchase of securities available for sale                                            |   |                                | (587,683   | )        |   | (580,138 | )      |
| Purchase of securities held to maturity                                              |   |                                | (131,435   | )        |   | —  |   |
| Origination of loans held for investment, net of principal repayments                |   |                                | 371,734    |     |   | (331,593 | )      |
| Sale of loans originally held for investment                                         |   |                                | 409,286    |     |   | 38,663   |   |
| Sale of other real estate owned                                                      |   |                                | 35,668     |     |   | 3,230    |   |
| Sale of long lived assets held for sale                                              |   |                                | 6,745      |     |   | —  |   |
| Sale of premises and equipment                                                       |   |                                | 27         |     |   | 7        |   |
| Purchase of premises and equipment                                                   |   |                                | (31,330    | )        |   | (43,358  | )      |
| Proceeds from sale of ancillary businesses                                           |   |                                | 16,584     |     |   | —  |   |
| Cash equivalents acquired, net of payment for purchase acquisition                   |   |                                | —    |     |   | 3,817    |   |
|                                                                                 |   |                                |       |     |   |     |   |
| Net cash provided by (used for) investing activities                                 |   |                                | 761,290    |     |   | (326,164 | )      |
|                                                                                 |   |                                |       |     |   |     |   |
|                                                                                 |   |                                |       |     |   |     |   |
| **Cash Flows from Financing Activities**                                             |   |                                |       |     |   |     |   |
| Increase in deposits, net                                                            |   |                                | 81,586     |     |   | 200,094  |   |
| Decrease in short-term borrowings                                                    |   |                                | (1,337,650 | )        |   | (449,487 | )      |
| Issuance of long-term debt                                                           |   |                                | 700,000    |     |   | 203,320  |   |
| Payment of long-term debt                                                            |   |                                | (279,960   | )        |   | (132,235 | )      |
| Issuance of common stock, net                                                        |   |                                | 79,725     |     |   | —  |   |
| Issuance of preferred stock, net                                                     |   |                                | —    |     |   | 238,972  |   |
| Cash dividends paid on common stock                                                  |   |                                | (3,439     | )        |   | (28,367  | )      |
| Cash dividends paid on preferred stock                                               |   |                                | (25,155    | )        |   | (5,833   | )      |
| Conversion of preferred stock                                                        |   |                                | (1,423     | )        |   | —  |   |
| Excess tax benefits from share-based compensation                                    |   |                                | —    |     |   | 6        |   |
| Other common stock activity                                                          |   |                                | 459        |     |   | 1,400    |   |
|                                                                                 |   |                                |       |     |   |     |   |
| Net cash (used for) provided by financing activities                                 |   |                                | (785,857   | )        |   | 27,870   |   |
|                                                                                 |   |                                |       |     |   |     |   |
|                                                                                 |   |                                |       |     |   |     |   |
| Net change in cash and cash equivalents                                              |   |                                | 126,324    |     |   | (120,197 | )      |
| Cash and cash equivalents at beginning of year                                       |   |                                | 292,385    |     |   | 296,525  |   |
|                                                                                 |   |                                |       |     |   |     |   |
| Cash and cash equivalents at end of period                                           |   | $                                   | 418,709    |     | $      | 176,328  |   |
|                                                                                 |   |                                |       |     |   |     |   |
|                                                                                 |   |                                |       |     |   |     |   |
| **Supplemental Cash Flow Data**                                                      |   |                                |       |     |   |     |   |
| Interest paid, net of amounts capitalized                                            |   | $                                   | 189,849    |     | $      | 269,204  |   |
| Income tax (refunds received) payments, net                                          |   |                                | (47,037    | )        |   | 3,599    |   |
| Significant non-cash investing and financing transactions:                           |   |                                |       |     |   |     |   |
| Unrealized gain on available for sale securities                                     |   |                                | 39,575     |     |   | 431      |   |
| Conversion of preferred stock                                                        |   |                                | 234,050    |     |   | 1,000    |   |
| Loans transferred from held for investment to held for sale                          |   |                                | 489,255    |     |   | 61,904   |   |
| Loans transferred to other real estate owned                                         |   |                                | 120,106    |     |   | 23,882   |   |

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, 2008 should be referred to in connection with the reading of these unaudited interim Consolidated Financial Statements. The Consolidated Balance Sheet at December 31, 2008 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. TSFG has evaluated subsequent events for potential recognition and/or disclosure through November 9, 2009, the date the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were issued.

*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, mortgage, treasury services, and wealth management (which consists of 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), in Florida (as Mercantile), and on the Internet (as Bank CaroLine). TSFG also owns several non-bank subsidiaries. At September 30, 2009, TSFG operated through 83 branch offices in South Carolina, 67 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. 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 derivative and other hedging activities, the fair value of certain financial instruments (securities, derivatives, and privately held investments), income tax assets or            liabilities (including deferred tax assets and any related valuation allowance), share-based compensation, and accounting for acquisitions, including the fair value determinations, the analysis of goodwill 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 expense associated with other employee            benefit agreements. 

*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. 

*Accounting Standards Codification*

          The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became effective on July 1, 2009. At that date, the ASC became FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles (“GAAP”) applicable to all public and non-public            non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in            financial statements and 

5

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

accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. 

*Reclassifications*

          Certain prior year amounts have been reclassified to conform to the 2009 presentations. 

*Recently Adopted Accounting Pronouncements*

*     Fair Value Measurements*

          TSFG adopted new guidance affecting FASB ASC 820, “Fair Value Measurements and Disclosures,” on January 1, 2008 for financial assets and liabilities with no significant impact on its Consolidated Financial Statements. This guidance defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value            measurements. This guidance does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. This guidance was effective for nonfinancial assets and liabilities measured at fair value on a nonrecurring basis in fiscal years beginning after November 15, 2008. As a result, TSFG adopted this guidance for nonfinancial assets and liabilities effective January 1, 2009 with no significant impact on its            Consolidated Financial Statements. 

*     Business Combinations*

          FASB ASC 805, “Business Combinations,” reflects new guidance which 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 previous standards whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. The new guidance 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 the new guidance, the requirements of FASB ASC 420, “Exit or Disposal Cost Obligations,” 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 FASB ASC 450, “Contingencies.” TSFG adopted this guidance effective January 1, 2009 with no significant impact on its Consolidated Financial Statements. However, TSFG expects the new guidance to have a significant effect on the accounting for future acquisitions, if any. 

*     Noncontrolling Interests in Consolidated Financial Statements*

          FASB ASC 810-10, “Consolidation,” reflects new guidance which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The new guidance clarifies that a non-controlling interest in a subsidiary, which was previously 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, the guidance 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. TSFG adopted this guidance effective January 1, 2009 with no significant impact on its Consolidated Financial Statements. 

*     Disclosures about Derivative Instruments and Hedging Activities*

          FASB ASC 815-10, “Derivatives and Hedging,” reflects new guidance which amends and expands the disclosure requirements related to derivatives and hedging activities 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 FASB            ASC 815-10, 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, the new guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of

6

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

gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. TSFG adopted this guidance effective January 1, 2009 and has included the required disclosures in Note 11. 

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

          FASB ASC 260-10, “Earnings Per Share,” reflects new guidance that 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. TSFG adopted this guidance            effective January 1, 2009 and has determined that certain of its outstanding nonvested restricted stock and restricted stock units are participating securities. Accordingly, earnings per common share has been computed using the two-class method. All previously reported earnings per common share data has been retrospectively adjusted to conform to the new computation method. 

*     Determination of the Useful Life of Intangible Assets and Accounting for Defensive Intangible Assets*

          FASB ASC 350-30, “General Intangibles Other Than Goodwill,” reflects new guidance that amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This Subtopic also reflects new guidance that clarifies how to account for defensive intangible            assets subsequent to initial measurement. TSFG adopted this new guidance effective January 1, 2009 with no significant impact on its Consolidated Financial Statements. 

*     Equity Method Investment Accounting Considerations*

          FASB ASC 323, “Investments - Equity Method and Joint Ventures,” reflects new guidance which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. TSFG adopted this new guidance effective January 1, 2009 with no significant impact on its Consolidated Financial Statements.            

*     Determining Fair Value When the Volume and Level of  Activity for the Asset or Liability Have  Significantly                 Decreased and Identifying Transactions that Are Not Orderly*

          FASB ASC 820, “Fair Value Measurements and Disclosures,” reflects new guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and for determining when a transaction is an orderly one. TSFG adopted this new guidance effective second quarter 2009 with no significant impact            on its Consolidated Financial Statements. 

*     Interim Disclosures about Fair Value of Financial Instruments*

          FASB ASC 825, “Financial Instruments,” reflects new guidance which requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. TSFG adopted this new guidance effective second quarter 2009 and has included the required disclosures in Note 16. 

*     Recognition and Presentation of Other-Than-Temporary Impairments*

          FASB ASC 320-10, “Investments – Debt and Equity Securities,” reflects new guidance on other-than-temporary impairment for debt securities to make the standard more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. TSFG adopted the new            guidance effective second quarter 2009 with no significant impact on its Consolidated Financial Statements. 

*     Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies*

          FASB ASC 805, “Business Combinations,” reflects new guidance which requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or            liability would generally be recognized in accordance with FASB ASC 450, “Contingencies.” The new guidance removes subsequent accounting guidance for assets and liabilities arising from contingencies from FASB ASC 805 and requires entities to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. The new guidance eliminates the requirement to disclose an estimate of the range of outcomes of            recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only 

7

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

the disclosure required by FASB ASC 450. The new guidance also requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value. TSFG adopted the new guidance effective January 1, 2009 with no significant impact on its Consolidated Financial            Statements. 

*     Subsequent Events*

          FASB ASC 855, “Subsequent Events,” establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standard requires entities to disclose the date through which they have evaluated subsequent events and whether the            date corresponds with the release of their financial statements. TSFG adopted the new guidance effective second quarter 2009. 

*     Measuring Liabilities at Fair Value*

          Accounting Standards Update 2009-05 (“ASU 2009-05”), “Measuring Liabilities at Fair Value,” modifies existing fair value guidance to permit companies determining the fair value of a liability to use the perspective of an investor that holds the related obligation as an asset. ASU 2009-05 addresses practice difficulties caused by            the tension between fair-value measurements based on the price that would be paid to transfer a liability to a new obligor and contractual or legal requirements that prevent such transfers from taking place. TSFG adopted this standard effective third quarter 2009 with no significant impact on its Consolidated Financial Statements. 

*Recently Issued Accounting Pronouncements*

*     Accounting for Transfers of Financial Assets*

          Statement of Financial Accounting Stamdards (“SFAS”) No. 166 (“SFAS 166”), “Accounting for Transfers of Financial Assets,” amends FASB ASC 860, “Transfers and Servicing,” primarily to (1) eliminate the concept of a qualifying special-purpose entity, (2) limit the circumstances under which a financial asset            (or portion thereof) should be derecognized when the entire financial asset has not been transferred to a non-consolidated entity, and (3) require additional information to be disclosed concerning a transferor’s continuing involvement with transferred financial assets. The new guidance is effective for fiscal years beginning after November 15, 2009, 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. However, this guidance could have a significant impact on the accounting for future transfers, if any. 

*     Accounting for Variable Interest Entities*

          SFAS No. 167 (“SFAS 167”), “Accounting for Variable Interest Entities,” amends FASB ASC 810, “Consolidation,” to require a comprehensive qualitative analysis to be performed to determine whether a holder of variable interests in a variable interest entity also has a controlling financial interest in that entity. In            addition, FASB ASC 810 has been amended to require that the same such analysis be applied to entities previously designated as qualified special-purpose entities under FASB ASC 860. The new guidance is effective for fiscal years beginning after November 15, 2009, and TSFG does not expect adoption of this standard to have a significant impact on its Consolidated Financial Statements. 

*     Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)*

          Accounting Standards Update No. 2009-12 (“ASU 2009-12”), “Fair Value Measurements and Disclosures: Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” offers guidance on how to use a NAV per share to estimate the fair value of investments in hedge funds, private equity funds, real estate            funds, venture capital funds, offshore fund vehicles, and funds of funds. ASU 2009-12 is effective for periods ending after December 15, 2009, and TSFG does not expect adoption of this standard to have a significant impact on its Consolidated Financial Statements. 

8

----

**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,** |   |
|                                                             |   |                                                        |    |                                                       |   |
|                                                             |   | **2009**                                                    |    | **2008**                                                   |   | **2009** |   | **2008** |    |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |
| **Noninterest Income**                                           |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Service charges on deposit accounts                              |   | $                                                           | 10,754  |                                                       | $      | 11,376   |   | $        | 29,557  |   | $      | 32,791  |   |
| Debit card income, net                                           |   |                                                        | 2,139   |                                                       |   | 2,006    |   |     | 6,232   |   |   | 5,938   |   |
| Customer service fee income                                      |   |                                                        | 1,251   |                                                       |   | 1,425    |   |     | 3,724   |   |   | 4,114   |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Total customer fee income                                        |   |                                                        | 14,144  |                                                       |   | 14,807   |   |     | 39,513  |   |   | 42,843  |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Insurance income                                                 |   |                                                        | 1,911   |                                                       |   | 2,368    |   |     | 6,133   |   |   | 7,816   |   |
| Retail investment services, net                                  |   |                                                        | 2,157   |                                                       |   | 2,294    |   |     | 5,813   |   |   | 5,960   |   |
| Trust and investment management income                           |   |                                                        | 1,251   |                                                       |   | 1,728    |   |     | 4,211   |   |   | 5,251   |   |
| Benefits administration fees                                     |   |                                                        | — |                                                       |   | 813      |   |     | 1,213   |   |   | 2,303   |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Total wealth management income                                   |   |                                                        | 5,319   |                                                       |   | 7,203    |   |     | 17,370  |   |   | 21,330  |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Bank-owned life insurance income                                 |   |                                                        | 2,797   |                                                       |   | 2,881    |   |     | 7,859   |   |   | 8,938   |   |
| Gain on sale of ancillary businesses (1)                         |   |                                                        | 7,234   |                                                       |   | —  |   |     | 7,234   |   |   | — |   |
| Mortgage banking income                                          |   |                                                        | 1,137   |                                                       |   | 879      |   |     | 4,392   |   |   | 4,222   |   |
| Gain (loss) on certain derivative activities                     |   |                                                        | 1,597   |                                                       |   | (199     | )      |     | 3,817   |   |   | 49      |   |
| Merchant processing income, net                                  |   |                                                        | 591     |                                                       |   | 916      |   |     | 2,018   |   |   | 2,582   |   |
| (Loss) gain on securities                                        |   |                                                        | (286    | )                                                          |   | (725     | )      |     | 1,340   |   |   | 1,547   |   |
| Gain on Visa IPO share redemption                                |   |                                                        | — |                                                       |   | —  |   |     | — |   |   | 1,904   |   |
| Other (2)                                                        |   |                                                        | 937     |                                                       |   | 2,903    |   |     | 5,940   |   |   | 8,540   |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Total noninterest income                                         |   | $                                                           | 33,470  |                                                       | $      | 28,665   |   | $        | 89,483  |   | $      | 91,955  |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| **Noninterest Expenses**                                         |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Salaries and wages, excluding employment contracts and severance |   | $                                                           | 32,559  |                                                       | $      | 37,700   |   | $        | 102,489 |   | $      | 108,689 |   |
| Employment contracts and severance                               |   |                                                        | — |                                                       |   | 4,621    |   |     | 829     |   |   | 6,920   |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Total salaries and wages                                         |   |                                                        | 32,559  |                                                       |   | 42,321   |   |     | 103,318 |   |   | 115,609 |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Employee benefits                                                |   |                                                        | 7,724   |                                                       |   | 9,252    |   |     | 25,572  |   |   | 27,663  |   |
| Occupancy                                                        |   |                                                        | 9,658   |                                                       |   | 9,770    |   |     | 28,600  |   |   | 27,365  |   |
| Furniture and equipment                                          |   |                                                        | 6,950   |                                                       |   | 6,991    |   |     | 20,696  |   |   | 20,107  |   |
| Loan collection and foreclosed asset expense                     |   |                                                        | 6,835   |                                                       |   | 4,491    |   |     | 18,973  |   |   | 7,873   |   |
| Impairment of long lived assets                                  |   |                                                        | 746     |                                                       |   | —  |   |     | 18,122  |   |   | — |   |
| Regulatory assessments                                           |   |                                                        | 6,181   |                                                       |   | 3,020    |   |     | 17,315  |   |   | 7,471   |   |
| FDIC special assessment                                          |   |                                                        | — |                                                       |   | —  |   |     | 5,700   |   |   | — |   |
| Loss on other real estate owned (2)                              |   |                                                        | 4,406   |                                                       |   | 765      |   |     | 17,403  |   |   | 949     |   |
| Professional services                                            |   |                                                        | 4,034   |                                                       |   | 4,573    |   |     | 12,892  |   |   | 11,679  |   |
| Project NOW expense                                              |   |                                                        | 114     |                                                       |   | —  |   |     | 1,693   |   |   | — |   |
| (Gain) loss on nonmortgage loans held for sale                   |   |                                                        | (41     | )                                                          |   | —  |   |     | 11,258  |   |   | — |   |
| Advertising and business development                             |   |                                                        | 1,264   |                                                       |   | 2,114    |   |     | 4,654   |   |   | 7,316   |   |
| Telecommunications                                               |   |                                                        | 1,572   |                                                       |   | 1,628    |   |     | 4,649   |   |   | 4,527   |   |
| Amortization of intangibles                                      |   |                                                        | 1,238   |                                                       |   | 1,474    |   |     | 3,815   |   |   | 4,721   |   |
| Goodwill impairment                                              |   |                                                        | — |                                                       |   | —  |   |     | 2,511   |   |   | 188,431 |   |
| Loss on repurchase of auction rate securities                    |   |                                                        | — |                                                       |   | —  |   |     | 676     |   |   | — |   |
| (Gain) loss on early extinguishment of debt                      |   |                                                        | — |                                                       |   | (125     | )      |     | (3,043  | )      |   | 339     |   |
| Branch acquisition and conversion costs                          |   |                                                        | — |                                                       |   | —  |   |     | — |   |   | 731     |   |
| Visa-related litigation                                          |   |                                                        | — |                                                       |   | —  |   |     | — |   |   | (863    | )      |
| Other                                                            |   |                                                        | 6,289   |                                                       |   | 7,883    |   |     | 21,154  |   |   | 26,222  |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Total noninterest expenses                                       |   | $                                                           | 89,529  |                                                       | $      | 94,157   |   | $        | 315,958 |   | $      | 450,140 |   |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |

|   |                                                                               |
|--------|------------------------------------------------------------------------------------|
| (1)    | See Note 8 for the sale of certain ancillary businesses during third quarter 2009. |

|   |                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | In fourth quarter 2008, TSFG reclassified loss (gain) on other real estate owned from noninterest income to noninterest expense. 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,** |   |
|                                                                                                                                 |   |                                                        |     |                                                       |   |
|                                                                                                                                 |   | **2009**                                                    |     | **2008**                                                   |   | **2009** |   | **2008** |     |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| **Net Unrealized Gains (Losses) on Securities Available for Sale**                                                                   |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Balance at beginning of period                                                                                                       |   | $                                                           | 19,013   |                                                       | $      | (34,287  | )      | $        | 6,890    |   | $      | (30,765  | )      |
| Other comprehensive income:                                                                                                          |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Unrealized holding gains (losses) arising during the period                                                                          |   |                                                        | 20,425   |                                                       |   | 4,580    |   |     | 44,610   |   |   | (1,271   | )      |
| Income tax (expense) benefit                                                                                                         |   |                                                        | (7,552   | )                                                          |   | (1,708   | )      |     | (16,400  | )      |   | 425      |   |
| Less: Reclassification adjustment for (gains)                              losses included in net loss |   |                                                        | (90      | )                                                          |   | 1,664    |   |     | (5,035   | )      |   | 1,965    |   |
|       Income tax expense (benefit)                                                                     |   |                                                        | 31       |                                                       |   | (583     | )      |     | 1,762    |   |   | (688     | )      |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
|                                                                                                                                 |   |                                                        | 12,814   |                                                       |   | 3,953    |   |     | 24,937   |   |   | 431      |   |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Balance at end of period                                                                                                             |   |                                                        | 31,827   |                                                       |   | (30,334  | )      |     | 31,827   |   |   | (30,334  | )      |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| **Net Unrealized Gains on Cash Flow Hedges**                                                                                         |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Balance at beginning of period                                                                                                       |   |                                                        | 22,102   |                                                       |   | 16,602   |   |     | 35,668   |   |   | 14,956   |   |
| Other comprehensive (loss) income:                                                                                                   |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Unrealized (loss) gain on change in fair values                                                                                      |   |                                                        | 3,044    |                                                       |   | 7,273    |   |     | 8,146    |   |   | 20,721   |   |
| Income tax benefit (expense)                                                                                                         |   |                                                        | (1,065   | )                                                          |   | (2,546   | )      |     | (2,851   | )      |   | (7,253   | )      |
| Less: Reclassification adjustment for gains                              included in net loss          |   |                                                        | (10,820  | )                                                          |   | (7,172   | )      |     | (36,793  | )      |   | (18,088  | )      |
|       Income tax expense                                                                               |   |                                                        | 3,787    |                                                       |   | 2,510    |   |     | 12,878   |   |   | 6,331    |   |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
|                                                                                                                                 |   |                                                        | (5,054   | )                                                          |   | 65       |   |     | (18,620  | )      |   | 1,711    |   |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Balance at end of period                                                                                                             |   |                                                        | 17,048   |                                                       |   | 16,667   |   |     | 17,048   |   |   | 16,667   |   |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
|                                                                                                                                 |   | $                                                           | 48,875   |                                                       | $      | (13,667  | )      | $        | 48,875   |   | $      | (13,667  | )      |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Total other comprehensive income                                                                                                     |   | $                                                           | 7,760    |                                                       | $      | 4,018    |   | $        | 6,317    |   | $      | 2,142    |   |
| Net loss                                                                                                                             |   |                                                        | (323,504 | )                                                          |   | (24,955  | )      |     | (487,583 | )      |   | (237,179 | )      |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |
| Comprehensive loss                                                                                                                   |   | $                                                           | (315,744 | )                                                          | $      | (20,937  | )      | $        | (481,266 | )      | $      | (235,037 | )      |
|                                                                                                                                 |   |                                                        |     |                                                       |   |     |   |     |     |   |   |     |   |

10

----

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

**Note 4****–****Securities**

          The aggregate amortized cost and estimated fair value of securities available for sale and securities held to maturity (in thousands) were as follows: 

|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|------------------------------------------|--------|-------------------------------------------|-----------|--------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|-------------------------------------------------|---------|--------|--------|-----------|--------|
|                                     |   | **September 30, 2009**                    |      |
|                                     |   |                                      |      |
|                                     |   | **Amortized                        Cost** |      | **Gross                        Unrealized                        Gains** |   | **Gross                        Unrealized                        Losses** |   | **Estimated                        Fair Value** |    |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |
| **Securities Available for Sale**        |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
| U.S. Treasury                            |   | $                                         | 2,074     |                                                                     | $      | 1                                                                         |   | $                                               | 17      |   | $      | 2,058     |   |
| U.S. Government agencies                 |   |                                      | 93,750    |                                                                     |   | 1,474                                                                     |   |                                            | — |   |   | 95,224    |   |
| Agency mortgage-backed securities        |   |                                      | 1,648,004 |                                                                     |   | 40,443                                                                    |   |                                            | 246     |   |   | 1,688,201 |   |
| Private label mortgage-backed securities |   |                                      | 9,287     |                                                                     |   | 5                                                                         |   |                                            | 180     |   |   | 9,112     |   |
| State and municipals                     |   |                                      | 214,756   |                                                                     |   | 9,198                                                                     |   |                                            | 6       |   |   | 223,948   |   |
| Other investments                        |   |                                      | 60,999    |                                                                     |   | 57                                                                        |   |                                            | 205     |   |   | 60,851    |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|                                     |   | $                                         | 2,028,870 |                                                                     | $      | 51,178                                                                    |   | $                                               | 654     |   | $      | 2,079,394 |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
| **Securities Held to Maturity**          |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
| State and municipals                     |   | $                                         | 16,221    |                                                                     | $      | 458                                                                       |   | $                                               | 2       |   | $      | 16,677    |   |
| Agency mortgage-backed securities        |   |                                      | 121,956   |                                                                     |   | 1,781                                                                     |   |                                            | — |   |   | 123,737   |   |
| Other investments                        |   |                                      | 100       |                                                                     |   | —                                                                   |   |                                            | — |   |   | 100       |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|                                     |   | $                                         | 138,277   |                                                                     | $      | 2,239                                                                     |   | $                                               | 2       |   | $      | 140,514   |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|                                     |   | **December 31, 2008**                     |      |
|                                     |   |                                      |      |
|                                     |   | **Amortized                        Cost** |      | **Gross                        Unrealized                        Gains** |   | **Gross                        Unrealized                        Losses** |   | **Estimated                        Fair Value** |    |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |
| **Securities Available for Sale**        |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
| U.S. Treasury                            |   | $                                         | 2,001     |                                                                     | $      | 68                                                                        |   | $                                               | — |   | $      | 2,069     |   |
| U.S. Government agencies                 |   |                                      | 307,025   |                                                                     |   | 6,704                                                                     |   |                                            | — |   |   | 313,729   |   |
| Agency mortgage-backed securities        |   |                                      | 1,467,516 |                                                                     |   | 14,632                                                                    |   |                                            | 13,509  |   |   | 1,468,639 |   |
| Private label mortgage-backed securities |   |                                      | 14,850    |                                                                     |   | —                                                                   |   |                                            | 2,079   |   |   | 12,771    |   |
| State and municipals                     |   |                                      | 256,755   |                                                                     |   | 5,673                                                                     |   |                                            | 180     |   |   | 262,248   |   |
| Other investments                        |   |                                      | 48,098    |                                                                     |   | 87                                                                        |   |                                            | 447     |   |   | 47,738    |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|                                     |   | $                                         | 2,096,245 |                                                                     | $      | 27,164                                                                    |   | $                                               | 16,215  |   | $      | 2,107,194 |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
| **Securities Held to Maturity**          |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
| State and municipals                     |   | $                                         | 22,609    |                                                                     | $      | 343                                                                       |   | $                                               | 4       |   | $      | 22,948    |   |
| Other investments                        |   |                                      | 100       |                                                                     |   | —                                                                   |   |                                            | — |   |   | 100       |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |
|                                     |   | $                                         | 22,709    |                                                                     | $      | 343                                                                       |   | $                                               | 4       |   | $      | 23,048    |   |
|                                     |   |                                      |      |                                                                     |   |                                                                      |   |                                            |    |   |   |      |   |

          At September 30, 2009, other investments in securities available for sale included the following (recorded at the estimated fair value): FHLB stock of $58.8 million and equity investments of $2.0 million. At December 31, 2008, other investments in securities available for sale included the following (recorded at the estimated fair value): FHLB stock of            $35.5 million, corporate bonds of $10.0 million, and equity investments of $2.2 million. 

11

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

          The amortized cost and estimated fair value of securities available for sale and securities held to maturity (in thousands) at September 30, 2009, by contractual maturity, are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or            prepayment penalties. The estimated fair value of securities was determined using quoted market prices. 

|                                   |   |                                      |      |                                            |   |      |   |
|----------------------------------------|--------|-------------------------------------------|-----------|-------------------------------------------------|--------|-----------|--------|
|                                   |   | **September 30, 2009**                    |      |
|                                   |   |                                      |      |                                            |   |      |   |
|                                   |   | **Amortized                        Cost** |      | **Estimated                        Fair Value** |   |
|                                   |   |                                      |      |                                            |   |      |   |
| **Securities Available for Sale**      |   |                                      |      |                                            |   |      |   |
| Due in one year or less                |   | $                                         | 75,401    |                                            | $      | 76,873    |   |
| Due after one year through five years  |   |                                      | 944,250   |                                            |   | 964,002   |   |
| Due after five years through ten years |   |                                      | 206,426   |                                            |   | 213,487   |   |
| Due after ten years                    |   |                                      | 741,796   |                                            |   | 764,183   |   |
| No contractual maturity                |   |                                      | 60,997    |                                            |   | 60,849    |   |
|                                   |   |                                      |      |                                            |   |      |   |
|                                   |   | $                                         | 2,028,870 |                                            | $      | 2,079,394 |   |
|                                   |   |                                      |      |                                            |   |      |   |
|                                   |   |                                      |      |                                            |   |      |   |
| **Securities Held to Maturity**        |   |                                      |      |                                            |   |      |   |
| Due in one year or less                |   | $                                         | 4,507     |                                            | $      | 4,554     |   |
| Due after one year through five years  |   |                                      | 133,035   |                                            |   | 135,217   |   |
| Due after five years through ten years |   |                                      | 735       |                                            |   | 743       |   |
|                                   |   |                                      |      |                                            |   |      |   |
|                                   |   | $                                         | 138,277   |                                            | $      | 140,514   |   |
|                                   |   |                                      |      |                                            |   |      |   |

          Proceeds from sales of securities available for sale, gross realized gains and losses on sales, and maturities and other securities transactions (in thousands) are summarized as follows. The net gains or losses are shown in noninterest income as gain/loss on securities. 

|                                                 |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
|------------------------------------------------------|--------|-------------------------------------------------------------|---------|------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|---------|--------|
|                                                 |   | **Three Months Ended                        September 30,** |    | **Nine Months Ended                        September 30,** |   |
|                                                 |   |                                                        |    |                                                       |   |
|                                                 |   | **2009**                                                    |    | **2008**                                                   |   | **2009** |   | **2008** |    |
|                                                 |   |                                                        |    |                                                       |   |     |   |     |    |
|                                                 |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Proceeds from sales of securities available for sale |   | $                                                           | 6,024   |                                                       | $      | 37,687   |   | $        | 137,490 |   | $      | 193,029 |   |
|                                                 |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Sales transactions of securities available for sale: |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Gross realized gains                                 |   | $                                                           | 90      |                                                       | $      | —  |   | $        | 5,475   |   | $      | 630     |   |
| Gross realized losses (1)                            |   |                                                        | — |                                                       |   | (759     | )      |     | (5      | )      |   | (763    | )      |
| Maturities and other securities transactions:        |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Gross realized gains                                 |   |                                                        | — |                                                       |   | 945      |   |     | — |   |   | 4,107   |   |
| Other-than-temporary impairment                      |   |                                                        | (376    | )                                                          |   | (911     | )      |     | (4,130  | )      |   | (2,427  | )      |
|                                                 |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
| Net (loss) gain on securities                        |   | $                                                           | (286    | )                                                          | $      | (725     | )      | $        | 1,340   |   | $      | 1,547   |   |
|                                                 |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |

|   |                                                        |
|--------|-------------------------------------------------------------|
| (1)    | Includes impairment losses on securities subsequently sold. |

          Securities with estimated fair values of $1.0 billion and $1.4 billion at September 30, 2009 and December 31, 2008, respectively, were pledged to secure public deposits and for other purposes. The amortized cost totaled approximately $974.5 million and $1.4 billion for these same periods. 

          Carolina First Bank, as a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, is required to own capital stock in the FHLB of Atlanta based generally upon its balances of residential mortgage loans, select commercial loans secured by real estate, and FHLB advances. FHLB capital stock, which is included in other investments, is pledged            to secure FHLB advances. No ready market exists for this stock, and it has no quoted market value. However, redemption of this stock has historically been at par value. 

12

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

          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, 2009**                |    |
|                                     |   |                                  |    |
|                                     |   | **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**        |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
| US Treasury                              |   | $                                     | 2,058   |                                         | $      | 17                                    |   | $                                            | — |                                  | $      | —                                      |   | $      | 2,058   |   | $      | 17     |   |
| Agency mortgage-backed securities        |   |                                  | 93,862  |                                         |   | 175                                   |   |                                         | 6,797   |                                  |   | 71                                           |   |   | 100,659 |   |   | 246    |   |
| Private label mortgage-backed securities |   |                                  | — |                                         |   | —                               |   |                                         | 2,497   |                                  |   | 180                                          |   |   | 2,497   |   |   | 180    |   |
| State and municipals                     |   |                                  | — |                                         |   | —                               |   |                                         | 1,650   |                                  |   | 6                                            |   |   | 1,650   |   |   | 6      |   |
| Other investments                        |   |                                  | 197     |                                         |   | 33                                    |   |                                         | 847     |                                  |   | 172                                          |   |   | 1,044   |   |   | 205    |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
|                                     |   | $                                     | 96,117  |                                         | $      | 225                                   |   | $                                            | 11,791  |                                  | $      | 429                                          |   | $      | 107,908 |   | $      | 654    |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
| **Securities Held to Maturity**          |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
| State and municipals                     |   | $                                     | 512     |                                         | $      | 2                                     |   | $                                            | — |                                  | $      | —                                      |   | $      | 512     |   | $      | 2      |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
|                                     |   | **December 31, 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**        |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
| Agency mortgage-backed securities        |   | $                                     | 342,792 |                                         | $      | 3,062                                 |   | $                                            | 399,557 |                                  | $      | 10,447                                       |   | $      | 742,349 |   | $      | 13,509 |   |
| Private label mortgage-backed securities |   |                                  | 12,771  |                                         |   | 2,079                                 |   |                                         | — |                                  |   | —                                      |   |   | 12,771  |   |   | 2,079  |   |
| State and municipals                     |   |                                  | 4,230   |                                         |   | 148                                   |   |                                         | 1,854   |                                  |   | 32                                           |   |   | 6,084   |   |   | 180    |   |
| Other investments                        |   |                                  | 369     |                                         |   | 128                                   |   |                                         | 700     |                                  |   | 319                                          |   |   | 1,069   |   |   | 447    |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
|                                     |   | $                                     | 360,162 |                                         | $      | 5,417                                 |   | $                                            | 402,111 |                                  | $      | 10,798                                       |   | $      | 762,273 |   | $      | 16,215 |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
| **Securities Held to Maturity**          |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |
| State and municipals                     |   | $                                     | — |                                         | $      | —                               |   | $                                            | 1,036   |                                  | $      | 4                                            |   | $      | 1,036   |   | $      | 4      |   |
|                                     |   |                                  |    |                                         |   |                                  |   |                                         |    |                                  |   |                                         |   |   |    |   |   |   |   |

          At September 30, 2009, TSFG had 25 individual investments that were in an unrealized loss position. The unrealized losses summarized above, except for other investments, were primarily attributable to changes 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. Based on management’s assessment at September 30, 2009, these investments are not considered impaired on an other-than-temporary basis. 

          During the nine months ended September 30, 2009, TSFG recorded $435,000 in other-than-temporary impairment on certain community bank-related equity securities included in the other investments category. The remaining securities in the other investment category with unrealized losses are not considered impaired on an other-than-temporary basis.            

          TSFG also invests in limited partnerships, limited liability companies (LLC’s) and other privately held companies. These investments are included in other assets. In the three and nine months ended September 30, 2009, TSFG recorded $376,000 and $3.7 million, respectively, in other-than-temporary impairment on these investments. At September 30,            2009, TSFG’s investment in these entities totaled $14.8 million, of which $5.2 million were accounted for under the cost method and $9.6 million were accounted for under the equity method. 

          Also included in other assets are $5.7 million of various auction rate preferred securities which TSFG repurchased during first quarter 2009 from brokerage customers who purchased the securities during 2007. Currently, the market for these securities is illiquid, and TSFG recorded a loss of $676,000 during first quarter 2009 to adjust these securities to            estimated fair value.

13

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

**Note****5****– Loans**

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

|                                           |   |                   |      |                  |   |       |   |
|------------------------------------------------|--------|------------------------|-----------|-----------------------|--------|------------|--------|
|                                           |   | **September 30, 2009** |      | **December 31, 2008** |   |
|                                           |   |                   |      |                  |   |
| **Commercial Loans**                           |   |                   |      |                  |   |       |   |
| Commercial and industrial                      |   | $                      | 2,249,929 |                  | $      | 2,722,611  |   |
| Commercial owner - occupied real estate        |   |                   | 1,270,015 |                  |   | 1,270,746  |   |
| Commercial real estate                         |   |                   | 3,741,662 |                  |   | 4,074,331  |   |
|                                           |   |                   |      |                  |   |       |   |
|                                           |   |                   | 7,261,606 |                  |   | 8,067,688  |   |
|                                           |   |                   |      |                  |   |       |   |
| **Consumer Loans**                             |   |                   |      |                  |   |       |   |
| Indirect - sales finance                       |   |                   | 259,296   |                  |   | 635,637    |   |
| Consumer lot loans                             |   |                   | 161,206   |                  |   | 225,486    |   |
| Direct retail                                  |   |                   | 86,474    |                  |   | 95,397     |   |
| Home equity                                    |   |                   | 803,295   |                  |   | 813,201    |   |
|                                           |   |                   |      |                  |   |       |   |
|                                           |   |                   | 1,310,271 |                  |   | 1,769,721  |   |
|                                           |   |                   |      |                  |   |       |   |
|                                           |   |                   |      |                  |   |       |   |
| **Mortgage Loans**                             |   |                   | 302,357   |                  |   | 354,663    |   |
|                                           |   |                   |      |                  |   |       |   |
| Total loans held for investment                |   |                   | 8,874,234 |                  |   | 10,192,072 |   |
| Loans held for sale                            |   |                   | 8,071     |                  |   | 30,963     |   |
|                                           |   |                   |      |                  |   |       |   |
| Total loans                                    |   | $                      | 8,882,305 |                  | $      | 10,223,035 |   |
|                                           |   |                   |      |                  |   |       |   |
|                                           |   |                   |      |                  |   |       |   |
| Included in the above:                         |   |                   |      |                  |   |       |   |
| Nonaccrual loans held for investment           |   | $                      | 431,791   |                  | $      | 349,382    |   |
| Nonaccrual loans held for sale                 |   |                   | —   |                  |   | 16,282     |   |
| Loans past due 90 days still accruing interest |   |                   | 7,467     |                  |   | 47,481     |   |

          During the three and nine months ended September 30, 2009, TSFG transferred $136.6 million and $489.3 million, respectively, from the held for investment portfolio to the held for sale portfolio. The third quarter transfers included $133.6 million of nonperforming loans for which TSFG charged-off $57.8 million against the allowance for loan losses prior            to transferring them to loans held for sale. 

          During second quarter 2009, TSFG transferred $230.3 million of indirect auto loans and $88.8 million of shared national credits to the held for sale portfolio. After recording an allowance adjustment of $4.5 million, TSFG recorded a $3.2 million net loss on the indirect auto loan and shared national credits transactions. Additional losses for the three            and nine months ended September 30, 2009 (a gain of $41,000 and a loss of $8.1 million, respectively) were attributable to gains/losses on other sales, write-downs on loans transferred to other real estate owned, or write-downs on loans still included in held for sale. 

          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 were considered nonperforming loans. 

14

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

          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, 2009** |    | **At and For the                        Year Ended                        December 31, 2008** |   |
|                                      |   |                                                                                                  |    |                                                                                          |   |
| Impaired loans with specific allowance    |   | $                                                                                                     | 251,830 |                                                                                          | $      | 193,280 |   |
| Impaired loans with no specific allowance |   |                                                                                                  | 151,648 |                                                                                          |   | 94,217  |   |
|                                      |   |                                                                                                  |    |                                                                                          |   |    |   |
| Total impaired loans                      |   | $                                                                                                     | 403,478 |                                                                                          | $      | 287,497 |   |
|                                      |   |                                                                                                  |    |                                                                                          |   |    |   |
| Related allowance                         |   | $                                                                                                     | 48,929  |                                                                                          | $      | 44,418  |   |
| Interest income recognized                |   |                                                                                                  | 969     |                                                                                          |   | 112     |   |
| Foregone interest                         |   |                                                                                                  | 9,880   |                                                                                          |   | 14,439  |   |

**Note 6 – 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** |   |
|                                         |   |                                                                                             |     |
|                                         |   |                                                                                             |     |                                                                                                                 |
|                                         |   | **2009**                                                                                         |     | **2008**                                                                                                             |   |     |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| **Allowance for loan losses**                |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| Balance at beginning of period               |   | $                                                                                                | 247,086  |                                                                                                                 | $      | 126,427  |   |   | $      | 126,427  |   |   |
| Allowance adjustment for loans sold          |   |                                                                                             | (4,471   | )                                                                                                                    |   | —  |   |   |   | —  |   |   |
| Provision for loan losses                    |   |                                                                                             | 495,211  |                                                                                                                 |   | 221,679  |   |   |   | 344,069  |   |   |
| Loans charged-off                            |   |                                                                                             | (406,675 | )                                                                                                                    |   | (152,664 | )      |   |   | (230,961 | )      |   |
| Recoveries of loans previously charged off   |   |                                                                                             | 8,385    |                                                                                                                 |   | 5,306    |   |   |   | 7,551    |   |   |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| Balance at end of period                     |   | $                                                                                                | 339,536  |                                                                                                                 | $      | 200,748  |   |   | $      | 247,086  |   |   |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| **Reserve for unfunded lending commitments** |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| Balance at beginning of year                 |   | $                                                                                                | 2,788    |                                                                                                                 | $      | 2,268    |   |   | $      | 2,268    |   |   |
| Provision for unfunded lending commitments   |   |                                                                                             | 2,932    |                                                                                                                 |   | (16      | )      |   |   | 520      |   |   |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| Balance at end of period                     |   | $                                                                                                | 5,720    |                                                                                                                 | $      | 2,252    |   |   | $      | 2,788    |   |   |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| **Allowance for credit losses**              |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| Balance at beginning of year                 |   | $                                                                                                | 249,874  |                                                                                                                 | $      | 128,695  |   |   | $      | 128,695  |   |   |
| Allowance adjustment for loans sold          |   |                                                                                             | (4,471   | )                                                                                                                    |   | —  |   |   |   | —  |   |   |
| Provision for credit losses                  |   |                                                                                             | 498,143  |                                                                                                                 |   | 221,663  |   |   |   | 344,589  |   |   |
| Loans charged-off                            |   |                                                                                             | (406,675 | )                                                                                                                    |   | (152,664 | )      |   |   | (230,961 | )      |   |
| Recoveries of loans previously charged off   |   |                                                                                             | 8,385    |                                                                                                                 |   | 5,306    |   |   |   | 7,551    |   |   |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |
| Balance at end of period                     |   | $                                                                                                | 345,256  |                                                                                                                 | $      | 203,000  |   |   | $      | 249,874  |   |   |
|                                         |   |                                                                                             |     |                                                                                                                 |   |     |   |   |   |     |   |   |

15

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

**Note 7 – Impairment of Long-Lived Assets**

          During 2005, TSFG initiated plans for a “corporate campus” to meet expected current and future facility needs and serve as the primary headquarters for its banking operations. During second quarter 2009, TSFG announced its intention to market its planned campus facility for sale. The campus site contains approximately 60 acres. Two office            buildings have been completed, the conference center is under construction, and ten additional building sites are available. During third quarter 2009, TSFG occupied approximately 20% of the available space in the office buildings at the campus in order to house certain of its operations that were previously located in facilities with leases expiring in 2009. 

          Based on the current environment, initial estimates of value, and an 18 to 36 month marketing period, TSFG recorded an impairment charge of $15.9 million in second quarter 2009, which is included in noninterest expense. The fair value for the property was determined by estimating a range of values using limited market data on similar properties, adjusted            for factors specific to TSFG’s corporate campus. In determining the impairment charge, the cost basis was reduced by the estimated net realizable value of state tax credits available to TSFG. At September 30, 2009, the carrying amount of the campus was $66.4 million. For purposes of segment reporting, the asset is included in the “Other” column in Note 18. Management will continue to monitor market conditions and offered prices, and further write-downs could be            required in future periods. 

          Also in second quarter 2009, TSFG recorded a $612,000 impairment loss (included in noninterest expense) from the write-down of the corporate jet. The corporate jet was sold during third quarter 2009 with no significant gain or loss on the sale. 

          In addition, during the three and nine months ended September 30, 2009, TSFG recorded $746,000 and $1.6 million, respectively, in impairment losses (also included in noninterest expense) associated with vacated branches and office locations, primarily attributable to subletting office space at less than the contractual lease rate. 

**Note 8 – Sale of Ancillary Businesses**

          During third quarter 2009, TSFG completed the sale of three ancillary businesses for a net gain of $7.2 million, which is included in noninterest income. The businesses sold were: Carolina First Bank’s merchant processing portfolio; Koss Olinger, a financial planning group; and American Pensions, Inc., a retirement plan administrator. 

          The majority of the gain recognized in third quarter 2009 was related to the sale of the merchant processing portfolio; an additional deferred gain of approximately $6 million related to the sale will be recognized over the next two years. In connection with the sale of its merchant processing portfolio, TSFG entered into a marketing alliance with the            acquirer for new merchant services referrals. Under this agreement, TSFG has agreed to refer its current and prospective merchant customers exclusively to the acquirer for all payment processing services. The agreement has an initial ten year term with recurring one year renewals thereafter, unless terminated by either party or notice of non-renewal is provided by either party. 

16

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

**Note 9 – 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, 2009: 

|                                                |   |               |    |           |   |      |   |      |    |   |   |     |   |
|-----------------------------------------------------|--------|--------------------|---------|----------------|--------|-----------|--------|-----------|---------|--------|--------|----------|--------|
|                                                |   | **Carolina First** |    | **Mercantile** |   | **Other** |   | **Total** |    |
|                                                |   |               |    |           |   |      |   |      |    |
|                                                |   |               |    |           |   |      |   |      |    |   |   |     |   |
| Balance as of December 31, 2008                     |   |               |    |           |   |      |   |      |    |   |   |     |   |
| Goodwill                                            |   | $                  | 203,800 |           | $      | 426,049   |   | $         | 20,361  |   | $      | 650,210  |   |
| Accumulated impairment losses                       |   |               | — |           |   | (426,049  | )      |      | — |   |   | (426,049 | )      |
|                                                |   |               |    |           |   |      |   |      |    |   |   |     |   |
|                                                |   |               | 203,800 |           |   | —   |   |      | 20,361  |   |   | 224,161  |   |
| Goodwill impairment charge                          |   |               | — |           |   | —   |   |      | (2,511  | )      |   | (2,511   | )      |
| Goodwill allocated to sales of ancillary businesses |   |               | (2,172  | )              |   | —   |   |      | (5,681  | )      |   | (7,853   | )      |
|                                                |   |               |    |           |   |      |   |      |    |   |   |     |   |
|                                                |   |               |    |           |   |      |   |      |    |   |   |     |   |
| Balance as of September 30, 2009                    |   |               |    |           |   |      |   |      |    |   |   |     |   |
| Goodwill                                            |   |               | 201,628 |           |   | 426,049   |   |      | 14,680  |   |   | 642,357  |   |
| Accumulated impairment losses                       |   |               | — |           |   | (426,049  | )      |      | (2,511  | )      |   | (428,560 | )      |
|                                                |   |               |    |           |   |      |   |      |    |   |   |     |   |
|                                                |   | $                  | 201,628 |           | $      | —   |   | $         | 12,169  |   | $      | 213,797  |   |
|                                                |   |               |    |           |   |      |   |      |    |   |   |     |   |

          TSFG evaluates its goodwill annually for each reporting unit as of June 30th or more frequently if events or circumstances indicate that there may be impairment. The goodwill impairment test is a two-step process, which requires management to make judgments in determining the assumptions used in the            calculations. The first step (“Step 1”) involves estimating the fair value of each reporting unit and comparing it to the reporting unit’s carrying value, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, then a second step (“Step 2”) is performed to measure the actual amount of goodwill impairment, if any. Step 2 involves determining the implied fair value of goodwill. This requires the Company to            allocate the estimated fair value of the reporting unit to all the assets and liabilities of such unit. The fair values of the assets and liabilities, primarily loans and deposits, are determined using current market interest rates, projections of future cash flows, and where available, quoted market prices of similar instruments. Any unallocated fair value represents the implied fair value of goodwill, which is then compared to its corresponding carrying value. If the implied fair            value is less than the carrying value, an impairment loss is recognized in an amount equal to that deficit. 

          At June 30, 2009, the fair value of the Carolina First reporting unit evaluated for impairment was determined primarily using discounted cash flow models based on internal forecasts (90% weighting) and, to a lesser extent, market-based trading and transaction multiples (10% weighting). More weight was given to the discounted cash flow models since            market-based multiples are not considered directly comparable given the lack of a complete operational entity for each reporting unit, and based on the internal forecasts taking a longer term view of the Company’s performance. The internal forecasts included certain assumptions made by management, including expected growth rates in loans and customer funding, changes in net interest margin, credit quality trends, and the forecasted levels of other income and expense items.            Forecasts were prepared for each of the next five years, with a terminal cash flow assigned to the remainder of the forecast horizon. A range of terminal growth rates ranging from 3% to 7% were applied to the terminal cash flow. Each period’s cash flow was then discounted using a range of discount rates based on the risk-free rate plus a premium based on overall stock market level of risk compared to the level of risk of our own stock. The portion of the estimated value            derived from market-based trading and transaction multiples was based on a weighting of market multiples for selected peer institutions based on such metrics as book value of equity, tangible equity, assets, trailing earnings, and projected earnings. The value assigned to the reporting unit for purposes of the goodwill impairment evaluation was based on the midpoint of the range of values determined using the method outlined above. This valuation indicated that the fair value of the            Carolina First reporting unit was less than its carrying value. However, Step 2 of the evaluation indicated that the implied fair value of the goodwill was greater than its carrying value, and thus no impairment charge was required as of the June 30, 2009 test date for the Carolina First banking segment. 

          As TSFG, including its Carolina First reporting unit, has continued to report additional losses and other conditions have changed during third quarter 2009, TSFG performed an updated evaluation of the goodwill related to the Carolina First reporting unit as of September 30, 2009. In connection with its evaluation, TSFG engaged an independent third party            to review the methodology and assumptions in Step 1 and to perform the valuation of the loan 

17

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

portfolio and the core deposit intangible for the Carolina First banking segment for purposes of performing Step 2. (The remaining $12.2 million of goodwill for other segments is related to TSFG’s insurance operations and was not evaluated for impairment based on current operating results.) Based on changes in management’s views on its current outlook and the review by the third party, the Company            lowered the terminal growth rates to a range of 2% to 4% and increased the targeted capital level allocated to the Carolina First reporting unit to reflect current industry conditions and company-specific expectations as part of its Step 1 analysis. Although the valuation with the updated assumptions continued to indicate that the fair value of the Carolina First reporting unit was less than its carrying value, Step 2 of the evaluation indicated that the implied fair value of the            goodwill was greater than its carrying value at September 30, 2009, primarily due to the excess of the book value of the Carolina First loan portfolio over its fair value based on exit price, and no impairment was recorded. 

          In the current environment, forecasting cash flows, credit losses and growth in addition to valuing the Company’s assets with any degree of assurance is very difficult and subject to significant changes over very short periods of time. Management will continue to update its analysis as circumstances change, and as market conditions continue to be            volatile and unpredictable, and impairment write-downs on goodwill related to TSFG’s reporting units may be necessary in future periods. 

          During second quarter 2009, TSFG recorded a $2.1 million goodwill impairment charge on one of its nonbank subsidiaries (included in the Other segment) based on discounted cash flows and estimated market valuations. Also in second quarter 2009, TSFG recorded a $411,000 goodwill impairment charge in its Retirement Plan Administration reporting unit due to            its decision to sell its subsidiary, American Pensions, Inc. (included in the Other segment). Both of these reporting units were sold during third quarter 2009. 

          During first quarter 2008, TSFG recognized $188.4 million in goodwill impairment in the Mercantile 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. During fourth quarter 2008, TSFG recognized an additional $237.6 million of            goodwill impairment primarily due to an increase in the discount rate used for valuing future cash flows of the Mercantile reporting unit and a reduction in the projected cash flows primarily over the next two years. As a result, there is no goodwill currently assigned to the Mercantile banking segment. 

**Note 10 – Other Real Estate Owned**

          Other real estate owned (“OREO”), consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of fair value obtained principally from independent sources, adjusted for estimated selling            costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is recorded as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of noninterest expense. The following presents the details for OREO (in thousands): 

|                           |   |                                                        |    |                                                       |   |     |   |     |    |   |   |   |   |
|--------------------------------|--------|-------------------------------------------------------------|---------|------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|--------|--------|
|                           |   | **Three Months Ended                        September 30,** |    | **Nine Months Ended                        September 30,** |   |
|                           |   |                                                        |    |                                                       |   |
|                           |   | **2009**                                                    |    | **2008**                                                   |   | **2009** |   | **2008** |    |
|                           |   |                                                        |    |                                                       |   |     |   |     |    |
| Balance at beginning of period |   | $                                                           | 93,945  |                                                       | $      | 18,664   |   | $        | 44,668  |   | $      | 6,467  |   |
| Loans transferred in           |   |                                                        | 43,847  |                                                       |   | 10,430   |   |     | 120,106 |   |   | 23,882 |   |
| Sales                          |   |                                                        | (25,181 | )                                                          |   | (2,100   | )      |     | (41,933 | )      |   | (3,129 | )      |
| Write-downs                    |   |                                                        | (908    | )                                                          |   | (824     | )      |     | (11,138 | )      |   | (1,050 | )      |
|                           |   |                                                        |    |                                                       |   |     |   |     |    |   |   |   |   |
| Balance at end of period       |   | $                                                           | 111,703 |                                                       | $      | 26,170   |   | $        | 111,703 |   | $      | 26,170 |   |
|                           |   |                                                        |    |                                                       |   |     |   |     |    |   |   |   |   |

**Note 11 – Derivative Financial Instruments and Hedging Activities**

          TSFG is exposed to certain risks arising from both its ongoing business operations and economic conditions. The Company principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. TSFG manages economic risks, including interest rate, liquidity, and credit risk, primarily by            managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, TSFG enters into derivative financial instruments to manage exposure that arises from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest

18

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

rates. The Company’s derivative financial instruments are used to manage the differences in the amount, timing, and duration of known or expected cash receipts and known or expected cash payments, principally related to certain variable-rate loans and fixed-rate borrowings.

          The fair value of TSFG’s derivative assets and liabilities (included in other assets and other liabilities on the consolidated balance sheet) and their related notional amounts (in thousands) are presented below. 

|                                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
|------------------------------------------------------------------------|--------|------------------------|---------|------------------------|--------|----------------|-----------|------------------------|---------------|--------|--------|---------|--------|--------|---------|--------|--------|-----------|--------|
|                                                                   |   | **September 30, 2009** |    | **December 31, 2008**  |   |
|                                                                   |   |                   |    |                   |   |
|                                                                   |   | **Fair Value**         |    | **Notional****Amount** |   | **Fair Value** |      | **Notional****Amount** |          |
|                                                                   |   |                   |    |                   |   |           |      |
|                                                                   |   | **Asset**              |    | **Liability**          |   |           | **Asset** |                   | **Liability** |   |   |
|                                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |
| **Derivatives designated as hedging instruments under GAAP:**          |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
| **Cash flow hedges**                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
| Interest rate swaps associated with lending activities                 |   | $                      | 22,400  |                   | $      | —        |      | $                      | 1,360,000     |   | $      | 48,766  |   | $      | — |   | $      | 1,670,000 |   |
| Interest rate floor associated with lending activities                 |   |                   | — |                   |   | —        |      |                   | 200,000       |   |   | 6,873   |   |   | — |   |   | 200,000   |   |
| **Fair value hedges**                                                  |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
| Interest rate swaps associated with brokered CDs                       |   |                   | 2,167   |                   |   | 230            |      |                   | 64,185        |   |   | 2,491   |   |   | 1,376   |   |   | 220,352   |   |
|                                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
| **Total derivatives designated as hedging instruments under GAAP**     |   | $                      | 24,567  |                   | $      | 230            |      | $                      | 1,624,185     |   | $      | 58,130  |   | $      | 1,376   |   | $      | 2,090,352 |   |
|                                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
| **Derivatives not designated as hedging instruments under GAAP:**      |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
| Interest rate swaps                                                    |   | $                      | 3,373   |                   | $      | 335            |      | $                      | 88,000        |   | $      | -       |   | $      | 1,232   |   | $      | 10,000    |   |
| Forward foreign currency contracts                                     |   |                   | 325     |                   |   | 325            |      |                   | 4,777         |   |   | 1,660   |   |   | 1,660   |   |   | 11,063    |   |
| Customer swap contracts                                                |   |                   | 32,758  |                   |   | 33,952         |      |                   | 1,031,479     |   |   | 44,067  |   |   | 44,882  |   |   | 984,897   |   |
| Options, interest rate swaps and other                                 |   |                   | 431     |                   |   | 440            |      |                   | 116,685       |   |   | 3,481   |   |   | 3,420   |   |   | 152,243   |   |
|                                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
| **Total derivatives not designated as hedging instruments under GAAP** |   | $                      | 36,887  |                   | $      | 35,052         |      | $                      | 1,240,941     |   | $      | 49,208  |   | $      | 51,194  |   | $      | 1,158,203 |   |
|                                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |
|                                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |   |   |
| **Total derivatives**                                                  |   | $                      | 61,454  |                   | $      | 35,282         |      | $                      | 2,865,126     |   | $      | 107,338 |   | $      | 52,570  |   | $      | 3,248,555 |   |
|                                                                   |   |                   |    |                   |   |           |      |                   |          |   |   |    |   |   |    |   |   |      |   |

*     Cash Flow Hedges of Interest Rate Risk*

          TSFG’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and floors as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve            the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floors designated as cash flow hedges involve the receipt of payments from a counterparty if interest rates fall below the strike rate on the contract in exchange for an upfront premium. 

          The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2009, such derivatives were used to hedge the variable cash            inflows associated with existing pools of prime and LIBOR-based loan assets. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and nine months ended September 30, 2009, the Company recognized a loss of $60,000 and $156,000 respectively, for hedge ineffectiveness attributable to a mismatch between the swap notional and the aggregate principal amount of the designated loan pools. In addition, certain swaps            failed to qualify for hedge accounting due to this mismatch; accordingly, the change in fair value of these swaps during the three and nine months ended September 30, 2009 of $799,000 and $2.0 million, respectively, have been recognized directly in earnings as a loss. The fair value of these swaps at September 30, 2009 and the change in fair value during the three and nine months ended September 30, 2009 are disclosed under the sections entitled “Derivatives Not Designated as            Hedging Instruments” throughout this footnote. No hedge ineffectiveness was recognized during the three and nine months ended September 30, 2008. 

19

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

          Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate assets. During the three and nine months ended September 30, 2009, the Company accelerated the reclassification of an unrealized gain in accumulated other            comprehensive income of $558,000 and $3.2 million, respectively, to earnings as a result of the hedged forecasted transactions becoming probable not to occur. During the next twelve months, the Company estimates that $19.8 million will be reclassified as an increase to interest income. With respect to cash flow hedges, forecasted transactions are being hedged through 2012. 

*     Fair Value Hedges of Interest Rate Risk*

          TSFG is exposed to changes in the fair value of certain of its fixed-rate obligations due to changes in the benchmark interest rate, LIBOR, as well as to overall changes in fair value for certain other fixed-rate obligations. The Company uses interest rate swaps to convert the payment profile on certain brokered CDs from a fixed rate to a floating rate            based on LIBOR and to similarly convert exposure taken on through the issuance of equity-linked and inflation-indexed certificates of deposit. Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. 

          For derivatives that are designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related            derivatives. During the three and nine months ended September 30, 2009, the Company recognized a gain of $293,000 and $172,000, respectively, related to hedge ineffectiveness and amounts excluded from effectiveness testing. The net impact of the Company’s fair value hedges to interest expense for the three and nine months ended September 30, 2009, which includes net settlements on the derivatives and any amortization of the basis adjustment in the hedged items, was a reduction            to interest expense of $494,000 and $3.0 million, respectively. 

*     Non-designated Hedges*

          Derivatives not designated as hedges are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements under GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of September 30, 2009, the            Company had three outstanding derivatives with a notional of $85 million that failed to qualify for hedge accounting. 

          Additionally, TSFG offers programs that permit its customers to hedge various risks, including fluctuations in interest rates and foreign exchange rates. Through these programs, derivative contracts are executed between the customers and TSFG. Offsetting contracts are executed between TSFG and selected third parties to hedge market risk created through            the customer contracts. In most cases, the interest rates on the third party contracts are identical to the interest rates on the customer contracts. As a result, the change in fair value of the customer contracts will generally be offset by the change in fair value of the related third-party contracts, with the exception of any credit valuation adjustments that may be recorded. Customer contracts are frequently interest rate swaps in conjunction with floating rate loans to achieve            fixed rate financing and foreign exchange forward contracts to manage currency risk associated with non-dollar denominated transactions. 

          From time to time, TSFG enters into derivative financial contracts that are not designed to hedge specific transactions or identified assets or liabilities and therefore do not qualify for hedge accounting, but are rather part of the Company’s overall risk management strategy. These contracts are marked to market through earnings each period and            are generally short-term in nature. 

          As part of its mortgage lending activities, TSFG originates certain residential loans and commits these loans for sale. The commitments to originate residential loans (“rate locks’) and the sales commitments are freestanding derivative instruments and are generally funded within 90 days. The value of the rate locks is estimated based on            indicative market prices being bid on similarly structured mortgage backed securities.

20

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

*     Effect of Derivative Instruments on the Consolidated Statements of Operations*

          The effect of derivative instruments on the consolidated statements of operations is presented in the tables below (in thousands): 

|                                                                                                                                         |   |                                                        |    |                                                       |   |     |   |     |   |   |   |    |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|---------|------------------------------------------------------------|--------|----------|--------|----------|--------|--------|--------|---------|--------|
|                                                                                                                                         |   | **Three Months Ended                        September 30,** |    | **Nine Months Ended                        September 30,** |   |
|                                                                                                                                         |   |                                                        |    |                                                       |   |
|                                                                                                                                         |   | **2009**                                                    |    | **2008**                                                   |   | **2009** |   | **2008** |   |
|                                                                                                                                         |   |                                                        |    |                                                       |   |     |   |     |   |
| **Derivatives in Cash Flow Hedging Relationships**                                                                                           |   |                                                        |    |                                                       |   |     |   |     |   |   |   |    |   |
| Interest rate swaps associated with lending activities:                                                                                      |   |                                                        |    |                                                       |   |     |   |     |   |   |   |    |   |
| Amount of gain recognized in OCI                                                                                                             |   | $                                                           | 2,892   |                                                       | $      | 5,545    |   | $        | 7,430  |   | $      | 15,544  |   |
| Amount of gain reclassified from accumulated OCI to interest income (effective portion)                                                      |   |                                                        | 8,580   |                                                       |   | 5,766    |   |     | 27,506 |   |   | 14,564  |   |
| Amount of gain reclassified from accumulated OCI to gain/loss on certain derivative activities (effective portion)                           |   |                                                        | — |                                                       |   | —  |   |     | 2,618  |   |   | — |   |
| Amount of loss recognized in gain/loss on certain derivative activities (ineffective portion and amount excluded from effectiveness testing) |   |                                                        | (60     | )                                                          |   | —  |   |     | (156   | )      |   | — |   |
| Interest rate floor associated with lending activities:                                                                                      |   |                                                        |    |                                                       |   |     |   |     |   |   |   |    |   |
| Amount of gain recognized in OCI                                                                                                             |   |                                                        | 152     |                                                       |   | 1,728    |   |     | 716    |   |   | 5,177   |   |
| Amount of gain reclassified from accumulated OCI to interest income (effective portion)                                                      |   |                                                        | 2,007   |                                                       |   | 1,406    |   |     | 6,532  |   |   | 3,524   |   |
| Amount of gain recognized in gain/loss on certain derivative activities (ineffective portion and amount excluded from effectiveness testing) |   |                                                        | 293     |                                                       |   | —  |   |     | 293    |   |   | — |   |

|                                                                                     |   |                                                        |   |                                                       |   |     |   |     |   |   |   |   |   |
|------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|--------|------------------------------------------------------------|--------|----------|--------|----------|--------|--------|--------|--------|--------|
|                                                                                     |   | **Three Months Ended                        September 30,** |   | **Nine Months Ended                        September 30,** |   |
|                                                                                     |   |                                                        |   |                                                       |   |
|                                                                                     |   | **2009**                                                    |   | **2008**                                                   |   | **2009** |   | **2008** |   |
|                                                                                     |   |                                                        |   |                                                       |   |     |   |     |   |
| **Derivatives in Fair Value Hedging Relationships**                                      |   |                                                        |   |                                                       |   |     |   |     |   |   |   |   |   |
| Interest rate swaps associated with brokered CDs:                                        |   |                                                        |   |                                                       |   |     |   |     |   |   |   |   |   |
| Amount of gain (loss) recognized in gain on certain derivative activities on derivative  |   | $                                                           | 1,787  |                                                       | $      | (1,460   | )      | $        | 1,810  |   | $      | 3,453  |   |
| Amount of gain (loss) recognized in gain on certain derivative activities on hedged item |   |                                                        | (1,494 | )                                                          |   | 1,398    |   |     | (1,638 | )      |   | (2,961 | )      |

|                                                                                                |                                                                                                         |                                         |                                                        |                                                                                                       |                                                       |     |   |     |   |   |    |   |   |   |   |
|-----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|----------------------------------------------|-------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|------------------------------------------------------------|----------|--------|----------|--------|--------|---------|--------|--------|--------|--------|
| **Derivatives Not                        Designated as                        Hedging Instruments** |                                                                                                         |                                         |                                                        | **Amount of Gain (Loss)                        Recognized in Income on                        Derivative** |                                                       |
|                                                                                                |                                                                                                         |                                         |                                                        |                                                                                                       |
|                                                                                                | **Location of Gain (Loss)                        Recognized in Income on                        Derivative** |                                         | **Three Months Ended                        September 30,** |                                                                                                       | **Nine Months Ended                        September 30,** |     |
|                                                                                                |                                                                                                         |                                         |                                                        |                                                                                                       |                                                       |
|                                                                                                |                                                                                                         | **2009**                                     |                                                        | **2008**                                                                                                   |                                                       | **2009** |   | **2008** |   |
|                                                                                                |                                                                                                         |                                         |                                                        |                                                                                                       |                                                       |     |   |     |   |   |    |
| Interest rate swaps                                                                                 |                                                                                                         | Gain (loss) on certain derivative activities |                                                        | $                                                                                                          | 1,075                                                      |     | $      | (108     | )      | $      | 943     |   | $      | (349   | )      |
| Customer swaps                                                                                      |                                                                                                         | Other noninterest income                     |                                                        |                                                                                                       | (556                                                       | )        |   | 991      |   |   | 263     |   |   | 3,229  |   |
| Customer swaps                                                                                      |                                                                                                         | Gain (loss) on certain derivative activities |                                                        |                                                                                                       | —                                                    |     |   | (30      | )      |   | — |   |   | (106   | )      |
| Mortgage contracts                                                                                  |                                                                                                         | Mortgage banking income                      |                                                        |                                                                                                       | 12                                                         |     |   | (42      | )      |   | (18     | )      |   | 208    |   |
| Other contracts                                                                                     |                                                                                                         | Gain (loss) on certain derivative activities |                                                        |                                                                                                       | (4                                                         | )        |   | 1        |   |   | (53     | )      |   | 12     |   |
|                                                                                                |                                                                                                         |                                         |                                                        |                                                                                                       |                                                       |     |   |     |   |   |    |   |   |   |   |
|                                                                                                |                                                                                                         |                                         |                                                        | $                                                                                                          | 527                                                        |     | $      | 812      |   | $      | 1,135   |   | $      | 2,994  |   |
|                                                                                                |                                                                                                         |                                         |                                                        |                                                                                                       |                                                       |     |   |     |   |   |    |   |   |   |   |

21

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

*     Credit-risk-related Contingent Features*

          TSFG has agreements with its derivative counterparties that contain a provision in which if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. 

          Furthermore, certain of TSFG’s derivative instruments contain provisions that require the Company to maintain its status as a well / adequately capitalized institution and/or the Company’s debt to maintain a certain credit rating from one or more of the major credit rating agencies. These provisions enable the counterparties to the derivative            instruments to request immediate payment or require TSFG to post additional collateral. 

          As of September 30, 2009, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $18.4 million. As of September 30, 2009 the Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted            collateral of $22.7 million. Since the Company was in violation of certain debt rating provisions at September 30, 2009, it could have been required to settle its obligations under the agreements at the termination value ($18.4 million) and could have been required to post additional collateral with the respective counterparty (up to $3.4 million). 

          Subsequent to quarter-end, one of TSFG’s counterparties exercised its option to terminate derivatives with a notional amount of $282.9 million pursuant to the credit downgrade trigger mentioned above. The net fair value of these derivatives was a liability of $483,000 at September 30, 2009. As a result of this termination, certain of TSFG’s            customer hedges are no longer offset by third-party hedges. 

**Note 12 – Commitments and Contingent Liabilities**

*Legal Proceedings*

          TSFG is currently subject to various legal proceedings, including the litigation discussed below, and claims arising in the ordinary course of 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, except to the extent indicated in the discussion below. 

          In March 2009, Carolina First Bank was named as a defendant in a complaint filed in the *In re Louis J. Pearlman* bankruptcy pending in the United States Bankruptcy Court, Middle District of Florida, Orlando Division. The complaint seeks, among other things, to avoid certain fraudulent transfers Carolina First Bank allegedly received and alleges            approximately $24 million in compensatory damages, plus punitive damages. TSFG intends to vigorously defend the allegations and has moved to dismiss the complaint, or in the alternative, for a more definite statement. In April 2009, Bank of America, Fifth Third Bank, Carolina First Bank, Sun Trust Bank, and Dun & Bradstreet, Inc. were named as defendants in a complaint captioned *Elizabeth Groom, et. al* v. *Bank of America, et. al*, which is pending in the United            States District Court for the Middle District of Florida. The *Groom* complaint seeks unspecified damages relating to individual investor losses resulting from a “Ponzi scheme” allegedly orchestrated by Louis J. Pearlman over a period spanning several decades. TSFG intends to vigorously defend the allegations and has moved to dismiss the complaint, or in the alternative, for a more definite statement. In August 2009, Carolina First Bank was named as a defendant in a            complaint filed in federal court in Minnesota by American Bank of St. Paul. In the complaint, which seeks damages of $36 million, American Bank of St. Paul alleges that it is the servicing bank for itself and twenty-six participant banks regarding a loan made to Pearlman/related entities which paid off the Carolina First Bank loan. TSFG intends to vigorously defend the allegations and has moved to dismiss the complaint. 

          While the Company believes it has meritorious defenses against these three suits, the ultimate resolution of these matters could result in a loss in excess of the amount accrued. An adverse resolution of these matters could be material to TSFG’s financial position and/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

22

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

repurchase of loans at par plus accrued interest from the buyer, upon the occurrence of certain events. At September 30, 2009, the estimated recourse reserve liability, included in other liabilities, totaled $6.0 million. TSFG will continue to 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.

*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. 

          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, 2009**      |      | **December 31, 2008** |   |
|                                                 |   |                        |      |                  |   |
| Loan commitments:                                    |   |                        |      |                  |   |      |   |
| Commercial, industrial, and other                    |   | $                           | 1,198,167 |                  | $      | 1,296,635 |   |
| Commercial owner-occupied and commercial real estate |   |                        | 166,024   |                  |   | 324,360   |   |
| Home equity loans                                    |   |                        | 433,760   |                  |   | 477,777   |   |
|                                                 |   |                        |      |                  |   |      |   |
| Total loan commitments                               |   |                        | 1,797,951 |                  |   | 2,098,772 |   |
| Standby letters of credit                            |   |                        | 204,513   |                  |   | 213,960   |   |
| Documentary letters of credit                        |   |                        | 1,774     |                  |   | 941       |   |
| Unused business credit card lines                    |   |                        | 32,009    |                  |   | 33,836    |   |
|                                                 |   |                        |      |                  |   |      |   |
| Total                                                |   | $                           | 2,036,247 |                  | $      | 2,347,509 |   |
|                                                 |   |                        |      |                  |   |      |   |

**Note 13 – Preferred Stock**

          In January 2009, 48,674 shares of Series 2008 mandatorily convertible preferred stock were converted into approximately 10.0 million common shares, which included 2.5 million shares (valued at $6.5 million) issued as an inducement to convert. 

          In June 2009, as an inducement to convert preferred shares to common shares, TSFG exchanged 94,500 shares of Series 2008ND-V and Series 2008 ND-NV mandatorily convertible preferred stock for 94,500 shares of a new series of mandatorily convertible preferred stock (“Series 2009-A”) with a liquidation preference of $1,000 per share. The            conversion rights of the Series 2009-A were voted upon and approved at a special shareholders’ meeting on September 11, 2009. As a result, on September 14, 2009, 94,500 shares of Series 2009-A automatically converted into 24.0 million common shares, which included 9.4 million shares (valued at $14.0 million) issued as an inducement to convert. 

          Also in September 2009, 90,876 shares of Series 2008 mandatorily convertible preferred stock were converted into approximately 20.9 million common shares, which included 6.9 million shares (valued at $11.9 million) issued as an inducement to convert, in connection with TSFG’s public exchange offer. 

23

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

          For the three and nine months ended September 30, 2009, TSFG recorded $11.9 million and $32.4 million, respectively, as deemed dividends resulting from induced conversions in the computation of net income available to common shareholders. 

          All preferred shares outstanding are in parity to each other and rank senior to common shares both as to dividend and liquidation preferences. The following is a summary of TSFG’s preferred stock at and for the nine months ended September 30, 2009:

|                                                                                                     |   |                                                                         |    |                                                                                                                                         |   |                                                                         |   |                                                                          |     |   |   |    |   |   |    |   |
|----------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|----------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                                     |   | **Shares**                                                                   |    | **Carrying                        Value at                        September 30,                        2009                        ($000s)** |   |
|                                                                                                     |   |                                                                         |    |                                                                                                                                         |
|                                                                                                     |   | **Balance,                        December 31,                        2008** |    | **Exchanged**                                                                                                                                |   | **Converted                        to Common                        Shares** |   | **Balance,                        September 30,                        2009** |     |   |
|                                                                                                     |   |                                                                         |    |                                                                                                                                         |   |                                                                         |   |                                                                          |     |   |   |
| Series 2008ND-V                                                                                          |   |                                                                         | 51,341  |                                                                                                                                         |   | (21,852                                                                      | )      |                                                                          | (29,489  | )      |   | — |   | $      | — |   |
| Series 2008ND-NV                                                                                         |   |                                                                         | 177,639 |                                                                                                                                         |   | (72,648                                                                      | )      |                                                                          | (104,991 | )      |   | — |   |   | — |   |
| Series 2008D-V                                                                                           |   |                                                                         | 2,248   |                                                                                                                                         |   | —                                                                      |   |                                                                          | (1,200   | )      |   | 1,048   |   |   | 1,048   |   |
| Series 2008D-NV                                                                                          |   |                                                                         | 7,472   |                                                                                                                                         |   | —                                                                      |   |                                                                          | (3,870   | )      |   | 3,602   |   |   | 3,602   |   |
| Series 2009-A                                                                                            |   |                                                                         | — |                                                                                                                                         |   | 94,500                                                                       |   |                                                                          | (94,500  | )      |   | — |   |   | — |   |
|                                                                                                     |   |                                                                         |    |                                                                                                                                         |   |                                                                         |   |                                                                          |     |   |   |    |   |   |    |   |
| Mandatorily convertible preferred stock                                                                  |   |                                                                         | 238,700 |                                                                                                                                         |   | —                                                                      |   |                                                                          | (234,050 | )      |   | 4,650   |   |   | 4,650   |   |
|                                                                                                     |   |                                                                         |    |                                                                                                                                         |   |                                                                         |   |                                                                          |     |   |   |    |   |   |    |   |
| Series 2008-T                                                                                            |   |                                                                         | 347,000 |                                                                                                                                         |   | —                                                                      |   |                                                                          | —  |   |   | 347,000 |   |   | 347,000 |   |
| Less discount originally attributable to the Warrant issued to the Treasury Department, net of accretion |   |                                                                         | — |                                                                                                                                         |   | —                                                                      |   |                                                                          | —  |   |   | — |   |   | (16,750 | )      |
|                                                                                                     |   |                                                                         |    |                                                                                                                                         |   |                                                                         |   |                                                                          |     |   |   |    |   |   |    |   |
| Series 2008-T, net                                                                                       |   |                                                                         | 347,000 |                                                                                                                                         |   | —                                                                      |   |                                                                          | —  |   |   | 347,000 |   |   | 330,250 |   |
|                                                                                                     |   |                                                                         |    |                                                                                                                                         |   |                                                                         |   |                                                                          |     |   |   |    |   |   |    |   |
| Total preferred stock                                                                                    |   |                                                                         | 585,700 |                                                                                                                                         |   | —                                                                      |   |                                                                          | (234,050 | )      |   | 351,650 |   | $      | 334,900 |   |
|                                                                                                     |   |                                                                         |    |                                                                                                                                         |   |                                                                         |   |                                                                          |     |   |   |    |   |   |    |   |

**Note 14 – Common Stock**

          On March 5, 2009, TSFG filed a “universal shelf” registration statement registering up to $750.0 million of securities to provide additional flexibility in managing capital levels, both in terms of debt and equity. On June 24, 2009, TSFG completed a common stock offering, selling 75 million shares at a gross offering price of $1.00 per share.            In July 2009, TSFG sold an additional 10 million shares at $1.00 per share pursuant to the exercise in full of the underwriters’ over-allotment option. The common stock offerings generated proceeds to TSFG of $79.7 million for the nine months ended September 30, 2009, net of issuance costs for underwriting and expenses. TSFG used the net proceeds to increase the capital at TSFG’s subsidiary bank. 

          On September 11, 2009, TSFG held a special meeting of shareholders at which an amendment to the Articles of Incorporation was approved to increase the number of authorized shares of common stock from 200 million to 325 million. 

24

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

**Note 15 – Average Share Information**

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

|                                                  |   |                                    |        |                                   |   |       |   |     |        |   |   |       |   |
|-------------------------------------------------------|--------|-----------------------------------------|-------------|----------------------------------------|--------|------------|--------|----------|-------------|--------|--------|------------|--------|
|                                                  |   | **Three Months Ended****September 30,** |        | **Nine Months Ended****September 30,** |   |
|                                                  |   |                                    |        |                                   |   |
|                                                  |   | **2009**                                |        | **2008**                               |   | **2009**   |   | **2008** |        |
|                                                  |   |                                    |        |                                   |   |       |   |     |        |
| Net loss available to common shareholders (numerator) |   | $                                       | (340,755    | )                                      | $      | (31,212    | )      | $        | (543,051    | )      | $      | (249,413   | )      |
| **Basic**                                             |   |                                    |        |                                   |   |       |   |     |        |   |   |       |   |
| Average common shares outstanding (denominator)       |   |                                    | 174,426,381 |                                   |   | 72,755,480 |   |     | 116,216,551 |   |   | 72,605,990 |   |
| Loss per share                                        |   | $                                       | (1.95       | )                                      | $      | (0.43      | )      | $        | (4.67       | )      | $      | (3.44      | )      |
| **Diluted**                                           |   |                                    |        |                                   |   |       |   |     |        |   |   |       |   |
| Average common shares outstanding                     |   |                                    | 174,426,381 |                                   |   | 72,755,480 |   |     | 116,216,551 |   |   | 72,605,990 |   |
| Average dilutive potential common shares              |   |                                    | —     |                                   |   | —    |   |     | —     |   |   | —    |   |
|                                                  |   |                                    |        |                                   |   |       |   |     |        |   |   |       |   |
| Average diluted shares outstanding (denominator)      |   |                                    | 174,426,381 |                                   |   | 72,755,480 |   |     | 116,216,551 |   |   | 72,605,990 |   |
|                                                  |   |                                    |        |                                   |   |       |   |     |        |   |   |       |   |
| Loss per share                                        |   | $                                       | (1.95       | )                                      | $      | (0.43      | )      | $        | (4.67       | )      | $      | (3.44      | )      |

          For the three and nine months ended September 30, 2009, 54,892 shares of common stock related to the conversion of mandatorily convertible preferred stock were included in average basic and diluted shares only for the period during which the shares were outstanding. For the three and nine months ended September 30, 2009, options to purchase an additional            3.9 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. Also excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2009, because of their antidilutive effect, were 715,000 shares of common stock related to mandatorily convertible preferred stock, 10.1 million shares of common stock related to            warrants, and 279,000 shares of common stock related to restricted stock and restricted stock units granted under equity incentive programs. 

          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. 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 mandatorily convertible preferred stock and 873,000 shares of common stock related to restricted stock and restricted stock units granted under equity incentive programs. 

**Note 16 – Fair Value Disclosures**

          TSFG carries certain financial instruments at fair value on a recurring basis, specifically securities available for sale and derivative assets and liabilities. (Effective second quarter 2009, TSFG elected to discontinue its use of the fair value option on new production of mortgage loans held for sale. This change corresponds to TSFG’s decision to            no longer sell mortgage loans on a pooled basis.) Fair value is defined 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. TSFG determines the fair values of its financial instruments based on the 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 |

25

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

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 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. Valuations are obtained from third party pricing services for similar assets or liabilities. This category generally includes U.S. government agencies, agency mortgage-backed debt securities, private-label mortgage-backed debt securities, state                        and municipal bonds, and certain derivative contracts.                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| • | 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 includes certain derivative contracts for which independent pricing                        information is not available for a significant portion of the underlying assets. |

*     Assets and Liabilities Measured at Fair Value on a Recurring Basis*

          Following is a description of the valuation methodologies used for the major categories of financial assets and liabilities measured at fair value on a recurring basis. 

*          Securities Available for Sale.* Where quoted market prices are available in an active market, securities are valued at the last traded price by obtaining feeds from a number of live data sources including active market makers and inter-dealer brokers. These securities are classified as Level 1 within the valuation hierarchy and 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. If quoted market prices are not available, fair values are estimated by using bid prices and quoted prices of pools or tranches of securities with similar characteristics. These types of securities are classified as Level 2 within the valuation hierarchy and generally include U.S. government agencies,            agency mortgage-backed debt securities, private-label mortgage-backed debt securities, and state and municipal bonds. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 with the valuation hierarchy. TSFG’s primary Level 3 security is FHLB stock. 

*          Derivative Assets and Liabilities.* TSFG measures the fair value of many of its derivatives using internal valuation models that use primarily market observable inputs, such as yield curves and option volatilities, and accordingly, those derivatives are classified as Level 2. When available, TSFG also obtains dealer quotations for these derivatives            for comparative purposes to assess the reasonableness of the model valuations. Examples of Level 2 derivatives are basic interest rate swaps and an interest rate floor. Level 3 derivative instruments have primary risk characteristics that relate to unobservable pricing parameters. For purposes of potential valuation adjustments to its derivative positions, TSFG evaluates the credit risk of its counterparties as well as that of TSFG. Accordingly, TSFG has considered factors such as            the likelihood of default by TSFG and its counterparties, its net exposures, and remaining contractual life, among other things, in determining fair value adjustments related to credit risk. 

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

|                                     |   |                   |      |        |   |        |   |        |      |   |   |    |   |
|------------------------------------------|--------|------------------------|-----------|-------------|--------|-------------|--------|-------------|-----------|--------|--------|---------|--------|
|                                     |   | **September 30, 2009** |      |
|                                     |   |                   |      |
|                                     |   | **Total**              |      | **Level 1** |   | **Level 2** |   | **Level 3** |      |
|                                     |   |                   |      |        |   |        |   |        |      |
| Securities available for sale:           |   |                   |      |        |   |        |   |        |      |   |   |    |   |
| U.S. Treasury                            |   | $                      | 2,058     |        | $      | 2,058       |   | $           | —   |   | $      | — |   |
| U.S. Government agencies                 |   |                   | 95,224    |        |   | 77,156      |   |        | 18,068    |   |   | — |   |
| Agency mortgage-backed securities        |   |                   | 1,688,201 |        |   | —     |   |        | 1,688,201 |   |   | — |   |
| Private label mortgage-backed securities |   |                   | 9,112     |        |   | —     |   |        | 9,112     |   |   | — |   |
| State and municipals                     |   |                   | 223,948   |        |   | —     |   |        | 223,648   |   |   | 300     |   |
| Other investments                        |   |                   | 60,851    |        |   | 1,357       |   |        | 457       |   |   | 59,037  |   |
|                                     |   |                   |      |        |   |        |   |        |      |   |   |    |   |
| Total securities available for sale      |   |                   | 2,079,394 |        |   | 80,571      |   |        | 1,939,486 |   |   | 59,337  |   |
| Derivative assets                        |   |                   | 61,454    |        |   | —     |   |        | 57,517    |   |   | 3,937   |   |
|                                     |   |                   |      |        |   |        |   |        |      |   |   |    |   |
| Total                                    |   | $                      | 2,140,848 |        | $      | 80,571      |   | $           | 1,997,003 |   | $      | 63,274  |   |
|                                     |   |                   |      |        |   |        |   |        |      |   |   |    |   |
|                                     |   |                   |      |        |   |        |   |        |      |   |   |    |   |
| Derivative liabilities                   |   | $                      | 35,282    |        | $      | —     |   | $           | 34,909    |   | $      | 373     |   |
|                                     |   |                   |      |        |   |        |   |        |      |   |   |    |   |

26

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

|                          |   |                  |      |        |   |        |   |        |      |   |   |    |   |
|-------------------------------|--------|-----------------------|-----------|-------------|--------|-------------|--------|-------------|-----------|--------|--------|---------|--------|
|                          |   | **December 31, 2008** |      |
|                          |   |                  |      |
|                          |   | **Total**             |      | **Level 1** |   | **Level 2** |   | **Level 3** |      |
|                          |   |                  |      |        |   |        |   |        |      |
|                          |   |                  |      |        |   |        |   |        |      |   |   |    |   |
| Securities available for sale |   | $                     | 2,107,194 |        | $      | 155,938     |   | $           | 1,915,154 |   | $      | 36,102  |   |
| Mortgage loans held for sale  |   |                  | 14,681    |        |   | —     |   |        | 14,681    |   |   | — |   |
| Derivative assets             |   |                  | 107,338   |        |   | —     |   |        | 103,998   |   |   | 3,340   |   |
|                          |   |                  |      |        |   |        |   |        |      |   |   |    |   |
| Total                         |   | $                     | 2,229,213 |        | $      | 155,938     |   | $           | 2,033,833 |   | $      | 39,442  |   |
|                          |   |                  |      |        |   |        |   |        |      |   |   |    |   |
|                          |   |                  |      |        |   |        |   |        |      |   |   |    |   |
| Derivative liabilities        |   | $                     | 52,570    |        | $      | —     |   | $           | 48,820    |   | $      | 3,750   |   |
|                          |   |                  |      |        |   |        |   |        |      |   |   |    |   |

          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, 2009**                |    | **Nine Months Ended                        September 30, 2009**                       |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |
|                                                                                        |   | **Securities                        available                        for sale** |    | **Net derivative                        assets                        (liabilities)** |   | **Securities                        available                        for sale** |   | **Net derivative                        assets                        (liabilities)** |    |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
| Balance, beginning of period                                                                |   | $                                                                               | 59,337  |                                                                                  | $      | 223                                                                             |   | $                                                                                     | 36,102  |   | $      | (410    | )      |
| Total net gains (losses) included in net income                                             |   |                                                                            | — |                                                                                  |   | 792                                                                             |   |                                                                                  | — |   |   | 1,425   |   |
| Purchases, sales, issuances and settlements, net                                            |   |                                                                            | — |                                                                                  |   | —                                                                         |   |                                                                                  | 23,235  |   |   | — |   |
| Transfers into Level 3                                                                      |   |                                                                            | — |                                                                                  |   | 2,549                                                                           |   |                                                                                  | — |   |   | 2,549   |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
| Balance, end of period                                                                      |   | $                                                                               | 59,337  |                                                                                  | $      | 3,564                                                                           |   | $                                                                                     | 59,337  |   | $      | 3,564   |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
| Net gains (losses) included in net income relating to assets/liabilities held at period-end |   | $                                                                               | — |                                                                                  | $      | 792                                                                             |   | $                                                                                     | — |   | $      | 1,425   |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
|                                                                                        |   | **Three Months Ended                        September 30, 2008**                |    | **Nine Months Ended                        September 30, 2008**                       |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |
|                                                                                        |   | **Securities                        available                        for sale** |    | **Net derivative                        assets                        (liabilities)** |   | **Securities                        available                        for sale** |   | **Net derivative                        assets                        (liabilities)** |    |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |
|                                                                                        |
| Balance, beginning of period                                                                |   | $                                                                               | 40,191  |                                                                                  | $      | 2,028                                                                           |   | $                                                                                     | 37,735  |   | $      | 370     |   |
| Total net gains (losses) included in net income                                             |   |                                                                            | — |                                                                                  |   | (2,008                                                                          | )      |                                                                                  | — |   |   | (350    | )      |
| Purchases, sales, issuances and settlements, net                                            |   |                                                                            | (637    | )                                                                                     |   | —                                                                         |   |                                                                                  | 1,819   |   |   | — |   |
| Transfers into Level 3                                                                      |   |                                                                            | — |                                                                                  |   | 1,602                                                                           |   |                                                                                  | — |   |   | 1,602   |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
| Balance, end of period                                                                      |   | $                                                                               | 39,554  |                                                                                  | $      | 1,622                                                                           |   | $                                                                                     | 39,554  |   | $      | 1,622   |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |
| Net gains (losses) included in net income relating to assets/liabilities held at period-end |   | $                                                                               | — |                                                                                  | $      | (2,008                                                                          | )      | $                                                                                     | — |   | $      | (350    | )      |
|                                                                                        |   |                                                                            |    |                                                                                  |   |                                                                            |   |                                                                                  |    |   |   |    |   |

          For the three and nine months ended September 30, 2009, the gains in the table above were included in noninterest income, specifically gain on certain derivative activities (a gain of $780,000 and $1.4 million, respectively) and mortgage banking income (a gain of $12,000 and $48,000, respectively). For the three and nine months ended September 30, 2008,            the losses of $2.0 million and $350,000, respectively, were included in gain/loss on certain derivative activities. 

27

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

*     Assets Measured at Fair Value on a Nonrecurring Basis*

          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 that were still reflected in the balance sheet at period 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 period end (in thousands). 

|                              |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   |   |    |   |   |     |   |
|-----------------------------------|--------|----------------------------------|---------|-----------------------------------------------|--------|----------------------------------------------|--------|-------------|---------|--------|--------|---------|--------|--------|---------|--------|--------|----------|--------|
|                              |   |                             |    | **Total gains (losses)**                      |   |
|                              |   | **Carrying value at period end** |    | **Three months                        ended** |   | **Nine months                        ended** |   |
|                              |   |                             |    |                                          |   |
|                              |   | **Total**                        |    | **Level 1**                                   |   | **Level 2**                                  |   | **Level 3** |    |   |   |
|                              |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   |
| **September 30, 2009**            |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   |   |    |   |   |     |   |
| Loans held for investment         |   | $                                | 260,308 |                                          | $      | —                                      |   | $           | — |   | $      | 260,308 |   | $      | (52,436 | )      | $      | (120,969 | )      |
| Loans held for sale               |   |                             | 395     |                                          |   | —                                      |   |        | 395     |   |   | — |   |   | (8      | )      |   | (8       | )      |
| Long lived assets                 |   |                             | 66,391  |                                          |   | —                                      |   |        | — |   |   | 66,391  |   |   | — |   |   | (15,900  | )      |
| Other real estate owned           |   |                             | 81,935  |                                          |   | —                                      |   |        | — |   |   | 81,935  |   |   | (10,795 | )      |   | (60,191  | )      |
| Private equity investments        |   |                             | 4,605   |                                          |   | —                                      |   |        | — |   |   | 4,605   |   |   | (376    | )      |   | (3,655   | )      |
| Auction rate preferred securities |   |                             | 5,724   |                                          |   | —                                      |   |        | — |   |   | 5,724   |   |   | — |   |   | (676     | )      |
|                              |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   |   |    |   |   |     |   |
|                              |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   | $      | (63,615 | )      | $      | (201,399 | )      |
|                              |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   |   |    |   |   |     |   |
| **September 30, 2008**            |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   |   |    |   |   |     |   |
| Loans held for investment         |   | $                                | 168,107 |                                          | $      | —                                      |   | $           | — |   | $      | 168,107 |   | $      | (30,599 | )      | $      | (65,125  | )      |
| Loans held for sale               |   |                             | 23,241  |                                          |   |                                         |   |        |    |   |   | 23,241  |   |   | (20,617 | )      |   | (22,520  | )      |
|                              |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   |   |    |   |   |     |   |
|                              |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   | $      | (51,216 | )      | $      | (87,645  | )      |
|                              |   |                             |    |                                          |   |                                         |   |        |    |   |   |    |   |   |    |   |   |     |   |

          The valuation techniques for the items in the table above are as follows: 

*          Loans held for investment.* Impaired loans are evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, a loan’s observable market value or the fair value of the collateral if the loan is collateral dependent. The measurement of impaired            loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from the requirements of FASB ASC 820-10. Impaired loans measured by applying the practical expedient are included in the requirements of FASB ASC 820-10. Under the practical expedient, TSFG measures the fair value of collateral dependent impaired loans based on the fair value of the collateral securing            these loans. These measurements are classified as Level 3 within the valuation hierarchy. Substantially all impaired loans are secured by real estate. The fair value of this real estate is generally determined based upon appraisals performed by a certified or licensed appraiser using inputs such as absorption rates, capitalization rates, and comparables. Management also considers other factors or recent developments which could result in adjustments to the collateral value estimates            indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above. 

*          Loans held for sale.* Loans held for sale for which the fair value option has not been elected are measured at the lower of aggregate cost or fair value. If available, fair value is measured by the price that secondary market investors are offering for loans with similar characteristics. If quoted market prices are not available, TSFG may consider            outstanding investor commitments, discounted cash flow analyses with market assumptions, or the fair value of the collateral if the loan is collateral dependent. Where assumptions are made using significant unobservable inputs, such loans held for sale are classified as Level 3 within the valuation hierarchy. 

*          Long-lived assets.* Nonrecurring fair value adjustments on long-lived assets reflect impairment write-downs*.* Long-lived assets subjected to nonrecurring fair value adjustments may be classified as Level 2 or Level 3 depending on the inputs to the valuation. When appraisals are used to determine impairment and these appraisals require            significant adjustments to market-based valuation inputs, or when the valuation applies an income approach based on unobservable 

28

----

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

cash flows to measure fair value, the related assets subjected to nonrecurring fair value adjustments are typically classified as Level 3 due to the fact that Level 3 inputs are significant to the fair value measurement. 

*          Other real estate owned.* OREO is adjusted to fair value less costs to sell upon transfer of a loan to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon current appraisals, comparable sales, and other estimates of value obtained principally from independent            sources, adjusted for estimated selling costs. However, management also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. In situations where management adjustments are significant to the fair value measurement in its entirety, such measurements are classified as Level 3 within the valuation hierarchy.            

*          Private equity investments.* The fair values of TSFG’s investments in privately held limited partnerships, corporations and LLCs are not readily available. TSFG evaluates these investments quarterly for impairment based on information available, which may include the investee’s ability to generate cash through its operations or obtain            alternative financing, and subjective factors. The valuation of these investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of the investments; as a result, private equity investments subjected to nonrecurring fair value adjustments are classified as Level 3. 

*          Auction rate preferred securities.* Nonrecurring fair value adjustments on auction rate preferred securities reflect impairment write-downs. The valuation of these securities requires significant management judgment due to illiquidity in the market; as a result, auction rate preferred securities subjected to nonrecurring fair value adjustments are            classified as Level 3. 

*     Fair Value Option*

          Effective second quarter 2009, TSFG elected to discontinue its use of the fair value option on new production of mortgage loans held for sale. This change corresponds to TSFG’s decision to no longer sell mortgage loans on a pooled basis. During the three and nine months ended September 30, 2009, changes in fair value of these loans resulted in a            net loss of $0 and $91,000, respectively, which 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. 

*     FASB ASC 825-10, Disclosures about Fair Value of Financial Instruments*

          FASB ASC 825-10, “Financial Instruments,” requires disclosure of fair value information, whether or not recognized in the statement of financial position, when it is practical to estimate the fair value. The standard defines a financial instrument as cash, evidence of an ownership interest in an entity or contractual obligations, which            require the exchange of cash, or other financial instruments. Certain items are specifically excluded from the disclosure requirements, including TSFG’s common stock, premises and equipment, accrued interest receivable and payable, and other assets and liabilities. 

          The methodologies used to determine fair value for securities, mortgage loans held for sale, derivative assets and liabilities, impaired loans held for investment, and other loans held for sale for which the fair value option has not been elected are disclosed elsewhere in this footnote. Fair value approximates book value for cash and due from banks and            interest-bearing bank balances due to the short-term nature of the instrument. Fair value for loans held for investment which are not impaired is based on the discounted present value of the estimated future cash flows. Discount rates used in these computations reflect approximate current market rates offered for similar types of loans, adjustments that take into account the credit quality of the loan portfolio and the underlying collateral, and illiquidity in            the market. Loan commitments and letters of credit, which are off-balance-sheet financial instruments, are short-term and typically based on current market rates; therefore, the fair values of these items are not included in the following table. 

          Fair value for demand deposit accounts and interest-bearing accounts with no fixed maturity date is equal to the carrying value. Certificate of deposit accounts are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments. Callable brokered deposits are valued in a similar manner except the cash            flow stream may be shorter than the term to maturity if the call option is exercised. Fair value approximates book value for federal funds purchased due to the short-term nature of the borrowing. Fair value for other short-term borrowings and long-term debt is based on discounted cash flows using current market rates for similar instruments. 

29

----

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

          TSFG has used management’s best estimate of fair value based on the above assumptions. Thus, the fair values presented may not be the amounts, which could be realized, in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses, which would be incurred in an actual sale or settlement, are not taken into            consideration in the fair values presented. The estimated fair values of TSFG’s financial instruments (in thousands) were as follows: 

|                           |   |                                       |      |                                  |   |                                       |   |                                  |      |   |   |      |   |
|--------------------------------|--------|--------------------------------------------|-----------|---------------------------------------|--------|--------------------------------------------|--------|---------------------------------------|-----------|--------|--------|-----------|--------|
|                           |   | **September 30, 2009**                     |      | **December 31, 2008**                 |   |
|                           |   |                                       |      |                                  |   |
|                           |   | **Carrying                        Amount** |      | **Fair                        Value** |   | **Carrying                        Amount** |   | **Fair                        Value** |      |
|                           |   |                                       |      |                                  |   |                                       |   |                                  |      |
| **Financial Assets**           |   |                                       |      |                                  |   |                                       |   |                                  |      |   |   |      |   |
| Cash and due from banks        |   | $                                          | 418,585   |                                  | $      | 418,585                                    |   | $                                     | 292,219   |   | $      | 292,219   |   |
| Interest-bearing bank balances |   |                                       | 124       |                                  |   | 124                                        |   |                                  | 166       |   |   | 166       |   |
| Securities available for sale  |   |                                       | 2,079,394 |                                  |   | 2,079,394                                  |   |                                  | 2,107,194 |   |   | 2,107,194 |   |
| Securities held to maturity    |   |                                       | 138,277   |                                  |   | 140,514                                    |   |                                  | 22,709    |   |   | 23,048    |   |
| Net loans                      |   |                                       | 8,542,769 |                                  |   | 7,687,719                                  |   |                                  | 9,975,949 |   |   | 9,494,197 |   |
| Derivative assets              |   |                                       | 61,454    |                                  |   | 61,454                                     |   |                                  | 107,338   |   |   | 107,338   |   |
|                           |
| **Financial Liabilities**      |   |                                       |      |                                  |   |                                       |   |                                  |      |   |   |      |   |
| Deposits                       |   |                                       | 9,488,788 |                                  |   | 9,535,088                                  |   |                                  | 9,405,717 |   |   | 9,487,817 |   |
| Short-term borrowings          |   |                                       | 288,751   |                                  |   | 288,569                                    |   |                                  | 1,626,374 |   |   | 1,626,025 |   |
| Long-term debt                 |   |                                       | 1,126,393 |                                  |   | 1,029,741                                  |   |                                  | 707,769   |   |   | 705,504   |   |
| Derivative liabilities         |   |                                       | 35,282    |                                  |   | 35,282                                     |   |                                  | 52,570    |   |   | 52,570    |   |

**Note 17 – Income Taxes**

          Income tax expense as a percentage of pretax loss was (61.6)% and (2.9)%, respectively, for the three and nine months ended September 30, 2009. Income tax expense differed from the amount computed by applying TSFG’s statutory U.S. federal income tax rate of 35% to pretax loss for the three and nine months ended September 30, 2009 primarily due to            the deferred tax asset valuation allowance recorded during the third quarter. The income tax benefit as a percentage of pretax loss was 54.2% and 18.6%, respectively, for the three and nine months ended September 30, 2008. Income tax benefit 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 changes in income projections. 

          For the quarter ended September 30, 2009, TSFG completed an analysis of whether a valuation allowance should be recorded against its deferred tax assets. Accounting literature states that a deferred tax asset should be reduced by a valuation allowance if, based on the weight of all available evidence, it is more likely than not (a likelihood of more than            50%) that some portion or the entire deferred tax asset will not be realized. The determination of whether a deferred tax asset is realizable is based on weighting all available evidence, including both positive and negative evidence. In making such judgments, significant weight is given to evidence that can be objectively verified. During third quarter 2009, the estimated realization period for the deferred tax asset based on forecasts of future earnings extended further into the            20-year carryforward period compared to the realization period forecasted in second quarter 2009. This extended realization period, combined with the objective evidence of a three-year cumulative loss position and continued near-term losses represent significant negative evidence that caused the Company to conclude that a $200.1 million increase to the deferred tax valuation allowance was required at September 30, 2009. The increase in the valuation allowance was recorded through an            adjustment to the estimated annual effective tax rate. To the extent that TSFG generates taxable income in a given quarter, the valuation allowance may be reduced to fully or partially offset the corresponding income tax expense. Any remaining deferred tax asset valuation allowance will ultimately reverse through income tax expense when TSFG can demonstrate a sustainable return to profitability that would lead management to conclude that it is more likely than not that the deferred            tax asset will be utilized during the 20-year carryforward period. 

          At September 30, 2009, TSFG had federal income tax net operating loss (NOL) carryforwards of approximately $298 million that originated in 2009 and will expire in 2029. The ability of TSFG to utilize NOL carryforwards to reduce future federal taxable income and the federal income tax liability of the Company is subject to various limitations under            Section 382 of the Internal Revenue Code of 1986, as amended. The utilization of such carryforwards may be limited upon the occurrence of certain ownership changes, including the issuance or exercise of

30

----

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

rights to acquire stock, the purchase or sale of stock by 5% stockholders, as defined in the Treasury regulations, and the offering of stock by TSFG during any three-year period resulting in an aggregate change of more than 50% in the beneficial ownership of TSFG. As of September 30, 2009, we do not believe that an ownership change has occurred. Future equity transactions by TSFG or by 5% stockholders (including            transactions beyond our control) could cause a Section 382 ownership change and therefore a limitation on the annual utilization of NOLs. 

          In the event of an ownership change (as defined for income tax purposes), Section 382 of the Code imposes an annual limitation on the amount of a corporation’s taxable income that can be offset by these carryforwards. The limitation is generally equal to the product of (i) the fair market value of the equity of the company multiplied by (ii) a            percentage approximately equivalent to the yield on long-term tax exempt bonds during the month in which an ownership change occurs. In addition, the limitation is increased if there are unrecognized built-in losses on the balance sheet prior to a change in ownership. 

**Note 18 – Business Segments**

          TSFG’s banking subsidiary Carolina First Bank conducts banking operations in South Carolina and North Carolina (as Carolina First) and in Florida (as Mercantile). Carolina First and Mercantile are TSFG’s primary reportable segments for management financial reporting. This business segment structure along geographic lines is consistent with            the way management internally reviews financial information and allocates resources. 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, 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), 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 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.

31

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

|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
|-----------------------------------------------------------|--------|-------------------------------------------|-----------|----------------|--------|-----------|--------|-----------|-----------|--------|--------|------------|--------|
|                                                      |   | **Carolina                        First** |      | **Mercantile** |   | **Other** |   | **Total** |      |
|                                                      |   |                                      |      |           |   |      |   |      |      |
| **Three Months Ended September 30, 2009**                 |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net interest income before inter-segment income (expense) |   | $                                         | 42,696    |           | $      | 19,931    |   | $         | 17,411    |   | $      | 80,038     |   |
| Inter-segment interest income (expense)                   |   |                                      | 3,304     |           |   | 9,306     |   |      | (12,610   | )      |   | —    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net interest income                                       |   |                                      | 46,000    |           |   | 29,237    |   |      | 4,801     |   |   | 80,038     |   |
| Provision for credit losses (1)                           |   |                                      | 73,901    |           |   | 105,704   |   |      | 44,574    |   |   | 224,179    |   |
| Noninterest income                                        |   |                                      | 13,659    |           |   | 6,050     |   |      | 13,761    |   |   | 33,470     |   |
| Other noninterest expenses - direct (2)                   |   |                                      | 27,922    |           |   | 22,212    |   |      | 39,395    |   |   | 89,529     |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Contribution before allocation                            |   |                                      | (42,164   | )              |   | (92,629   | )      |      | (65,407   | )      |   | (200,200   | )      |
| Noninterest expenses - allocated (3)                      |   |                                      | 21,849    |           |   | 12,718    |   |      | (34,567   | )      |   | —    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Contribution before income taxes                          |   | $                                         | (64,013   | )              | $      | (105,347  | )      | $         | (30,840   | )      |   | (200,200   | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Income tax expense                                        |   |                                      |      |           |   |      |   |      |      |   |   | 123,304    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net loss                                                  |   |                                      |      |           |   |      |   |      |      |   | $      | (323,504   | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| **Nine Months Ended September 30, 2009**                  |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net interest income before inter-segment income (expense) |   | $                                         | 123,960   |           | $      | 58,635    |   | $         | 68,391    |   | $      | 250,986    |   |
| Inter-segment interest income (expense)                   |   |                                      | 17,158    |           |   | 32,565    |   |      | (49,723   | )      |   | —    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net interest income                                       |   |                                      | 141,118   |           |   | 91,200    |   |      | 18,668    |   |   | 250,986    |   |
| Provision for credit losses (1)                           |   |                                      | 192,474   |           |   | 240,518   |   |      | 65,151    |   |   | 498,143    |   |
| Noninterest income                                        |   |                                      | 40,394    |           |   | 17,332    |   |      | 31,757    |   |   | 89,483     |   |
| Goodwill impairment                                       |   |                                      | —   |           |   | —   |   |      | 2,511     |   |   | 2,511      |   |
| Other noninterest expenses - direct (2)                   |   |                                      | 90,731    |           |   | 79,146    |   |      | 143,570   |   |   | 313,447    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Contribution before allocation                            |   |                                      | (101,693  | )              |   | (211,132  | )      |      | (160,807  | )      |   | (473,632   | )      |
| Noninterest expenses - allocated (3)                      |   |                                      | 67,766    |           |   | 36,543    |   |      | (104,309  | )      |   | —    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Contribution before income taxes                          |   | $                                         | (169,459  | )              | $      | (247,675  | )      | $         | (56,498   | )      |   | (473,632   | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Income tax expense                                        |   |                                      |      |           |   |      |   |      |      |   |   | 13,951     |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net loss                                                  |   |                                      |      |           |   |      |   |      |      |   | $      | (487,583   | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| **September 30, 2009**                                    |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Total assets                                              |   | $                                         | 5,417,655 |           | $      | 3,037,029 |   | $         | 3,846,108 |   | $      | 12,300,792 |   |
| Total loans held for investment                           |   |                                      | 5,144,093 |           |   | 3,026,816 |   |      | 703,325   |   |   | 8,874,234  |   |
| Total deposits                                            |   |                                      | 4,191,004 |           |   | 3,156,611 |   |      | 2,141,173 |   |   | 9,488,788  |   |

|   |                                                                                                                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | In 2009, TSFG began allocating provision expense using an expected loss methodology. Prior periods reflect a more general allocation.                                                                                        |
|   |
| (2)    | Noninterest expenses – direct include the direct costs of the segment’s operations such as facilities, personnel, and other operating expenses.                                                                  |
|   |
| (3)    | 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. |

32

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

|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
|-----------------------------------------------------------|--------|-------------------------------------------|-----------|----------------|--------|-----------|--------|-----------|-----------|--------|--------|------------|--------|
|                                                      |   | **Carolina                        First** |      | **Mercantile** |   | **Other** |   | **Total** |      |
|                                                      |   |                                      |      |           |   |      |   |      |      |
| **Three Months Ended September 30, 2008**                 |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net interest income before inter-segment income (expense) |   | $                                         | 53,567    |           | $      | 30,409    |   | $         | 11,643    |   | $      | 95,619     |   |
| Inter-segment interest income (expense)                   |   |                                      | (543      | )              |   | 799       |   |      | (256      | )      |   | —    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net interest income                                       |   |                                      | 53,024    |           |   | 31,208    |   |      | 11,387    |   |   | 95,619     |   |
| Provision for credit losses (1)                           |   |                                      | 23,143    |           |   | 53,222    |   |      | 8,243     |   |   | 84,608     |   |
| Noninterest income                                        |   |                                      | 15,210    |           |   | 7,255     |   |      | 6,200     |   |   | 28,665     |   |
| Other noninterest expenses - direct (2)                   |   |                                      | 23,791    |           |   | 19,143    |   |      | 51,223    |   |   | 94,157     |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Contribution before allocation                            |   |                                      | 21,300    |           |   | (33,902   | )      |      | (41,879   | )      |   | (54,481    | )      |
| Noninterest expenses - allocated (3)                      |   |                                      | 22,393    |           |   | 14,731    |   |      | (37,124   | )      |   | —    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Contribution before income taxes                          |   | $                                         | (1,093    | )              | $      | (48,633   | )      | $         | (4,755    | )      |   | (54,481    | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Income tax benefit                                        |   |                                      |      |           |   |      |   |      |      |   |   | (29,526    | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net loss                                                  |   |                                      |      |           |   |      |   |      |      |   | $      | (24,955    | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| **Nine Months Ended September 30, 2008**                  |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net interest income before inter-segment income (expense) |   | $                                         | 161,813   |           | $      | 98,785    |   | $         | 27,932    |   | $      | 288,530    |   |
| Inter-segment interest income (expense)                   |   |                                      | 2,920     |           |   | 1,625     |   |      | (4,545    | )      |   | —    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net interest income                                       |   |                                      | 164,733   |           |   | 100,410   |   |      | 23,387    |   |   | 288,530    |   |
| Provision for credit losses (1)                           |   |                                      | 53,409    |           |   | 150,846   |   |      | 17,408    |   |   | 221,663    |   |
| Noninterest income                                        |   |                                      | 43,924    |           |   | 22,128    |   |      | 25,903    |   |   | 91,955     |   |
| Goodwill impairment                                       |   |                                      | —   |           |   | 188,431   |   |      | —   |   |   | 188,431    |   |
| Other noninterest expenses - direct (2)                   |   |                                      | 69,948    |           |   | 52,124    |   |      | 139,637   |   |   | 261,709    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Contribution before allocation                            |   |                                      | 85,300    |           |   | (268,863  | )      |      | (107,755  | )      |   | (291,318   | )      |
| Noninterest expenses - allocated (3)                      |   |                                      | 67,493    |           |   | 44,755    |   |      | (112,248  | )      |   | —    |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Contribution before income taxes                          |   | $                                         | 17,807    |           | $      | (313,618  | )      | $         | 4,493     |   |   | (291,318   | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Income tax benefit                                        |   |                                      |      |           |   |      |   |      |      |   |   | (54,139    | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Net loss                                                  |   |                                      |      |           |   |      |   |      |      |   | $      | (237,179   | )      |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
|                                                      |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| **September 30, 2008**                                    |   |                                      |      |           |   |      |   |      |      |   |   |       |   |
| Total assets                                              |   | $                                         | 6,011,088 |           | $      | 3,833,211 |   | $         | 3,850,879 |   | $      | 13,695,178 |   |
| Total loans held for investment                           |   |                                      | 5,732,767 |           |   | 3,541,870 |   |      | 1,025,003 |   |   | 10,299,640 |   |
| Total deposits                                            |   |                                      | 4,318,466 |           |   | 3,052,716 |   |      | 2,637,626 |   |   | 10,008,808 |   |

|   |                                                                                                                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | In 2009, TSFG began allocating provision expense using an expected loss methodology. Prior periods reflect a more general allocation.                                                                                        |
|   |
| (2)    | Noninterest expenses – direct include the direct costs of the segment’s operations such as facilities, personnel, and other operating expenses.                                                                  |
|   |
| (3)    | 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. |

33

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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 TSFG’s Annual Report on Form 10-K for the year ended December 31, 2008. Results of operations for the three and nine months ended September 30, 2009 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 | 34       |
| Forward-Looking Statements                                                        | 34       |
| Non-GAAP Financial Information                                                    | 35       |
| Overview                                                                          | 36       |
| Critical Accounting Policies and Estimates                                        | 37       |
| Balance Sheet Review                                                              | 39       |
| Earnings Review                                                                   | 59       |
| Enterprise Risk Management                                                        | 66       |
| Off-Balance Sheet Arrangements                                                    | 67       |
| Liquidity                                                                         | 68       |
| Recently Adopted/Issued Accounting Pronouncements                                 | 70       |

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

          All of TSFG’s electronic filings with the United States Securities and Exchange Commission (“SEC”), including its Annual Reports 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: 

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | significant changes in, or additions to, banking laws or regulations, including, without limitation, as a result of the Emergency Economic Stabilization Act of 2008 (“EESA”), the Troubled Asset Relief Program (“TARP”), including the Capital Purchase Program (the “Capital Purchase Program”) of the U.S. Department of Treasury (the “U.S. Treasury”), and                        related executive compensation requirements; |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | any potential participation in one or more governmental capital programs such as the U.S. Treasury’s Capital Assistance Program (“CAP”);                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | additional losses in our loan portfolio and ability to mitigate credit issues in our loan portfolio;                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | continuation or worsening of current recessionary conditions, as well as continued turmoil in the financial markets;                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | continued volatility and deterioration of the capital and credit markets;                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | ability to maintain required capital levels (including whether or not existing dividends are paid or suspended) and adequate sources of funding and liquidity;                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | • | deposit growth, change in the mix or type of deposit products, and cost of deposits;                                                                                                                                                                                                                                                                                                                                                                                                 |

34

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|   |   |                                                                                                                                                                                                                                                                                           |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | loss of deposits due to perceived financial weakness or otherwise, including as a result of the decision of the Federal Deposit Insurance Corporation (“FDIC”) whether or not to renew its Transaction Account Guarantee Program after its scheduled termination on June 30, 2010; |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | rating agency action such as a ratings downgrade;                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | continued weakness in the real estate market, including the markets for commercial and residential real estate, which may affect, among other things, the level of nonperforming assets, charge-offs, and provision expense;                                                                   |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | continued weakness or further deterioration in the residential real estate markets in South Carolina, western North Carolina, and larger markets in Florida, in which our loans are concentrated;                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | risks inherent in making loans including repayment risks and changes in the value of collateral, and our ability to manage such risks;                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | 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);                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | risks incurred as a result of trading, clearing, counterparty, or other relationships;                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | 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;                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | changes in accounting policies and practices;                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | the ability of our internal controls and procedures to prevent acts intended to defraud, misappropriate assets, or circumvent applicable law or our system of controls;                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | risks associated with potential interruptions or breaches with respect to our information systems;                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | the exposure of our business to hurricanes and other natural disasters;                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | ability to redeem the Series 2008-T Preferred Stock and the warrant sold to the U.S. Treasury;                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | competition in the banking industry and demand for our products and services;                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | changes in the financial performance and/or condition of the borrowers of the subsidiary bank, Carolina First Bank;                                                                                                                                                                            |
|   |        |                                                                                                                                                                                                                                                                                           |
|   | • | increases in FDIC premiums due to market developments and regulatory changes;                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | level, composition, and repricing characteristics of the securities portfolio;                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | fluctuations in consumer spending;                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | increased competition in our markets;                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | 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 and the inability to reverse valuation allowances on deferred tax assets;                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | 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 the evaluation of the effectiveness of our hedging strategies or access to derivative instruments; and                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                           |
|   | • | changes, costs, and effects of litigation and environmental remediation.                                                                                                                                                                                                                       |

          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

35

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the periods presented. In discussing its deposits, TSFG presents information summarizing its funding generated by customers using the following definitions: “core deposits,” which are defined by TSFG as noninterest-bearing, interest-bearing checking, money market accounts, and savings accounts; “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 “core deposits,” “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 $12.3 billion in total assets and 177 branch offices in South Carolina, Florida, and North Carolina at September 30, 2009. Founded in 1986, TSFG focuses on Southeastern banking markets, which have historically experienced long-term growth. TSFG operates            Carolina First Bank, which conducts banking operations in North Carolina and South Carolina (as Carolina First), in Florida (as Mercantile), and on the Internet (as Bank Caroline). At September 30, 2009, approximately 45% of TSFG’s customer deposits were in South Carolina, 43% were in Florida, and 12% were in North Carolina. 

          TSFG targets small business, middle market companies and retail consumers. 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 available to common shareholders of $543.1 million, or $(4.67) per diluted share, for the first nine months of 2009, primarily attributable to a $200.1 million charge related to recording a deferred tax asset valuation allowance and higher credit and related costs. For the first nine months of 2008, TSFG reported a net loss            available to common shareholders of $249.4 million, or $(3.44) per diluted share, which included a goodwill impairment charge of $188.4 million resulting from a decrease in expected cash flows of the Mercantile banking segment. The following is a summary of the consolidated statements of operations (in thousands, except per share data): 

|                                      |   |                                                       |     |                                           |   |     |   |   |     |   |
|-------------------------------------------|--------|------------------------------------------------------------|----------|------------------------------------------------|--------|----------|--------|--------|----------|--------|
|                                      |   | **Nine Months                        Ended September 30,** |     | **Increase                        (Decrease)** |   |
|                                      |   | **2009**                                                   |     | **2008**                                       |   |     |
| Net interest income                       |   | $                                                          | 250,986  |                                           | $      | 288,530  |   | $      | (37,544  | )      |
| Provision for credit losses               |   |                                                       | 498,143  |                                           |   | 221,663  |   |   | 276,480  |   |
| Noninterest income                        |   |                                                       | 89,483   |                                           |   | 91,955   |   |   | (2,472   | )      |
| Noninterest expenses                      |   |                                                       | 315,958  |                                           |   | 450,140  |   |   | (134,182 | )      |
| Income tax expense (benefit)              |   |                                                       | 13,951   |                                           |   | (54,139  | )      |   | 68,090   |   |
| Net loss                                  |   |                                                       | (487,583 | )                                              |   | (237,179 | )      |   | (250,404 | )      |
| Preferred stock dividends and other       |   |                                                       | (55,468  | )                                              |   | (12,234  | )      |   | (43,234  | )      |
| Net loss available to common shareholders |   | $                                                          | (543,051 | )                                              | $      | (249,413 | )      | $      | (293,638 | )      |
| Loss per common share, diluted            |   | $                                                          | (4.67    | )                                              | $      | (3.44    | )      | $      | (1.23    | )      |

          At September 30, 2009, nonperforming assets as a percentage of loans and foreclosed property increased to 6.05% from 4.04% at December 31, 2008 and 2.81% at September 30, 2008. The increase in nonperforming assets was primarily attributable to continued deterioration in residential construction and development-related loans (which are included in            commercial real estate loans). For the nine months ended September 30, 2009, annualized net loan charge-offs totaled 5.48% of average loans held for investment, compared to 1.90% for the nine months ended September 30, 2008. TSFG’s provision for credit losses increased to $498.1 million for the first nine months of 2009 from $221.7 million for the nine months ended September 30, 2008. 

36

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          At September 30, 2009, TSFG evaluated the expected realization of its deferred tax assets totaling $207.4 million (against which a valuation allowance of $3.7 million related to federal capital losses and South Carolina non-bank net operating losses had already been recorded), primarily comprised of future tax benefits associated with the allowance for            loan losses and net operating loss carryforwards, and concluded that a $200.1 million increase to the valuation allowance was required. This non-cash charge was included in income tax expense during third quarter 2009. 

          In June 2009, TSFG announced a capital plan (the “Capital Plan”) to bolster its common equity to cover the losses associated with a “more adverse” credit scenario used by the U.S. government in its recently completed supervisory capital assessment program (“SCAP”) for the country’s 19 largest bank holding            companies. This plan is substantially complete. In connection with this plan, TSFG issued $85 million of common equity in a public offering (with net proceeds of $79.7 million) and converted $90.9 million of Series 2008 Convertible Preferred Stock into 20.9 million common shares (including 6.9 million shares valued at $11.9 million as an inducement to convert). TSFG also exchanged $94.5 million of the Series 2008 Convertible Preferred Stock for a new series of preferred stock,            Series 2009-A Convertible Preferred Stock, which automatically converted into 24.0 million common shares (including 9.4 million shares valued at $14.0 million as an inducement to convert) upon shareholder approval on September 11, 2009. In addition, TSFG sold ancillary businesses (which added approximately $16 million to tangible common equity) and reduced its assets during second and third quarters 2009, partly by sales of indirect auto loans and shared national credits. During the            first nine months of 2009, TSFG contributed $195 million to its subsidiary bank to increase its capital. 

          For the first nine months of 2009, preferred stock dividends included $32.4 million treated as deemed dividends to preferred shareholders resulting from induced conversion of $234.1 million of preferred stock into common shares. 

          At September 30, 2009, all regulatory capital ratios exceeded well-capitalized minimums. TSFG’s tangible equity to tangible asset ratio decreased to 8.02% at September 30, 2009, from 10.29% at December 31, 2008 primarily due to net losses in the first nine months of 2009, partially offset by proceeds from the common stock offering and lower total            assets. Tangible common equity to tangible assets was 5.25% at September 30, 2009, compared to 6.07% at June 30, 2009 and 6.05% at December 31, 2008. The common stock offering, lower total assets, and the conversion of $234.1 million of the Series 2008 and Series 2009-A Convertible Preferred Stock partially offset the impact of our net loss and dividends for the first nine months of 2009. 

          Tax-equivalent net interest income was $254.4 million for the first nine months of 2009, compared to $292.6 million for the first nine months of 2008. The net interest margin decreased to 2.90% for the first nine months of 2009 from 3.13% for the first nine months of 2008, primarily due to yields on earning assets declining more than funding costs,            increased nonperforming asset levels, and higher interest reversals for nonperforming loans. The net interest margin decreased to 2.93% for third quarter 2009, down 3 basis points from 2.96% for second quarter 2009 as TSFG shifted into borrowings with remaining maturities of more than one year and maintained a higher balance in cash in order to strengthen liquidity. 

          Noninterest income totaled $89.5 million for the first nine months of 2009, compared to $92.0 million for the first nine months of 2008. The decrease was largely attributable to decreases in most categories of noninterest income, including declines in customer fee income and wealth management income due to the effects of the economic downturn. During            third quarter 2009, TSFG sold certain ancillary businesses for a gain of $7.2 million which, combined with a $3.8 million increase in gain on certain derivative activities, partially offset the declines in other categories. 

          Noninterest expenses totaled $316.0 million for the first nine months of 2009, compared to $450.1 million for the nine months ended September 30, 2008. Goodwill impairment charges totaling $188.4 million were recorded in the first nine months of 2008. In the first nine months of 2009, regulatory assessments and credit-related expenses continued to            increase, and TSFG recorded $18.1 million in impairment charges on long-lived assets. However, salaries and wages and employee benefits (excluding employment contracts and severance) decreased $8.3 million when comparing the first nine months of 2009 with the same period in 2008. 

**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 

37

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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 (securities, derivatives, and privately held investments); income tax assets or liabilities; share-based compensation; and            accounting for acquisitions, including the fair value determinations and the analysis of goodwill for impairment. To a lesser extent, significant estimates are also associated with the determination of contingent liabilities, discretionary compensation, and expense associated with 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. 

          For additional information regarding critical accounting policies and estimates other than income taxes, refer to the Annual Report of TSFG on Form 10-K for the year ended December 31, 2008, specifically Item 8, Note 1 – Summary of Significant Accounting Policies in the notes to the Consolidated Financial Statements and the section captioned            “Critical Accounting Policies and Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

*     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. 

          Tax returns submitted by management or the income tax reported on the Consolidated Financial Statements may be subject to adjustment 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 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. 

          For the quarter ended September 30, 2009, TSFG completed an analysis of whether a valuation allowance should be recorded against its deferred tax assets. Accounting literature states that a deferred tax asset should be reduced by a valuation allowance if based on the weight of all available evidence, it is more likely than not (a likelihood of more than            50%) that some portion or the entire deferred tax asset will not be realized. The determination of whether a deferred tax asset is realizable is based on weighting all available evidence, including both positive and negative evidence. In making such judgments, significant weight is given to evidence that can be objectively verified. Although forecasts of future earnings indicate that TSFG will be able to realize the deferred tax asset within the 20-year carryforward period, the            estimated realization period based on these forecasts increased since second quarter 2009. This extended realization period, combined with the objective evidence of a three-year cumulative loss position and continued near-term losses represent significant negative evidence that caused the Company to conclude that a $200.1 million increase to the deferred tax valuation allowance was required at September 30, 2009. The increase in the valuation allowance was recorded through an            adjustment to the estimated annual effective tax rate. To the extent that TSFG generates taxable income in a given quarter, the valuation allowance may be reduced to fully or partially offset the corresponding income tax expense. Any remaining deferred tax asset valuation allowance will ultimately reverse through income tax expense when TSFG can demonstrate a sustainable return to profitability that would lead management to conclude that it is more likely than not that the deferred            tax asset will be utilized during the 20-year carryforward period. 

38

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          At September 30, 2009, TSFG had federal income tax net operating loss (NOL) carryforwards of approximately $298 million that originated in 2009 and will expire in 2029. The ability of TSFG to utilize NOL carryforwards to reduce future federal taxable income and the federal income tax liability of the Company is subject to various limitations under            Section 382 of the Internal Revenue Code of 1986, as amended. The utilization of such carryforwards may be limited upon the occurrence of certain ownership changes, including the issuance or exercise of rights to acquire stock, the purchase or sale of stock by 5% stockholders, as defined in the Treasury regulations, and the offering of stock by TSFG during any three-year period resulting in an aggregate change of more than 50% in the beneficial ownership of TSFG. As of September 30,            2009, we do not believe that an ownership change has occurred. Future equity transactions by TSFG or by 5% stockholders (including transactions beyond our control) could cause a Section 382 ownership change and therefore a limitation on the annual utilization of NOLs. 

          In the event of an ownership change (as defined for income tax purposes), Section 382 of the Code imposes an annual limitation on the amount of a corporation’s taxable income that can be offset by these carryforwards. The limitation is generally equal to the product of (i) the fair market value of the equity of the company multiplied by (ii) a            percentage approximately equivalent to the yield on long-term tax exempt bonds during the month in which an ownership change occurs. In addition, the limitation is increased if there are unrecognized built-in losses on the balance sheet prior to a change in ownership. Therefore, the amount of any potential Section 382 limitation cannot be reasonably estimated until an actual change occurs. 

**Balance Sheet Review**

*     Loans*

          TSFG focuses its lending activities on small and middle market businesses and individuals in its geographic markets. At September 30, 2009, outstanding loans totaled $8.9 billion, which equaled 93.6% of total deposits (120.2% of customer deposits) and 72.2% of total assets. 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, 2009, approximately 5% 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.

          In an effort to accelerate the sale or resolution of problem loans and to otherwise divest itself of loans with limited relationship opportunity, during the three and nine months ended September 30, 2009, TSFG transferred $136.6 million and $489.3 million, respectively, from the held for investment portfolio to the held for sale portfolio (and            subsequently sold or otherwise settled the loan). The third quarter transfers included $133.6 million of nonperforming loans for which TSFG charged-off $57.8 million against the allowance for loan losses prior to transferring them to loans held for sale. The second quarter transfers included $230.3 million of indirect auto loans and $88.8 million of shared national credits. After recording an allowance adjustment of $4.5 million, TSFG recorded a $3.2 million net loss on the indirect            auto loan and shared national credits transactions. 

          TSFG generally sells a substantial 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 to $8.1 million at September 30, 2009 from $14.7 million at December            31, 2008, primarily due to lower mortgage loan volume and timing of mortgage sales. Prior to second quarter 2009, TSFG accounted for its mortgage loans held for sale at fair value pursuant to the fair value option. Effective second quarter 2009, TSFG elected to discontinue its use of the fair value option on new production of mortgage loans held for sale. This change corresponds to TSFG’s decision to no longer sell mortgage loans on a pooled basis. 

          Table 1 summarized outstanding loans held for investment by loan purpose. 

39

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|                                                 |
|------------------------------------------------------|
| **Table 1**                                          |
|                                                 |
| **Loan Portfolio Composition Based on Loan Purpose** |
|                                                 |
| **(dollars in thousands)**                           |

|                                        |   |              |      |                                         |   |       |   |   |       |   |
|---------------------------------------------|--------|-------------------|-----------|----------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                        |   | **September 30,** |      | **December 31,                        2008** |   |
|                                        |   |              |      |                                         |
|                                        |   | **2009**          |      | **2008**                                     |   |       |
|                                        |   |              |      |                                         |   |       |   |
| **Commercial Loans**                        |   |              |      |                                         |   |       |   |   |       |   |
| Commercial and industrial                   |   | $                 | 2,249,929 |                                         | $      | 2,824,117  |   | $      | 2,722,611  |   |
| Commercial owner - occupied real estate     |   |              | 1,270,015 |                                         |   | 1,206,597  |   |   | 1,270,746  |   |
| Commercial real estate (1)                  |   |              | 3,741,662 |                                         |   | 4,094,164  |   |   | 4,074,331  |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
|                                        |   |              | 7,261,606 |                                         |   | 8,124,878  |   |   | 8,067,688  |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
| **Consumer Loans**                          |   |              |      |                                         |   |       |   |   |       |   |
| Indirect - sales finance                    |   |              | 259,296   |                                         |   | 680,413    |   |   | 635,637    |   |
| Consumer lot loans                          |   |              | 161,206   |                                         |   | 249,062    |   |   | 225,486    |   |
| Direct retail                               |   |              | 86,474    |                                         |   | 100,257    |   |   | 95,397     |   |
| Home equity                                 |   |              | 803,295   |                                         |   | 784,357    |   |   | 813,201    |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
|                                        |   |              | 1,310,271 |                                         |   | 1,814,089  |   |   | 1,769,721  |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
| **Mortgage Loans**                          |   |              | 302,357   |                                         |   | 360,673    |   |   | 354,663    |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
| Total loans held for investment             |   | $                 | 8,874,234 |                                         | $      | 10,299,640 |   | $      | 10,192,072 |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
|                                        |
| **Percentage of Loans Held for Investment** |   |              |      |                                         |   |       |   |   |       |   |
| Commercial and industrial                   |   |              | 25.3      | %                                            |   | 27.4       | %      |   | 26.7       | %      |
| Commercial owner - occupied real estate     |   |              | 14.3      |                                         |   | 11.7       |   |   | 12.5       |   |
| Commercial real estate                      |   |              | 42.2      |                                         |   | 39.8       |   |   | 40.0       |   |
| Consumer                                    |   |              | 14.8      |                                         |   | 17.6       |   |   | 17.3       |   |
| Mortgage                                    |   |              | 3.4       |                                         |   | 3.5        |   |   | 3.5        |   |
|                                        |   |              |      |                                         |   |       |   |   |       |   |
| Total                                       |   |              | 100.0     | %                                            |   | 100.0      | %      |   | 100.0      | %      |
|                                        |   |              |      |                                         |   |       |   |   |       |   |

 

|   |                                                                                                                                                                                                                            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | 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. |

*          Commercial and industrial loans* are loans to finance short-term and intermediate-term cash needs of businesses. Typical needs include the need to finance seasonal or other temporary cash flow imbalances, growth in working assets created by sales growth, and purchases of equipment and vehicles. Credit is extended in the form of short-term single            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. 

*          Commercial 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. TSFG has effectively stopped originating indirect auto            loans in its markets, with the exception of certain dealers that fit within our relationship strategy. During second quarter 2009, TSFG sold $230.3 million of indirect loans. 

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

40

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*          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, 2009, TSFG’s house lending limit was $35 million, and 10            credit relationships totaling $441.0 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 $601.2 million, or 6.8% of total loans held for investment at September 30, 2009, compared to 5.3% of total loans held for investment at December 31, 2008. Approximately $32 million of these loans were considered nonperforming loans as of September 30, 2009. 

          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, 2009, the loan portfolio included outstanding SNC borrowings of $514.8            million, decreasing from $711.6 million at December 31, 2008. The largest outstanding balance was $25.9 million at September 30, 2009. 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. Our strategy targets borrowers whose management teams are well known to us and whose risk            profile is above average. Going forward, we expect to reduce the percentage of our portfolio invested in SNCs due to the lack of relationship opportunity on much of the portfolio. During 2009, we transferred $153.8 million of these loans to the held for sale portfolio, including $61.5 million in problem loans, and subsequently sold or otherwise settled the loans. 

*     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. TSFG’s commercial real estate products include the following: 

|                               |   |                                                                                                                                                |
|------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |   |                                                                                                                                                |
| **Commercial Real Estate 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 at origination for commercial real estate loans. Table 2 presents selected characteristics of commercial real estate loans by product type. 

41

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|                                                         |
|--------------------------------------------------------------|
| **Table 2**                                                  |
|                                                         |
| **Selected Characteristics of Commercial Real Estate Loans** |
|                                                         |
| **(dollars in thousands)**                                   |

|                      |   |                   |   |                                                                                            |   |                                                  |   |                                                                    |   |   |   |    |   |
|---------------------------|--------|------------------------|--------|-------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|--------|--------|---------|--------|
|                      |   | **September 30, 2009** |   |
|                      |   |                   |   |
|                      |   | **Policy LTV**         |   | **Weighted Average                        Time to Maturity                        (in months)** |   | **Weighted Average                        Loan Size** |   | **Largest                        Ten                        Total O/S** |   |
|                      |   |                   |   |                                                                                            |   |                                                  |   |                                                                    |   |
| Completed income property |   | 85                     | %      |                                                                                            | 37.2   |                                                  |   | $                                                                       | 514    |   | $      | 164,625 |   |
| Residential A&D       |   | 75                     |   |                                                                                            | 8.7    |                                                  |   |                                                                    | 548    |   |   | 93,211  |   |
| Commercial A&D        |   | 75                     |   |                                                                                            | 6.6    |                                                  |   |                                                                    | 991    |   |   | 69,791  |   |
| Commercial construction   |   | 80                     |   |                                                                                            | 40.0   |                                                  |   |                                                                    | 2,921  |   |   | 145,148 |   |
| Residential construction  |   | 80                     |   |                                                                                            | 15.7   |                                                  |   |                                                                    | 359    |   |   | 86,802  |   |
| Residential condo         |   | 80                     |   |                                                                                            | 7.4    |                                                  |   |                                                                    | 1,196  |   |   | 102,316 |   |
| Undeveloped land          |   | 65                     |   |                                                                                            | 8.8    |                                                  |   |                                                                    | 709    |   |   | 84,169  |   |
|                      |   |                   |   |                                                                                            |   |                                                  |   |                                                                    |   |   |   |    |   |
| Overall                   |   |                   |   |                                                                                            | 28.4   |                                                  |   | $                                                                       | 606    |   | $      | 746,062 |   |

          For additional information on other commercial real estate management processes, refer to the Annual Report of TSFG on Form 10-K for the year ended December 31, 2008, specifically the section captioned “Commercial Real Estate Concentration” in the “Balance Sheet Review — Loans” section of Management’s Discussion and            Analysis of Financial Condition and Results of Operations. 

          Table 3 presents the commercial real estate portfolio by geography, while Table 4 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 6, 7, and 11, respectively. TSFG monitors trends in these categories in order to evaluate the possibility            of higher credit risk in its commercial real estate portfolio. 

|                                                               |
|--------------------------------------------------------------------|
| **Table 3**                                                        |
|                                                               |
| **Commercial Real Estate Loans by Geographic Diversification (1)** |
|                                                               |
| **(dollars in thousands)**                                         |

|                                               |   |                   |      |                                      |   |        |   |                                      |      |   |   |   |   |
|----------------------------------------------------|--------|------------------------|-----------|-------------------------------------------|--------|-------------|--------|-------------------------------------------|-----------|--------|--------|--------|--------|
|                                               |   | **September 30, 2009** |      | **December 31, 2008**                     |   |
|                                               |   |                   |      |                                      |   |
|                                               |   | **Balance**            |      | **% of                        Total CRE** |   | **Balance** |   | **% of                        Total CRE** |      |
|                                               |   |                   |      |                                      |   |        |   |                                      |      |
| South Carolina, exluding Coastal:                  |   |                   |      |                                      |   |        |   |                                      |      |   |   |   |   |
| Upstate South Carolina (Greenville)                |   | $                      | 583,032   |                                      |   | 15.6        | %      | $                                         | 539,920   |   |   | 13.3   | %      |
| Midlands South Carolina (Columbia)                 |   |                   | 223,022   |                                      |   | 6.0         |   |                                      | 238,285   |   |   | 5.9    |   |
| Greater South Charlotte South Carolina (Rock Hill) |   |                   | 155,609   |                                      |   | 4.2         |   |                                      | 164,709   |   |   | 4.0    |   |
| Coastal South Carolina:                            |   |                   |      |                                      |   |        |   |                                      |      |   |   |   |   |
| North Coastal South Carolina (Myrtle Beach)        |   |                   | 359,537   |                                      |   | 9.6         |   |                                      | 401,325   |   |   | 9.9    |   |
| South Coastal South Carolina (Charleston)          |   |                   | 281,177   |                                      |   | 7.5         |   |                                      | 268,951   |   |   | 6.6    |   |
| Western North Carolina (Hendersonville/Asheville)  |   |                   | 672,921   |                                      |   | 18.0        |   |                                      | 762,559   |   |   | 18.7   |   |
| Central Florida:                                   |   |                   |      |                                      |   |        |   |                                      |      |   |   |   |   |
| Central Florida (Orlando)                          |   |                   | 233,275   |                                      |   | 6.2         |   |                                      | 274,560   |   |   | 6.7    |   |
| Marion County, Florida (Ocala)                     |   |                   | 142,060   |                                      |   | 3.8         |   |                                      | 156,700   |   |   | 3.8    |   |
| North Florida:                                     |   |                   |      |                                      |   |        |   |                                      |      |   |   |   |   |
| Northeast Florida (Jacksonville)                   |   |                   | 239,791   |                                      |   | 6.4         |   |                                      | 276,942   |   |   | 6.8    |   |
| North Central Florida                              |   |                   | 296,041   |                                      |   | 7.9         |   |                                      | 311,426   |   |   | 7.6    |   |
| South Florida (Ft. Lauderdale)                     |   |                   | 251,530   |                                      |   | 6.7         |   |                                      | 232,437   |   |   | 5.7    |   |
| Tampa Bay Florida                                  |   |                   | 303,667   |                                      |   | 8.1         |   |                                      | 446,517   |   |   | 11.0   |   |
|                                               |   |                   |      |                                      |   |        |   |                                      |      |   |   |   |   |
| Total commercial real estate loans                 |   | $                      | 3,741,662 |                                      |   | 100.0       | %      | $                                         | 4,074,331 |   |   | 100.0  | %      |
|                                               |   |                   |      |                                      |   |        |   |                                      |      |   |   |   |   |

|   |                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Geography is primarily determined by the originating operating geographic market and not necessarily the ultimate location of the underlying collateral. |

42

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|                                                           |
|----------------------------------------------------------------|
| **Table 4**                                                    |
|                                                           |
| **Commercial Real Estate Loans by Geography and Product Type** |
|                                                           |
| **(dollars in thousands)**                                     |

|                                             |   |                                                             |    |                                  |   |                                  |   |                                  |    |                                |   |                                |   |                                 |    |                                 |   |                                 |   |   |    |   |   |      |   |   |   |   |
|--------------------------------------------------|--------|------------------------------------------------------------------|---------|---------------------------------------|--------|---------------------------------------|--------|---------------------------------------|---------|-------------------------------------|--------|-------------------------------------|--------|--------------------------------------|---------|--------------------------------------|--------|--------------------------------------|--------|--------|---------|--------|--------|-----------|--------|--------|--------|--------|
|                                             |   | **September 30, 2009 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                        |   | $                                                                | 528,522 |                                  | $      | 363,723                               |   | $                                     | 388,746 |                                | $      | 205,576                             |   | $                                    | 359,070 |                                 | $      | 141,353                              |   | $      | 136,028 |   | $      | 2,123,018 |   |   | 23.9   | %      |
| Residential A&D                              |   |                                                             | 79,609  |                                  |   | 56,335                                |   |                                  | 140,508 |                                |   | 17,362                              |   |                                 | 46,521  |                                 |   | 13,035                               |   |   | 37,379  |   |   | 390,749   |   |   | 4.4    |   |
| Commercial A&D                               |   |                                                             | 34,391  |                                  |   | 22,499                                |   |                                  | 34,520  |                                |   | 30,002                              |   |                                 | 8,156   |                                 |   | 14,697                               |   |   | 30,198  |   |   | 174,463   |   |   | 2.0    |   |
| Commercial construction                          |   |                                                             | 210,126 |                                  |   | 46,240                                |   |                                  | 28,392  |                                |   | 41,055                              |   |                                 | 16,451  |                                 |   | 38,361                               |   |   | 28,367  |   |   | 408,992   |   |   | 4.6    |   |
| Residential construction                         |   |                                                             | 41,992  |                                  |   | 35,630                                |   |                                  | 17,850  |                                |   | 10,338                              |   |                                 | 22,409  |                                 |   | 9,654                                |   |   | 4,757   |   |   | 142,630   |   |   | 1.6    |   |
| Residential condo                                |   |                                                             | 19,111  |                                  |   | 55,276                                |   |                                  | 11,336  |                                |   | 6,940                               |   |                                 | 29,949  |                                 |   | 24,163                               |   |   | 13,482  |   |   | 160,257   |   |   | 1.8    |   |
| Undeveloped land                                 |   |                                                             | 47,912  |                                  |   | 61,011                                |   |                                  | 51,569  |                                |   | 64,062                              |   |                                 | 53,276  |                                 |   | 10,267                               |   |   | 53,456  |   |   | 341,553   |   |   | 3.8    |   |
|                                             |   |                                                             |    |                                  |   |                                  |   |                                  |    |                                |   |                                |   |                                 |    |                                 |   |                                 |   |   |    |   |   |      |   |   |   |   |
| Total CRE Loans                                  |   | $                                                                | 961,663 |                                  | $      | 640,714                               |   | $                                     | 672,921 |                                | $      | 375,335                             |   | $                                    | 535,832 |                                 | $      | 251,530                              |   | $      | 303,667 |   | $      | 3,741,662 |   |   | 42.2   | %      |
|                                             |   |                                                             |    |                                  |   |                                  |   |                                  |    |                                |   |                                |   |                                 |    |                                 |   |                                 |   |   |    |   |   |      |   |   |   |   |
| CRE Loans as % of Total Loans HFI                |   |                                                             | 10.8    | %                                     |   | 7.2                                   | %      |                                  | 7.6     | %                                   |   | 4.2                                 | %      |                                 | 6.0     | %                                    |   | 2.8                                  | %      |   | 3.4     | %      |   | 42.2      | %      |   |   |   |

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

*     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 those policies. 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, 2008. 

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          Table 5 presents our credit quality indicators.

|                                                                              |   |              |      |             |   |       |   |   |       |   |
|-----------------------------------------------------------------------------------|--------|-------------------|-----------|------------------|--------|------------|--------|--------|------------|--------|
| **Table 5**                                                                       |   |              |      |             |   |
| **Credit Quality Indicators**                                                     |   |              |      |             |   |
| **(dollars in thousands)**                                                        |   |              |      |             |   |
|                                                                              |   |              |      |             |   |
|                                                                              |   | **September 30,** |      | **December 31,** |   |
|                                                                              |   | **2009**          |      | **2008**         |   | **2008**   |   |
| Loans held for sale                                                               |   | $                 | 8,071     |             | $      | 37,575     |   | $      | 30,963     |   |
| Loans held for investment                                                         |   |              | 8,874,234 |             |   | 10,299,640 |   |   | 10,192,072 |   |
| Allowance for loan losses                                                         |   |              | 339,536   |             |   | 200,748    |   |   | 247,086    |   |
| Allowance for credit losses (1)                                                   |   |              | 345,256   |             |   | 203,000    |   |   | 249,874    |   |
|                                                                              |
| Nonaccrual loans - commercial and industrial                                      |   |              | 59,822    |             |   | 28,309     |   |   | 35,998     |   |
| Nonaccrual loans - commercial owner - occupied real estate                        |   |              | 35,082    |             |   | 6,951      |   |   | 14,876     |   |
| Nonaccrual loans - commercial real estate                                         |   |              | 287,513   |             |   | 160,479    |   |   | 230,373    |   |
| Nonaccrual loans - consumer                                                       |   |              | 23,543    |             |   | 21,184     |   |   | 39,009     |   |
| Nonaccrual loans - mortgage                                                       |   |              | 25,831    |             |   | 20,889     |   |   | 29,126     |   |
| Total nonperforming loans held for investment (2)                                 |   |              | 431,791   |             |   | 237,812    |   |   | 349,382    |   |
| Nonperforming loans held for sale - CRE                                           |   |              | —   |             |   | 22,576     |   |   | 16,282     |   |
| Foreclosed property (other real estate owned and personal property repossessions) |   |              | 112,771   |             |   | 30,503     |   |   | 48,993     |   |
| Total nonperforming assets                                                        |   | $                 | 544,562   |             | $      | 290,891    |   | $      | 414,657    |   |
| Restructured loans accruing interest (2)                                          |   | $                 | 17,236    |             | $      | 2,279      |   | $      | 6,249      |   |
| Loans past due 90 days or more (interest accruing)                                |   | $                 | 7,467     |             | $      | 12,899     |   | $      | 47,481     |   |
| Total nonperforming assets as a percentage of loans and foreclosed property       |   |              | 6.05      | %                |   | 2.81       | %      |   | 4.04       | %      |
| Allowance for loan losses to nonperforming loans                                  |   |              | 0.79      | x                |   | 0.84       | x      |   | 0.71       | x      |

|   |                                                                                                                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.                                                                               |
|   |                                                                                                                                                                                                        |
| (2)    | During first quarter 2009, TSFG began excluding restructured loans accruing interest from its nonperforming loans. Amounts 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 6.05% at September 30, 2009 from 4.04% at December 31, 2008 and 2.81% at September 30, 2008. The increase in nonperforming assets was primarily attributable to market deterioration in residential construction and development-related            loans and general economic conditions which have impacted other 

commercial loan categories. Comparing third quarter 2009 to second quarter 2009, nonperforming assets decreased to $544.6 million from $560.7 million, partially due to the sale of nonperforming loans in third quarter 2009; however, the nonperforming asset ratio still increased as the balance of total loans declined. 

           Table 6 presents CRE nonaccrual loans by geography and product type. At September 30, 2009, there were no CRE loans past due 90 days still accruing interest. 

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|                                                    |   |                                                                         |   |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                |   |   |   |   |   |    |   |   |   |   |
|---------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|-------------------------------------|--------|--------------------------------------|---------|------------------------------------------|--------|-------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|
| **Table 6**                                             |   |                                                                         |
| **Commercial Real Estate Nonaccrual Loans**             |
| **(dollars in thousands)**                              |   |                                                                         |
|                                                    |   |                                                                         |
|                                                    |   | **September 30, 2009 CRE Nonaccrual Loans (“NAL”) by Geography** |
|                                                    |   | **SC, Excl                        Coastal**                                  |   | **Coastal                        SC** |   | **Western                        NC** |   | **Central                        FL** |   | **North                        FL** |   | **South                        FL** |   | **Tampa                        Bay** |    | **Total                        CRE NAL** |   | **% of                        NAL** |   |
|                                                    |   |                                                                         |   |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                |   |   |   |   |   |    |   |   |   |   |
| **CRE Nonaccrual Loans by Product Type**                |   |                                                                         |   |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                |   |   |   |   |   |    |   |   |   |   |
| Completed income property                               |   | $                                                                            | 6,889  |                                  | $      | 14,604                                |   | $                                     | 21,816 |                                | $      | 6,121                               |   | $                                    | 4,467   |                                     | $      | 10,268                              |   | $      | 17,756 |   | $      | 81,921  |   |   | 19.0   | %      |
| Residential A&D                                     |   |                                                                         | 8,697  |                                  |   | 6,183                                 |   |                                  | 13,037 |                                |   | 2,610                               |   |                                 | 3,235   |                                     |   | 1,773                               |   |   | 4,824  |   |   | 40,359  |   |   | 9.3    |   |
| Commercial A&D                                      |   |                                                                         | 1,791  |                                  |   | 2,829                                 |   |                                  | 1,320  |                                |   | —                             |   |                                 | — |                                     |   | —                             |   |   | 26,801 |   |   | 32,741  |   |   | 7.6    |   |
| Commercial construction                                 |   |                                                                         | 14,720 |                                  |   | —                               |   |                                  | 4,161  |                                |   | —                             |   |                                 | — |                                     |   | —                             |   |   | 5,628  |   |   | 24,509  |   |   | 5.7    |   |
| Residential construction                                |   |                                                                         | 2,069  |                                  |   | 975                                   |   |                                  | 1,308  |                                |   | 8,826                               |   |                                 | 82      |                                     |   | 7,200                               |   |   | 2,192  |   |   | 22,652  |   |   | 5.2    |   |
| Residential condo                                       |   |                                                                         | 7,368  |                                  |   | 18,320                                |   |                                  | 81     |                                |   | 720                                 |   |                                 | 9       |                                     |   | 8,716                               |   |   | 3,306  |   |   | 38,520  |   |   | 8.9    |   |
| Undeveloped land                                        |   |                                                                         | 558    |                                  |   | 146                                   |   |                                  | 1,542  |                                |   | 13,762                              |   |                                 | 1,270   |                                     |   | 5,065                               |   |   | 24,468 |   |   | 46,811  |   |   | 10.8   |   |
| Total CRE Nonaccrual Loans                              |   | $                                                                            | 42,092 |                                  | $      | 43,057                                |   | $                                     | 43,265 |                                | $      | 32,039                              |   | $                                    | 9,063   |                                     | $      | 33,022                              |   | $      | 84,975 |   | $      | 287,513 |   |   | 66.6   | %      |
|                                                    |   |                                                                         |   |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                |   |   |   |   |   |    |   |   |   |   |
| CRE Nonaccrual Loans as % of Total Nonaccrual Loans HFI |   |                                                                         | 9.7    | %                                     |   | 10.0                                  | %      |                                  | 10.0   | %                                   |   | 7.4                                 | %      |                                 | 2.1     | %                                        |   | 7.6                                 | %      |   | 19.7   | %      |   | 66.6    | %      |   |   |   |

          Table 7 provides detail regarding commercial real estate loans past due 30 days or more. 

|                                                                              |   |                   |   |                  |   |        |   |                |   |   |   |
|-----------------------------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|-------------|--------|---------------------|--------|--------|--------|
| **Table 7**                                                                       |   |                   |   |                  |   |
| **Commercial Real Estate Loans Past Due 30 Days or More (excluding nonaccruals)** |
| **(dollars in thousands)**                                                        |   |                   |   |                  |   |
|                                                                              |   |                   |   |                  |   |
|                                                                              |   | **September 30, 2009** |   | **December 31, 2008** |   |
|                                                                              |   | **Balance**            |   | **% of CRE**          |   | **Balance** |   | **% of CRE**        |   |
| North Carolina                                                                    |   | $                      | 26,044 |                  | 0.70   | %           | $      | 21,364              |   | 0.53   | %      |
| South Carolina                                                                    |   |                   | 34,620 |                  | 0.93   |        |   | 34,268              |   | 0.84   |   |
| Florida                                                                           |   |                   | 32,306 |                  | 0.86   |        |   | 44,471              |   | 1.09   |   |
| Total CRE loans past due 30 days or more                                          |   | $                      | 92,970 |                  | 2.49   | %           | $      |   100,103 |   | 2.46   | %      |

          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 8 provides additional detail regarding potential problem loans. 

|                                                 |   |                                  |   |                  |    |                                 |   |                                  |   |        |   |                                 |   |   |   |
|------------------------------------------------------|--------|---------------------------------------|--------|-----------------------|---------|--------------------------------------|--------|---------------------------------------|--------|-------------|--------|--------------------------------------|--------|--------|--------|
| **Table 8**                                          |   |                                  |   |                  |    |
| **Potential Problem Loans**                          |   |                                  |   |                  |    |
| **(dollars in thousands)**                           |   |                                  |   |                  |    |
|                                                 |   |                                  |   |                  |    |
|                                                 |   | **September 30, 2009**                |   | **December 31, 2008** |    |
|                                                 |   | **# of                        Loans** |   | **Balance**           |    | **% of                        LHFI** |   | **# of                        Loans** |   | **Balance** |   | **% of                        LHFI** |   |
| Large potential problem loans ($5 million or more)   |   | 32                                    |   | $                     | 325,538 |                                 | 3.67   | %                                     | 23     |        | $      | 217,688                              |   | 2.13   | %      |
| Small potential problem loans (less than $5 million) |   | 1,047                                 |   |                  | 526,381 |                                 | 5.93   |                                  | 732    |        |   | 282,189                              |   | 2.77   |   |
| Total potential problem loans (1)                    |   | 1,079                                 |   | $                     | 851,919 |                                 | 9.60   | %                                     | 755    |        | $      | 499,877                              |   | 4.90   | %      |

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

45

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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). 

          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. 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 nine 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 five pools by product type—Direct, Indirect, Home Equity, Consumer            Lots, 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 $148.7 million at September 30, 2009, based on the portfolio historical loss rates, compared to $81.8 million at December 31, 2008. 

*          Level II Reserves.* The second component of the Allowance involves the calculation of specific allowances for each individually impaired loan. In situations where a loan is determined to be impaired (primarily because it is probable that all principal and interest amount 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

46

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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 commercial loans over $1 million 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 $48.9 million at September 30, 2009, down from $70.0 million at June 30, 2009 and up slightly from $44.4 million at year end 2008. 

*          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 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 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. Although the adjustment related to declining land values has been a factor since first quarter 2008, the appraisal discount and default rate assumptions on land were increased during third quarter 2009 to reflect value declines indicated by recent appraisals. The Level III Reserves totaled $141.9 million at September 30, 2009 compared to $117.0 million at December            31, 2008. 

*          Reserve for Unfunded Commitments.* At September 30, 2009 and December 31, 2008, the reserve for unfunded commitments was $5.7 million and $2.8 million, respectively. 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, 2009 was $18.9 million, compared to $13.9 million at December 31, 2008. 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 $403.5 million at September 30, 2009            from $287.5 million at December 31, 2008, primarily attributable to commercial real estate loans. Most of the loans contributing to the increase were over $1 million and 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 10% compared to the 40% 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. 

          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 

47

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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. 

          Table 9 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 9**                                                                       |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
|                                                                              |
| **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,                        2008** |   |
|                                                                              |   |                                                                                             |
|                                                                              |   |                                                                                             |
|                                                                              |   |                                                                                             |      |
|                                                                              |   | **2009**                                                                                         |      | **2008**                                                                                                             |   |       |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |
| Allowance for loan losses, beginning of year                                      |   | $                                                                                                | 247,086   |                                                                                                                 | $      | 126,427    |   | $      | 126,427    |   |
| Allowance adjustment for loans sold                                               |   |                                                                                             | (4,471    | )                                                                                                                    |   | —    |   |   | —    |   |
| Net charge-offs:                                                                  |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
| Loans charged-off                                                                 |   |                                                                                             | (406,675  | )                                                                                                                    |   | (152,664   | )      |   | (230,961   | )      |
| Loans recovered                                                                   |   |                                                                                             | 8,385     |                                                                                                                 |   | 5,306      |   |   | 7,551      |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
|                                                                              |   |                                                                                             | (398,290  | )                                                                                                                    |   | (147,358   | )      |   | (223,410   | )      |
| Additions to allowance through provision expense                                  |   |                                                                                             | 495,211   |                                                                                                                 |   | 221,679    |   |   | 344,069    |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
| Allowance for loan losses, end of period                                          |   | $                                                                                                | 339,536   |                                                                                                                 | $      | 200,748    |   | $      | 247,086    |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
|                                                                              |
| Reserve for unfunded lending commitments, beginning of year                       |   | $                                                                                                | 2,788     |                                                                                                                 | $      | 2,268      |   | $      | 2,268      |   |
| Provision for unfunded lending commitments                                        |   |                                                                                             | 2,932     |                                                                                                                 |   | (16        | )      |   | 520        |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
| Reserve for unfunded lending commitments, end of period                           |   | $                                                                                                | 5,720     |                                                                                                                 | $      | 2,252      |   | $      | 2,788      |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
| Allowance for credit losses, beginning of year                                    |   | $                                                                                                | 249,874   |                                                                                                                 | $      | 128,695    |   | $      | 128,695    |   |
| Allowance adjustment for loans sold                                               |   |                                                                                             | (4,471    | )                                                                                                                    |   | —    |   |   | —    |   |
| Net charge-offs:                                                                  |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
| Loans charged-off                                                                 |   |                                                                                             | (406,675  | )                                                                                                                    |   | (152,664   | )      |   | (230,961   | )      |
| Loans recovered                                                                   |   |                                                                                             | 8,385     |                                                                                                                 |   | 5,306      |   |   | 7,551      |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
|                                                                              |   |                                                                                             | (398,290  | )                                                                                                                    |   | (147,358   | )      |   | (223,410   | )      |
| Additions to allowance through provision expense                                  |   |                                                                                             | 498,143   |                                                                                                                 |   | 221,663    |   |   | 344,589    |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
| Allowance for credit losses, end of period                                        |   | $                                                                                                | 345,256   |                                                                                                                 | $      | 203,000    |   | $      | 249,874    |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
| Average loans held for investment                                                 |   | $                                                                                                | 9,712,611 |                                                                                                                 | $      | 10,366,359 |   | $      | 10,351,897 |   |
| Loans held for investment, end of period                                          |   |                                                                                             | 8,874,234 |                                                                                                                 |   | 10,299,640 |   |   | 10,192,072 |   |
|                                                                              |   |                                                                                             |      |                                                                                                                 |   |       |   |   |       |   |
| Net charge-offs as a percentage of average loans held for investment (annualized) |   |                                                                                             | 5.48      | %                                                                                                                    |   | 1.90       | %      |   | 2.16       | %      |
| Allowance for loan losses as a percentage of loans held for investment            |   |                                                                                             | 3.83      |                                                                                                                 |   | 1.95       |   |   | 2.42       |   |
| Allowance for credit losses as a percentage of loans held for investment          |   |                                                                                             | 3.89      |                                                                                                                 |   | 1.97       |   |   | 2.45       |   |
| Allowance for loan losses to nonperforming loans HFI                              |   |                                                                                             | 0.79      | x                                                                                                                    |   | 0.84       | x      |   | 0.71       | x      |

          The provision for credit losses for the first nine months of 2009 totaled $498.1 million, which exceeded net loan charge-offs by $99.9 million. The higher provision largely reflected credit deterioration due to continued weakness in housing markets and additional specific reserves for nonperforming loans and land development portfolios. The overall            allowance for credit losses as a percentage of loans held for investment increased to 3.89% at September 30, 2009 from 2.45% at December 31, 2008. Net charge-offs in third quarter 2009 increased partly as a result of resolving problem loans

48

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through note sales, foreclosure, and short sales with customers. Tables 10 and 11 provide additional detail for net charge-offs.

|                                |
|-------------------------------------|
| **Table 10**                        |
| **Net Charge-Offs by Product Type** |
| **(dollars in thousands)**          |

|                                          |   |                                                            |    |                                |   |   |   |
|-----------------------------------------------|--------|-----------------------------------------------------------------|---------|-------------------------------------|--------|--------|--------|
|                                          |   | **Nine Months Ended                        September 30, 2009** |    |
|                                          |   | **Amount**                                                      |    | **% of                        NCO** |   |
| Commercial and industrial                     |   | $                                                               | 98,669  |                                |   | 24.8   | %      |
| Commercial owner-occupied real estate         |   |                                                            | 13,209  |                                |   | 3.3    |   |
| Commercial real estate                        |   |                                                            | 212,966 |                                |   | 53.5   |   |
| Indirect - sales finance                      |   |                                                            | 10,435  |                                |   | 2.6    |   |
| Consumer lot loans                            |   |                                                            | 29,222  |                                |   | 7.3    |   |
| Direct retail                                 |   |                                                            | 2,777   |                                |   | 0.7    |   |
| Home equity                                   |   |                                                            | 13,139  |                                |   | 3.3    |   |
| Mortgage                                      |   |                                                            | 17,873  |                                |   | 4.5    |   |
|     Total net charge-offs |   | $                                                               | 398,290 |                                |   | 100.0  | %      |

|                                                       |
|------------------------------------------------------------|
| **Table 11**                                               |
| **Commercial Real Estate Net Charge-Offs by Product Type** |
| **(dollars in thousands)**                                 |

|                                              |   |                                                                                          |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                |   |   |   |   |   |    |   |   |   |   |
|---------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|---------|---------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|-------------------------------------|--------|--------------------------------------|---------|------------------------------------------|--------|-------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|
|                                              |   | **Nine Months Ended September 30, 2009 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                         |   | $                                                                                             | 5,444   |                                  | $      | 10,523                                |   | $                                     | 8,203  |                                | $      | 5,432                               |   | $                                    | 680     |                                     | $      | 4,254                               |   | $      | 9,974  |   | $      | 44,510  |   |   | 11.2   | %      |
| Residential A&D                               |   |                                                                                          | 15,845  |                                  |   | 2,879                                 |   |                                  | 5,498  |                                |   | 3,574                               |   |                                 | 15,026  |                                     |   | 1,837                               |   |   | 10,864 |   |   | 55,523  |   |   | 13.9   |   |
| Commercial A&D                                |   |                                                                                          | 1,087   |                                  |   | 1,900                                 |   |                                  | 238    |                                |   | 123                                 |   |                                 | — |                                     |   | —                             |   |   | 14,004 |   |   | 17,352  |   |   | 4.4    |   |
| Commercial construction                           |   |                                                                                          | — |                                  |   | 150                                   |   |                                  | 53     |                                |   | —                             |   |                                 | — |                                     |   | 123                                 |   |   | 8,337  |   |   | 8,663   |   |   | 2.2    |   |
| Residential construction                          |   |                                                                                          | 3,269   |                                  |   | 10,194                                |   |                                  | 2,346  |                                |   | 6,334                               |   |                                 | 1,175   |                                     |   | 11                                  |   |   | 2,903  |   |   | 26,232  |   |   | 6.6    |   |
| Residential condo                                 |   |                                                                                          | 1,041   |                                  |   | 4,929                                 |   |                                  | 52     |                                |   | 194                                 |   |                                 | — |                                     |   | —                             |   |   | 4,102  |   |   | 10,318  |   |   | 2.6    |   |
| Undeveloped land                                  |   |                                                                                          | 4,471   |                                  |   | 73                                    |   |                                  | 914    |                                |   | 10,940                              |   |                                 | 6,336   |                                     |   | 9,235                               |   |   | 18,399 |   |   | 50,368  |   |   | 12.6   |   |
| Total CRE Net Charge-Offs                         |   | $                                                                                             | 31,157  |                                  | $      | 30,648                                |   | $                                     | 17,304 |                                | $      | 26,597                              |   | $                                    | 23,217  |                                     | $      | 15,460                              |   | $      | 68,583 |   | $      | 212,966 |   |   | 53.5   | %      |
|                                              |   |                                                                                          |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                |   |   |   |   |   |    |   |   |   |   |
| CRE Net Charge-Offs as % of Total Net Charge-Offs |   |                                                                                          | 7.8     | %                                     |   | 7.7                                   | %      |                                  | 4.4    | %                                   |   | 6.7                                 | %      |                                 | 5.8     | %                                        |   | 3.9                                 | %      |   | 17.2   | %      |   | 53.5    | %      |   |   |   |

          On a regular basis, management evaluates certain impaired loans and potential problem loans for liquidation through loan sales. The loans are not transferred to loans held for sale until management’s intent to hold the loan has changed, there is a plan to sell the loans within a reasonable amount of time, the individual loans are specifically            identified, and the necessary approvals are received. Although the allowance for loan losses includes a component for specific reserves for declines in fair value of impaired loans and an adjustment for declines in land value associated with performing loans, the liquidation of the loans identified for sale could result in significantly lower proceeds than the fair value of these loans and could result in additional provision expense attributable to any charge-offs in excess of the            related reserves. 

49

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     *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, treasury tax and loan (“TT&L”) advances, FHLB advances, derivatives,            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 12 shows the carrying values of the investment securities portfolio. 

|                                            |
|-------------------------------------------------|
| **Table 12**                                    |
| **Investment Securities Portfolio Composition** |
| **(dollars in thousands)**                      |

|                                              |   |              |      |                                         |   |      |   |   |      |   |
|---------------------------------------------------|--------|-------------------|-----------|----------------------------------------------|--------|-----------|--------|--------|-----------|--------|
|                                              |   | **September 30,** |      | **December 31,                        2008** |   |
|                                              |   | **2009**          |      | **2008**                                     |   |      |
| **Available for Sale** (at fair value)            |   |              |      |                                         |   |      |   |   |      |   |
| U.S. Treasury                                     |   | $                 | 2,058     |                                         | $      | 28,084    |   | $      | 2,069     |   |
| U.S. Government agencies                          |   |              | 95,224    |                                         |   | 327,933   |   |   | 313,729   |   |
| Agency mortgage-backed securities                 |   |              | 1,688,201 |                                         |   | 1,312,116 |   |   | 1,468,639 |   |
| Private label mortgage-backed securities          |   |              | 9,112     |                                         |   | 15,152    |   |   | 12,771    |   |
| State and municipal                               |   |              | 223,948   |                                         |   | 260,532   |   |   | 262,248   |   |
| Other investments:                                |   |              |      |                                         |   |      |   |   |      |   |
| Corporate bonds                                   |   |              | —   |                                         |   | 9,855     |   |   | 9,963     |   |
| Federal Home Loan Bank (“FHLB”) stock |   |              | 58,825    |                                         |   | 38,478    |   |   | 35,536    |   |
| Community bank stocks                             |   |              | 510       |                                         |   | 1,555     |   |   | 672       |   |
| Other equity investments                          |   |              | 1,516     |                                         |   | 1,976     |   |   | 1,567     |   |
|                                              |   |              | 2,079,394 |                                         |   | 1,995,681 |   |   | 2,107,194 |   |
| **Held to Maturity** (at amortized cost)          |   |              |      |                                         |   |      |   |   |      |   |
| State and municipal                               |   |              | 16,221    |                                         |   | 24,418    |   |   | 22,609    |   |
| Agency mortgage-backed securities                 |   |              | 121,956   |                                         |   | —   |   |   | —   |   |
| Other investments                                 |   |              | 100       |                                         |   | 100       |   |   | 100       |   |
|                                              |   |              | 138,277   |                                         |   | 24,518    |   |   | 22,709    |   |
| Total                                             |   | $                 | 2,217,671 |                                         | $      | 2,020,199 |   | $      | 2,129,903 |   |
|                                              |   |              |      |                                         |   |      |   |   |      |   |
| Total securities as a percentage of total assets  |   |              | 18.0      | %                                            |   | 14.8      | %      |   | 15.7      | %      |
|                                              |   |              |      |                                         |   |      |   |   |      |   |
| **Percentage of Total Securities Portfolio**      |   |              |      |                                         |   |      |   |   |      |   |
| U.S. Treasury                                     |   |              | 0.1       | %                                            |   | 1.4       | %      |   | 0.1       | %      |
| U.S. Government agencies                          |   |              | 4.3       |                                         |   | 16.2      |   |   | 14.7      |   |
| Agency mortgage-backed securities                 |   |              | 81.6      |                                         |   | 64.9      |   |   | 69.0      |   |
| Private label mortgage-backed securities          |   |              | 0.4       |                                         |   | 0.8       |   |   | 0.6       |   |
| State and municipal                               |   |              | 10.8      |                                         |   | 14.1      |   |   | 13.4      |   |
| Other investments                                 |   |              | 2.8       |                                         |   | 2.6       |   |   | 2.2       |   |
| 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 $2.0 billion for the first nine months of 2009, and $2.1 billion for the first nine months of 2008. The average tax-equivalent portfolio yield decreased for the nine months ended September 30, 2009 to            4.42% from 4.67% for the nine months ended September 30, 2008. The securities yield decreased primarily due to an overall decline in interest rates resulting in reinvestment of scheduled and unscheduled payments and calls at lower yields.

          The expected duration of the debt securities portfolio was approximately 2.3 years at September 30, 2009, a decrease from approximately 2.9 years at December 31, 2008. 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            

50

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total securities include some 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. 

          Approximately 57.7% of mortgage-backed securities (“MBS”) are collateralized mortgage obligations (“CMOs”) with an average duration of 1.7 years. At September 30, 2009, approximately 12% 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. 

          The majority of these securities are government or agency securities and, therefore, pose minimal credit risk. The net unrealized gain on securities available for sale (pre-tax) totaled $50.5 million at September 30, 2009, compared with $10.9 million at December 31, 2008, primarily due to a decrease in long term interest rates and a contraction in            spreads. If interest rates increase, credit spreads widen, and/or market illiquidity worsens, TSFG expects its net unrealized gain on securities available for sale to decrease and possibly become a net unrealized loss. See Item 1, Note 4 to the Consolidated Financial Statements for information about TSFG’s securities in unrealized loss positions. 

          Table 13 shows the credit risk profile of the securities portfolio. 

51

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|                                                    |
|---------------------------------------------------------|
| **Table 13**                                            |
| **Investment Securities Portfolio Credit Risk Profile** |
| **(dollars in thousands)**                              |

|                                                                                   |   |                   |      |                  |   |        |   |           |      |   |   |   |   |
|----------------------------------------------------------------------------------------|--------|------------------------|-----------|-----------------------|--------|-------------|--------|----------------|-----------|--------|--------|--------|--------|
|                                                                                   |   | **September 30, 2009** |      | **December 31, 2008** |   |
|                                                                                   |   | **Balance**            |      | **% of Total**        |   | **Balance** |   | **% of Total** |      |
| **Government and agency**                                                              |   |                   |      |                  |   |        |   |           |      |   |   |   |   |
| U.S. Treasury                                                                          |   | $                      | 2,058     |                  |   | 0.1         | %      | $              | 2,069     |   |   | 0.1    | %      |
| U.S. Government agencies (1)                                                           |   |                   | 95,224    |                  |   | 4.3         |   |           | 313,729   |   |   | 14.7   |   |
| Agency mortgage-backed securities                        (MBS) (1)(2)(3)               |   |                   | 1,810,157 |                  |   | 81.6        |   |           | 1,468,639 |   |   | 68.9   |   |
| Federal Home Loan Bank Stock                                                           |   |                   | 58,825    |                  |   | 2.7         |   |           | 35,536    |   |   | 1.7    |   |
| Total government and agency                                                            |   |                   | 1,966,264 |                  |   | 88.7        |   |           | 1,819,973 |   |   | 85.4   |   |
| **State and municipal (3)(4)(5)**                                                      |   |                   |      |                  |   |        |   |           |      |   |   |   |   |
| Pre-funded with collateral or AAA-rated backed by Texas Permanent School Fund          |   |                   | 162,936   |                  |   | 7.3         |   |           | 188,598   |   |   | 8.9    |   |
| Underlying issuer or collateral rated A or better (including South Carolina State Aid) |   |                   | 66,693    |                  |   | 3.0         |   |           | 81,238    |   |   | 3.8    |   |
| Underlying issuer or collateral rated BBB                                              |   |                   | 3,883     |                  |   | 0.2         |   |           | 7,344     |   |   | 0.3    |   |
| Non-rated                                                                              |   |                   | 6,657     |                  |   | 0.3         |   |           | 7,677     |   |   | 0.4    |   |
| Total state and municipal                                                              |   |                   | 240,169   |                  |   | 10.8        |   |           | 284,857   |   |   | 13.4   |   |
| **Corporate bonds AA or A-rated**                                                      |   |                   | —   |                  |   | —     |   |           | 9,963     |   |   | 0.5    |   |
| **Private label mortgage-backed securities AAA-rated (2)**                             |   |                   | 9,112     |                  |   | 0.4         |   |           | 12,771    |   |   | 0.6    |   |
| **Community bank stocks and other**                                                    |   |                   | 2,126     |                  |   | 0.1         |   |           | 2,339     |   |   | 0.1    |   |
| Total securities                                                                       |   | $                      | 2,217,671 |                  |   | 100.0       | %      | $              | 2,129,903 |   |   | 100.0  | %      |
| Percent of total securities: (4)                                                       |   |                   |      |                  |   |        |   |           |      |   |   |   |   |
| Rated A or higher                                                                      |   |                   |      |                  |   | 99.4        | %      |           |      |   |   | 99.2   | %      |
| Investment grade                                                                       |   |                   |      |                  |   | 99.6        |   |           |      |   |   | 99.5   |   |

|   |                                                                                                                                                                                                                                                                                                                   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | At September 30, 2009, amounts include, in the aggregate, $29.7 million and $1.6 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, 2009, agency mortgage-backed securities include $122.0 million of securities held to maturity at amortized cost. At September 30, 2009 and December 31, 2008, state and municipal securities include $16.2 million and $22.6 million, respectively, of securities held to maturity at amortized cost. |
|   |                                                                                                                                                                                                                                                                                                                   |
| (4)    | Ratings shown above do not reflect the benefit of guarantees by bond insurers or the State of South Carolina. At September 30, 2009, $31.6 million of municipal bonds are guaranteed by bond insurers. At December 31, 2008, $39.1 million of municipal bonds are guaranteed by bond insurers.                         |
|   |                                                                                                                                                                                                                                                                                                                   |
| (5)    | At September 30, 2009, the breakdown by current bond rating is as follows: $162.9 million pre-funded with collateral or AAA-rated backed by Texas Permanent School Fund, $4.6 million AAA-rated, $67.3 million AA or A-rated, $2.5 million BBB-rated, and $2.9 million non-rated.                                      |

Note: Within each category, securities are ordered based on risk assessment from lowest to highest. TSFG holds no collateralized debt obligations. 

          In April 2009, TSFG sold U.S. government agency securities with a book value of approximately $120 million (3.6% yield) for a gain of $5.4 million. In connection with this sale, TSFG also terminated $75.0 million (4.3% rate) in long-term repurchase agreements, and recognized a loss on extinguishment of $5.4 million. Also in second quarter 2009, TSFG            recorded $435,000 in other-than-temporary impairment on certain community bank-related equity securities included in the other investments category. 

          Subsequent to September 30, 2009, TSFG began evaluating the sources of its tax-exempt income, including state and municipal securities, due to the valuation allowance on its deferred tax assets and the realization period of its net operating losses (see “Critical Accounting Policies and Estimates – Income Taxes”).

52

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          *Investments included in Other Assets.* TSFG also invests in limited partnerships, limited liability companies (LLC’s) and other privately held companies. These investments are included in other assets. In the three and nine months ended September 30, 2009, TSFG recorded $376,000 and $3.7 million, respectively, in other-than-temporary            impairment on these investments. At September 30, 2009, TSFG’s investment in these entities totaled $14.8 million, of which $5.2 million were accounted for under the cost method and $9.6 million were accounted for under the equity method. 

          Also included in other assets were $5.7 million of various auction rate preferred securities which TSFG repurchased from brokerage customers who purchased the securities during 2007. Currently, the market for these securities is illiquid and TSFG recorded a loss of $676,000 during first quarter 2009 to adjust these securities to estimated fair value.            

*     Goodwill*

          TSFG evaluates its goodwill annually for each reporting unit as of June 30th or more frequently if events or circumstances indicate that there may be impairment. The goodwill impairment test is a two-step process, which requires management to make judgments in determining the assumptions used in the calculations. The first step (“Step            1”) involves estimating the fair value of each reporting unit and comparing it to the reporting unit’s carrying value, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, then a second step (“Step 2”) is performed to measure the actual amount of goodwill impairment, if any. Step 2 involves determining the implied fair value of goodwill. This requires the Company to allocate the estimated fair value of the            reporting unit to all the assets and liabilities of such unit. The fair values of the assets and liabilities, primarily loans and deposits, are determined using current market interest rates, projections of future cash flows, and where available, quoted market prices of similar instruments. Any unallocated fair value represents the implied fair value of goodwill, which is then compared to its corresponding carrying value. If the implied fair value is less than the carrying value, an            impairment loss is recognized in an amount equal to that deficit. 

          At June 30, 2009, the fair value of the Carolina First reporting unit evaluated for impairment was determined primarily using discounted cash flow models based on internal forecasts (90% weighting) and, to a lesser extent, market-based trading and transaction multiples (10% weighting). More weight was given to the discounted cash flow models since            market-based multiples are not considered directly comparable given the lack of a complete operational entity for each reporting unit, and based on the internal forecasts taking a longer term view of the Company’s performance. The internal forecasts included certain assumptions made by management, including expected growth rates in loans and customer funding, changes in net interest margin, credit quality trends, and the forecasted levels of other income and expense items.            Forecasts were prepared for each of the next five years, with a terminal cash flow assigned to the remainder of the forecast horizon. A range of terminal growth rates ranging from 3% to 7% were applied to the terminal cash flow. Each period’s cash flow was then discounted using a range of discount rates based on the risk-free rate plus a premium based on overall stock market level of risk compared to the level of risk of our own stock. The portion of the estimated value            derived from market-based trading and transaction multiples was based on a weighting of market multiples for selected peer institutions based on such metrics as book value of equity, tangible equity, assets, trailing earnings, and projected earnings. The value assigned to the reporting unit for purposes of the goodwill impairment evaluation was based on the midpoint of the range of values determined using the method outlined above. This valuation indicated that the fair value of the            Carolina First reporting unit was less than its carrying value. However, Step 2 of the evaluation indicated that the implied fair value of the goodwill was greater than its carrying value, and thus no impairment charge was required as of the June 30, 2009 test date for the Carolina First banking segment. 

          As TSFG, including its Carolina First reporting unit, has continued to report additional losses and other conditions have changed during third quarter 2009, TSFG performed an updated evaluation of the goodwill related to the Carolina First reporting unit as of September 30, 2009. In connection with its evaluation, TSFG engaged an independent third party            to review the methodology and assumptions in Step 1 and to perform the valuation of the loan portfolio and the core deposit intangible for the Carolina First banking segment for purposes of performing Step 2. (The remaining $12.2 million of goodwill for other segments is related to TSFG’s insurance operations and is not being evaluated for impairment based on their current operating results.) Based on changes in management’s views on its current outlook and the review by            the third party, the Company lowered the terminal growth rates to a range of 2% to 4% and increased the targeted capital level allocated to the Carolina First reporting unit to reflect current industry conditions and company-specific expectations as part of its Step 1 analysis. Although the valuation with the updated assumptions continued to indicate that the fair value of the Carolina First reporting unit was less than its carrying value, Step 2 of the evaluation indicated that the            implied fair value of the goodwill was greater than its carrying value at September 30, 2009, primarily due to the excess of the book value of the Carolina First loan portfolio over its fair value based on exit price, and no impairment was recorded.

53

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          During second quarter 2009, TSFG recorded a $2.1 million goodwill impairment charge on one of its nonbank subsidiaries based on discounted cash flows and estimated market valuations. Also in second quarter 2009, TSFG recorded a $411,000 goodwill impairment charge in its Retirement Plan Administration reporting unit due to its decision to sell its            subsidiary, American Pensions, Inc. Both of these reporting units were sold during third quarter 2009. 

          During first quarter 2008, TSFG recognized $188.4 million in goodwill impairment in the Mercantile 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. During fourth quarter 2008, TSFG recognized an additional $237.6 million of            goodwill impairment primarily due to an increase in the discount rate used for valuing future cash flows of our Mercantile reporting unit and a reduction in the projected cash flows primarily over the next two years. As a result, there is no goodwill currently assigned to the Mercantile banking segment.

          In the current environment, forecasting cash flows, credit losses and growth in addition to valuing the Company’s assets with any degree of assurance is very difficult and subject to significant changes over very short periods of time. Management will continue to update its analysis as circumstances change, and as market conditions continue to be            volatile and unpredictable. In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test at September 30, 2009, we estimated that, holding the other valuation assumptions constant, a 100 basis point reduction in the range of terminal growth rates applied to the terminal cash flows of the Carolina First reporting unit, which has been allocated the majority of the remaining goodwill, would result in an estimated 5% decrease in its fair value. A            100 basis point increase in the range of discount rates would result in an estimated 8% reduction in the fair value of Carolina First. Accordingly, based on these sensitivity analyses, the Company has concluded that it is possible that the Carolina First reporting unit may become impaired in future periods. 

     *Other Real Estate Owned*

          Other real estate owned (“OREO”), consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of fair value obtained principally from independent sources, adjusted for estimated selling            costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is recorded as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of noninterest expense. 

          During the three and nine months ended September 30, 2009, we sold $25.2 million and $41.9 million, respectively, in OREO and incurred losses of $3.5 million and $6.3 million, respectively. Due to continuing weak market conditions, we revalued our OREO during second quarter 2009 and also changed our policies to record assets at 70% of the most recent            appraised value versus our previous practice of 80%. The result of the revaluation and change in policy was a downward adjustment in values by $11.1 million during 2009. At September 30, 2009, the carrying value of OREO totaled $111.7 million, compared to $44.7 million at December 31, 2008, and was included in other assets. 

     *Impairment of Long-Lived Assets*

          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. During second quarter 2009, TSFG announced its intention to market its planned campus facility for sale**.** The campus site contains approximately 60 acres. Two office            buildings have been completed, the conference center is under construction, and ten additional building sites are available. During third quarter 2009, TSFG occupied approximately 20% of the available space in the office buildings at the campus in order to house certain of its operations that were previously located in facilities with leases expiring in 2009. 

          Based on the current environment, initial estimates of value, and an 18 to 36 month marketing period, TSFG recorded an impairment charge of $15.9 million in second quarter 2009, which is included in noninterest expense. The fair value for the property was determined by estimating a range of values using limited market data on similar properties, adjusted            for factors specific to TSFG’s corporate campus. In determining the impairment charge, the cost basis was reduced by the estimated net realizable value of state tax credits available to TSFG. At September 30, 2009, the carrying amount of the campus was $66.4 million. Management will continue to monitor market conditions and offered prices, and further write-downs could be required in future periods. 

          TSFG also recorded a $612,000 impairment loss (included in noninterest expense) from the write-down of the corporate jet which was classified as an asset held for sale in 2009. The corporate jet was sold during third quarter 2009 with no significant gain or loss on the sale. 

54

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          In addition, during the three and nine months ended September 30, 2009, TSFG recorded $746,000 and $1.6 million, respectively, in impairment losses (also included in noninterest expense) associated with vacated branches and office locations, primarily attributable to subletting office space at less than the contractual lease rate. 

*     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, derivatives that do not qualify            for hedge accounting but otherwise achieve economic hedging goals (“economic hedges”), as well as derivatives that are used in trading and customer hedging programs. See Note 11 to the Consolidated Financial Statements for additional information regarding derivatives.

*     Deposits*

          Deposits remain TSFG’s primary source of funds. Average customer deposits equaled 65.6% of average total funding in the first nine months of 2009. 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 14 shows the breakdown of total deposits by type of deposit and the respective percentage of total deposits, while Table 15 shows the breakdown of customer funding by type. 

|                       |
|----------------------------|
| **Table 14**               |
| **Type of Deposits**       |
| **(dollars in thousands)** |

|                                |   |              |      |                                         |   |       |   |   |      |   |
|-------------------------------------|--------|-------------------|-----------|----------------------------------------------|--------|------------|--------|--------|-----------|--------|
|                                |   | **September 30,** |      | **December 31,                        2008** |   |
|                                |   | **2009**          |      | **2008**                                     |   |       |
| Noninterest-bearing demand deposits |   | $                 | 1,091,439 |                                         | $      | 1,022,632  |   | $      | 1,041,140 |   |
| Interest-bearing checking           |   |              | 1,011,370 |                                         |   | 1,090,874  |   |   | 1,078,921 |   |
| Money market accounts               |   |              | 2,174,627 |                                         |   | 1,806,143  |   |   | 1,834,115 |   |
| Savings accounts                    |   |              | 262,764   |                                         |   | 150,150    |   |   | 190,519   |   |
| Core deposits                       |   |              | 4,540,200 |                                         |   | 4,069,799  |   |   | 4,144,695 |   |
| Time deposits under $100,000        |   |              | 1,651,560 |                                         |   | 1,840,363  |   |   | 1,863,520 |   |
| Time deposits of $100,000 or more   |   |              | 1,197,988 |                                         |   | 1,524,813  |   |   | 1,488,735 |   |
| Customer deposits (1)               |   |              | 7,389,748 |                                         |   | 7,434,975  |   |   | 7,496,950 |   |
| Brokered deposits                   |   |              | 2,099,040 |                                         |   | 2,573,833  |   |   | 1,908,767 |   |
| Total deposits                      |   | $                 | 9,488,788 |                                         | $      | 10,008,808 |   | $      | 9,405,717 |   |
|                                |
| **Percentage of Deposits**          |   |              |      |                                         |   |       |   |   |      |   |
| Noninterest-bearing demand deposits |   |              | 11.5      | %                                            |   | 10.2       | %      |   | 11.1      | %      |
| Interest-bearing checking           |   |              | 10.7      |                                         |   | 10.9       |   |   | 11.5      |   |
| Money market accounts               |   |              | 22.9      |                                         |   | 18.1       |   |   | 19.5      |   |
| Savings accounts                    |   |              | 2.8       |                                         |   | 1.5        |   |   | 2.0       |   |
| Core deposits                       |   |              | 47.9      |                                         |   | 40.7       |   |   | 44.1      |   |
| Time deposits under $100,000        |   |              | 17.4      |                                         |   | 18.4       |   |   | 19.8      |   |
| Time deposits of $100,000 or more   |   |              | 12.6      |                                         |   | 15.2       |   |   | 15.8      |   |
| Customer deposits (1)               |   |              | 77.9      |                                         |   | 74.3       |   |   | 79.7      |   |
| Brokered deposits                   |   |              | 22.1      |                                         |   | 25.7       |   |   | 20.3      |   |
| Total deposits                      |   |              | 100.0     | %                                            |   | 100.0      | %      |   | 100.0     | %      |

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

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

|                       |   |              |      |                                         |   |      |   |   |      |   |
|----------------------------|--------|-------------------|-----------|----------------------------------------------|--------|-----------|--------|--------|-----------|--------|
|                       |   | **September 30,** |      | **December 31,                        2008** |   |
|                       |   | **2009**          |      | **2008**                                     |   |      |
| Customer deposits (1)      |   | $                 | 7,389,748 |                                         | $      | 7,434,975 |   | $      | 7,496,950 |   |
| Customer sweep accounts(2) |   |              | 281,235   |                                         |   | 551,559   |   |   | 493,012   |   |
| Customer funding           |   | $                 | 7,670,983 |                                         | $      | 7,986,534 |   | $      | 7,989,962 |   |

|   |                                                                                              |
|--------|---------------------------------------------------------------------------------------------------|
| (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, 2009, period-end customer funding decreased $319.0 million from December 31, 2008, as increases in lower-cost core deposit categories generated by a deposit campaign during the first nine months were more than offset by decreases in time deposits and customer sweep accounts. Public deposits totaled approximately $687 million at September            30, 2009, compared to approximately $697 million at December 31, 2008 and are generally subject to seasonal fluctuations. 

          While reported in short-term borrowings on the consolidated balance sheet, customer sweep accounts represent excess overnight cash to/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 ($256.9 million at September            30, 2009) and 2) uninsured Eurodollar deposits ($24.3 million at September 30, 2009). These balances are tied directly to commercial customer checking accounts and 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, 2008 as TSFG replaced customer deposits and other funding sources with brokered deposits. 

          Average customer funding equaled 68.9% of average total funding in the first nine months of 2009 and 66.9% in the first nine months of 2008. Period-end customer funding increased to 70.4% of total funding at September 30, 2009, compared to 68.1% at December 31, 2008, due primarily to the decline in wholesale borrowings attributable to the sales of loans            and securities in second quarter 2009. 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 creating 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 as banks compete for sources of liquidity and funding to replace funding which may not be available in the current market environment. 

          TSFG elected to continue its participation in the FDIC’s Transaction Account Guarantee Program. Under the program, through June 30, 2010, all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. 

*     Borrowed Funds*

          Table 16 shows the breakdown of borrowed funds by type. 

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|                       |
|----------------------------|
| **Table 16**               |
|                       |
| **Type of Borrowed Funds** |
|                       |
| **(dollars in thousands)** |
|                       |

|                                                      |   |              |      |     |                                         |      |   |   |      |   |
|-----------------------------------------------------------|--------|-------------------|-----------|----------|----------------------------------------------|-----------|--------|--------|-----------|--------|
|                                                      |   | **September 30,** |      |     | **December 31,                        2008** |      |
|                                                      |   |              |      |     |                                         |
|                                                      |   | **2009**          |      | **2008** |                                         |      |   |
|                                                      |   |              |      |     |                                         |      |   |
|                                                      |   |              |      |     |                                         |      |   |   |      |   |
| **Short-Term Borrowings**                                 |   |              |      |     |                                         |      |   |   |      |   |
| Federal funds purchased and repurchase agreements         |   | $                 | 25        |     | $                                            | 137,927   |   | $      | 67,309    |   |
| Customer sweep accounts                                   |   |              | 281,235   |     |                                         | 551,559   |   |   | 493,012   |   |
| Federal Reserve borrowings                                |   |              | —   |     |                                         | 30,000    |   |   | 1,050,000 |   |
| Commercial paper                                          |   |              | —   |     |                                         | 19,068    |   |   | 12,537    |   |
| Treasury, tax and loan note                               |   |              | 7,491     |     |                                         | 450,375   |   |   | 3,516     |   |
|                                                      |   |              |      |     |                                         |      |   |   |      |   |
| **Total short-term borrowings**                           |   |              | 288,751   |     |                                         | 1,188,929 |   |   | 1,626,374 |   |
|                                                      |   |              |      |     |                                         |      |   |   |      |   |
|                                                      |
| **Long-Term Borrowings**                                  |   |              |      |     |                                         |      |   |   |      |   |
| Repurchase agreements                                     |   |              | 125,000   |     |                                         | 200,000   |   |   | 200,000   |   |
| FHLB advances                                             |   |              | 762,158   |     |                                         | 298,119   |   |   | 233,497   |   |
| Subordinated notes                                        |   |              | 206,704   |     |                                         | 216,704   |   |   | 216,704   |   |
| Mandatorily redeemable preferred stock of REIT subsidiary |   |              | 31,800    |     |                                         | 56,800    |   |   | 56,800    |   |
| Note payable                                              |   |              | 731       |     |                                         | 779       |   |   | 768       |   |
| Purchase accounting premiums, net of amortization         |   |              | —   |     |                                         | 707       |   |   | —   |   |
|                                                      |   |              |      |     |                                         |      |   |   |      |   |
| **Total long term borrowings**                            |   |              | 1,126,393 |     |                                         | 773,109   |   |   | 707,769   |   |
|                                                      |   |              |      |     |                                         |      |   |   |      |   |
| **Total borrowings**                                      |   |              | 1,415,144 |     |                                         | 1,962,038 |   |   | 2,334,143 |   |
| Less: Customer sweep accounts                             |   |              | (281,235  | )        |                                         | (551,559  | )      |   | (493,012  | )      |
| Add: Brokered deposits (1)                                |   |              | 2,099,040 |     |                                         | 2,573,833 |   |   | 1,908,767 |   |
|                                                      |   |              |      |     |                                         |      |   |   |      |   |
| **Total wholesale borrowings**                            |   | $                 | 3,232,949 |     | $                                            | 3,984,312 |   | $      | 3,749,898 |   |
|                                                      |   |              |      |     |                                         |      |   |   |      |   |
|                                                      |   |              |      |     |                                         |      |   |   |      |   |
| Wholesale borrowings as a % of total assets               |   |              | 26.3      | %        |                                         | 29.1      | %      |   | 27.6      | %      |

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

          TSFG uses both short-term and long-term borrowings to fund net growth of assets in excess of deposit growth. In the first nine months of 2009, average borrowings totaled $1.9 billion, compared with $2.4 billion in the first nine months of 2008. 

          Period-end wholesale borrowings decreased $516.9 million since December 31, 2008, primarily due to sales of loans and securities during second quarter 2009. During the nine months ended September 30, 2009, TSFG also shifted into borrowings with remaining maturities of more than one year in order to strengthen liquidity. 

          Daily funding needs are met through federal funds purchased and short-term brokered CDs, term 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 of collateral and overall funding needs. 

          In April 2009, TSFG repurchased $25.0 million of mandatorily redeemable preferred stock of a REIT subsidiary (priced at LIBOR plus 350 basis points) included in long-term borrowings in Table 16 and recognized an $8.3 million gain on the extinguishment. In addition, TSFG terminated $75.0 million (4.3% rate) in long-term repurchase agreements, and            recognized a loss on extinguishment of $5.4 million. In connection with the termination of the repurchase agreement, TSFG also sold U.S. government agency securities with a book value of approximately $120 million (3.6% yield) for a gain of $5.4 million. 

*     Capital Resources and Dividends*

          Shareholders’ equity totaled $1.2 billion, or 9.7% of total assets, at September 30, 2009 compared with $1.6 billion, or 11.9% of total assets, at December 31, 2008. Shareholders’ equity decreased primarily due to the net loss for the first nine months of 2009, partially offset by the issuance of $85 million of common stock. 

57

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          In June 2009, TSFG announced a capital plan (the “Capital Plan”) to bolster its common equity to cover the losses associated with a “more adverse” credit scenario used by the U.S. government in its recently completed supervisory capital assessment program (“SCAP”) for the country’s 19 largest bank holding            companies. This plan is substantially complete. In connection with this plan, TSFG issued $85 million of common equity in a public offering (with net proceeds of $79.7 million) and converted $90.9 million of Series 2008 Convertible Preferred Stock into 20.9 million common shares (including 6.9 million shares valued at $11.9 million as an inducement to convert). TSFG also exchanged $94.5 million of the Series 2008 Convertible Preferred Stock for a new series of preferred stock,            Series 2009-A Convertible Preferred Stock, which automatically converted into 24.0 million common shares (including 9.4 million shares valued at $14.0 million as an inducement to convert) upon shareholder approval on September 11, 2009. In addition, TSFG sold ancillary businesses and reduced its assets during second and third quarters 2009, partly by sales of indirect auto loans and shared national credits. During the first nine months of 2009, TSFG contributed $195 million to its            subsidiary bank to increase its capital. 

          The aforementioned Capital Plan was substantially completed. However, the significant loss in third quarter 2009, primarily related to loan losses and the $200.1 million valuation allowance on deferred tax assets, reduced tangible common equity to tangible assets to 5.25% at September 30, 2009, compared to 6.07% at June 30, 2009 and 6.05% at December 31,            2008. While management believes its regulatory ratios, which were not impacted by the valuation allowance, are satisfactory, the tangible common equity ratio is important to investors, debt rating agencies, and others. Accordingly, management is in the process of evaluating various alternatives to increase tangible common equity through the conversion of certain debt and non-common equity instruments into common stock or the issuance of additional equity in public or private            offerings. No decision has been made and the company plans to conclude on such evaluations over the next several months and take such actions, if any, shortly thereafter. No assurance can be provided that the Company can or will undertake such actions. 

          For the nine months ended September 30, 2009, preferred stock dividends included $32.4 million treated as deemed dividends to preferred shareholders resulting from induced conversions of $234.1 million of preferred stock into common shares. The deemed dividends had no effect on total equity or regulatory capital. 

          TSFG’s tangible equity to tangible asset ratio decreased to 8.02% at September 30, 2009, compared to 10.29% at December 31, 2008 primarily due to net losses in the first nine months of 2009 being partially offset by proceeds from the common stock offering and lower total assets. If interest rates increase, TSFG expects its unrealized gain on            securities available for sale to decrease, leading to a lower tangible equity to tangible asset ratio. 

          TSFG’s unrealized gain on securities available for sale and cash flow hedges, net of tax, which is included in accumulated other comprehensive income, increased to $48.9 million at September 30, 2009, compared with $42.6 million at December 31, 2008 due primarily to a decrease in long-term interest rates and a contraction in spreads. 

          Common book value per common share at September 30, 2009 and December 31, 2008 was $4.01 and $14.12, respectively. The decrease in common book value per common share was primarily due to the issuance of 85 million common shares, the conversion of Series 2008 and Series 2009-A Convertible Preferred Stock into 54.9 million common shares, and the net loss            during the period. Common tangible book value per common share at September 30, 2009 and December 31, 2008 was $2.94 and $10.83, 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. At September 30, 2009, goodwill totaled $213.8 million, or $0.99 per share, and is not being amortized, while other intangibles totaled $16.8 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, 2009. 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 17 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, 2009, trust preferred securities included in tier 1 capital totaled $200.5 million. 

58

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|               |
|--------------------|
| **Table 17**       |
|               |
| **Capital Ratios** |
|               |

|                      |   |                   |   |                                                                           |   |   |   |
|---------------------------|--------|------------------------|--------|--------------------------------------------------------------------------------|--------|--------|--------|
|                      |   | **September 30, 2009** |   | **Well                        Capitalized                        Requirement** |   |
|                      |   |                   |   |                                                                           |   |
| **TSFG**                  |   |                   |   |                                                                           |   |   |   |
| Total risk-based capital  |   | 12.49                  | %      |                                                                           | n/a    |   |   |
| Tier 1 risk-based capital |   | 11.19                  |   |                                                                           | n/a    |   |   |
| Leverage ratio            |   | 9.22                   |   |                                                                           | n/a    |   |   |
|                      |   |                   |   |                                                                           |   |   |   |
| **Carolina First Bank**   |   |                   |   |                                                                           |   |   |   |
| Total risk-based capital  |   | 11.70                  | %      |                                                                           | 10.00  | %      |   |
| Tier 1 risk-based capital |   | 10.14                  |   |                                                                           | 6.00   |   |   |
| Leverage ratio            |   | 8.34                   |   |                                                                           | 5.00   |   |   |

          During third quarter 2009, TSFG recorded a $200.1 million valuation allowance against its deferred tax assets (see “Critical Accounting Policies and Estimates – Income Taxes”). For regulatory purposes, the deferred tax assets were already deducted from tier 1 and total capital ratios for both TSFG and Carolina First Bank as capital            regulations limit the amount of deferred tax assets that are dependent upon future taxable income to the lesser of the amount of deferred tax assets that are expected to be realized within one year of the quarter-end date, based on the projected future taxable income for that year, or 10% of tier 1 capital. Accordingly, the valuation allowance did not impact TSFG’s well-capitalized status at September 30, 2009. 

          Carolina First Bank is subject to certain regulatory restrictions on the amount of dividends it is permitted to pay. Currently, neither Carolina First Bank nor its subsidiaries (including, but not limited to, its real estate investment trust subsidiary) may pay dividends without federal and/or state regulatory approval. During third quarter 2009, TSFG            suspended its common dividend. Future TSFG common dividends will depend upon a number of factors, including payment of the preferred stock dividends, financial performance, capital requirements and assessment of capital needs. In addition, the Federal Reserve has the authority to prohibit TSFG from paying a dividend on its common and preferred stock and trust preferred securities. 

**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 18 presents average balance sheets and a net interest income analysis on a tax-equivalent basis for the three and nine months ended September 30, 2009 and 2008. 

59

----

|                                                |
|-----------------------------------------------------|
| **Table 18**                                        |
|                                                |
| **Comparative Average Balances - Yields and Costs** |
|                                                |
| **(dollars in thousands)**                          |

|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
|-------------------------------------------------------|--------|--------------------------------------------|------------|--------------------------------------------|--------|----------------------------------------|--------|--------------------------------------------|---------|--------------------------------------------|--------|----------------------------------------|--------|--------|---------|--------|--------|--------|--------|
|                                                  |   | **Three Months Ended September 30,**       |       |
|                                                  |   |                                       |       |
|                                                  |   | **2009**                                   |       | **2008**                                   |   |
|                                                  |   |                                       |       |                                       |   |
|                                                  |   | **Average                        Balance** |       | **Income/                        Expense** |   | **Yield/                        Rate** |   | **Average                        Balance** |    | **Income/                        Expense** |   | **Yield/                        Rate** |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| **Assets**                                            |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Earning assets                                        |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Loans (1)                                             |   | $                                          | 9,163,404  |                                       | $      | 112,673                                |   |                                       | 4.88    | %                                          | $      | 10,458,765                             |   | $      | 155,433 |   |   | 5.91   | %      |
| Investment securities, taxable (2)                    |   |                                       | 1,610,244  |                                       |   | 16,742                                 |   |                                       | 4.16    |                                       |   | 1,768,461                              |   |   | 20,186  |   |   | 4.57   |   |
| Investment securities, nontaxable (2) (3)             |   |                                       | 237,040    |                                       |   | 3,086                                  |   |                                       | 5.21    |                                       |   | 290,431                                |   |   | 3,726   |   |   | 5.13   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Total investment securities                           |   |                                       | 1,847,284  |                                       |   | 19,828                                 |   |                                       | 4.29    |                                       |   | 2,058,892                              |   |   | 23,912  |   |   | 4.65   |   |
| Federal funds sold and interest-bearing bank balances |   |                                       | 175        |                                       |   | —                                |   |                                       | — |                                       |   | 37,149                                 |   |   | 197     |   |   | 2.11   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Total earning assets                                  |   |                                       | 11,010,863 |                                       | $      | 132,501                                |   |                                       | 4.78    |                                       |   | 12,554,806                             |   | $      | 179,542 |   |   | 5.69   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Non-earning assets                                    |   |                                       | 1,417,844  |                                       |   |                                   |   |                                       |    |                                       |   | 1,281,130                              |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Total assets                                          |   | $                                          | 12,428,707 |                                       |   |                                   |   |                                       |    |                                       | $      | 13,835,936                             |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
|                                                  |
| **Liabilities and Shareholders’ Equity**        |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Liabilities                                           |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing liabilities                          |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing deposits                             |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing checking                             |   | $                                          | 1,011,374  |                                       | $      | 699                                    |   |                                       | 0.27    |                                       | $      | 1,130,079                              |   | $      | 2,481   |   |   | 0.87   |   |
| Savings                                               |   |                                       | 243,787    |                                       |   | 599                                    |   |                                       | 0.97    |                                       |   | 143,014                                |   |   | 255     |   |   | 0.71   |   |
| Money market                                          |   |                                       | 2,092,634  |                                       |   | 7,030                                  |   |                                       | 1.33    |                                       |   | 1,949,001                              |   |   | 11,293  |   |   | 2.31   |   |
| Time deposits, excluding brokered deposits            |   |                                       | 2,909,664  |                                       |   | 22,241                                 |   |                                       | 3.03    |                                       |   | 3,259,783                              |   |   | 30,522  |   |   | 3.72   |   |
| Brokered deposits                                     |   |                                       | 1,911,837  |                                       |   | 14,587                                 |   |                                       | 3.03    |                                       |   | 2,574,430                              |   |   | 24,520  |   |   | 3.79   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Total interest-bearing deposits                       |   |                                       | 8,169,296  |                                       |   | 45,156                                 |   |                                       | 2.19    |                                       |   | 9,056,307                              |   |   | 69,071  |   |   | 3.03   |   |
| Customer sweep accounts                               |   |                                       | 309,577    |                                       |   | 230                                    |   |                                       | 0.29    |                                       |   | 536,526                                |   |   | 2,251   |   |   | 1.67   |   |
| Other borrowings (4)                                  |   |                                       | 1,134,993  |                                       |   | 5,997                                  |   |                                       | 2.10    |                                       |   | 1,453,196                              |   |   | 11,297  |   |   | 3.09   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Total interest-bearing liabilities                    |   |                                       | 9,613,866  |                                       |   | 51,383                                 |   |                                       | 2.12    |                                       |   | 11,046,029                             |   |   | 82,619  |   |   | 2.98   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Noninterest-bearing liabilities                       |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Noninterest-bearing deposits                          |   |                                       | 1,109,176  |                                       |   |                                   |   |                                       |    |                                       |   | 1,059,565                              |   |   |    |   |   |   |   |
| Other noninterest-bearing liabilities                 |   |                                       | 203,380    |                                       |   |                                   |   |                                       |    |                                       |   | 177,735                                |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Total liabilities                                     |   |                                       | 10,926,422 |                                       |   |                                   |   |                                       |    |                                       |   | 12,283,329                             |   |   |    |   |   |   |   |
| Shareholders’ equity                            |   |                                       | 1,502,285  |                                       |   |                                   |   |                                       |    |                                       |   | 1,552,607                              |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Total liabilities and shareholders’ equity      |   | $                                          | 12,428,707 |                                       |   |                                   |   |                                       |    |                                       | $      | 13,835,936                             |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Net interest income (tax-equivalent)                  |   |                                       |       |                                       | $      | 81,118                                 |   |                                       | 2.93    | %                                          |   |                                   |   | $      | 96,923  |   |   | 3.08   | %      |
| Less: tax-equivalent adjustment (3)                   |   |                                       |       |                                       |   | 1,080                                  |   |                                       |    |                                       |   |                                   |   |   | 1,304   |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Net interest income                                   |   |                                       |       |                                       | $      | 80,038                                 |   |                                       |    |                                       |   |                                   |   | $      | 95,619  |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
|                                                  |
| Supplemental data:                                    |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Customer funding (5)                                  |   | $                                          | 7,676,212  |                                       | $      | 30,799                                 |   |                                       | 1.59    | %                                          | $      | 8,077,968                              |   | $      | 46,802  |   |   | 2.30   | %      |
| Wholesale borrowings (6)                              |   |                                       | 3,046,830  |                                       |   | 20,584                                 |   |                                       | 2.68    |                                       |   | 4,027,626                              |   |   | 35,817  |   |   | 3.54   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
| Total funding (7)                                     |   | $                                          | 10,723,042 |                                       | $      | 51,383                                 |   |                                       | 1.90    | %                                          | $      | 12,105,594                             |   | $      | 82,619  |   |   | 2.72   | %      |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |    |                                       |   |                                   |   |   |    |   |   |   |   |
|                                                       |        |                                            |            |                                            |        |                                        |        |                                            |         |                                            |        |                                        |        |        |         |        |        |        |        |  |  |

|   |                                                                                                                                                                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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, TSFG capitalized $424,000 of interest in conjunction with the construction of its planned corporate campus. See “Impairment of Long-Lived Assets” under “Balance Sheet Review.”   |
|   |                                                                                                                                                                                                                                                        |
| (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.

60

----

|                                                |
|-----------------------------------------------------|
| **Table 18 (continued)**                            |
|                                                |
| **Comparative Average Balances - Yields and Costs** |
|                                                |
| **(dollars in thousands)**                          |

|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
|-------------------------------------------------------|--------|--------------------------------------------|------------|--------------------------------------------|--------|----------------------------------------|--------|--------------------------------------------|--------|--------------------------------------------|--------|----------------------------------------|--------|--------|---------|--------|--------|--------|--------|
|                                                  |   | **Nine Months Ended September 30,**        |       |
|                                                  |   |                                       |       |
|                                                  |   | **2009**                                   |       | **2008**                                   |   |
|                                                  |   |                                       |       |                                       |   |
|                                                  |   | **Average                        Balance** |       | **Income/                        Expense** |   | **Yield/                        Rate** |   | **Average                        Balance** |   | **Income/                        Expense** |   | **Yield/                        Rate** |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| **Assets**                                            |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Earning assets                                        |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Loans (1)                                             |   | $                                          | 9,738,592  |                                       | $      | 358,615                                |   |                                       | 4.92   | %                                          | $      | 10,384,557                             |   | $      | 484,677 |   |   | 6.23   | %      |
| Investment securities, taxable (2)                    |   |                                       | 1,714,202  |                                       |   | 55,430                                 |   |                                       | 4.31   |                                       |   | 1,772,581                              |   |   | 61,169  |   |   | 4.60   |   |
| Investment securities, nontaxable (2) (3)             |   |                                       | 249,772    |                                       |   | 9,711                                  |   |                                       | 5.18   |                                       |   | 305,312                                |   |   | 11,683  |   |   | 5.10   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Total investment securities                           |   |                                       | 1,963,974  |                                       |   | 65,141                                 |   |                                       | 4.42   |                                       |   | 2,077,893                              |   |   | 72,852  |   |   | 4.67   |   |
| Federal funds sold and interest-bearing bank balances |   |                                       | 209        |                                       |   | 1                                      |   |                                       | 0.64   |                                       |   | 22,095                                 |   |   | 375     |   |   | 2.27   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Total earning assets                                  |   |                                       | 11,702,775 |                                       | $      | 423,757                                |   |                                       | 4.84   |                                       |   | 12,484,545                             |   | $      | 557,904 |   |   | 5.97   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Non-earning assets                                    |   |                                       | 1,316,614  |                                       |   |                                   |   |                                       |   |                                       |   | 1,365,056                              |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Total assets                                          |   | $                                          | 13,019,389 |                                       |   |                                   |   |                                       |   |                                       | $      | 13,849,601                             |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
|                                                  |
| **Liabilities and Shareholders’ Equity**        |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Liabilities                                           |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing liabilities                          |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing deposits                             |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing checking                             |   | $                                          | 1,059,283  |                                       | $      | 2,288                                  |   |                                       | 0.29   |                                       | $      | 1,135,385                              |   | $      | 9,817   |   |   | 1.15   |   |
| Savings                                               |   |                                       | 216,710    |                                       |   | 1,600                                  |   |                                       | 0.99   |                                       |   | 150,600                                |   |   | 986     |   |   | 0.87   |   |
| Money market                                          |   |                                       | 1,977,521  |                                       |   | 21,535                                 |   |                                       | 1.46   |                                       |   | 2,081,789                              |   |   | 39,748  |   |   | 2.55   |   |
| Time deposits, excluding brokered deposits            |   |                                       | 3,057,793  |                                       |   | 77,689                                 |   |                                       | 3.40   |                                       |   | 3,070,785                              |   |   | 93,345  |   |   | 4.06   |   |
| Brokered deposits                                     |   |                                       | 1,923,970  |                                       |   | 46,428                                 |   |                                       | 3.23   |                                       |   | 2,198,237                              |   |   | 65,461  |   |   | 3.98   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Total interest-bearing deposits                       |   |                                       | 8,235,277  |                                       |   | 149,540                                |   |                                       | 2.43   |                                       |   | 8,636,796                              |   |   | 209,357 |   |   | 3.24   |   |
| Customer sweep accounts                               |   |                                       | 375,364    |                                       |   | 773                                    |   |                                       | 0.28   |                                       |   | 598,186                                |   |   | 10,344  |   |   | 2.31   |   |
| Other borrowings (4)                                  |   |                                       | 1,569,493  |                                       |   | 19,059                                 |   |                                       | 1.62   |                                       |   | 1,816,963                              |   |   | 45,584  |   |   | 3.35   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Total interest-bearing liabilities                    |   |                                       | 10,180,134 |                                       |   | 169,372                                |   |                                       | 2.22   |                                       |   | 11,051,945                             |   |   | 265,285 |   |   | 3.21   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Noninterest-bearing liabilities                       |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Noninterest-bearing deposits                          |   |                                       | 1,068,760  |                                       |   |                                   |   |                                       |   |                                       |   | 1,074,100                              |   |   |    |   |   |   |   |
| Other noninterest-bearing liabilities                 |   |                                       | 223,084    |                                       |   |                                   |   |                                       |   |                                       |   | 185,846                                |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Total liabilities                                     |   |                                       | 11,471,978 |                                       |   |                                   |   |                                       |   |                                       |   | 12,311,891                             |   |   |    |   |   |   |   |
| Shareholders’ equity                            |   |                                       | 1,547,411  |                                       |   |                                   |   |                                       |   |                                       |   | 1,537,710                              |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Total liabilities and shareholders’ equity      |   | $                                          | 13,019,389 |                                       |   |                                   |   |                                       |   |                                       | $      | 13,849,601                             |   |   |    |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Net interest income (tax-equivalent)                  |   |                                       |       |                                       | $      | 254,385                                |   |                                       | 2.90   | %                                          |   |                                   |   | $      | 292,619 |   |   | 3.13   | %      |
| Less: tax-equivalent adjustment (3)                   |   |                                       |       |                                       |   | 3,399                                  |   |                                       |   |                                       |   |                                   |   |   | 4,089   |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Net interest income                                   |   |                                       |       |                                       | $      | 250,986                                |   |                                       |   |                                       |   |                                   |   | $      | 288,530 |   |   |   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
|                                                  |
| Supplemental data:                                    |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Customer funding (5)                                  |   | $                                          | 7,755,431  |                                       | $      | 103,885                                |   |                                       | 1.79   | %                                          | $      | 8,110,845                              |   | $      | 154,240 |   |   | 2.54   | %      |
| Wholesale borrowings (6)                              |   |                                       | 3,493,463  |                                       |   | 65,487                                 |   |                                       | 2.51   |                                       |   | 4,015,200                              |   |   | 111,045 |   |   | 3.69   |   |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Total funding (7)                                     |   | $                                          | 11,248,894 |                                       | $      | 169,372                                |   |                                       | 2.01   | %                                          | $      | 12,126,045                             |   | $      | 265,285 |   |   | 2.92   | %      |
|                                                  |   |                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |

|   |                                                                                                                                                                                                                                                                                              |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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, 2009 and 2008, TSFG capitalized $738,000 and $1.1 million, respectively, of interest in conjunction with the construction of its planned corporate campus. See “Impairment of Long-Lived Assets” under “Balance Sheet Review.” |
|   |                                                                                                                                                                                                                                                                                              |
| (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.

61

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          Fully tax-equivalent net interest income decreased to $254.4 million for the first nine months of 2009 from $292.6 million for the first nine months of 2008 primarily due to the decline in average earning assets and the impact of higher levels of nonperforming assets during the first nine months of 2009. TSFG’s average earning assets were $11.7            billion for the first nine months of 2009 compared to $12.5 billion for the first nine months of 2008. Average loans as a percentage of average earning assets was 83.2% for the first nine months of 2009 and 2008. At September 30, 2009, 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 and            LIBOR-based loans as part of its overall interest rate risk management. 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. Certain of these swaps with a notional amount of $655 million, as well as the interest rate floor with a notional amount of $200 million, mature in fourth quarter 2009. 

          The net interest margin for the first nine months of 2009 was 2.90%, compared with 3.13% for the first nine months of 2008. Comparing the first nine months of 2009 to the first nine months of 2008, the yield on average earning assets decreased 113 basis points, primarily due to decreased loan yields, which were down 131 basis points. The decrease in            earning asset yields was partially offset by a decrease in the average cost of funding of 91 basis points. Although rates on wholesale borrowings decreased 118 basis points, rates on customer funding decreased only 75 basis points as deposit pricing has effectively approached a floor on the absolute level for most non-maturity products. 

          Net interest income and the net interest margin have also been negatively impacted in 2008 and the first nine months of 2009 by elevated levels of nonperforming assets and the reversal of accrued interest income as loans have been moved to nonaccrual status. For the first nine months of 2009, $11.6 million of interest income was reversed as the related            loan was placed in nonaccrual status, which reduced the net interest margin by approximately 13 basis points. For the first nine months of 2008, the $7.8 million reversal of interest income on nonaccrual loans reduced the net interest margin by approximately 8 basis points. 

          Fully tax-equivalent net interest income for third quarter 2009 totaled $81.1 million, a decrease of $5.9 million from $87.0 million for second quarter 2009 and a decrease of $15.8 million from $96.9 million for third quarter 2008. The net interest margin for third quarter 2009 was 2.93%, compared to 2.96% for second quarter 2009 and 3.08% for third            quarter 2008. This decrease relative to second quarter 2009 was primarily due to shifting into borrowings with remaining maturities of more than one year and maintaining a higher balance in cash in order to strengthen liquidity. The decrease relative to third quarter 2008 was primarily due to rates on customer funding decreasing only 71 basis points compared to a decrease in earning asset yields of 91 basis points and a decrease in wholesale funding rates of 86 basis points. As            mentioned above, deposit pricing has effectively approached a floor on the absolute level for most non-maturity products. For third quarter 2009, $4.1 million of interest income was reversed on loans moved to nonaccrual status, compared to $3.4 million for second quarter 2009 and $2.8 million for third quarter 2008. 

*     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 $498.1 million in the first nine months of 2009, compared to $221.7 million in the first nine months of 2008. The higher provision largely reflected credit deterioration due to continued weakness in housing markets and additional reserves for nonperforming loans and land loans.

          Net loan charge-offs were $398.3 million, or 5.48% (annualized) of average loans held for investment, for the first nine months of 2009, compared with $147.4 million, or 1.90% (annualized), for the first nine months of 2008. The allowance for credit losses equaled 3.89% of loans held for investment as of September 30, 2009, compared to 2.45% and 1.97%,            respectively, as of December 31, 2008 and September 30, 2008. Management expects the level of charge-offs and provision expense to remain elevated relative to historical trends due to the current credit environment. See “Loans,” “Credit Quality,” and “Allowance for Loan Losses and Reserve for Unfunded Lending Commitments.” 

          For third quarter 2009, the provision for credit losses totaled $224.2 million, compared to $131.3 million for second quarter 2009 and $84.6 million in third quarter 2008. Third quarter 2009 provision exceeded net loan charge-offs by $55.6 million. Net loan charge-offs in third quarter 2009 increased to $168.6 million, from $120.6 million in second            quarter 2009, partly due to the acceleration of sales and resolution of problem loans. Future levels of provision expense will depend on the level of net loan charge-offs, including the impact of loan sales.

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*     Noninterest Income*

          Table 19 shows the components of noninterest income. 

|                                         |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
|----------------------------------------------|--------|-------------------------------------------------------------|---------|------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|---------|--------|
| **Table 19**                                 |
| **Components of Noninterest Income**         |
| **(dollars in thousands)**                   |
|                                         |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
|                                         |   | **Three Months Ended                        September 30,** |    | **Nine Months Ended                        September 30,** |   |
|                                         |   | **2009**                                                    |    | **2008**                                                   |   | **2009** |   | **2008** |    |
| Service charges on deposit accounts          |   | $                                                           | 10,754  |                                                       | $      | 11,376   |   | $        | 29,557  |   | $      | 32,791  |   |
| Debit card income, net                       |   |                                                        | 2,139   |                                                       |   | 2,006    |   |     | 6,232   |   |   | 5,938   |   |
| Customer service fee income                  |   |                                                        | 1,251   |                                                       |   | 1,425    |   |     | 3,724   |   |   | 4,114   |   |
| Total customer fee income                    |   |                                                        | 14,144  |                                                       |   | 14,807   |   |     | 39,513  |   |   | 42,843  |   |
|                                         |
| Insurance income                             |   |                                                        | 1,911   |                                                       |   | 2,368    |   |     | 6,133   |   |   | 7,816   |   |
| Retail investment services, net              |   |                                                        | 2,157   |                                                       |   | 2,294    |   |     | 5,813   |   |   | 5,960   |   |
| Trust and investment management income       |   |                                                        | 1,251   |                                                       |   | 1,728    |   |     | 4,211   |   |   | 5,251   |   |
| Benefits administration fees                 |   |                                                        | — |                                                       |   | 813      |   |     | 1,213   |   |   | 2,303   |   |
| Total wealth management income               |   |                                                        | 5,319   |                                                       |   | 7,203    |   |     | 17,370  |   |   | 21,330  |   |
|                                         |
| Bank-owned life insurance income             |   |                                                        | 2,797   |                                                       |   | 2,881    |   |     | 7,859   |   |   | 8,938   |   |
| Gain on sale of ancillary businesses         |   |                                                        | 7,234   |                                                       |   | —  |   |     | 7,234   |   |   | — |   |
| Mortgage banking income                      |   |                                                        | 1,137   |                                                       |   | 879      |   |     | 4,392   |   |   | 4,222   |   |
| Gain (loss) on certain derivative activities |   |                                                        | 1,597   |                                                       |   | (199     | )      |     | 3,817   |   |   | 49      |   |
| Merchant processing income, net              |   |                                                        | 591     |                                                       |   | 916      |   |     | 2,018   |   |   | 2,582   |   |
| (Loss) gain on securities                    |   |                                                        | (286    | )                                                          |   | (725     | )      |     | 1,340   |   |   | 1,547   |   |
| Gain on Visa IPO share redemption            |   |                                                        | — |                                                       |   | —  |   |     | — |   |   | 1,904   |   |
| Other                                        |   |                                                        | 937     |                                                       |   | 2,903    |   |     | 5,940   |   |   | 8,540   |   |
| Total noninterest income                     |   | $                                                           | 33,470  |                                                       | $      | 28,665   |   | $        | 89,483  |   | $      | 91,955  |   |

          Noninterest income decreased to $89.5 million in the first nine months of 2009 from $92.0 million in the first nine months of 2008, reflecting decreases in most categories. Total customer fee income and wealth management income decreased partially due to the effects of the economic downturn, such as fewer customer transactions and lower asset valuations.            Net debit card income was an exception, as increased transactions led to an increase in this line item. During third quarter 2009, TSFG sold three ancillary businesses: its merchant processing portfolio, a financial planning group, and a retirement plan administrator. Although these sales resulted in a $7.2 million gain, they reduced the respective line items in which the businesses were previously included. 

          Mortgage banking income increased 4.0% in the first nine months of 2009. Mortgage loans originated by TSFG originators totaled $258.8 million and $229.7 million in the first nine months of 2009 and 2008, respectively. Gain on certain derivative activities increased $3.8 million, primarily due to recording changes in the value of interest rate swaps no            longer qualifying for hedge accounting and the ineffectiveness of other hedging relationships. During the first nine months of 2009, gain on securities included a $5.4 million gain on the sale of U.S. government agency securities, partially offset by $4.1 million in other-than-temporary impairment on certain community bank-related equity securities and privately held investments included in other assets. 

          For third quarter 2009, noninterest income totaled $33.5 million, compared to $32.3 million for second quarter 2009 and $28.7 million for third quarter 2008. Comparing third quarter 2009 to second quarter 2009, the increase was primarily due to the $7.2 million gain on sale of ancillary businesses, partially offset by a $4.9 million unfavorable swing in            the gain/loss on securities line item, reflecting other-than-temporary impairment charges in third quarter 2009 combined with the gain on the sale of U.S. government agency securities in second quarter. Comparing third quarter 2009 to third quarter 2008, decreases in most line items were offset by increases in gain on certain derivative activities and gain on sale of ancillary businesses, reflecting the derivative and sales of business transactions mentioned above. 

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*     Noninterest Expenses*

          Table 20 shows the components of noninterest expenses. 

|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
|------------------------------------------------------------------|--------|-------------------------------------------------------------|---------|------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|---------|--------|
| **Table 20**                                                     |
| **Components of Noninterest Expenses**                           |
| **(dollars in thousands)**                                       |
|                                                             |   |                                                        |    |                                                       |   |     |   |     |    |   |   |    |   |
|                                                             |   | **Three Months Ended                        September 30,** |    | **Nine Months Ended                        September 30,** |   |
|                                                             |   | **2009**                                                    |    | **2008**                                                   |   | **2009** |   | **2008** |    |
| Salaries and wages, excluding employment contracts and severance |   | $                                                           | 32,559  |                                                       | $      | 37,700   |   | $        | 102,489 |   | $      | 108,689 |   |
| Employment contracts and severance                               |   |                                                        | — |                                                       |   | 4,621    |   |     | 829     |   |   | 6,920   |   |
| Total salaries and wages                                         |   |                                                        | 32,559  |                                                       |   | 42,321   |   |     | 103,318 |   |   | 115,609 |   |
|                                                             |
| Employee benefits                                                |   |                                                        | 7,724   |                                                       |   | 9,252    |   |     | 25,572  |   |   | 27,663  |   |
| Occupancy                                                        |   |                                                        | 9,658   |                                                       |   | 9,770    |   |     | 28,600  |   |   | 27,365  |   |
| Furniture and equipment                                          |   |                                                        | 6,950   |                                                       |   | 6,991    |   |     | 20,696  |   |   | 20,107  |   |
| Loan collection and foreclosed asset expense                     |   |                                                        | 6,835   |                                                       |   | 4,491    |   |     | 18,973  |   |   | 7,873   |   |
| Impairment of long lived assets                                  |   |                                                        | 746     |                                                       |   | —  |   |     | 18,122  |   |   | — |   |
| Regulatory assessments                                           |   |                                                        | 6,181   |                                                       |   | 3,020    |   |     | 17,315  |   |   | 7,471   |   |
| FDIC special assessment                                          |   |                                                        | — |                                                       |   | —  |   |     | 5,700   |   |   | — |   |
| Loss on other real estate owned                                  |   |                                                        | 4,406   |                                                       |   | 765      |   |     | 17,403  |   |   | 949     |   |
| Professional services                                            |   |                                                        | 4,034   |                                                       |   | 4,573    |   |     | 12,892  |   |   | 11,679  |   |
| Project NOW expense                                              |   |                                                        | 114     |                                                       |   | —  |   |     | 1,693   |   |   | — |   |
| (Gain) loss on nonmortgage loans held for sale                   |   |                                                        | (41     | )                                                          |   | —  |   |     | 11,258  |   |   | — |   |
| Advertising and business development                             |   |                                                        | 1,264   |                                                       |   | 2,114    |   |     | 4,654   |   |   | 7,316   |   |
| Telecommunications                                               |   |                                                        | 1,572   |                                                       |   | 1,628    |   |     | 4,649   |   |   | 4,527   |   |
| Amortization of intangibles                                      |   |                                                        | 1,238   |                                                       |   | 1,474    |   |     | 3,815   |   |   | 4,721   |   |
| Goodwill impairment                                              |   |                                                        | — |                                                       |   | —  |   |     | 2,511   |   |   | 188,431 |   |
| Loss on repurchase of auction rate securities                    |   |                                                        | — |                                                       |   | —  |   |     | 676     |   |   | — |   |
| (Gain) loss on early extinguishment of debt                      |   |                                                        | — |                                                       |   | (125     | )      |     | (3,043  | )      |   | 339     |   |
| Branch acquisition and conversion costs                          |   |                                                        | — |                                                       |   | —  |   |     | — |   |   | 731     |   |
| Visa-related litigation                                          |   |                                                        | — |                                                       |   | —  |   |     | — |   |   | (863    | )      |
| Other                                                            |   |                                                        | 6,289   |                                                       |   | 7,883    |   |     | 21,154  |   |   | 26,222  |   |
| Total noninterest expenses                                       |   | $                                                           | 89,529  |                                                       | $      | 94,157   |   | $        | 315,958 |   | $      | 450,140 |   |

          Noninterest expenses decreased to $316.0 million in the first nine months of 2009 from $450.1 million in the first nine months of 2008. During first quarter 2008, the acceleration of credit deterioration in Florida prompted TSFG to perform an interim evaluation of the goodwill associated with its Mercantile banking segment. The evaluation reflected            decreases in projected cash flows for the Mercantile 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. During fourth quarter 2008, TSFG recognized an additional $237.6 million of goodwill impairment on its Mercantile banking segment. 

          Late in 2008, TSFG launched an internal efficiency and expense control project (“Project NOW”), the goal of which is to improve revenue and reduce annual operating expenses. As a result, salaries and wages (excluding employment contracts and severance) and employee benefits decreased $8.3 million for the first nine months of 2009 compared to            the first nine months of 2008, as full-time equivalent employees declined to 2,196 at September 30, 2009 from 2,535 at September 30, 2008. 

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          Comparing the first nine months of 2009 to the first nine months of 2008, professional services increased, partially due to legal expenses associated with a shareholder lawsuit. Project NOW expenses increased due to costs associated with TSFG’s revenue and expense initiative. 

          Regulatory assessments increased $9.8 million based in part on TSFG’s participation in the Transaction Account Guarantee Program related to noninterest-bearing deposit accounts and across-the-board rate increases designed to replenish the FDIC’s Deposit Insurance Fund. TSFG also recorded an FDIC special assessment charge of $5.7 million in            the second quarter 2009. In September 2009, the FDIC proposed a rule that will require all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also proposed to adopt a uniform three-basis point increase in assessment rates effective on January 1, 2011. If the rule is finalized as proposed, TSFG expects to be required to pay approximately $90            million in prepaid risk-based assessments, the cost of which will be recognized ratably through 2012. 

          Credit-related expenses (including loan collection and foreclosed asset expense, loss on nonmortgage loans held for sale, and loss on other real estate owned) increased $38.8 million due to the current credit environment, and may continue to increase. 

          During the first nine months of 2009, TSFG recognized impairment charges of $18.1 million on its planned campus facility ($15.9 million), corporate jet ($612,000), and vacated branches and office locations ($1.6 million) (see “Impairment of Long-Lived Assets”), as well as a $2.5 million goodwill impairment charge related to non-banking            subsidiaries (see “Goodwill”). During the first nine months of 2009, TSFG recognized a net gain on early extinguishment of debt of $3.0 million, primarily due to gain on the repurchase of $25.0 million of mandatorily redeemable preferred stock of a REIT subsidiary, partially offset by a loss on termination of $75.0 million of long-term repurchase agreements (see “Borrowed Funds”). Also during the first nine months of 2009, TSFG repurchased $5.7 million of            various auction rate preferred securities from brokerage customers who purchased the securities during 2007. Currently, the market for these securities is illiquid and TSFG recorded a loss of $676,000 during the first nine months of 2009 to adjust these securities to estimated fair value (see “Securities”). 

          For third quarter 2009, noninterest expenses totaled $89.5 million, compared to $136.2 million for second quarter 2009 and $94.2 million for third quarter 2008. Comparing third quarter 2009 to second quarter 2009, credit-related expenses (including loan collection and foreclosed asset expense, loss on nonmortgage loans held for sale, and loss on other            real estate owned) decreased $18.4 million. This decrease principally stemmed from a gain of $41,000 versus a loss of $9.5 million on nonmortgage loans held for sale, and losses on other real estate owned down $8.5 million, reflecting the second quarter adjustment to appraised values. In addition, advertising and business development expenses decreased $845,000. Also in second quarter 2009, TSFG recognized the bulk of the impairment charges on long-lived assets ($17.4 million) and            goodwill ($2.5 million), as well as the FDIC special assessment ($5.7 million) mentioned in the previous paragraphs. Comparing third quarter 2009 to third quarter 2008, the increase was primarily due to credit-related expenses and regulatory assessments mentioned above. 

*     Income Taxes*

          Income tax expense as a percentage of pretax loss was (61.6)% and (2.9)%, respectively, for the three and nine months ended September 30, 2009. Income tax expense differed from the amount computed by applying TSFG’s statutory U.S. federal income tax rate of 35% to pretax loss for the three and nine months ended September 30, 2009 primarily due to            the deferred tax asset valuation allowance recorded during third quarter 2009 (see “Critical Accounting Policies and Estimates – Income Taxes”). Income tax benefit as a percentage of pretax loss was 54.2% and 18.6%, respectively, for the three and nine months ended September 30, 2008. Income tax benefit 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 changes in income projections. 

          At September 30, 2009, TSFG’s deferred tax asset totaled $207.4 million with a $203.8 million valuation allowance, for a net deferred tax asset of $3.6 million. 

          The accounting complexities of evaluating and recording a valuation allowance on deferred tax assets make the projection of the effective tax rate on future pretax net income or loss difficult. Based on current projections and assuming no change in pretax other comprehensive income (gains on investment securities available for sale and cash flow hedges),            the tax expense charged to operations for fourth quarter 2009 should approximate the net deferred tax asset at September 30, 2009, and the tax expense or benefit for 2010 should be at or near zero except for any change in

65

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reserves for uncertain tax positions. Volatility in other comprehensive income or a change in ownership as defined in Section 382 of the Internal Revenue Code of 1986 could materially impact the tax expense or benefit charged to operations.

**Enterprise Risk Management**

          Pages 62 through 65 of TSFG’s Annual Report on Form 10-K for the year ended December 31, 2008 provide a discussion of overall Enterprise Risk Management, Derivatives and Hedging Activities, Economic Risk, Credit Risk, Liquidity Risk, Operational Risk, and Compliance and Litigation Risk. 

*     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 2008 Form 10-K. The interest sensitivity analysis which follows has been updated for September 30, 2009 numbers. 

*          Interest Sensitivity Analysis.* As discussed on pages 62 and 63 of TSFG’s 2008 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 21 and 22 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 21 and 22. 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 interest income analysis; |
|   |   |                                                                                                                                                                                                 |
|   | • | mortgage backed securities prepayments are based on historical industry data (given the current economic and regulatory environment, uncertainty regarding future prepayments is heightened);        |
|   |   |                                                                                                                                                                                                 |
|   | • | 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 21 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, 2009, and            2008 levels, respectively. The increase in interest rate sensitivity from September 30, 2008 is primarily due to the impact of rising rates on assumed prepayment activity with respect to certain CMO instruments in the securities portfolio. 

|                                     |
|------------------------------------------|
| **Table 21**                             |
| **Net Interest Income at Risk Analysis** |

|                               |   |   |                                                                                                                             |    |                      |   |    |   |
|------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|---------|---------------------------|--------|---------|--------|
| **Interest Rate Scenario (1)**     |   |   | **Annualized Hypothetical Percentage Change in                        Net Interest Income                        September 30,** |    |
|                                    |   |   | **2009**                                                                                                                         |    | **2008**                  |   |
|     2.00%      |   |   |                                                                                                                             | 7.2     | %     |   | 2.0     | %      |
| 1.00                               |   |   |                                                                                                                             | 4.6     |                      |   | 1.0     |   |
| Flat                               |   |   |                                                                                                                             | — |                      |   | — |   |
|     (1.00) (2) |   |   |                                                                                                                             | n/a     |                      |   | (1.2    | )      |
|     (2.00) (2) |   |   |                                                                                                                             | n/a     |                      |   | n/a     |   |

|   |                                                                                               |
|--------|----------------------------------------------------------------------------------------------------|
| (1)    | Net interest income sensitivity is shown for gradual rate shifts over a 12 month period.           |
|   |                                                                                               |
| (2)    | Due to the current low rate environment, downward rate shifts were not run for September 30, 2009. |

          Table 22 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 

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assets minus the fair value of all liabilities and their associated off balance sheet amounts) at a given point in time. Table 22 shows the effect that the indicated changes in interest rates would have on the fair value of net assets at September 30, 2009 and 2008, respectively, compared with the base case or flat interest rate scenario. The base case or flat scenario assumes interest rates stay at September 30,            2009 and 2008 levels, respectively. The increase in the percentage change in EVE to increases in interest rates is primarily due to the lower EVE resulting from declines in the value of TSFG’s loan portfolio. The dollar EVE decline for a 1% immediate rate increase is essentially unchanged at approximately $38 million as of September 30, 2009 and 2008. For a 2% immediate rate increase, the dollar decline has improved to $94.3 million at September 30, 2009 from $103.5 million at            September 30, 2008. 

|                                       |
|--------------------------------------------|
| **Table 22**                               |
| **Economic Value of Equity Risk Analysis** |

|                                       |   |   |                                                                                                                                  |    |     |   |    |   |
|--------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|---------|----------|--------|---------|--------|
| **  Interest Rate Scenario (1)** |   |   | **Annualized Hypothetical Percentage Change in                        Economic Value of Equity                        September 30,** |    |
|                                            |   |   | **2009**                                                                                                                              |    | **2008** |   |
|     2.00%              |   |   |                                                                                                                                  | (27.7   | )%       |   | (7.6    | )%     |
| 1.00                                       |   |   |                                                                                                                                  | (11.3   | )        |   | (2.8    | )      |
| Flat                                       |   |   |                                                                                                                                  | — |     |   | — |   |
|     (1.00) (2)         |   |   |                                                                                                                                  | n/a     |     |   | 2.4     |   |
|     (2.00) (2)         |   |   |                                                                                                                                  | n/a     |     |   | n/a     |   |

|   |                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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. |
|   |                                                                                                                                                                                       |
| (2)    | Due to the current low rate environment, downward rate shifts were not run for September 30, 2009.                                                                                         |

          There are material limitations with TSFG’s models presented in Tables 21 and 22, 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 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 12 to the Consolidated Financial Statements for disclosure of the amounts of lending commitments. 

          *Derivatives.* 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 

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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 11 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. In addition, Carolina First Bank is subject to limitations on the amount of funds that may be transferred to the parent company. 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 levels. 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, TT&L 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 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 as deemed necessary. 

          As noted in Table 23 which follows, we have $1.0 billion of time deposits maturing over the remainder of 2009, with maturities of customer and brokered CDs accounting for $659.2 million and $341.5 million, respectively. We expect to replace maturing customer CDs through ongoing efforts to grow customer deposits and various deposit campaigns, replacing            any shortfall through wholesale borrowings. We anticipate replacing brokered CD maturities through a combination of issuance of new brokered CDs (as needed for liquidity) and growth in core customer funding. Our capacity to issue new brokered CDs could be significantly diminished based on TSFG’s financial condition and/or performance. 

          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. During the nine months ended September 30, 2009, TSFG shifted into borrowings with remaining maturities of more than one year in order to strengthen liquidity. In addition, the Company has historically been able to 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 long-term funding needs of the Company; however, TSFG’s contingency funding plan establishes early warning triggers to alert management to potential 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 adverse changes in the economy. Potential loss of deposits would be a primary funding need            in a liquidity crisis. Deposit balances which are not covered by FDIC insurance total approximately $930 million currently, and would increase to approximately $1.7 billion following expiration of the FDIC’s Transaction Account Guarantee Program, currently scheduled to expire at June 30, 2010. A significant portion of uninsured deposits are public fund deposits which are collateralized by investment securities. Loss of collateralized deposits in a liquidity crisis would be            essentially liquidity neutral to the extent released collateral could be sold or used to secure replacement wholesale funding. Thus, the primary deposit-related liquidity risk relates to balances which are neither insured nor collateralized, which total

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approximately $570 million currently, and would increase to approximately $1.0 billion following expiration of the FDIC’s Transaction Account Guarantee Program.

          As of September 30, 2009, we had $4.0 billion of secured liquidity reserves in the form of borrowing capacity from the Federal Reserve and TT&L, FHLB, and unpledged investment securities which could be used to manage through a severe liquidity scenario. Following a severe liquidity scenario, we would consider various actions to replenish liquidity,            including potential asset sales. 

          During 2009, several rating agencies lowered the credit ratings for TSFG and/or Carolina First Bank. These ratings changes did not have a material impact on TSFG’s liquidity given that we have no debt for which a downgrade of our credit ratings would trigger early termination and a credit rating downgrade has not historically impacted access to our            primary funding sources. However, certain downgrade levels could require the Company to post additional collateral to secure certain transactions (derivatives and certain borrowings) or could enable certain counterparties to rescind the transaction at their option. Such requirements are not expected to materially impact the Company’s overall liquidity. In addition, certain borrowings, such as brokered CDs and FHLB advances, are dependent on various credit eligibility criteria            which may be impacted by changes in the Company’s financial position and/or results of operations. 

          Given the weakened economy, current market conditions, and our recent credit ratings downgrades, there is no assurance that TSFG will, if it chooses to do so, be able to obtain new borrowings or issue additional equity on terms that are satisfactory. Due to these factors, TSFG is currently maintaining a cash position in excess of normal levels. TSFG is            also evaluating additional capital and cash management strategies including the potential sale of selected assets. While liquidity is an ongoing challenge for all financial institutions, management believes that TSFG’s available borrowing capacity and efforts to grow deposits are sufficient to provide the necessary funding for the remainder of 2009. However, management is prepared to take other actions if needed to manage through adverse liquidity conditions. 

          At September 30, 2009, the parent company had $60.2 million in cash and cash equivalents, which was available for payment of dividends and interest on capital instruments, unless required as capital support for Carolina First Bank. During third quarter 2009, the parent company’s obligations for preferred dividends and interest on capital            instruments totaled approximately $6 million (TSFG suspended its common dividend in third quarter 2009). In addition, during third quarter 2009, the parent company contributed $45 million to Carolina First Bank (following a $150 million contribution in second quarter 2009). 

          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 23 summarizes future contractual obligations based on maturity dates as of September 30, 2009. Table 23 does not            include payments which may be required under employment and deferred compensation agreements. In addition, Table 23 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, 2009). 

|                        |
|-----------------------------|
| **Table 23**                |
|                        |
|                        |
| **Contractual Obligations** |
|                        |
| **(dollars in thousands)**  |

|                                    |   |                       |      |                                                                |   |                                                            |   |                                                            |      |              |   |    |   |   |    |   |
|-----------------------------------------|--------|----------------------------|-----------|---------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-----------------------------------------------------------------|-----------|-------------------|--------|---------|--------|--------|---------|--------|
|                                    |   | **Payments Due by Period** |      |
|                                    |   |                       |      |
|                                    |   | **Total**                  |      | **Remainder                        of                        2009** |   | **2010                        and                        2011** |   | **2012                        and                        2013** |      | **After****2013** |   |
|                                    |   |                       |      |                                                                |   |                                                            |   |                                                            |      |              |   |
| Time deposits                           |   | $                          | 4,948,588 |                                                                | $      | 1,000,697                                                       |   | $                                                               | 3,590,284 |              | $      | 292,930 |   | $      | 64,677  |   |
| Short-term borrowings                   |   |                       | 288,751   |                                                                |   | 288,751                                                         |   |                                                            | —   |              |   | — |   |   | — |   |
| Long-term debt                          |   |                       | 1,126,393 |                                                                |   | 8,793                                                           |   |                                                            | 450,368   |              |   | 431,359 |   |   | 235,873 |   |
| Operating leases                        |   |                       | 173,538   |                                                                |   | 4,395                                                           |   |                                                            | 34,629    |              |   | 31,307  |   |   | 103,207 |   |
| Expanded corporate facilities contracts |   |                       | 3,897     |                                                                |   | 3,897                                                           |   |                                                            | —   |              |   | — |   |   | — |   |
|                                    |   |                       |      |                                                                |   |                                                            |   |                                                            |      |              |   |    |   |   |    |   |
| Total contractual obligations           |   | $                          | 6,541,167 |                                                                | $      | 1,306,533                                                       |   | $                                                               | 4,075,281 |              | $      | 755,596 |   | $      | 403,757 |   |
|                                    |   |                       |      |                                                                |   |                                                            |   |                                                            |      |              |   |    |   |   |    |   |

          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, 2009, see “Off-Balance Sheet

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Arrangements.” Increased demand for funds under these agreements would reduce TSFG’s available liquidity and could require additional sources of liquidity.

**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, 2009, 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, 2009, 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, 2009 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. 

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PART II. OTHER INFORMATION

**Item 1. *Legal Proceedings***

          As previously reported, TSFG and certain of its current and former directors and executive officers have been named as parties in two shareholder lawsuits, one filed on November 7, 2008 in South Carolina State Court in Greenville County (the “Court”) having Vernon A. Mercier as the named plaintiff, and one filed on November 26, 2008 in the            Court having John S. McMullen on behalf of Andros Associates, Inc. as named plaintiff. These two lawsuits are collectively referred to hereinafter as the “Litigation.”                      On March 24, 2009, all parties to the Litigation executed an Agreement in Principle providing for the settlement of the Litigation. Subsequent to the Agreement in Principle, the parties to the Litigation agreed to the following documents, which were filed by TSFG as exhibits to a Current Report on Form 8-K dated April 2, 2009: the Stipulation of Compromise and Settlement dated March 31, 2009 (the “Stipulation”),            the Joint Motion for Preliminary Approval of Proposed Settlement, the Preliminary Order Approving Settlement and Notice dated April 1, 2009 and the Notice of Pendency of Actions and Pendency of Settlement Hearing. These four documents are collectively referred to herein as the “Settlement Agreements”. The provisions in the Settlement Agreements were not to become effective until there was a final non-appealable order affirming their provisions. 

          On May 21, 2009, a confirmatory hearing with respect to the Settlement Agreements occurred before The Honorable Edward W. Miller of the South Carolina State Court of Common Pleas, which resulted in a Final Order and Judgment of Judge Miller, which among other things, affirmed the Stipulation (the “Final Order”). The time for appealing of the            Final Order expired on July 1, 2009, and the fact that there were no appeals regarding the Final Order was confirmed by counsel for plaintiffs and defendants on July 7, 2009. Accordingly, the parties to the Litigation have proceeded to implement the provisions in the Settlement Agreements. For additional details, refer to TSFG’s Current Report on Form 8-K dated July 13, 2009. By letter dated July 8, 2009, and in accordance with the provisions of the Settlement Agreements, Mack            I. Whittle, Jr. resigned from the TSFG Board of Directors. Subsequently, on July 24, 2009, Donald T. Heroman was appointed as a TSFG director.

          In addition, see Note 12 to the Consolidated Financial Statements for a discussion of ongoing legal proceedings. 

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

          Other than the risk factors set forth below, there have been no material changes to the risk factors previously disclosed under Item 1A (pages 11-13) of TSFG’s Annual Report on Form 10-K for the year ended December 31, 2008. 

***          Issuances or sales of common stock or other equity securities could result in an “ownership change” as defined for U.S. federal income tax purposes. In the event an “ownership change” were to occur, we could realize a permanent loss of a significant portion of our U.S. federal and state tax attributes and lose certain            built-in losses that have not been recognized for tax purposes as a result of the operation of Section 382 of the Internal Revenue Code of 1986, as amended. The amount of the permanent loss would be determined by the annual limitation and the carryforward period (20 years for U.S. federal net operating losses). The resulting loss would have a material adverse effect on our long-term results of operations and financial condition.***

          We established an additional valuation allowance against our deferred tax assets as of September 30, 2009. During our analysis we determined that we have not had an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended. Section 382 imposes restrictions on the use of a corporation’s net operating losses,            certain recognized built-in losses and other carry-overs after an “ownership change” occurs. An “ownership change” generally occurs if the aggregate percentage ownership of the stock of the corporation held by one or more “five-percent shareholders” increases by more than fifty percentage points over such shareholders’ lowest percentage ownership during the testing period, which is generally the three year-period ending on the transaction            date. Upon an “ownership change,” a corporation generally is subject to an annual limitation on its utilization of pre-change losses and certain recognized built-in losses equal to the value of the stock of the corporation immediately before the “ownership change,” multiplied by the long-term tax-exempt rate (subject to certain adjustments). The annual limitation is increased each year to the extent that there is an unused limitation in a prior year. Since            U.S. federal net operating losses generally may be carried forward for up to 20 years, the annual limitation also effectively provides a cap on the cumulative amount of pre-change losses and certain recognized built-in losses that may be utilized. Pre-change losses and certain recognized builtin losses in excess of the cap are effectively lost.

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          The relevant calculations under Section 382 are technical and highly complex. In some circumstances, issuances or sales of our stock (including any debt-for-equity exchanges and certain transactions involving our stock that are outside of our control) could result in an “ownership change” under Section 382. An “ownership change”            could occur if, due to the sale or issuance of additional common stock, the aggregate ownership of one or more persons treated as “5% shareholders” were to increase by more than fifty percentage points over such shareholders’ lowest percentage ownership during the relevant testing period. As of September 30, 2009, our net operating loss was approximately $298 million. If an “ownership change” were to occur, we believe we would permanently lose the            ability to realize a portion of the net operating losses and a portion of the net unrealized built-in losses, resulting in reduction to our total shareholders’ equity. 

          If an “ownership change” were to occur, it is possible that the limitations imposed on our ability to use pre-change losses and certain recognized built-in losses could cause a net increase in our U.S. federal income tax liability and U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in            effect. 

          ***Legislative and regulatory actions taken now or in the future to address the current liquidity and credit crisis in the financial industry may significantly affect our financial condition, results of operation, liquidity or stock price.***

          Current economic conditions, particularly in the financial markets, have resulted in government regulatory agencies and political bodies placing increased focus on and scrutiny of the financial services industry. The U.S. government has intervened on an unprecedented scale. In addition to the Capital Purchase Program (in which we participated), under the            Troubled Asset Relief Program (“TARP”) announced last fall and the CAP (in which we have not participated), the U.S. government has taken steps that include enhancing the liquidity support available to financial institutions, establishing a commercial paper funding facility, temporarily guaranteeing money market funds and certain types of debt issuances, and increasing insurance on bank deposits. It is possible that we could voluntarily apply to participate in the CAP,            although we currently do not intend to do so. Such participation would subject us to additional limitations regarding our business operations, would increase our preferred stock dividend obligations and would result in increased stockholder dilution. The U.S. Congress, through the Emergency Economic Stabilization Act of 2008 (“EESA”) and the American Recovery and Reinvestment Act of 2009 (“ARRA”), also has imposed a number of restrictions and limitations on            the operations of financial services firms participating in the federal programs. There can be no assurance as to the impact that the these programs and 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 these programs and measures 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. 

          These programs and measures also subject participating financial institutions, like us, to additional restrictions, oversight and costs that may have an adverse impact on our business, financial condition, results of operations or the price of our common stock. In particular, ARRA made amendments to the executive compensation provisions of EESA, under            which TARP was established. These amendments apply not only to future participants under TARP, but also apply retroactively to companies like us that are current TARP participants. The full scope and impact of these amendments is uncertain and difficult to predict. ARRA directs the Secretary of the U.S. Treasury to adopt standards that implement the amended provisions of EESA and directs the SEC to issue rules in connection with certain of the amended provisions. While the U.S.            Treasury has adopted interim final rules, the full scope and impact of the new standards and rules is not fully known. 

          In addition, new legislative proposals continue to be introduced in the U.S. Congress that could further substantially increase regulation of the financial services industry and impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including with respect to            compensation, interest rates and the impact of bankruptcy proceedings on consumer real property mortgages and otherwise. These, and any future legal requirements and implementing standards under TARP may have unforeseen or unintended adverse effects on TARP participants and on the financial services industry as a whole. Further, federal and state regulatory agencies also frequently adopt changes to their regulations and/or change the manner in which existing regulations are applied.            We cannot predict the substance or impact of pending or future legislation, regulation or the application thereof. Compliance with such current and potential regulation and scrutiny may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient manner by requiring us to expend significant time, effort and resources to ensure            compliance. Additionally, the evolving regulations concerning executive compensation may impose limitations on us that affect our ability to compete successfully for executive and management talent. 

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***          We are subject to extensive government regulation and supervision and could be subjected to additional restrictions on our business and operations.***

          TSFG and its subsidiaries are subject to extensive federal and state regulation and supervision affecting, among other things, our lending practices, capital structure, investment practices, dividend policy, and growth. Banking regulations are primarily intended to protect depositors’ funds, consumers, federal deposit insurance funds, and the            banking system as a whole, not security holders. Under federal and state law, our regulators have broad powers with respect to our company and subsidiaries, which entail risks and uncertainties. These risks and uncertainties include the risk that additional capital will be required by our regulators. In addition, our regulators may impose other directives relating to various aspects of our business, such as risk management, credit and lending policies and procedures, asset/liability            management, loan and securities portfolio composition, funding and liquidity and dividend policies if they determine that any of these aspects of our business pose undue risk to the institution and we fail to take or are unable to take sufficient action to mitigate such risks. Any such laws, requirements or directives, or the failure or inability to comply with them, could result in negative regulatory consequences, including becoming subject to supervisory action or to the            imposition of restrictions on our business and operations. Such restrictions could adversely impact our financial condition, our access to the equity and capital markets, the way in which we operate our businesses and the value of our common stock. 

          Laws and regulations also exist that require financial institutions like us to take steps to prevent the use of our banking subsidiary to facilitate the flow of illegal or illicit money, to report large currency transactions, and to file suspicious activity reports. We are also required to develop and implement a comprehensive anti-money laundering            compliance program. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. 

          In addition, Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. It is likely that there will be significant changes to the banking and financial institutions regulatory regimes in the near future in light of the recent performance of and government intervention in the financial            services sector. Changes to statutes, regulations, regulatory policies, or regulatory ratings (including changes in interpretation or implementation), could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit access to certain funding sources, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. 

***          We have incurred significant losses and will incur additional losses.***

          We incurred a net loss available to common shareholders of $568.6 million, or $7.77 loss per share, for the year ended December 31, 2008, and $543.1 million, or $4.67 loss per share, for the nine months ended September 30, 2009. We expect to incur a net loss for the three months ended December 31, 2009 (and a related decrease in shareholders’            equity as of such date). These losses and our expectations are primarily a result of losses in our loan portfolio and associated write-offs of goodwill, as well as the increase in our deferred tax asset valuation allowance, and we expect to continue to suffer losses at significant levels in fourth quarter 2009 and into the first half of 2010. Additional detail regarding various matters relating to our credit exposure, portfolio concentrations, non-performing assets and related            matters is included below. 

***          If we experience greater credit losses than anticipated, our earnings may be adversely affected.***

          As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their contractual terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and could have a material adverse effect on our operating            results. Our credit risk with respect to our real estate and construction loan portfolio relates principally to the creditworthiness of corporations and the value of the real estate serving as security for the repayment of loans. Our credit risk with respect to our commercial and consumer loan portfolio relates principally to the general creditworthiness of businesses and individuals within our local markets. 

          Our credit risk management system is defined by policies approved by our board of directors that govern the risk, underwriting, portfolio monitoring, and problem loan administration processes. We seek to ensure adherence to underwriting standards through a credit approval process and after-the-fact review by credit risk management, and supervise            compliance with underwriting and loan monitoring policies through daily reviews by credit risk managers,

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monthly reviews of exception reports and ongoing analysis of asset quality trends. We administer problem loans through the use of policies that require written plans for resolution and periodic meetings with credit risk management to review progress. Ultimately, credit risk management activities are monitored by our board of directors’ risk committee. As part of our credit quality efforts, we continually            assess the effectiveness of our policies and processes, and we have been and will continue to seek to reduce our levels of problem loans, address weaknesses in lending relationships and manage lending concentrations. However, our credit and risk management efforts are subject to substantial risks, including the risk of failure to develop adequate policies and procedures, failure to reduce problem loans and address lending and concentration weaknesses, failure of personnel to comply            with our policies and procedures, assumptions and judgments that are not realized and other failures of our policies and procedures. Such failures could result in credit losses that exceed our expectations and adversely impact our financial condition, our capital position and the potential for criticism or adverse action by our regulators or the rating agencies. 

          In connection with our credit risk management, business planning and forecasting, we make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for estimated credit losses based on a number of factors. We believe that our allowance for credit losses is adequate. However, if our assumptions or judgments            are wrong, our allowance for credit losses may not be sufficient to cover our actual credit losses. We may need to increase our allowance in the future in response to regulatory requests, changing conditions and assumptions, or deterioration in the quality of our loan portfolio. The actual amount of future provisions for credit losses cannot be determined at this time and may vary from the amounts of past provisions. 

***          Our geographic and product concentrations and the downturn in the real estate market have significantly affected our results of operations, and further credit deterioration could have further adverse effects on collateral values and borrowers’ ability to repay, and consequently our financial condition and results of operations.***

          Our commercial, real estate and consumer loans are concentrated predominantly in South Carolina, western North Carolina and larger markets in Florida. In addition, commercial real estate loans and residential construction loans in South Carolina, North Carolina and Florida represented approximately 42% of our total loan portfolio as of September 30,            2009. Included in these commercial loans are loans related to residential construction, which represented approximately 12% of our total loan portfolio as of September 30, 2009. Because of the concentration of real estate and other loans in the same geographic regions, adverse economic conditions in these areas have contributed to higher rates of loss and delinquency on our loans than if the loans had been more geographically diversified. 

          The effects of recent mortgage market challenges, combined with the ongoing decrease in commercial and residential real estate market prices and demand, could result in further price reductions in commercial and residential real estate values, adversely affecting the value of collateral securing the loans that we hold, as well as loan originations and            gains on sale of real estate and construction loans. Prices of properties in South Carolina, North Carolina and Florida – where a large portion of our loans have real estate as a primary or secondary component of collateral – remain under significant pressure, with rising unemployment levels and the impact of the real estate downturn on the general economy. If we are required to liquidate the collateral during this period of reduced real estate values, our profitability            and financial condition could be further adversely affected. As the extent and duration of this downturn is not known, we must estimate, based on current portfolio knowledge and analysis, the amount of our probable losses when recording our allowance for loan losses. This estimate requires substantial judgment on the part of management which may or may not prove valid and could be too low. 

          As noted above, as part of our credit quality and risk management efforts, we have been seeking to reduce our levels of problem loans and nonperforming assets, address weaknesses in lending relationships and manage geographic and product lending concentrations. However, while we expect that these actions will help mitigate the overall effects of the            credit down cycle, the weaknesses in our loan portfolio are expected to continue, and we will continue to have substantial geographic and product concentrations even with respect to new loans. Accordingly, it is anticipated that our non-performing asset and charge-off levels will remain elevated and could accelerate as a result of efforts (including by further charge-offs and loan sales) to reduce our levels of problem loans. In addition, our regulators could require us to take more            aggressive measures in the future in connection with our non-performing assets. If we are not successful in our efforts to successfully manage our existing loan portfolio or new lending activities, or if we experience higher than expected delinquencies and greater than expected charge-offs in future periods, we could experience additional credit losses that materially and adversely affect our financial condition, our results of operations and our capital position and we could be            exposed to increased potential for criticism or adverse action by our regulators or the rating agencies. 

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          ***Our access to the capital markets and other sources of funding and liquidity remains under pressure*.**

          We fund our business operations through a combination of customer deposits, other customer funding and wholesale borrowing (including short-term and long-term borrowings as well as brokered deposits). These funding sources have been less available and have become more expensive in recent periods as a result of our financial performance, including the            performance of our loan portfolio, decreased confidence in the financial markets generally among borrowers, lenders and depositors, as well as disruption and extreme volatility in the capital and credit markets and the failure of some entities in the financial sector. Our customer deposit funding has been low relative to peers because of our traditional focus on commercial lending, which has caused us to utilize wholesale funding to a greater degree than some of our peers. Customer            deposits typically provide cost and liquidity advantages relative to wholesale funding, particularly in a higher interest rate environment. We have been working to strengthen our liquidity by shifting into customer deposits, reducing our reliance on wholesale funding and, where we do rely on wholesale funding, shifting to longer-term and more diversified borrowings. However, we may not be successful in increasing customer deposits, and any occurrence that limits participation in the            capital markets or our access to the capital markets, such as the loss of access to the brokered CD market, the Federal Reserve Bank discount window or FHLB advances, or a downgrade of our debt ratings, may adversely affect our capital costs, our ability to raise capital and our ability to raise capital on terms that meet our funding and liquidity needs. The failure to establish and maintain appropriate funding and capital markets access on acceptable terms when needed could have a            material adverse effect on our businesses, financial condition and results of operations, the willingness of certain counterparties and customers to do business with us and on the potential for criticism or adverse action by our regulators or the rating agencies. 

          ***Our credit ratings are reviewed periodically, and could be subject to further downgrade.***

          A further downgrade to our, or our affiliates’, credit ratings could increase our cost of funds and negatively impact our profitability. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, and level and quality of earnings, and there can be no assurance            that we will maintain the aforementioned credit ratings. In addition, ratings agencies have themselves been subject to scrutiny arising from the financial crisis and there is no assurance that ratings agencies will not make or be required to make substantial changes to their ratings policies and practices or that such changes would not affect ratings of our securities or of securities in which we have an economic interest. Failure to execute successfully on our Capital Plan, further            credit quality deterioration and other factors relating to our business could cause us to have lower capital ratios, which could result in the further downgrade of our credit ratings.

          ***Our business may be further adversely affected by conditions in the financial markets and economic conditions generally.***

          Since late 2007, the United States has been in a recession. Business activity across a wide range of industries and regions is greatly reduced and local governments and many businesses are in serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. Unemployment has increased significantly. 

          Since mid-2007, the financial services industry and the securities markets generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. This was initially triggered by declines in home prices and the values of subprime mortgages, but spread to all mortgage and real            estate asset classes, to leveraged bank loans and to nearly all asset classes, including equities. Over this period, the global markets have been characterized by substantially increased volatility and short-selling and an overall loss of investor confidence, initially in financial institutions, but more recently in companies in a number of other industries and in the broader markets. 

          Market conditions have also led to the failure or merger of a number of prominent financial institutions. Financial institution failures or near-failures have resulted in further losses as a consequence of defaults on securities issued by them and defaults under contracts entered into with such entities as counterparties. Furthermore, declining asset            values, defaults on mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, have all combined to increase credit default swap spreads, to cause rating agencies to lower credit ratings, and to otherwise increase the cost and decrease the availability of liquidity, despite very significant declines in Federal Reserve borrowing rates and other government actions. Some banks and other lenders have suffered significant losses and have            become reluctant to lend, even on a secured basis, due to the increased risk of default and the impact of declining asset values on the value of collateral. The foregoing has significantly weakened the strength and liquidity of some financial institutions worldwide. In 2008 and 2009, the U.S. government, the Federal Reserve and other regulators have taken 

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numerous steps to increase liquidity and to restore investor confidence, including investing in the equity of banking organizations, but asset values have continued to decline and access to liquidity continues to be constrained. 

          Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, is highly dependent upon the business environment in the markets where we operate. A favorable business environment is generally characterized by, among other            factors, economic growth, efficient capital markets, low inflation, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by: declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; natural disasters; or a combination of these or other factors. Overall,            during 2008 and 2009, the business environment has been adverse for many households and businesses in the United States and worldwide. It is expected that the business environment in the United States and worldwide will continue to be challenged for the foreseeable future. There can be no assurance that these conditions will improve in the near term. Such conditions could adversely affect the credit quality of our loans, results of operations and financial condition. 

*          **The NASDAQ’s listing requires that companies have a minimum bid price of $1 per share.***

          NASDAQ rules classify a security as “deficient” if it has a closing bid price of less than $1 per share for thirty consecutive business days. Once deficient, issuers have an automatic 180-day period to regain compliance by having a closing bid price of at least $1 per share for ten consecutive business days, and can receive an additional 180            days if all other listing requirements are met. Our common stock has traded below $1 for a number of days in October and November 2009. If we do not meet this listing requirement, liquidity in our stock could be materially and adversely affected. 

          ***The performance of our investment portfolio is subject to fluctuations due to changes in interest rates and market conditions.***

          Changes in interest rates can negatively affect the performance of most of our investments. Interest rate volatility can reduce unrealized gains or create unrealized losses in our portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, and            other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, our investment securities. 

          The fair market value of the securities in our portfolio and the investment income from these securities also fluctuate depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from            those anticipated at the time of investment as a result of interest rate fluctuations. 

          ***While we currently do not pay dividends on our common stock, holders of our common stock may be unable to use the dividends-received deduction with respect to any distributions we may make on our common stock in the future.***

          While we currently pay no dividends on our common stock, if we were to pay a dividend or other distribution on our common stock, distributions paid to corporate U.S. holders on our common stock may be eligible for the dividends received deduction if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes.            Although we presently have accumulated earnings and profits, we may not have sufficient current or accumulated earnings and profits during future taxable years for the distributions on our common stock to qualify as dividends for federal income tax purposes. If any distributions on our common stock with respect to any taxable year are not eligible for the dividends-received deduction because of insufficient current or accumulated earnings and profits, the amount for which you may be            able to sell our common stock may decline.

***          We may not be able to redeem the Series T Preferred Stock and the warrant sold to the U.S. Treasury as soon as we desire.***

          Until such time as we redeem our Series T Preferred Stock, we will remain subject to the respective terms and conditions set forth in the agreements we entered into with the U.S. Treasury under the Capital Purchase Program. Among other things, prior to December 5, 2011, unless we have redeemed the Series T Preferred Stock issued to the U.S. Treasury or            the U.S. Treasury has transferred the Series T Preferred Stock to a third party, the consent of the U.S. Treasury will be required for us to (1) declare or pay any dividend or make any distribution on our common stock (other 

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than regular quarterly cash dividends of not more than $0.01 per share of common stock) or (2) redeem, purchase or acquire any shares of our common stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice and certain other circumstances specified in the related purchase agreement. It is unlikely that we will be able to redeem the Series T Preferred            Stock until, among other things, we increase our capital and return to profitability. See “Risk Factors— We have incurred significant losses and will incur additional losses,” above. 

          Further, the continued existence of the Capital Purchase Program investment subjects us to increased regulatory and legislative oversight. See “Risk Factors — Legislative and regulatory actions taken now or in the future to address the current liquidity and credit crisis in the financial industry may significantly affect our financial            condition, results of operation, liquidity or stock price,” above. 

          ***Industry competition may have an adverse effect on our success.***

          Our profitability depends on our ability to compete successfully. We operate in a highly competitive environment. Certain of our competitors are larger and have more resources than we do and as a result may be perceived as stronger institutions. In our market areas, we face competition from other commercial banks, savings and loan associations, credit            unions, internet banks, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and other financial intermediaries that offer similar services. Some of our non-bank competitors are not subject to the same extensive regulations that govern TSFG or Carolina First Bank and may have greater flexibility in competing for business. TSFG expects competition to intensify among financial services companies due to the recent consolidation of certain            competing financial institutions and the conversion of certain investment banks to bank holding companies. Should competition in the financial services industry intensify, TSFG’s ability to market its products and services may be adversely affected. 

          ***We are a holding company and depend on our subsidiaries for dividends, distributions and other payments.***

          The holders our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available. As a legal entity separate and distinct from its subsidiaries, TSFG depends on the payment of dividends from its subsidiaries for its revenues. Current federal law prohibits, except under certain circumstances            and with prior regulatory approval, an insured depository institution from paying dividends or making any other capital distribution if, after making the payment or distribution, the institution would be considered “under-capitalized,” as that term is defined in applicable regulations. South Carolina banking regulations restrict the amount of dividends that the subsidiary bank, Carolina First Bank, can pay to TSFG, and may require prior approval before the declaration            and payment of any excess dividend. Carolina First Bank is not presently able to pay dividends without the approval of such agencies. 

          In addition, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, such authority may require, after notice and hearing, that such bank cease and desist from such practice. Depending on the financial condition of Carolina First Bank, the applicable            regulatory authority might deem us to be engaged in an unsafe or unsound practice if Carolina First Bank were to pay dividends. The Federal Reserve and other regulatory authorities have issued policy statements generally requiring insured banks and bank holding companies only to pay dividends out of current operating earnings. 

          Payment of dividends could also be subject to regulatory limitations. For example, if Carolina First Bank became “under-capitalized” for purposes of the current law providing the federal banking agencies with broad powers to take prompt corrective action to resolve problems of insured depository institutions. Under uniform regulations            defining the capital levels issued by each of the federal banking agencies, a bank is considered “well capitalized” if (1) it has a total risk-based capital ratio of 10% or greater, (2) it has a tier 1 risk-based capital ratio of 6% or greater, (3) it has a leverage ratio of 5% or greater, and (4) is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An “adequately capitalized” bank is defined            as one that has (1) a total risk-based capital ratio of 8% or greater, (2) a tier 1 risk-based capital ratio of 4% or greater, and (3) a leverage ratio of 4% or greater. A bank is considered (A) “under-capitalized” if it has (1) a total risk-based capital ratio of less than 8%, (2) a tier 1 risk-based capital ratio of less than 4% or (3) a leverage ratio of less than 4%; (B) “significantly under-capitalized” if the bank has (1) a total risk-based capital            ratio of less than 6%, (2) a tier 1 risk-based capital ratio of less than 3%, or (3) a leverage ratio of less than 3%; and (C) “critically under-capitalized” if the bank has a ratio of tangible equity to total assets equal to or less than 2%. As of September 30, 2009, Carolina First Bank met the definition of well capitalized for all applicable capital ratios. 

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          In addition, if any of our subsidiaries becomes insolvent, the direct creditors of that subsidiary will have a prior claim on its assets. Our rights and the rights of our creditors will be subject to that prior claim, unless we are also a direct creditor of that subsidiary. 

**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, 2009.

|                                      |   |                                                                                                      |    |                                                                                                  |   |                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                     |    |   |   |    |   |
|-------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|---------|-------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------|--------|---------|--------|
| **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, 2009 to July 31, 2009             |   |                                                                                                      | — |                                                                                                  | $      | —                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                     | — |   | $      | — |   |
| August 1, 2009 to August 31, 2009         |   |                                                                                                      | 183     |  (1)                                                                                             |   | 1.94                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                     | — |   |   | — |   |
| September 1, 2009 to September 30, 2009   |   |                                                                                                      | — |                                                                                                  |   | —                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                     | — |   |   | — |   |
|                                      |   |                                                                                                      |    |                                                                                                  |   |                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                     |    |   |   |    |   |
| Total                                     |   |                                                                                                      | 183     |                                                                                                  | $      | 1.94                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                     | — |   | $      | — |   |
|                                      |   |                                                                                                      |    |                                                                                                  |   |                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                     |    |   |   |    |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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. |

          On July 15, 2009, 91,033 shares of common stock were issued in connection with the settlement of a shareholder lawsuit. This issuance of shares was not registered under the Securities Act of 1933 in reliance upon the exemption set forth in Section 4(2) thereof. 

          On September 14, 2009, 94,500 shares of Preferred Stock Series 2009-A were converted into 23,988,422 common shares, which included 9,449,960 shares issued as an inducement to convert. This issuance of common shares was not registered under the Securities Act of 1933 in reliance upon the exemption set forth in Section 3a(9) thereof. 

          On September 23, 2009, 90,876 shares of Preferred Stock Series 2008 were converted into 20,915,430 common shares, which included 6,934,507 shares issued as an inducement to convert. This issuance of common shares was not registered under the Securities Act of 1933 in reliance upon the exemption set forth in Section 3a(9) thereof. 

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

          None. 

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

          On September 11, 2009, TSFG held a Special Meeting of Shareholders. The results of the Special Meeting of Shareholders follow. 

**          Proposal #1 – Approve Amendment to TSFG’s Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock from 200,000,000 to 325,000,000.** This proposed amendment was approved with 151,043,770 shares, or 81.6%, voting in favor, 4,836,993 shares voting against, and 1,704,067 shares            abstaining.

**          Proposal #2 – Approve the conversion of TSFG’s Mandatory Convertible Non-cumulative Preferred Stock, Series 2009-A (the “Series 2009-A Preferred Stock”) into approximately 23,988,425 shares of TSFG common stock in accordance with the conversion terms of the Series 2009-A Preferred Stock.** This proposal was approved with            118,885,363 shares, or 95.3%, voting in favor, 4,455,698 shares voting against, and 1,355,627 shares abstaining.

**Item 5. *Other Information***

          None. 

**Item 6. *Exhibits***

|   |                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1    | Amended and Restated Articles of Incorporation, as amended                                                                                                                                               |
|   |                                                                                                                                                                                                     |
| 31.1   | Certificate of the Principal Executive 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 |
|   |                                                                                                                                                                                                     |
| 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 Chief Executive Officer 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. 

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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 9, 2009 | */s/ James R. Gordon*               |
|                   |                                     |
|                   | James R. Gordon                     |
|                   | Senior Executive Vice President and |
|                   | Chief Financial Officer             |
|                   | (Principal Financial Officer)       |

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