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

Form 10-Q

| | X | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2004
| | - | ------------------------------------------------------------------------------------------------------------------------------------
|
| |   | Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For 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 ofincorporation or organization) |  | (IRS Employer Identification No.)

|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

Indicate by check mark whether the  registrant  is an  accelerated  filer (as defined in Rule 12b-2 of the Exchange
Act).  Yes X    No

The number of outstanding shares of
the issuers $1.00 par value common stock as of August 3, 2004 was 70,647,166.

---

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

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

|                                                                           | June 30, | December 31, |  
|-------------------------------------------------------------------------- | -------- | ------------ | -
|
|Assets                                                                     |          |              |  
|Cash and due from banks                                                    |          |              | $
|Interest-bearing bank balances                                             |          |              |  
|Federal funds sold                                                         |          |              |  
|Securities                                                                 |          |             
|Trading                                                                    |          |              |  
|Available for sale                                                         |          |              |  
|Held to maturity (market value $80,450, $71,410 and $93,188, respectively) |          |              |  
|                                                                           |          |              |  
|Total securities                                                           |          |              |  
|                                                                           |          |              |  
|Loans                                                                      |          |             
|Loans held for sale                                                        |          |              |  
|Loans held for investment                                                  |          |              |  
|Allowance for loan losses                                                  |          |              |  
|                                                                           |          |              |  
|Net loans                                                                  |          |              |  
|                                                                           |          |              |  
|Premises and equipment, net                                                |          |              |  
|Accrued interest receivable                                                |          |              |  
|Intangible assets                                                          |          |              |  
|Other assets                                                               |          |              |  
|                                                                           |          |              |  
|                                                                           |          |              | $
|                                                                           |          |              |  
|                                                                           |          |             
|Liabilities and shareholders' equity                                       |          |             
|Liabilities                                                                |          |             
|Deposits                                                                   |          |             
|Noninterest-bearing                                                        |          |              | $
|Interest-bearing                                                           |          |              |  
|                                                                           |          |              |  
|Total deposits                                                             |          |              |  
|Federal funds purchased and repurchase agreements                          |          |              |  
|Other short-term borrowings                                                |          |              |  
|Long-term debt                                                             |          |              |  
|Debt associated with trust preferred securities                            |          |              |  
|Accrued interest payable                                                   |          |              |  
|Other liabilities                                                          |          |              |  
|                                                                           |          |              |  
|Total liabilities                                                          |          |              |  
|                                                                           |          |              |  
|Minority interest in consolidated subsidiary                               |          |              |  
|                                                                           |          |              |  
|Shareholders' equity                                                       |          |             
|Preferred stock-no par value; authorized 10,000,000 shares;                |          |             
|issued and outstanding none                                                |          |              |  
|Common stock-par value $1 per share; authorized 200,000,000 shares;        |          |             
|issued and outstanding 59,796,124, 46,896,994, and 59,064,375 shares,      |          |             
|respectively                                                               |          |              |  
|Surplus                                                                    |          |              |  
|Retained earnings                                                          |          |              |  
|Guarantee of employee stock ownership plan debt and nonvested              |          |             
|restricted stock                                                           |          |              |  
|Common stock held in trust for deferred compensation                       |          |              |  
|Deferred compensation payable in common stock                              |          |              |  
|Accumulated other comprehensive income (loss), net of tax                  |          |              |  
|                                                                           |          |              |  
|Total shareholders' equity                                                 |          |              |  
|                                                                           |          |              |  
|                                                                           |          |              | $
|                                                                           |          |              |  

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

---

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

|                                                         | Three Months EndedJune 30, | Six Months Ended,June 30, |   |           
|-------------------------------------------------------- | -------------------------- | ------------------------- | - | ----------
|
|Interest income                                          |                            |                           |   |           
|Interest and fees on loans                               |                            |                           | $ | 80,348    
|Interest and dividends on securities                     |                            |                          
|Taxable                                                  |                            |                           |   | 35,684    
|Exempt from Federal income taxes                         |                            |                           |   | 1,906     
|                                                         |                            |                           |   |           
|Total interest and dividends on securities               |                            |                           |   | 37,590    
|Interest on short-term investments                       |                            |                           |   | 23        
|                                                         |                            |                           |   |           
|Total interest income                                    |                            |                           |   | 117,961   
|                                                         |                            |                           |   |           
|Interest expense                                         |                            |                          
|Interest on deposits                                     |                            |                           |   | 20,003    
|Interest on borrowed funds                               |                            |                           |   | 17,569    
|                                                         |                            |                           |   |           
|Total interest expense                                   |                            |                           |   | 37,572    
|                                                         |                            |                           |   |           
|Net interest income                                      |                            |                           |   | 80,389    
|Provision for loan losses                                |                            |                           |   | 6,996     
|                                                         |                            |                           |   |           
|Net interest income after provision for loan losses      |                            |                           |   | 73,393    
|Noninterest income                                       |                            |                           |   | 25,995    
|Noninterest expenses, excluding merger-related costs     |                            |                           |   | 53,891    
|Merger-related costs                                     |                            |                           |   | 575       
|                                                         |                            |                           |   |           
|Income before income taxes and minority interest         |                            |                           |   | 44,922    
|Income taxes                                             |                            |                           |   | 14,935    
|                                                         |                            |                           |   |           
|Income before minority interest                          |                            |                           |   | 29,987    
|Minority interest in consolidated subsidiary, net of tax |                            |                           |   | --        
|                                                         |                            |                           |   |           
|Net income                                               |                            |                           | $ | 29,987    
|                                                         |                            |                           |   |           
|                                                         |                            |                          
|Average common shares outstanding, basic                 |                            |                           |   | 59,494,363
|Average common shares outstanding, diluted               |                            |                           |   | 60,837,792
|Basic earnings per share                                 |                            |                           | $ | 0.50      
|                                                         |                            |                           |   |           
|Diluted earnings per share                               |                            |                           | $ | 0.49      
|                                                         |                            |                           |   |           

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

---

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

|                                         | Shares ofCommonStock | CommonStock | Surplus | RetainedEarningsandOther* | AccumulatedOtherComprehensiveIncome(Loss) | Total
|---------------------------------------- | -------------------- | ----------- | ------- | ------------------------- | ----------------------------------------- | -----
|Balance, December 31, 2002               |                      |             |         | 47,347,375                |                                           | $    
|Net income                               |                      |             |         | --                        |                                           |      
|Other comprehensive loss, net of         |                      |            
|tax of $1,472                            |                      |             |         | --                        |                                           |      
|Comprehensive income                     |                      |             |         | --                        |                                           |      
|                                         |                      |             |         |                           |                                           |      
|Cash dividends declared                  |                      |            
|($0.28 per common share)                 |                      |             |         | --                        |                                           |      
|                                         |                      |             |         |                           |                                           |      
|Common stock activity:                   |                      |            
|Repurchase of stock                      |                      |             |         | (1,272,805                | )                                         |      
|Acquisitions                             |                      |             |         | 146,808                   |                                           |      
|Dividend reinvestment plan               |                      |             |         | 70,428                    |                                           |      
|Employee stock purchase plan             |                      |             |         | 20,011                    |                                           |      
|Restricted stock plan                    |                      |             |         | 67,023                    |                                           |      
|Exercise of stock options                |                      |             |         | 518,154                   |                                           |      
|Common stock purchased by trust for      |                      |            
|deferred compensation                    |                      |             |         | --                        |                                           |      
|Deferred compensation payable in         |                      |            
|common stock                             |                      |             |         | --                        |                                           |      
|Miscellaneous                            |                      |             |         | --                        |                                           |      
|                                         |                      |             | >       |                           |                                           |      
|Balance, June 30, 2003                   |                      |             |         | 46,896,994                |                                           | $    
|                                         |                      |             |         |                           |                                           |      
|                                         |                      |            
|                                         |                      |            
|Balance, December 31, 2003               |                      |             |         | 59,064,375                |                                           | $    
|Net income                               |                      |             |         | --                        |                                           |      
|Other comprehensive loss, net of tax     |                      |            
|of $23,718                               |                      |             |         | --                        |                                           |      
|                                         |                      |             |         |                           |                                           |      
|Comprehensive income                     |                      |             |         | --                        |                                           |      
|                                         |                      |             |         |                           |                                           |      
|Cash dividends declared ($0.30 per       |                      |            
|common share)                            |                      |             |         | --                        |                                           |      
|Common stock activity:                   |                      |            
|Exercise of stock options, including tax |                      |            
|benefit of $2,667                        |                      |             |         | 440,596                   |                                           |      
|Restricted stock plan                    |                      |             |         | 202,289                   |                                           |      
|Director compensation                    |                      |             |         | 4,710                     |                                           |      
|Dividend reinvestment plan               |                      |             |         | 58,687                    |                                           |      
|Employee stock purchase plan             |                      |             |         | 4,371                     |                                           |      
|Acquisitions                             |                      |             |         | 21,108                    |                                           |      
|Common stock purchased by trust for      |                      |            
|deferred compensation                    |                      |             |         | --                        |                                           |      
|Deferred compensation payable in         |                      |            
|common stock                             |                      |             |         | --                        |                                           |      
|Miscellaneous                            |                      |             |         | (12                       | )                                         |      
|                                         |                      |             |         |                           |                                           |      
|Balance, June 30, 2004                   |                      |             |         | 59,796,124                |                                           | $    
|                                         |                      |             |         |                           |                                           |      

*      Other includes guarantee of employee stock ownership plan debt, nonvested restricted stock, and deferred compensation.

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

---

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

|                                                                                     | Six Months Ended June 30, | 
|------------------------------------------------------------------------------------ | ------------------------- | 
|
|Cash flows from operating activities                                                 |                           | 
|Net income                                                                           |                           | 
|Adjustments to reconcile net income to net cash provided by operating activities     |                           | 
|Depreciation, amortization, and accretion, net                                       |                           | 
|Provision for loan losses                                                            |                           | 
|Gain on sale of available for sale securities                                        |                           | 
|Gain on equity investments                                                           |                           | 
|Gain on trading and derivative activities                                            |                           | 
|Gain on disposition of assets and liabilities                                        |                           | 
|Gain on sale of loans                                                                |                           | 
|Loss (gain) on disposition of premises and equipment                                 |                           | 
|Loss on disposition of other real estate owned                                       |                           | 
|Conservation grant of land                                                           |                           | 
|Impairment (recovery) loss from write-down of assets                                 |                           | 
|Impairment (recovery) loss from write-down of mortgage servicing rights              |                           | 
|Loss on early extinguishment of debt                                                 |                           | 
|Minority interest in consolidated subsidiary                                         |                           | 
|Trading account assets, net                                                          |                           | 
|Origination of loans held for sale                                                   |                           | 
|Sale of loans held for sale and principal repayments                                 |                           | 
|Other assets, net                                                                    |                           | 
|Other liabilities, net                                                               |                           | 
|                                                                                     |                           | 
|Net cash provided by operating activities                                            |                           | 
|                                                                                     |                           | 
|                                                                                     |                           | 
|Cash flows from investing activities                                                 |                           | 
|Sale of securities available for sale                                                |                           | 
|Maturity, redemption, call, or principal repayments of securities available for sale |                           | 
|Maturity, redemption, call, or principal repayments of securities held to maturity   |                           | 
|Purchase of securities available for sale                                            |                           | 
|Purchase of securities held to maturity                                              |                           | 
|Origination of loans held for investment, net of principal repayments                |                           | 
|Sale of other real estate owned                                                      |                           | 
|Sale of premises and equipment                                                       |                           | 
|Sale of long-lived assets held for sale                                              |                           | 
|Purchase of premises and equipment                                                   |                           | 
|Disposition of assets and liabilities, net                                           |                           | 
|Cash equivalents acquired, net of payment for purchase acquisitions                  |                           | 
|                                                                                     |                           | 
|Net cash used for investing activities                                               |                           | 
|                                                                                     |                           | 

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

---

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

|                                                                           | Six Months Ended June 30, | 
|-------------------------------------------------------------------------- | ------------------------- | 
|
|Cash flows from financing activities                                       |                           | 
|Deposits, net                                                              |                           | 
|Federal funds purchased and repurchase agreements, net                     |                           | 
|Short-term borrowings, net                                                 |                           | 
|Issuance of long-term debt                                                 |                           | 
|Payment of long-term debt                                                  |                           | 
|Prepayment penalty on early extinguishment of debt                         |                           | 
|Cash dividends paid on common stock                                        |                           | 
|Cash dividends paid on minority interest                                   |                           | 
|Repurchase of common stock                                                 |                           | 
|Other common stock activity                                                |                           | 
|                                                                           |                           | 
|Net cash provided by financing activities                                  |                           | 
|                                                                           |                           | 
|Net change in cash and cash equivalents                                    |                           | 
|Cash and cash equivalents at beginning of year                             |                           | 
|                                                                           |                           | 
|Cash and cash equivalents at end of period                                 |                           | 
|                                                                           |                           | 
|                                                                           |                           | 
|Supplemental cash flow data                                                |                           | 
|Interest paid                                                              |                           | 
|Income taxes paid                                                          |                           | 
|Significant non-cash investing and financing transactions:                 |                           | 
|Security sales, redemptions and calls settled subsequent to quarter-end    |                           | 
|Security purchases settled subsequent to quarter-end                       |                           | 
|Change in unrealized loss on available for sale securities                 |                           | 
|Loans transferred to other real estate owned                               |                           | 
|Premises and equipment, net transferred to long-lived assets held for sale |                           | 

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

---

THE SOUTH FINANCIAL
GROUP, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(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 footnotes included in TSFGs Annual Report on Form 10-K for the year ended
December 31, 2003 should be referred to in connection with the reading of these unaudited
interim consolidated financial statements. Certain prior year amounts have been
reclassified to conform to the 2004 presentations.

Nature of Operations

TSFG
is a financial holding company headquartered in Greenville, South Carolina that offers a
broad range of financial products and services, including mortgage, trust, investment and
insurance to consumers and commercial customers. At June 30, 2004, TSFG operated through
76 branch offices in South Carolina, 24 in North Carolina and 33 in northern and central
Florida.

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.

TSFG
determines whether it has a controlling financial interest in an entity by first
evaluating whether the entity is a voting interest entity or a variable interest entity
under accounting principles generally accepted in the United States of America. Voting
interest entities are entities in which the total equity investment at risk is sufficient
to enable each entity to finance itself independently and provides the equity holders with
the obligation to absorb losses, the right to receive residual returns, and the right to
make decisions about the entitys activities. TSFG consolidates voting interest
entities in which it has all, or at least majority of, the voting interest. As defined in
applicable accounting standards, variable interest entities (VIEs) are
entities that lack one or more of the characteristics of a voting interest entity
described above. A controlling financial interest in an entity is present when an
enterprise has a variable interest, or combination of variable interests, that will absorb
a majority of the entitys expected losses, receive a majority of the entitys
expected residual returns, or both. The enterprise with a controlling financial interest,
known as the primary beneficiary, consolidates the VIE. TSFGs wholly owned
subsidiaries, South Financial Capital Trust I, TSFG Capital Trust 2002-A, South Financial
Capital Trust II, South Financial Capital Trust III, and MountainBank Capital Trust I, are
VIEs for which TSFG is not the primary beneficiary. Accordingly, the accounts of these
entities are not included in TSFGs consolidated financial statements.

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, income
tax assets or liabilities, and accounting for acquisitions. To a lesser extent,
significant estimates are also associated with the determination of securities,
intangibles, valuation of derivative instruments, and environmental remediation costs.

---

(2)     
          Supplemental Financial Information To Consolidated Statements of Income

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

|                                                           | Three Months EndedJune 30, | Six Months EndedJune 30, |   |         
|---------------------------------------------------------- | -------------------------- | ------------------------ | - | --------
|
|Noninterest income                                         |                            |                          |   |         
|Service charges on deposit accounts                        |                            | $   8,718                |   | $  7,581
|Debit card income                                          |                            | 975                      |   | 628     
|Customer service fee income                                |                            | 800                      |   | 528     
|                                                           |                            |                          |   |         
|Total customer fee income                                  |                            | 10,493                   |   | 8,737   
|                                                           |                            |                          |   |         
|                                                           |                           
|Brokerage income                                           |                            | 1,312                    |   | 1,212   
|Trust income                                               |                            | 1,030                    |   | 930     
|                                                           |                            |                          |   |         
|Total brokerage and trust income                           |                            | 2,342                    |   | 2,142   
|                                                           |                           
|Bank-owned life insurance                                  |                            | 3,458                    |   | 1,933   
|Merchant processing income                                 |                            | 2,431                    |   | 2,071   
|Mortgage banking income                                    |                            | 1,625                    |   | 2,561   
|Insurance income                                           |                            | 1,015                    |   | 776     
|Gain on sale of available for sale securities              |                            | 607                      |   | 3,197   
|Gain on equity investments                                 |                            | 1,013                    |   | --      
|Gain on trading and derivative activities                  |                            | 2,352                    |   | 1,227   
|Gain on disposition of assets and liabilities              |                            | --                       |   | 601     
|Other                                                      |                            | 659                      |   | 730     
|                                                           |                            |                          |   |         
|Total noninterest income                                   |                            | $ 25,995                 |   | $23,975 
|                                                           |                            |                          |   |         
|                                                           |                           
|Noninterest expenses                                       |                           
|Salaries and wages                                         |                            | $ 19,917                 |   | $20,319 
|Employee benefits                                          |                            | 7,034                    |   | 5,419   
|Occupancy                                                  |                            | 5,185                    |   | 4,668   
|Furniture and equipment                                    |                            | 4,890                    |   | 4,211   
|Professional fees                                          |                            | 1,960                    |   | 1,822   
|Merchant processing expense                                |                            | 1,910                    |   | 1,607   
|Telecommunications                                         |                            | 1,106                    |   | 1,168   
|Amortization of intangibles                                |                            | 1,195                    |   | 724     
|Impairment (recovery) loss from write-down of assets       |                            | (277                     | ) | 268     
|Conservation grant of land                                 |                            | --                       |   | --      
|Loss on early extinguishment of debt                       |                            | --                       |   | --      
|Sundry                                                     |                            | 10,971                   |   | 9,507   
|                                                           |                            |                          |   |         
|Total noninterest expenses, excluding merger-related costs |                            | 53,891                   |   | 49,713  
|Merger-related costs                                       |                            | 575                      |   | 382     
|                                                           |                            |                          |   |         
|Total noninterest expenses                                 |                            | $ 54,466                 |   | $50,095 
|                                                           |                            |                          |   |         

---

(3)     
          Accumulated Other Comprehensive Income (Loss)

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

|                                                                   | Three Months EndedJune 30, | Six Months EndedJune 30, |   |        
|------------------------------------------------------------------ | -------------------------- | ------------------------ | - | -------
|
|Unrealized (losses) gains on available for sale securities         |                            |                          |   |        
|Balance at beginning of period                                     |                            |                          | $ | 11,038 
|Other comprehensive loss:                                          |                            |                         
|Unrealized holding (losses) gains arising during the year          |                            |                          |   | (91,299
|Income tax benefit (expense)                                       |                            |                          |   | 33,750 
|Less: Reclassification adjustment for gains included in net income |                            |                          |   | (1,620 
|Income tax expense                                                 |                            |                          |   | 579    
|                                                                   |                            |                          |   |        
|                                                                   |                            |                          |   | (58,590
|                                                                   |                            |                          |   |        
|Balance at end of period                                           |                            |                          |   | (47,552
|                                                                   |                            |                          |   |        
|                                                                   |                            |                         
|Unrealized gains (losses) on cash flow hedges                      |                            |                         
|Balance at beginning of period                                     |                            |                          |   | (530   
|Other comprehensive income:                                        |                            |                         
|Unrealized gain on change in fair values                           |                            |                          |   | 2,852  
|Income tax expense                                                 |                            |                          |   | (1,003 
|                                                                   |                            |                          |   |        
|                                                                   |                            |                          |   | 1,849  
|                                                                   |                            |                          |   |        
|Balance at end of period                                           |                            |                          |   | 1,319  
|                                                                   |                            |                          |   |        
|                                                                   |                            |                          | $ | (46,233
|                                                                   |                            |                          |   |        

# (4)     Business Combinations

# Summit Title, LLC

On
April 12, 2004, TSFG acquired Summit Title, LLC (Summit), an independent title
insurance company based in Hendersonville, North Carolina. TSFG issued 8,371 shares of
common stock valued at $245,000, acquired tangible assets totaling $86,000, assumed
liabilities totaling $25,000, recorded a customer list intangible asset of $37,000,
recorded a non-compete agreement intangible asset of $18,000, and recorded goodwill of
$129,000. The customer list intangible is amortized on a straight-line basis over its
estimated life of 10 years. The non-compete agreement intangible is amortized on a
straight-line basis over its estimated useful life of 7 years. In addition, TSFG agreed to
issue annual earnout shares, valued at the time of issuance at $66,906, for each of April
12, 2005, 2006, 2007, and 2008, based on revenue retention and earnings achievement. If
issued, the earnout shares would increase goodwill. TSFG intends to use Summit as an
additional source of noninterest income.

# Amortization of Premiums
and Discounts

Premiums
and discounts that resulted from recording the assets and liabilities acquired through
acquisitions at their respective fair values are being amortized and accreted using
methods that approximate a constant effective yield over the life of the assets and
liabilities. This net amortization decreased net income before income taxes by $908,000
and $1.7 million for the three and six months ended June 30, 2004, respectively. For the
three and six months ended June 30, 2003, this net amortization decreased net income
before income taxes by $598,000 and $928,000, respectively.

---

(5)     Disposition Of Assets And Liabilities

In
March 2004, TSFG executed a conservation grant of land in North Carolina, which resulted
in the recognition of a gain totaling $2.4 million, included in noninterest income, and a
deduction for the fair value of the contribution totaling $3.4 million, included in
noninterest expenses.

On
June 28, 2004, TSFG completed the sale of substantially all of the assets and all
liabilities of Community National Bank headquartered in Pulaski, Virginia. TSFG acquired
Community National Bank in connection with its October 2003 acquisition of MountainBank
Financial Corporation (MBFC) and it was outside TSFGs targeted
geographic market. In connection with this disposition, TSFG sold $40.4 million in loans
and $60.0 million in deposits, recorded reductions of goodwill totaling $6.6 million and
core deposit intangibles totaling $864,000. This transaction resulted in no book gain or
loss. Since Community National Bank was immaterial to TSFGs financial statements,
presentation as a discontinued operation is not warranted.

(6)     Sale Of Long-Lived
Assets

In
June 2004, TSFG sold three long-lived asset properties, which resulted in the recognition
of an impairment recovery totaling $277,000 and a loss on the disposition of premises and
equipment (included in other noninterest income) totaling $17,000. The net realizable
value of these properties, which consisted of land and buildings, was estimated at $1.7
million, prior to their sale.

(7)     Gross Unrealized Losses On Investment Securities

Gross
unrealized losses on investment securities and the fair value of the related securities,
aggregated by investment category and length of time that individual securities have been
in continuous unrealized loss position, at June 30, 2004, were as follows (in thousands):

|                              | Less Than 12 Months | 12 Months or Longer | Total |           |  |  
|----------------------------- | ------------------- | ------------------- | ----- | --------- |  | -
|
|Securities available for sale |                     |                     |       |           |  |  
|U.S. Treasury                 |                     |                     | $     | 219,692   |  | $
|U.S. Government agencies      |                     |                     |       | 647,915   |  |  
|Mortgage-backed securities    |                     |                     |       | 1,700,348 |  |  
|State and municipals          |                     |                     |       | 172,881   |  |  
|Other investments             |                     |                     |       | 102,866   |  |  
|                              |                     |                     |       |           |  |  
|                              |                     |                     | $     | 2,843,702 |  | $
|                              |                     |                     |       |           |  |  
|Securities held to maturity   |                     |                    
|State and municipals          |                     |                     | $     | 33,554    |  | $
|Other investments             |                     |                     |       | --        |  |  
|                              |                     |                     |       |           |  |  
|                              |                     |                     | $     | 33,554    |  | $
|                              |                     |                     |       |           |  |  

The  unrealized  losses  on  investments  in U.S.  Treasury,  U.S.  Government  agencies,  mortgage-backed
securities,  state and municipals,  corporate bonds (a $2.3 million unrealized loss included in other investments),
and Federal  National  Mortgage  Association  preferred  stock (a $9.0 million  unrealized  loss  included in other
investments)  summarized above were attributable to increases in interest rates, rather than credit quality.  Since
TSFG has the ability to hold these  investments  until a market price recovery or maturity,  these  investments are
not considered impaired on an other-than-temporary basis.

The  unrealized  loss included in other  investments  also includes a $140,000  unrealized  loss on TSFG's
investment in Affinity  Technology  Group, Inc.  ("Affinity").  At June 30, 2004, TSFG's investment in Affinity was
recorded at its pre-tax  market value of $293,000 and had a basis of $433,000.  Since the Affinity  investment  has
been  in  a  loss  position  for  less  than  a  quarter  this   investment  is  not  considered   impaired  on  an
other-than-temporary basis.

---

(8)     Intangible Assets

Intangible assets, net of
accumulated amortization, are summarized as follows (in thousands):

|                                 | June 30, | December 31, |  
|-------------------------------- | -------- | ------------ | -
|
|Goodwill                         |          |              | $
|Core deposit premiums            |          |              |  
|Less accumulated amortization    |          |              |  
|                                 |          |              |  
|                                 |          |              |  
|                                 |          |              |  
|Non-compete agreement intangible |          |              |  
|Less accumulated amortization    |          |              |  
|                                 |          |              |  
|                                 |          |              |  
|                                 |          |              |  
|Customer list intangible         |          |              |  
|Less accumulated amortization    |          |              |  
|                                 |          |              |  
|                                 |          |              |  
|                                 |          |              |  
|                                 |          |              | $
|                                 |          |              |  

The  following  summarizes  the  changes  in the  carrying  amount of  goodwill  related to each of TSFG's
business segments (in thousands) at and for the six months ended June 30,
2004:

|                                                        | CarolinaFirst Bank | MercantileBank | Other | Total  
|------------------------------------------------------- | ------------------ | -------------- | ----- | -------
|Balance, December 31, 2003                              |                    |                | $     | 206,780
|Purchase accounting adjustments related to acquisitions |                    |                |       | 1,444  
|Disposition                                             |                    |                |       | --     
|                                                        |                    |                |       |        
|Balance, June 30, 2004                                  |                    |                | $     | 208,224
|                                                        |                    |                |       |        

The
goodwill for each reporting unit was tested for impairment as of June 30, 2004 in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets. TSFG will
continue to update this testing annually as of June 30th each year. The fair value of each
reporting unit was estimated using a cash flow approach based upon the expected present
value of future cash flows and a market approach based upon recent purchase transactions
and public company market values. These valuations indicated that no impairment charge was
required as of the June 30, 2004 test date.

Amortization
of intangibles totaled $2.1 million for core deposit premiums, $186,000 for non-compete
agreement intangibles, and $79,000 for customer list intangibles for the six months ended
June 30, 2004. Amortization of intangibles totaled $1.3 million for core deposit premiums,
$69,000 for non-compete agreement intangibles, and $54,000 for customer list intangibles
for the six months ended June 30, 2003.

The
estimates provided below exclude amortization expense for intangible assets related to
TSFGs acquisitions of CNB Florida Bancshares, Inc. (CNB Florida) and
Florida Banks, Inc. (Florida Banks), which closed in July 2004. The estimated
amortization expense for core deposit premiums for the years ended December 31 is as
follows: $4.1 million for 2004, $3.5 million for 2005, $3.1 million for 2006, $2.6 million
for 2007, $2.3 million for 2008, and an aggregate of $8.8 million for all the years
thereafter. The estimated amortization expense for non-compete agreement intangibles is
$372,000 for the year ended December 31, 2004, $373,000 for each of the years ended
December 31, 2005 and 2006, $345,000 for 2007, $253,000 for 2008 and an aggregate of
$221,000 for all the years thereafter. The estimated amortization expense for customer
list intangibles is $159,000 for 2004, $160,000 for the years ended December 31, 2005
through 2008 and an aggregate of $640,000 for all the years thereafter.

---

(9)     Mortgage Servicing
Rights

The
following summarizes the changes in the carrying amount of capitalized mortgage servicing
rights (MSRs) (in thousands), which are included in other assets, at and for
the six months ended June 30:

| |  | 2004 | 2003                                                     
| |  | ---- | ---------------------------------------------------------
| |  |      | Balance at beginning of year                             
| |  |      | MSRs amortized                                           
| |  |      | MSR impairment recovery (loss) from the valuation of MSRs
| |  |      |                                                          
| |  |      |                                                          
| |  |      |                                                          

The
aggregate fair value of capitalized MSRs at June 30, 2004, December 31, 2003, and June 30,
2003 was $1.5 million, $1.9 million, and $2.3 million, respectively. At June 30, 2004,
December 31, 2003, and June 30, 2003, the valuation allowance for capitalized MSRs totaled
$1.7 million, $1.8 million, and $2.3 million, respectively.

The
estimated amortization expense for MSRs for the years ended December 31 is as follows:
$1.0 million for 2004, $880,000 for 2005, and none for all the years thereafter. The
estimated amortization expense is based on current information regarding loan payments and
prepayments. Amortization expense could change in future periods based on changes in the
volume of prepayments and economic factors.

# (10)     
Commitments And Contingent Liabilities

# Legal Proceedings

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

# Environmental
Remediation Costs

TSFG
acquired the former Beacon Manufacturing Company facility (Beacon property) in
Swannanoa, North Carolina on October 3, 2003 as part of its acquisition of MBFC. MBFC had
acquired this facility through a foreclosure proceeding in June 2003. In September 2003, a
fire and apparent vandalism resulted in virtually the complete destruction of the
facility, as well as a release of fuel oil and other materials. Demolition, removal, and
disposal of the debris in accordance with all state and federal regulatory guidelines are
now complete. In addition, clean up of the oil spill, including releases to the adjacent
Swannanoa River is substantially completed. TSFG continues to investigate, and if
necessary remediate, any additional related environmental impacts and soil and groundwater
contamination attributable to the facility. The environmental remediation liability,
included in other liabilities, totaled $973,000 at June 30, 2004 and was based on
available information. TSFG continues to evaluate the reserve level and may make purchase
accounting adjustments, which would be treated as goodwill adjustments in the MBFC
transaction, as more information becomes known. There can be no guarantee that any
liability or costs arising out of this matter will not exceed any established reserves.
The related estimated net realizable value of the other real estate owned, included in
other assets, totaled $300,000 at June 30, 2004. On April 23, 2004, TSFG entered into a
contract to sell the Beacon property to an independent third party that is not expected to
result in a gain or loss. This transaction is contingent upon the purchaser conducting
normal and customary due diligence and environmental review.

---

# (11)     Share Information

The
following is a summary of the earnings per share calculations:

|                                                 | Three Months Ended June 30, | 
|------------------------------------------------ | --------------------------- | 
|
|Net income (in thousands) (numerator)            |                             | 
|                                                 |                             | 
|Basic                                            |                             | 
|Average common shares outstanding (denominator)  |                             | 
|                                                 |                             | 
|Earnings per share                               |                             | 
|                                                 |                             | 
|Diluted                                          |                             | 
|Average common shares outstanding                |                             | 
|Average dilutive potential common shares         |                             | 
|                                                 |                             | 
|Average diluted shares outstanding (denominator) |                             | 
|                                                 |                             | 
|Earnings per share                               |                             | 
|                                                 |                             | 

|                                                 | Six Months Ended June 30, | 
|------------------------------------------------ | ------------------------- | 
|
|Net income (in thousands) (numerator)            |                           | 
|                                                 |                           | 
|Basic                                            |                           | 
|Average common shares outstanding (denominator)  |                           | 
|                                                 |                           | 
|Earnings per share                               |                           | 
|                                                 |                           | 
|Diluted                                          |                           | 
|Average common shares outstanding                |                           | 
|Average dilutive potential common shares         |                           | 
|                                                 |                           | 
|Average diluted shares outstanding (denominator) |                           | 
|                                                 |                           | 
|Earnings per share                               |                           | 
|                                                 |                           | 

The  following  options  were  outstanding  at the  period  end  presented  but  were  excluded  from  the
calculation  of diluted  earnings per share because the exercise price was greater than the average market price of
the common shares:

|                           | Numberof Shares | Range ofExercise Prices
|-------------------------- | --------------- | -----------------------
|For the three months ended |                 |                        
|June 30, 2004              |                 |                        
|June 30, 2003              |                 |                        
|                           |                 |                        
|For the six months ended   |                 |                        
|June 30, 2004              |                 |                        
|June 30, 2003              |                 |                        

# (12)     Stock-Based
Compensation

At
June 30, 2004, TSFG had three stock-based employee and director compensation option plans,
which are described more fully in Note 30 to the Consolidated Financial Statements in
TSFGs Annual Report on Form 10-K for the year ended December 31, 2003. TSFG accounts
for its option plans under the recognition and measurement principles of APB Opinion 25,
Accounting for Stock Issued to Employees, and related Interpretations
(APB Opinion 25). Accordingly, except in situations where accelerated vesting
occurs due to termination of employment, no compensation expense has been recognized for
the stock-based option plans. The following table illustrates the effect on net income and
earnings per share as if TSFG had applied the fair value recognition provisions of SFAS
No. 123, Accounting for Stock Based Compensation (SFAS 123) to
stock-based compensation (dollars in thousands, except share data).

---

|                                                    | Three Months EndedJune 30, | Six Months EndedJune 30, |  |              
|--------------------------------------------------- | -------------------------- | ------------------------ |  | -------------
|
|Net income                                          |                            |                          |  |              
|Net income, as reported                             |                            | $     29,987             |  | $     22,699 
|Deduct:                                             |                           
|Total stock-based employee compensation expense     |                           
|determined under fair value based method for        |                           
|all option awards, net of related income tax effect |                            | 307                      |  | 84           
|                                                    |                            |                          |  |              
|Pro forma net income                                |                            | $     29,680             |  | $     22,615 
|                                                    |                            |                          |  |              
|                                                    |                           
|Basic earnings per share                            |                           
|As reported                                         |                            | $         0.50           |  | $        0.49
|Pro forma                                           |                            | 0.50                     |  | 0.48         
|                                                    |                           
|Diluted earnings per share                          |                           
|As reported                                         |                            | $        0.49            |  | $        0.48
|Pro forma                                           |                            | 0.49                     |  | 0.47         

# (13)     Merger-Related And
Direct Aquisition Costs

In
connection with acquisitions, TSFG recorded pre-tax merger-related costs, included in
expense, and direct acquisition costs, included in goodwill. The merger-related and
acquisition costs were recorded as incurred. The following summarizes these charges (in
thousands):

| |  | Six Months EndedJune 30,                  | 
| |  | ----------------------------------------- | 
|
| |  | Merger-related costs                      | 
| |  | Compensation-related expenses             | 
| |  | System conversion costs                   | 
| |  | Impairment loss from write-down of assets | 
| |  | Travel                                    | 
| |  | Advertising                               | 
| |  | Other                                     | 
| |  |                                           | 
| |  |                                           | 
| |  |                                           | 
| | 
| |  | Direct acquisition costs                  | 
| |  | Investment banking and professional fees  | 
| |  | Contract and lease terminations           | 
| |  | Severance                                 | 
| |  |                                           | 
| |  |                                           | 
| |  |                                           | 

At
June 30, 2004, the accrual of merger-related costs totaled $1.1 million, and the accrual
of direct acquisition costs totaled $300,000.

# (14)     Business Segments

TSFG
has two principal operating subsidiaries, Carolina First Bank and Mercantile Bank, which
are evaluated regularly by the chief operating decision maker in deciding how to allocate
resources and assess performance. Both of these subsidiaries, by virtue of exceeding
certain quantitative thresholds, are reportable segments. The reportable segments engage
in general banking business focusing on commercial, consumer and mortgage lending to small
and middle market businesses and consumers in their market areas. The reportable segments
also provide demand transaction accounts and time deposit accounts to businesses and
individuals. Carolina First Bank offers products and services primarily to customers in
South Carolina, North Carolina and on the Internet. Mercantile Bank offers products and
services primarily to customers in its market areas in northern and central Florida.
Revenues for Carolina First Bank and Mercantile Bank are derived primarily from interest
and fees on loans, interest on investment securities, service charges on deposits, and
other customer service fees. No single customer accounts for a significant amount of the
revenues of either reportable segment.

---

TSFG
evaluates performance based on budget to actual comparisons and segment profits. The
accounting policies of the reportable segments are the same as those described in
TSFGs Annual Report on Form 10-K for the year ended December 31, 2003.

Segment
information (in thousands) is shown in the table below. The Other column
includes all other business activities that did not meet the quantitative thresholds and
therefore are not shown as a reportable segment.

|                                                     | CarolinaFirst Bank | MercantileBank | Other | EliminatingEntries | Total
|---------------------------------------------------- | ------------------ | -------------- | ----- | ------------------ | -----
|Three Months Ended June 30, 2004                     |                    |                |       |                    |      
|Net interest income                                  |                    |                | $     | 62,435             |      
|Provision for loan losses                            |                    |                |       | 5,116              |      
|Noninterest income                                   |                    |                |       | 20,399             |      
|Noninterest expenses, excluding merger-related costs |                    |                |       | 38,596             |      
|Merger-related costs                                 |                    |                |       | 575                |      
|Amortization of intangibles (a)                      |                    |                |       | 803                |      
|Income tax expense                                   |                    |                |       | 12,818             |      
|Net income                                           |                    |                |       | 25,729             |      
|                                                     |                    |               
|Six Months Ended June 30, 2004                       |                    |               
|Net interest income                                  |                    |                | $     | 126,845            |      
|Provision for loan losses                            |                    |                |       | 11,243             |      
|Noninterest income                                   |                    |                |       | 42,401             |      
|Noninterest expenses, excluding merger-related costs |                    |                |       | 80,044             |      
|Merger-related costs                                 |                    |                |       | 765                |      
|Amortization of intangibles (a)                      |                    |                |       | 1,606              |      
|Income tax expense                                   |                    |                |       | 24,493             |      
|Net income                                           |                    |                |       | 52,701             |      
|                                                     |                    |               
|June 30, 2004                                        |                    |               
|Total assets                                         |                    |                | $     | 8,949,809          |      
|Total loans                                          |                    |                |       | 4,723,504          |      
|Total deposits                                       |                    |                |       | 4,842,175          |      
|                                                     |                    |               
|(a) Included in noninterest expenses                 |                    |               

---

|                                                         | CarolinaFirst Bank | MercantileBank | Other | EliminatingEntries | Total
|-------------------------------------------------------- | ------------------ | -------------- | ----- | ------------------ | -----
|Three Months Ended June 30, 2003                         |                    |                |       |                    |      
|Net interest income                                      |                    |                | $     | 50,955             |      
|Provision for loan losses                                |                    |                |       | 3,892              |      
|Noninterest income                                       |                    |                |       | 17,950             |      
|Noninterest expenses, excluding merger-related costs     |                    |                |       | 34,715             |      
|Merger-related costs                                     |                    |                |       | 108                |      
|Amortization of intangibles (a)                          |                    |                |       | 315                |      
|Income tax expense                                       |                    |                |       | 9,662              |      
|Minority interest in consolidated subsidiary, net of tax |                    |                |       | (1,000             | )    
|Net income                                               |                    |                |       | 19,528             |      
|                                                         |                    |               
|Six Months Ended June 30, 2003                           |                    |               
|Net interest income                                      |                    |                | $     | 102,979            |      
|Provision for loan losses                                |                    |                |       | 7,390              |      
|Noninterest income                                       |                    |                |       | 32,995             |      
|Noninterest expenses, excluding merger-related costs     |                    |                |       | 67,012             |      
|Merger-related costs                                     |                    |                |       | 431                |      
|Amortization of intangibles (a)                          |                    |                |       | 630                |      
|Income tax expense                                       |                    |                |       | 19,797             |      
|Minority interest in consolidated subsidiary, net of tax |                    |                |       | (2,012             | )    
|Net income                                               |                    |                |       | 39,332             |      
|                                                         |                    |               
|June 30, 2003                                            |                    |               
|Total assets                                             |                    |                | $     | 7,125,070          |      
|Total loans                                              |                    |                |       | 3,534,484          |      
|Total deposits                                           |                    |                |       | 3,740,847          |      

# (15)     Subsequent Events

CNB
Florida Bancshares, Inc. On July 16, 2004, TSFG acquired CNB Florida, headquartered in
Lake City, Florida. At June 30, 2004, CNB Florida operated primarily through 16 branch
offices in Northeast Florida and had total assets of $846.4 million, total loans of $710.3
million, and total deposits of $756.3 million. The aggregate purchase price was $161.9
million, which consisted of 5,312,974 shares of TSFG common stock valued at $154.0
million, $2,000 of cash paid in lieu of fractional shares, outstanding employee stock
options valued at $6.6 million, and TSFGs equity investment of 125,000 common shares
in CNB Florida, which had a basis of $1.3 million and were canceled effective with the
acquisition closing date.

Florida
Banks, Inc. On July 16, 2004, TSFG acquired Florida Banks, headquartered in
Jacksonville, Florida. At June 30, 2004, Florida Banks operated primarily through seven
branch offices in Florida and had total assets of $1.0 billion, total loans of $822.3
million, and total deposits of $866.4 million. The aggregate purchase price was $175.9
million, which consisted of 5,418,890 shares of TSFG common stock valued at $158.5
million, $2,000 of cash paid in lieu of fractional shares, outstanding employee stock
options valued at $9.7 million, and TSFGs equity investments of 291,500 common
shares and 50,000 preferred shares in Florida Banks, which had a basis of $7.7 million and
were canceled effective with the acquisition closing date.

As
is the case with all of its bank acquisitions, TSFG is in the process of evaluating
whether any branch offices acquired are outside of its geographic market focus, whether
consolidation with existing branch offices is warranted, and whether all products and
services offered provide the proper balance of profitability and risk. In July 2004, due
to branch office consolidation associated with these two acquisitions, Mercantile Bank
closed three branch offices.

---

# (16)     Managements Opinion

The
financial statements in this report are unaudited, and the consolidated balance sheet at
December 31, 2003 is derived from TSFGs consolidated audited financial statements.
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.

---

# Item 2.

# Management's Discussion and Analysis ofFinancial 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 flow of The
South Financial Group, Inc. and its subsidiaries (collectively, TSFG). TSFG
may also be referred to herein as we, us, or our,
except where the context requires otherwise. This discussion should be read in conjunction
with the consolidated financial statements appearing in this report as well as the Annual
Report of TSFG on Form 10-K for the year ended December 31, 2003. Results of operations
for the six months ended June 30, 2004 are not necessarily indicative of results that may
be attained for any other period. Percentage calculations contained herein have been
calculated based upon actual, not rounded, results.

TSFG
primarily operates through two wholly-owned subsidiary banks, Carolina First Bank and
Mercantile Bank, which are collectively referred to as the Subsidiary Banks.

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

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

# Forward-Looking
Statements

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

| |  | risks from changes in economic,
monetary policy, and industry conditions;                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in interest rates, deposit rates, the
net interest margin, and funding sources;                                                                                                                                              
| |  | market risk and inflation;                                                                                                                                                                                                           
| |  | risks inherent in
making loans including repayment risks and value of collateral;                                                                                                                                                    
| |  | loan growth, the
adequacy of the allowance for loan losses, provision for loan losses, the assessment of problem
loans (including loans acquired via acquisition), and the performance of the Rock Hill
Bank & Trust workout loans;
| |  | level, composition, and repricing
characteristics of the securities portfolio;                                                                                                                                                       
| |  | fluctuations in consumer spending;                                                                                                                                                                                                   
| |  | competition in the banking industry and demand for our products and services;                                                                                                                                                        
| |  | dependence on senior management;                                                                                                                                                                                                     
| |  | technological changes;                                                                                                                                                                                                               
| |  | ability to increase market share;                                                                                                                                                                                                    
| |  | income and expense projections;                                                                                                                                                                                                      
| |  | risks associated with income taxes, including the
potential for adverse adjustments;                                                                                                                                                 
| |  | acquisitions, inaccuracy of related cost savings
estimates, inaccuracy of estimates of financial results, and unanticipated integration difficulties;                                                                                
| |  | significant delay or inability to
execute strategic initiatives designed to grow revenues;                                                                                                                                           
| |  | changes in accounting policies
and practices;                                                                                                                                                                                        
| |  | changes in regulatory actions, including the potential for adverse
adjustments;                                                                                                                                                      
| |  | changes, costs, and effects of litigation, and environmental remediation;
and                                                                                                                                                        
| |  | recently-enacted or proposed legislation.                                                                                                                                                                                            

---

Such
forward-looking statements speak only as of the date on which such statements are made. 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
Securities and Exchange Commission, 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, a number
of credit quality measures presented adjust GAAP information to exclude the effects of
certain identified problem loans purchased from Rock Hill Bank & Trust (the Rock
Hill Workout Loans). Management believes presentations of credit quality measures
excluding the Rock Hill Workout Loans assist in identifying core credit quality measures
and trends. In addition, certain designated net interest income amounts are presented on a
tax-equivalent basis. Management believes that the presentation of net interest income on
a tax-equivalent basis aids in the comparability of net interest income arising from both
taxable and tax-exempt sources. 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

Founded
in 1986, TSFG is a financial holding company that operates primarily in fast-growing
banking markets in the Southeast. TSFG has approximately $13.5 billion in total assets
with 153 branch offices in South Carolina, North Carolina, and Florida following its July
2004 acquisitions of CNB Florida Bancshares, Inc. (CNB Florida) and Florida
Banks, Inc. (Florida Banks). TSFG operates primarily through two subsidiary
banks:

| |  | Carolina First Bank, the largest South Carolina-headquartered commercial bank,
operates in South Carolina,
North Carolina, and on the Internet under the brand name, Bank CaroLine; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mercantile
Bank operates principally in the Jacksonville, Orlando, Tampa Bay, and Gainesville,
Florida markets.                                                                        

TSFG uses a super-community bank
strategy serving small and middle market businesses and retail consumers by offering a
broad range of financial services, including cash management, investments, insurance, and
trust services.

On
July 16, 2004, TSFG completed its acquisitions of CNB Florida and Florida Banks. The
system conversions associated with these acquisitions have been completed, and the
operations are now conducted through Mercantile Bank, TSFGs Florida banking
subsidiary. CNB Florida operated through 16 branch offices in Northeast Florida and had
approximately $846.4 million in assets at June 30, 2004. Florida Banks operated through
seven banking centers in Tampa, Jacksonville, Gainesville, Ft. Lauderdale, Ocala, and West
Palm Beach and had approximately $1.0 billion in assets at June 30, 2004. With the
completion of these mergers, approximately 40% of TSFGs total deposits are in
Florida. These acquisitions build on TSFGs existing Florida franchise, advancing
efforts to expand in markets with favorable population and per capita income growth
prospects.

Approximately
45% of TSFGs growth has come through acquisitions. TSFG may continue to consider
acquisitions that meet its acquisition criteria of strategic franchise enhancement,
accretion to cash earnings per share within 12 months, and consistency with three-year
performance goals.

The
average projected growth rates for TSFGs markets exceed the Southeastern and United
States medians for household growth and per capita income growth. This market strength
enhances TSFGs opportunities to grow loans and deposits and provide noninterest
income products and services. TSFG ranks fourth in total deposit share in South Carolina,
a $45 billion deposit market. TSFGs Florida markets are significantly larger with
total market deposits of approximately $36 billion for Tampa/St. Petersburg, $23 billion
for Orlando, and $16 billion for Jacksonville. Following the July 2004 acquisitions, TSFG
ranks ninth in total deposit share in the Florida markets in which we operate and
eighteenth in the entire state of Florida.

For
the first six months of 2004, TSFG reported net income of $62.3 million, an increase of
45.7% from $42.7 million for the six months ending June 30, 2003. Double-digit growth in
total revenues, slower growth in noninterest expenses, and effective merger integration
drove the increase. For the first six months of 2004, net income per diluted share totaled
$1.02, a 14.6% increase from $0.89 per diluted share for the first six months of 2003. For
the same period, average diluted shares outstanding increased 26.7%, principally as a
result of the acquisition of MountainBank Financial Corporation (MBFC or
MountainBank) and a common equity offering, both of which occurred in the
fourth quarter of 2003.

---

For
the first half of 2004, net interest income, TSFGs primary source of revenue,
accounted for 74.6% of total revenues. Net interest income is the difference between the
interest earned on assets, primarily loans and securities, and the interest paid for
liabilities to support such assets, primarily deposits and borrowed funds. Net interest
income for the six months ended June 30, 2004 increased 23.4% over the corresponding
period in 2003, principally due to strong organic loan growth, the acquisition of
MountainBank, and higher investment securities.

TSFG
believes that noninterest income, particularly fee income from providing other products
and services, represents one of its best opportunities for revenue growth. Noninterest
income increased to $55.3 million for the first six months of 2004, up 26.0% from $43.9
million for the first six months of 2003. For the first half of 2004, noninterest income
included $9.6 million in gains on sales of securities and a $2.4 million gain on
disposition of land associated with a conservation grant, compared with $6.1 million in
gains on sales of securities and a $601,000 gain on the sale of a branch office in the
first half of 2003. Excluding these gains on asset sales, customer fee income (service
charges on deposit accounts, debit card income, and customer service fee income),
bank-owned life insurance, merchant processing income, and mortgage banking income
represent TSFGs largest sources of noninterest income, accounting for 77.3% of
noninterest income for the six months ended June 30, 2004.

For
the first six months of 2004, noninterest expenses totaled $111.7 million, which included
$5.2 million from non-operating expenses (principally conservation grant of land, loss on
early extinguishment of debt, and merger-related costs). Excluding the non-operating
items, noninterest expenses increased by 10.0% for the first six months of 2004, compared
with the first six months of 2003. Personnel expense, the largest component, accounts for
close to half of total noninterest expenses, excluding non-operating items.

During
the first half of 2004, TSFG reduced the level of its securities portfolio as a percentage
of total assets to 35.4% at June 30, 2004 from 38.7% at June 30, 2003. TSFG expects this
percentage to continue to decline.

TSFGs
strong loan growth continued during the first six months of 2004. Loans held for
investment at June 30, 2004 increased 33.2% over June 30, 2003. Adjusting for $772.8
million in loans held for investment acquired in the MountainBank merger and $40.4 million
sold in the Community National Bank disposition (a small national bank acquired in the
MountainBank acquisition), the organic loan growth for this period was 17.6%. TSFGs
loan growth was well-diversified throughout its markets.

At
June 30, 2004, nonperforming assets as a percentage of loans held for investment and other
real estate owned was 0.92%, including the Rock Hill Workout Loans, and 0.64%, excluding
the Rock Hill Workout Loans. This follows an improving trend that began in the second
quarter of 2002. Net loan charge-offs for the first six months of 2004 totaled 0.39%,
including the Rock Hill Workout Loans, and 0.36%, excluding the Rock Hill Workout Loans.
Loan portfolio credit quality can have a dramatic impact on earnings. TSFG manages its
credit risk through an early warning credit risk management system, designed to lower
credit costs. TSFGs provision for loan losses increased to $14.7 million for the six
months ended June 30, 2004 from $10.7 million for the six months ended June 30, 2003,
primarily as a result of the increased provision associated with strong loan growth.

TSFG
gained core deposits and enhanced its deposit mix, reflecting successful sales and
promotional campaigns. Average deposits for the first half of 2004 increased 28.5% over
the corresponding period in 2003. Average deposit transaction account balances increased
45.1% during the same period, driven by growth in money market and noninterest-bearing
deposits. Average deposit transaction account balances as a percentage of average total
deposits increased to 66.0% from 58.4% for the six months ended June 30, 2003.

TSFGs
tangible equity to tangible asset ratio increased to 5.84% at June 30, 2004 from 4.61% at
June 30, 2003, primarily due to $161.1 million in new capital raised in November 2003 and
retention of earnings. The decline from 6.05% at December 31, 2003 is due to the increased
unrealized loss on available for sale securities associated with changes in interest
rates.

# 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. In order to
understand our financial position and results of operations, it is important to understand
our more critical accounting policies and the extent to which we use judgment and
estimates in applying those policies. The more critical accounting policies include
TSFGs accounting for securities, loans, allowance for loan losses, intangibles,
acquisitions, derivatives, contingent liabilities, and income taxes. In particular, TSFG
considers its policies regarding the allowance for loan losses, income taxes, and
accounting for acquisitions to be its most critical accounting policies due to the
significant degree of the levels of subjectivity and management judgment necessary to
account for these matters. Different assumptions in the application of these policies
could result in material changes in TSFGs consolidated financial statements.

---

Allowance for loan losses

The
allowance for loan losses (the Allowance) represents managements
estimate of probable losses inherent in the loan portfolio. See Balance Sheet Review
 Allowance for Loan Losses for additional discussion, including the
methodology for analyzing the adequacy of the Allowance. This methodology relies upon
managements judgment in segregating the portfolio into risk-similar segments,
assigning specific allocations for impaired loans, and setting amounts within probable
loss ranges (from 95% to 105% of the adjusted historical loss ratios) for each segment.
Managements judgments evolve from an assessment of various issues, including but not
limited to the pace of loan growth, emerging portfolio concentrations, risk management
system changes, entry into new markets, new product offerings, loan portfolio quality
trends, and uncertainty in current economic and business conditions.

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

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. Historically, TSFGs
Allowance reported on its consolidated financial statements has been materially correct
and we do not believe that it is reasonably likely that such estimates/assumptions will
change in the future; however, such changes are difficult to predict.

Income Taxes

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

No
assurance can be given that either the tax returns submitted by management or the income
tax reported on the consolidated financial statements will not be adjusted by either
adverse rulings by the U.S. Tax Court, changes in the tax code, or assessments made
by the Internal Revenue Service. 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.
Historically, TSFGs estimated income taxes reported on its consolidated financial
statements have been materially correct and we do not believe that it is reasonably likely
that such estimates/assumptions will change in the future; however, such changes are
difficult to predict. The Internal Revenue Service is currently examining TSFGs 1999
through 2002 federal income tax returns.

Accounting for Acquisitions

TSFG
has grown its operations, in part, through bank and non-bank acquisitions. Since 2000, and
in accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible
Assets (SFAS 142), TSFG has used the purchase method of accounting to
account for acquisitions. Under this method, TSFG is required to record assets acquired
and liabilities assumed at their fair value, which in many instances involves estimates
based on third party, internal, or other valuation techniques. These estimates also
include the establishment of various accruals for planned facilities dispositions and
employee benefit related considerations, among other acquisition-related items. In
addition, purchase acquisitions typically result in goodwill or other intangible assets,
which are subject to periodic impairment tests, on an annual basis, or more often, if
events or circumstances indicate that there may be impairment. These tests, which TSFG
performed as of June 30, 2004, 2003, and 2002, use estimates such as projected cash flows,
discount rates, time periods, and comparable market values in their calculations.
Furthermore, the determination of which intangible assets have finite lives is subjective,
as well as the determination of the amortization period for such intangible assets.

---

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

The
valuations as of June 30, 2004 indicated that no impairment charge was required as of that
test date. Historically, TSFGs acquisition intangibles reported on its consolidated
financial statements have been materially correct and we do not believe that it is
reasonably likely that such estimates/assumptions will change in the future; however, such
changes are difficult to predict.

Please
see the Annual Report of TSFG on Form 10-K for the year ended December 31, 2003, Item 8,
Note 1 to the Consolidated Financial Statements for a description of TSFGs
significant accounting policies.

# Acquisitions and Sales

The
following table summarizes TSFGs acquisitions completed during 2003 and 2004 through
July 31, 2004. All of the transactions were accounted for using the purchase method of
accounting. TSFGs consolidated financial statements include the results of the
acquired companys operations since the acquisition date.

Table 1SUMMARY OF COMPLETED ACQUISITIONS(dollars in thousands)

|                                    | AcquisitionDate | TotalAssets | SharesIssued | PurchasePrice Paidin Cash | IdentifiableIntangibleAssets | Goodwill
|----------------------------------- | --------------- | ----------- | ------------ | ------------------------- | ---------------------------- | --------
|Bank acquisitions                   |                 |             |              |                           |                              |         
|CNB Florida                         |                 |            
|Lake City, Florida                  |                 |             | 7/16/04      |                           |                              | $       
|                                    |                 |            
|Florida Banks                       |                 |            
|Jacksonville, Florida               |                 |             | 7/16/04      |                           |                              |         
|                                    |                 |            
|MBFC                                |                 |            
|Hendersonville, North Carolina      |                 |             | 10/03/03     |                           |                              |         
|                                    |                 |            
|Insurance agency/other acquisitions |                 |            
|Summit Title, LLC                   |                 |            
|Hendersonville, North Carolina      |                 |             | 04/12/04     |                           |                              |         
|                                    |                 |            
|Allied Assurance                    |                 |            
|Columbia, South Carolina            |                 |             | 09/22/03     |                           |                              |         
|                                    |                 |            
|American Pensions, Inc.             |                 |            
|Mount Pleasant, South Carolina      |                 |             | 04/30/03     |                           |                              |         
|                                    |                 |            

|(1) |  | Book value at the acquisition date.                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | TSFG is in the process of obtaining  third-party  valuations of certain  assets and  liabilities as of the
     acquisition  date;  thus, the amount allocated to goodwill and  identifiable  intangible  assets is subject to
     adjustment.
|(3) |  | TSFG agreed to issue annual earnout shares,  valued at the time of issuance at $66,906,  for each of April
     12, 2005, 2006, 2007, and 2008, based on revenue retention and earnings achievement.                                           
|(4) |  | TSFG agreed to issue  annual  earnout  shares,  valued at  approximately  $45,000,  for each of August 31,
     2004, 2005, 2006, and 2007, based on revenue retention.                                                                        

---

As part of its acquisition  strategy,  TSFG considers  acquisitions  in its targeted  footprint in markets
typically  growing faster than the United States and Southeast  medians for household  growth and per capita income
growth. Table 2 summarizes the geographic markets for TSFG's bank acquisitions
completed during 2003 and 2004.

# Table 2
SUMMARY OF BANK ACQUISITIONS - GEOGRAPHIC MARKETS

|              | AcquisitionDate | NumberofBranches | Geographic Markets
|------------- | --------------- | ---------------- | ------------------
|CNB Florida   |                 | 7/16/04          |                   
|Florida Banks |                 | 7/16/04          |                   
|MBFC          |                 | 10/03/03         |                   

Acquisitions Completed Subsequent to
Quarter End

In
connection with these two acquisitions, CNB Florida and Florida Banks were merged into
Mercantile Bank. TSFGs composition of loans, securities, and deposits remained
similar after adding CNB Florida and Florida Banks balances. These two acquisitions build
on TSFGs existing Florida franchise, advancing TSFGs strategy to expand in
markets with favorable population and per capita income growth prospects. In July 2004,
due to branch office consolidation associated with these two acquisitions, Mercantile Bank
closed three branch offices. TSFG anticipates incurring aggregate pre-tax merger-related
costs between approximately $9 million and $10 million, included in noninterest expenses,
largely in the third quarter. See Note 15 to the consolidated financial statements for
additional information related to these acquisitions.

Sale

On
June 28, 2004, TSFG completed the sale of substantially all of the assets and all
liabilities of Community National Bank. Headquartered in Pulaski, Virginia, Community
National Bank, acquired in connection with TSFGs October 2003 acquisition of MBFC,
was outside TSFGs targeted geographic market. In connection with this disposition,
TSFG sold $40.4 million in loans and $60.0 million in deposits and recorded reductions of
goodwill totaling $6.6 million and core deposit intangibles totaling $864,000. This
transaction resulted in no book gain or loss. Since Community National Bank is immaterial
to TSFGs financial statements, presentation as a discontinued operation is not
warranted. For the period from January 1, 2004 to June 28, 2004, Community National
Banks net income totaled $91,000.

# Balance Sheet Review

Loans

TSFG
focuses its lending activities on small and middle market businesses and individuals in
its geographic markets. At June 30, 2004, outstanding loans totaled $6.3 billion, which
equaled 97.4% of total deposits and 54.6% of total assets. The major components of the
loan portfolio were commercial loans, commercial real estate loans, consumer loans
(including both direct and indirect loans), and one-to-four family residential mortgage
loans. Substantially all loans were to borrowers located in TSFGs market areas in
South Carolina, North Carolina, and Florida. At June 30, 2004, less than 5% of the
portfolio was unsecured. The portfolio contains no highly leveraged
transactions, as defined by regulatory authorities.

Loans
held for investment increased $1.6 billion, or 33.2%, to $6.2 billion at June 30, 2004
from $4.7 billion at June 30, 2003. This increase included $732.4 million in net acquired
loans held for investment ($772.8 million from the acquisition of MountainBank, net of
$40.4 million sold in connection with the disposition of Community National Bank). For the
same period, organic growth in loans held for investment, which excludes the net acquired
loans, totaled 17.6%, accelerating in the first six months of 2004. Organic loan growth
totaling 19.5% annualized for the first six months of 2004 (excludes the sale of Community
National Bank loans totaling $40.4 million) consisted primarily of commercial, indirect
consumer and home equity loans. Originations of residential mortgage loans decreased and
most of these loans were sold in the secondary market. Loans held for sale decreased $37.8
million to $22.9 million at June 30, 2004 from $60.7 million at June 30, 2003, primarily
related to lower mortgage originations and selling or transferring the loans held for sale
that were acquired in connection with TSFGs acquisition of Gulf West Banks, Inc. in
2002.

---

Table
3 summarizes outstanding loans by collateral type for real estate secured loans and by
borrower type for all other loans. Collateral type represents the underlying assets
securing the loan, rather than the purpose of the loan.

Table 3
LOAN PORTFOLIO COMPOSITION(dollars in thousands)

|                                                 | June 30, |  | December 31,
|------------------------------------------------ | -------- |  | ------------
|
|Commercial, financial and agricultural           |          |  | $           
|Real estate - construction (1)                   |          |  |             
|Real estate - residential mortgages (1-4 family) |          |  |             
|Commercial secured by real estate (1)            |          |  |             
|Consumer                                         |          |  |             
|Lease financing receivables                      |          |  |             
|                                                 |          |  |             
|Loans held for investment                        |          |  |             
|Loans held for sale                              |          |  |             
|Allowance for loan losses                        |          |  |             
|                                                 |          |  |             
|Total net loans                                  |          |  | $           
|                                                 |          |  |             
|                                                 |          | 
|Percentage of loans held for investment          |          | 
|Commercial, financial and agricultural           |          |  |             
|Real estate - construction (1)                   |          |  |             
|Real estate - residential mortgages (1-4 family) |          |  |             
|Commercial secured by real estate (1)            |          |  |             
|Consumer                                         |          |  |             
|Lease financing receivables                      |          |  |             
|                                                 |          |  |             
|Total                                            |          |  |             
|                                                 |          |  |             

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

Table 4 provides a stratification of the loan portfolio by loan purpose.  This  presentation  differs from
that in Table 3, which stratifies the portfolio by collateral type and borrower
type.

---

Table 4
LOAN PORTFOLIO COMPOSITION BASED ON LOAN PURPOSE
(dollars in thousands)

|                                        | June 30, |  | December 31,
|--------------------------------------- | -------- |  | ------------
|
|Commercial loans                        |          |  |             
|Commercial and industrial               |          |  | $           
|Owner - occupied real estate (1)        |          |  |             
|Commercial real estate                  |          |  |             
|                                        |          |  |             
|                                        |          |  |             
|                                        |          |  |             
|                                        |          | 
|Consumer loans                          |          | 
|Indirect - sales finance                |          |  |             
|Direct retail                           |          |  |             
|Home equity                             |          |  |             
|                                        |          |  |             
|                                        |          |  |             
|                                        |          |  |             
|                                        |          | 
|Mortgage loans                          |          |  |             
|                                        |          |  |             
|                                        |          | 
|Total loans held for investment         |          |  | $           
|                                        |          |  |             
|                                        |          | 
|Percentage of loans held for investment |          | 
|Commercial and industrial               |          |  |             
|Owner - occupied real estate (1)        |          |  |             
|Commercial real estate                  |          |  |             
|Consumer                                |          |  |             
|Mortgage                                |          |  |             
|                                        |          |  |             
|Total                                   |          |  |             
|                                        |          |  |             

|(1) | In Table 3, these loans are included in the Real estate 
          construction and Commercial secured by real estate categories,
          which also include loans to non-real estate industry borrowers.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

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 loans are loans to finance real properties that are acquired, developed,
or constructed for sale or lease to parties unrelated to the borrower. Included are loans
to acquire land for development, land development loans, construction loans, mini-perms
for cash flow stabilization periods, and permanent loans in situations where access to the
secondary market is limited due to loan size.

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 up to five years.

Direct
retail consumer loans are loans to individuals to finance personal, family, or
household needs. Typical loans are loans to finance auto purchases, home repairs and
additions, and home purchases. These loans are made by TSFG employees in its branches.

---

Home
equity loans are loans to homeowners, secured 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.

Mortgage
loans are loans to individuals, secured by first mortgages on single-family
residences, to finance the acquisition of those residences. These loans, originated by
TSFGs mortgage lending division, do not qualify for immediate sale but are judged
sellable with seasoning. They are underwritten to secondary market standards and are sold,
from time to time, as they become sellable to secondary market investors.

The
portfolios only significant industry concentration is in commercial real estate
loans. All other industry concentrations are less than 10% of total loans. Due to
sustained strong population growth and household income growth, real estate development
and construction are major components of the economic activity that occurs in TSFGs
markets. The risk attributable to this concentration is managed by focusing our lending to
markets we are familiar with and to borrowers who have proven track records and who we
believe possess the financial means to weather adverse market conditions. In its
commercial real estate lending, TSFG does not make loans without recourse to the borrower,
loans without personal guarantees from the owners, or loans to cash out equity in
commercial properties. Consequently, although the analysis of reserve adequacy includes an
adjustment to account for the risk inherent in this concentration, management believes the
risk of loss in its commercial real estate loans is not materially greater than the risk
of loss in any other segment of the portfolio.

In
addition, management believes that diversification by geography, property type, and
borrower partially mitigates the risk of loss in its commercial real estate loan
portfolio. Table 5 sorts the commercial real estate portfolio by geography and property
type.

---

Table 5
COMMERCIAL REAL ESTATE LOANS
(dollars in thousands)

|                                                           | June 30, 2004 |  | December 31, 2003 |          
|---------------------------------------------------------- | ------------- |  | ----------------- | ---------
|
|Commercial Real Estate Loans by Geographic Diversification |               |  |                   |          
|Western North Carolina (Hendersonville/Asheville)          |               |  | $                 | 447,393  
|Upstate South Carolina (Greenville)                        |               |  |                   | 334,121  
|North Coastal South Carolina (Myrtle Beach)                |               |  |                   | 321,092  
|Midlands South Carolina (Columbia)                         |               |  |                   | 280,882  
|Tampa Bay Florida                                          |               |  |                   | 249,380  
|South Coastal South Carolina (Charleston)                  |               |  |                   | 242,010  
|Central Florida (Orlando)                                  |               |  |                   | 219,660  
|Other (1)                                                  |               |  |                   | 306,229  
|                                                           |               |  |                   |          
|Total commercial real estate loans                         |               |  | $                 | 2,400,767
|                                                           |               |  |                   |          
|                                                           |               | 
|Commercial Real Estate Loans by Product Type               |               | 
|Commercial construction/development                        |               |  | $                 | 657,248  
|Hotel/motel                                                |               |  |                   | 252,214  
|Mixed use                                                  |               |  |                   | 207,042  
|Retail                                                     |               |  |                   | 204,841  
|Undeveloped land                                           |               |  |                   | 198,906  
|1-4 family residential                                     |               |  |                   | 171,903  
|Residential construction                                   |               |  |                   | 163,673  
|Multi-family residential                                   |               |  |                   | 146,837  
|Other (1)                                                  |               |  |                   | 398,103  
|                                                           |               |  |                   |          
|Total commercial real estate loans                         |               |  | $                 | 2,400,767
|                                                           |               |  |                   |          

|(1)   | Other includes all loans in categories smaller than the lowest percentages shown
          above.                                                
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------
|Note: | At June 30, 2004 and December 31, 2003, average loan size for
          commercial real estate loans totaled $353,000
and $324,000, respectively.

TSFG
has set a house-lending limit of $25 million, well below the legal lending limit of $107.7
million at June 30, 2004. The 20 largest relationships, which range from $25 million in
total commitments to $20 million for the 20th largest relationship, have an
aggregate outstanding principal balance of $258.5 million, or 4.1% of total loans held for
investment, at June 30, 2004.

At
June 30, 2004, the loan portfolio included commitments totaling $284.8 million in
shared national credits (multi-bank credit facilities of $20 million or more).
Outstandings under these commitments totaled $95.8 million. By policy, TSFG participates
in shared national credits only if the borrower is headquartered or conducts business in
our market, the borrower is in an industry familiar to us, we meet directly with the
borrower to conduct our analysis, and the opportunity exists to establish an ongoing
banking relationship with us. None of these credits were classified in the most recent
report on shared national credits prepared by the regulatory agencies.

---

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 quarterly meetings with credit risk
management to review progress. Credit risk management activities are monitored by Credit
Committees of each banking subsidiarys Board of Directors, which meet monthly to
review credit quality trends, new large credits, loans to insiders, large problem credits,
credit policy changes, and reports on independent credit audits of branch offices.

To
facilitate comparisons, Table 6 presents credit quality indicators two ways: one that
includes all loans and one that excludes the Rock Hill Workout Loans. On October 31, 2002,
loans totaling $191.3 million were acquired from Rock Hill Bank. Prior to the closing and
in connection with identified problem loans, Rock Hill Bank had charged-off a significant
portion of its loan portfolio and established additional reserves. At closing, TSFG
segregated certain identified problem loans into a separately managed portfolio, referred
to as the Rock Hill Workout Loans. At June 30, 2004, this portfolio totaled
$24.2 million, down from $50.6 million at June 30, 2003. Nonperforming assets for the Rock
Hill Workout Loans at June 30, 2004 totaled $17.9 million, and the allowance for loan
losses was $2.7 million. Net loan charge-offs for the Rock Hill Workout Loans totaled
$883,000 for the first six months of 2004. TSFG expects nonperforming assets and the
allowance for loan losses to decline as the Rock Hill Workout Loans continue to be
liquidated, moved to performing status, or otherwise resolved. TSFG believes that the Rock
Hill Workout Loans will largely be resolved during the next few quarters with minimal
impact to 2004 net income. Where appropriate, TSFG has provided credit quality measures
excluding the Rock Hill Workout Loans to identify core credit quality measures and trends.

---

Table 6
NONPERFORMING ASSETS
(dollars in thousands)

|                                                             | June 30, | December 31, |  
|------------------------------------------------------------ | -------- | ------------ | -
|
|Nonperforming Assets Including the Rock Hill Workout Loans   |          |              |  
|Loans held for investment                                    |          |              | $
|Allowance for loan losses                                    |          |              |  
|Nonaccrual loans - commercial                                |          |              |  
|Nonaccrual loans - consumer                                  |          |              |  
|Restructured loans                                           |          |              |  
|                                                             |          |              |  
|Total nonperforming loans                                    |          |              |  
|Other real estate owned                                      |          |              |  
|                                                             |          |              |  
|Total nonperforming assets                                   |          |              | $
|                                                             |          |              |  
|                                                             |          |             
|Loans past due 90 days or more (mortgage and consumer) (1)   |          |              | $
|                                                             |          |              |  
|                                                             |          |             
|Total nonperforming assets as a percentage of loans held for |          |             
|investment and other real estate owned                       |          |              |  
|                                                             |          |              |  
|Allowance for loan losses to nonperforming loans             |          |              |  
|                                                             |          |              |  
|                                                             |          |             
|Rock Hill Workout Loans                                      |          |             
|Loans held for investment                                    |          |              | $
|Allowance for loan losses                                    |          |              |  
|                                                             |          |             
|Total nonperforming loans (2)                                |          |              |  
|Other real estate owned                                      |          |              |  
|                                                             |          |              |  
|Total nonperforming assets                                   |          |              | $
|                                                             |          |              |  
|                                                             |          |             
|Nonperforming Assets Excluding the Rock Hill Workout Loans   |          |             
|Loans held for investment                                    |          |              | $
|Allowance for loan losses                                    |          |              |  
|                                                             |          |             
|Total nonperforming loans                                    |          |              |  
|Other real estate owned                                      |          |              |  
|                                                             |          |              |  
|Total nonperforming assets                                   |          |              | $
|                                                             |          |              |  
|                                                             |          |             
|Total nonperforming assets as a percentage of loans held for |          |             
|investment and other real estate owned                       |          |              |  
|                                                             |          |              |  
|Allowance for loan losses to nonperforming loans             |          |              |  
|                                                             |          |              |  

|(1)   |  | TSFGs accrued interest reserve associated with these loans totaled
          $295,000, $513,000, and $474,000 at June 30, 2004, June 30, 2003, and December
          31, 2003, respectively.                                                                                                    
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)   |  | At June 30, 2004, $9.5 million of the $15.9 million in nonperforming loans had a
          specific allowance of zero, due primarily to charge-offs of specific allowances
          previously allocated thereto that have occurred since acquisition of these Rock
          Hill Workout Loans.
|Note: |  | Nonperforming assets exclude personal property repossessions, which totaled $720,000, $1.3
million, and $1.0 million, at June 30, 2004, June 30, 2003, and December 31, 2003,
respectively.                                                                                                       

Credit
Quality Including Rock Hill Workout Loans.Nonperforming assets declined to
0.92% of loans held for investment and other real estate owned at June 30, 2004 from 1.39%
at June 30, 2003. Net loan charge-offs decreased to 0.39% of average loans held for
investment for the first six months of 2004 from 0.75% for the first six months of 2003,
primarily due to the disposition of fully-reserved Rock Hill Workout Loans in 2003.
Accordingly, the allowance for loan losses declined to 1.22% of period-end loans held for
investment at June 30, 2004 from 1.37% at June 30, 2003.

---

Credit
Quality Excluding Rock Hill Workout Loans. Core nonperforming assets (which exclude
the Rock Hill Workout Loans) improved to 0.64% of loans held for investment and other real
estate owned at June 30, 2004 from 0.85% at June 30, 2003. Net loan charge-offs totaled
$10.7 million, or 0.36% of average loans held for investment for the first six months of
2004, down from 0.45% of average loans held for investment for the first six months of
2003. The allowance for loan losses as a percentage of loans held for investment decreased
slightly to 1.18% at June 30, 2004 from 1.20% at June 30, 2003. However, the allowance
coverage increased to 2.24 times nonperforming loans at June 30, 2004 from 1.76 times at
June 30, 2003.

Management
believes that loss exposure in its loan portfolio is identified, adequately reserved for
in a timely manner, and closely monitored to ensure that changes are promptly addressed in
its analysis of allowance for loan loss adequacy. Future credit quality trends will depend
in part on the direction of the economy and the performance of the loan portfolios
acquired from the acquisitions of CNB Florida and Florida Banks. Current economic outlook
does not provide a clear signal of the economic direction. If the economy continues to
improve, TSFG expects the core nonperforming asset ratio to remain stable or improve
slightly. TSFG expects higher net loan charge-offs in the third quarter 2004, due to
anticipated resolution of nonperforming loans with relatively large allocated reserves.
The charge-off ratio should then decline in the fourth quarter, returning to a level more
similar to that for the first half of 2004.

Certain
of the Rock Hill Workout Loans are defined as designated loans under the Rock
Hill Bank and Trust purchase agreement (Designated Loans) and are subject to
earnout provisions as provided in that agreement. The total original principal amount owed
by the borrowers for Designated Loans was $45.2 million, of which $19.5 million had either
been charged-off or reserved prior to acquisition by TSFG. To the extent that principal
collections on these Designated Loans exceed $25.7 million through the termination date of
the earnout agreement, TSFG will pay the RHBT shareholders 30% of such excess. The net
effect is to pay RHBT shareholders 30% of the net recoveries on these loans from
charge-off collections and reserve reductions. Through June 30, 2004, total net
charge-offs and allowance levels on the Designated Loans exceeded the amount that would
require a payment under the earnout agreement by approximately $4.6 million.

Table
7 summarizes information on impaired loans, all of which are in nonaccrual status. All
impaired loans are commercial loans. There was no recognized interest income on impaired
loans.

Table 7
IMPAIRED LOANS
(dollars in thousands)

|                                                         | At and For theSix MonthsEnded June 30, | At and For theYear EndedDecember 31, | 
|-------------------------------------------------------- | -------------------------------------- | ------------------------------------ | 
|
|Impaired loans                                           |                                        | $46,436                              | 
|Impaired loans, excluding the Rock Hill Workout Loans    |                                        | 30,499                               | 
|Average investment in impaired loans                     |                                        | 49,758                               | 
|Related allowance                                        |                                        | 10,806                               | 
|Related allowance, excluding the Rock Hill Workout Loans |                                        | 8,363                                | 
|Foregone interest                                        |                                        | 1,523                                | 

Allowance for Loan Losses

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

The
portfolio is segregated into risk-similar segments for which historical loss ratios are
calculated and adjusted for identified changes in current portfolio characteristics.
Historical loss ratios are calculated by product type for consumer loans (direct
installment, indirect installment, revolving, and mortgage) and by credit risk grade for
performing commercial loans. Nonperforming commercial loans are individually assessed for
impairment under SFAS No. 114, Accounting by Creditors for Impairment of a Loan, an
amendment of FASB Statements No. 5 and 15 (SFAS 114), and assigned
specific allocations. To allow for modeling error, a range of probable loss ratios (from
95% to 105% of the adjusted historical loss ratio) is then derived for each segment. The
resulting percentages are then applied to the dollar amounts of loans in each segment to
arrive at each segments range of probable loss levels.

---

The
Allowance for each portfolio segment is set at an amount within its range that reflects
managements best judgment of the extent to which historical loss levels are more or
less accurate indicators of current losses in the portfolio. Managements judgments
evolve from an assessment of various issues, including but not limited to the pace of loan
growth, emerging portfolio concentrations, risk management system changes, entry into new
markets, new product offerings, loans acquired from acquisitions, loan portfolio quality
trends, and uncertainty in current economic and business conditions.

The
Allowance is 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 range for
each category. The unallocated component is the sum of the amounts by which final loss
estimates exceed the lower end estimates for each category. The unallocated component of
the Allowance represents probable losses inherent in the portfolio based on our analysis
that are not fully captured in the allocated component. Allocation of the Allowance to
respective loan portfolio components is not necessarily indicative of future losses or
future allocations. The entire Allowance is available to absorb losses in the loan
portfolio.

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

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

The
Allowance declined as a percentage of loans held for investment to 1.22% at June 30, 2004
from 1.37% at June 30, 2003. This decline was primarily due to charge-offs of losses on
Rock Hill Workout Loans, which were reserved at the time of acquisition. Excluding the
Rock Hill Workout Loans, the Allowance totaled 1.18% of loans held for investment at June
30, 2004, compared with 1.20% at June 30, 2003. See Credit Quality.

Table 8,
which summarizes the changes in the Allowance, provides additional information with
respect to the activity in the Allowance.

---

Table 8
SUMMARY OF LOAN LOSS EXPERIENCE
(dollars in thousands)

|                                                          | At and ForThe Six MonthsEnded June 30, | At and ForThe Year EndedDecember 31, |  
|--------------------------------------------------------- | -------------------------------------- | ------------------------------------ | -
|
|Allowance for loan losses, beginning of year              |                                        |                                      | $
|Purchase accounting adjustments                           |                                        |                                      |  
|Allowance adjustment for loans sold                       |                                        |                                      |  
|Net charge-offs:                                          |                                        |                                     
|Loans charged-off                                         |                                        |                                      |  
|Loans recovered                                           |                                        |                                      |  
|                                                          |                                        |                                      |  
|                                                          |                                        |                                      |  
|Additions to allowance through provision expense          |                                        |                                      |  
|                                                          |                                        |                                      |  
|Allowance for loan losses, end of period                  |                                        |                                      | $
|                                                          |                                        |                                      |  
|                                                          |                                        |                                     
|Average loans held for investment                         |                                        |                                      | $
|Loans held for investment, end of period                  |                                        |                                      |  
|Net charge-offs as a percentage of average loans held for |                                        |                                     
|investment (annualized)                                   |                                        |                                      |  
|Allowance for loan losses as a percentage of loans held   |                                        |                                     
|for investment                                            |                                        |                                      |  
|                                                          |                                        |                                     
|Excluding the Rock Hill Workout Loans:                    |                                        |                                     
|Net loan charge-offs                                      |                                        |                                      | $
|Allowance for loan losses, end of period                  |                                        |                                      |  
|Average loans held for investment                         |                                        |                                      |  
|Loans held for investment, end of period                  |                                        |                                      |  
|Net charge-offs as a percentage of average loans held for |                                        |                                     
|investment (annualized)                                   |                                        |                                      |  
|Allowance for loan losses as a percentage of loans held   |                                        |                                     
|for investment                                            |                                        |                                      |  

Securities

TSFG
uses the investment securities portfolio for several purposes. It serves as a vehicle to
manage interest rate and prepayment risk, to leverage capital through generating interest
and dividend income from the investment of funds, to provide liquidity to meet funding
requirements, and to provide collateral for pledges on public deposits and securities sold
under repurchase agreements. In addition, TSFG has engaged in, and expects to continue to
engage in, hedging activities to reduce interest rate risk associated with the investment
securities and other balance sheet items. Table 9 shows the carrying values of the
investment securities portfolio.

---

Table 9
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
(dollars in thousands)

|                                                               | June 30, | December 31, |  
|-------------------------------------------------------------- | -------- | ------------ | -
|
|Trading (at fair value)                                        |          |              |  
|U.S. Government agencies                                       |          |              | $
|State and municipal                                            |          |              |  
|Other investments                                              |          |              |  
|                                                               |          |              |  
|                                                               |          |              |  
|                                                               |          |              |  
|Available for Sale (at fair value)                             |          |             
|Mortgage-backed securities                                     |          |              |  
|U.S. Government agencies                                       |          |              |  
|U.S. Treasury                                                  |          |              |  
|State and municipal                                            |          |              |  
|Other investments:                                             |          |             
|Corporate bonds                                                |          |              |  
|Federal National Mortgage Association ("FNMA") preferred stock |          |              |  
|Federal Home Loan Bank ("FHLB") stock                          |          |              |  
|Community bank stocks                                          |          |              |  
|NetBank, Inc. ("NetBank") common stock                         |          |              |  
|Other equity investments (1)                                   |          |              |  
|                                                               |          |              |  
|                                                               |          |              |  
|                                                               |          |              |  
|Held to Maturity (at amortized cost)                           |          |             
|State and municipal                                            |          |              |  
|Other investments                                              |          |              |  
|                                                               |          |              |  
|                                                               |          |              |  
|                                                               |          |              |  
|Total                                                          |          |              | $
|                                                               |          |              |  
|                                                               |          |             
|Percentage of Total Securities Portfolio                       |          |             
|Mortgage-backed securities                                     |          |              |  
|U.S. Government agencies                                       |          |              |  
|U.S. Treasury                                                  |          |              |  
|State and municipal                                            |          |              |  
|Other investments                                              |          |              |  
|                                                               |          |              |  
|Total                                                          |          |              |  
|                                                               |          |              |  

|(1) | Other equity investments include TSFGs investment in Affinity Technology
          Group, Inc. (Affinity) as well as several other investments. At June
          30, 2004, TSFGs investment in Affinity was recorded at its pre-tax market
          value of $293,000 and had a basis of $433,000.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At
June 30, 2004, TSFGs investment securities portfolio declined to 35.4% of total
assets from 37.4% and 38.7% at December 31, 2003 and June 30, 2003, respectively. This
decline is consistent with TSFGs plan to reduce the level of its securities
portfolio as a percentage of total assets, as loan growth replaced some securities
balances. During the first six months of 2004, loan growth outpaced deposit growth, and
the resulting shortfall was funded with cash flows from the securities portfolio and
increases in short-term borrowings. Over time, TSFG expects to reduce the level of its
securities portfolio as a percentage of total assets.

Securities
(i.e., trading securities, securities available for sale, and securities held to maturity)
excluding the unrealized loss on available for sale securities averaged $4.0 billion in
the first six months of 2004, 25.6% above the average for the corresponding period in 2003
of $3.2 billion. The majority of the increase was attributable to securities purchased to
leverage available capital. The average portfolio yield decreased for the six months ended
June 30, 2004 to 3.96% from 4.12% in the first six months of 2003. The securities yield
decreased due to a lower level of general interest rates, sales of higher-yielding
securities, and the purchase of lower-yielding, shorter duration securities.

---

For
the remainder of 2004, TSFG expects loan growth to outpace deposit growth. The projected
cash flows from the securities portfolio are sufficient, under different interest rate
scenarios, including a rising rate scenario, to provide much of the necessary funding.
TSFG strives to keep the weighted average life and duration of its securities portfolio
relatively short to provide adequate flexibility to proactively manage cash flow as market
conditions change. Cash flow may be used to pay-off short-term borrowings, used to fund
loan growth, or reinvested in securities at then current market rates. In addition,
shorter portfolio duration should reduce TSFGs exposure to rising interest rates and
extension risk.

The
duration of the debt securities portfolio increased to approximately 3.8 years at June 30,
2004 from approximately 3.5 years at December 31, 2003, due to an increase in interest
rates during the second quarter. At June 30, 2003, the duration of the debt securities
portfolio was approximately 4.4 years.

Nearly
all of these securities are rated AAA so the credit risk is minimal. Approximately 30% of
mortgage-backed securities (MBS) are collateralized mortgage obligations
(CMOs), the majority of which are short-term with a total duration of 4.2
years. TSFG manages the MBS portfolio to maintain a short duration and repricing horizon.
At June 30, 2004, approximately 44% of the MBS portfolio was variable rate.

Changes
in interest rates and related prepayment activity impact yields and fair values of
TSFGs securities, specifically MBS. Based on the current investment portfolio
composition, in a rising interest rate environment, related prepayment activity should
decrease. Decreasing prepayment activity extends the premium amortization period, thereby
improving yields.

The
available for sale portfolio constituted 98.0% of total securities at June 30, 2004.
Management believes that maintaining most of its securities in the available for sale
category provides greater flexibility in the management of the overall investment
portfolio.

The
net unrealized loss on available for sale securities (pre-tax) totaled $75.9 million at
June 30, 2004, compared with an $11.5 million loss at December 31, 2003. This increased
unrealized loss was primarily due to the increase in long-term interest rates in the first
six months of 2004 and was spread throughout the portfolio with the most significant being
MBS, which declined $37.8 million. Since TSFG has the ability to hold its investments in
unrealized loss positions until a market price recovery or maturity, these investments are
not considered impaired on an other-than-temporary basis.

Under
both the current level of interest rates and under expected future rate scenarios, TSFG
believes its securities portfolio will continue to provide sufficient liquidity.

Community
Bank Stocks. At June 30, 2004, TSFG had equity investments in 16 community banks
located in the Southeast with a $17.1 million basis and pre-tax market value of $26.3
million. In each case, TSFG owns less than 5% of the community banks outstanding
common stock. TSFG made these investments to develop correspondent banking relationships
and to promote community banking in the Southeast. These investments in community banks
are included in securities available for sale.

At
June 30, 2004, these community bank investments included 125,000 common shares of CNB
Florida, with a pre-tax market value of $3.0 million and a basis of $1.3 million; 291,500
common shares of Florida Banks, with a pre-tax market value of $6.3 million and a basis of
$2.7 million; and 50,000 preferred shares of Florida Banks, with a pre-tax market value
and basis of $5.0 million. On July 16, 2004, TSFG acquired CNB Florida and Florida Banks.
See Acquisitions. Under these agreements, TSFG canceled its CNB Florida and
Florida Banks stock effective with the acquisition closing date.

Intangible Assets

Intangible
assets totaled $344.2 million at June 30, 2004, up from $245.0 million at June 30, 2003,
principally from the MountainBank acquisition. See Note 8 to the consolidated financial
statements for the types and balances of intangible assets. In the third quarter 2004,
TSFG expects to record approximately $250 million of intangible assets, including
goodwill, in connection with the CNB Florida and Florida Banks acquisitions.

---

Deposits

Deposits
remain TSFGs primary source of funds for loans and investments. Average deposits
provided funding for 60.6% of average earning assets in the first six months of 2004 and
60.3% in the first six months of 2003. Carolina First Bank and Mercantile Bank face stiff
competition from other banking and financial services companies in gathering deposits. The
percentage of funding provided by deposits has declined, and accordingly, TSFG has
developed other sources, such as FHLB advances, short-term borrowings, and long-term
structured repurchase agreements, to fund a portion of loan demand and increases in
investment securities. In addition, TSFG has increased the use of brokered deposits, which
are included in deposits.

Table
10 shows the breakdown of total deposits by type of deposit and the respective percentage
of total deposits.

Table 10
TYPE OF DEPOSITS
(dollars in thousands)

|                                  | June 30, | December 31, |  
|--------------------------------- | -------- | ------------ | -
|
|Noninterest-bearing deposits      |          |              | $
|Interest-bearing checking         |          |              |  
|Money market accounts             |          |              |  
|Savings accounts                  |          |              |  
|                                  |          |              |  
|Total transaction accounts        |          |              |  
|Time deposits under $100,000      |          |              |  
|Time deposits of $100,000 or more |          |              |  
|Brokered deposits                 |          |              |  
|                                  |          |              |  
|Total deposits                    |          |              | $
|                                  |          |              |  
|                                  |          |             
|Percentage of Deposits            |          |             
|Noninterest-bearing deposits      |          |              |  
|Interest-bearing checking         |          |              |  
|Money market accounts             |          |              |  
|Savings accounts                  |          |              |  
|                                  |          |              |  
|Total transaction accounts        |          |              |  
|Time deposits under $100,000      |          |              |  
|Time deposits of $100,000 or more |          |              |  
|Brokered deposits                 |          |              |  
|                                  |          |              |  
|Total deposits                    |          |              |  
|                                  |          |              |  

At
June 30, 2004, deposits were up $1.3 billion from June 30, 2003. This increase included
$718.3 million in net acquired deposits ($778.3 million from the October 2003 acquisition
of MountainBank, net of $60.0 million sold in connection with the disposition of Community
National Bank). The net acquired deposits accounted for 54.6% of the increase in deposits
since June 30, 2003. The increase also includes a $337.0 million increase in brokered
deposits, which accounted for 25.6% of the increase since June 30, 2003. TSFG considers
these funds to be an attractive alternative funding source available to use while
continuing its efforts to maintain and grow its local deposit base. In addition, TSFG
increased deposits, particularly transaction accounts, through increased sales referrals
and targeted deposit promotions. During the first half of 2004, TSFGs
noninterest-bearing deposits grew at a 20.4% annualized rate. For this same period,
transaction account deposits increased at a 9.0% annualized growth rate.

Table
13 in Results of Operations  Net Interest Income details average
balances for the deposit portfolio for the three and six months ended June 30, 2004 and
2003. Average money market accounts increased $1.1 billion, or 85.7%, and average
noninterest-bearing deposits increased $163.0 million, or 22.6%. Average time deposits
increased $99.8 million, or 5.1%, which includes a $221.4 million increase in average
brokered deposits.

---

As
part of its overall funding strategy, TSFG focuses on the mix of deposits and, in
particular, increasing the level of transaction accounts. For the six months ended June
30, 2004, transaction accounts made up 66.0% of average deposits, compared with 58.4% for
the six months ended June 30, 2003. These trends reflect TSFGs efforts to enhance
its deposit mix by working to attract lower-cost transaction accounts. TSFGs
customer-centered sales process, Elevate, and deposit campaigns are expected to
play an integral part of achieving this goal.

At
June 30, 2004, total deposits for Bank CaroLine, an Internet banking division of Carolina
First Bank, totaled $35.4 million, up from $25.1 million as of June 30, 2003. Deposits
generated through Bank CaroLine generally receive higher rates than those offered by
TSFGs branch locations as a result of the less expensive Internet delivery channel.
Deposits for Bank CaroLine principally increased due to the acquisition of MountainBank.
MountainBank offered Internet-only time deposits that were advertised exclusively on the
Internet.

Time
deposits of $100,000 or more are generally from customers within our local markets. As
such, these deposits have a greater degree of stability than is typically associated with
this source of funds at other institutions.

Borrowed Funds

Table
11 shows the breakdown of total borrowings by type.

Table 11
TYPE OF BORROWINGS
(dollars in thousands)

|                                                         | June 30, | December 31, | 
|-------------------------------------------------------- | -------- | ------------ | 
|
|Short-Term Borrowings                                    |          |              | 
|Federal funds purchased and repurchase agreements        |          | $1,001,192   | 
|FHLB advances                                            |          | 205,000      | 
|Commercial paper                                         |          | 39,315       | 
|Treasury, tax and loan note                              |          | 110,377      | 
|Line of credit to unaffiliated bank and other            |          | --           | 
|                                                         |          |              | 
|                                                         |          | 1,355,884    | 
|                                                         |          |              | 
|                                                         |         
|Long-Term Borrowings                                     |         
|Repurchase agreements                                    |          | 1,578,434    | 
|FHLB advances                                            |          | 761,302      | 
|Subordinated notes (1)                                   |          | 135,075      | 
|Debt associated with trust preferred securities (1)      |          | --           | 
|Mandatorily redeemable preferred stock of subsidiary (2) |          | 89,800       | 
|Employee stock ownership plan note payable               |          | 950          | 
|Note payable                                             |          | 914          | 
|Purchase accounting premiums and deferred charges, net   |          | 3,122        | 
|                                                         |          |              | 
|                                                         |          | 2,569,597    | 
|                                                         |          |              | 
|Total borrowings                                         |          | $3,925,481   | 
|                                                         |          |              | 

|(1) |  | In accordance with the revised Financial Accounting Standards Board
          Interpretation No. 46, (FIN 46), Consolidation of Variable
          Interest Entities, which addresses consolidation by business enterprises
          of variable interest entities, TSFG deconsolidated five trust subsidiaries at
          December 31, 2003, which had been formed to raise capital by issuing preferred
          securities to institutional investors. The deconsolidation of these wholly-owned
          subsidiaries, increased TSFGs other assets by $3.6 million, increased
          long-term debt (specifically subordinated notes) $119.1 million and decreased
          debt associated with trust preferred securities by $115.5 million.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | In accordance with SFAS No. 150, (SFAS 150), Accounting for
          Certain Financial Instruments with Characteristics of both Liabilities and
          Equity, which established standards for how an issuer classifies and
          measures certain financial instruments with characteristics of both liabilities
          and equity, TSFG reclassified its minority interest in consolidated subsidiary
          (representing mandatorily redeemable preferred stock of its real estate
          investment trust subsidiary) to long-term debt effective July 1, 2003.                                                                                                                                                                        

---

TSFG
uses both short-term and long-term borrowings to partially fund growth of earning assets
in excess of deposit growth. In the first six months of 2004, average borrowings totaled
$3.8 billion, compared with $3.1 billion for the same period in 2003. This increase was
primarily attributable to an increased reliance on borrowings to support earning asset
growth and the reclassification of minority interest in consolidated subsidiary to
long-term debt. TSFG may enter into interest rate swap agreements to hedge interest rate
risk related to borrowings.

Federal
funds purchased and repurchase agreements are used to satisfy daily funding needs and,
when advantageous, for rate arbitrage. The increases in both the short-term and long-term
balances are primarily to support earning asset growth. Balances in these accounts can
fluctuate on a day-to-day basis. In addition, TSFG increased long-term repurchase
agreements to provide longer-term liquidity at historically low interest rates.

FHLB
advances are a source of funding which TSFG uses depending on the current level of
deposits, its ability to raise deposits through market promotions, the Subsidiary
Banks unused FHLB borrowing capacity, and the availability of collateral to secure
FHLB borrowings.

In
March 2004, TSFG recorded a loss on early extinguishment of debt totaling $1.4 million for
prepayment penalties for repurchase agreement borrowings totaling $185.0 million with
variable interest rates that would have changed to fixed at periods ranging from 6 months
to 18 months. The fixed interest rates on these repurchase agreements ranged from 1.54% to
2.99%. Due to a change in estimates related to step-up and callable repurchase agreements
(including the retired debt), TSFG reversed $900,000 in interest expense accrued at
December 31, 2003. TSFG continues to evaluate the relative cost and benefit of incurring
prepayment penalties from the early extinguishment of debt.

Environmental
Remediation Costs

TSFG
acquired the former Beacon Manufacturing Company facility (Beacon property) in
Swannanoa, North Carolina on October 3, 2003 as part of its acquisition of MBFC. MBFC had
acquired this facility through a foreclosure proceeding in June 2003. In September 2003, a
fire and apparent vandalism resulted in virtually the complete destruction of the
facility, as well as a release of fuel oil and other materials. Demolition, removal, and
disposal of the debris in accordance with all state and federal regulatory guidelines are
now complete. In addition, clean up of the oil spill, including releases to the adjacent
Swannanoa River is substantially completed. TSFG continues to investigate, and if
necessary remediate, any additional related environmental impacts and soil and groundwater
contamination attributable to the facility. The environmental remediation liability,
included in other liabilities, totaled $973,000 at June 30, 2004 and was based on
available information. TSFG continues to evaluate the reserve level and may make purchase
accounting adjustments, which would be treated as goodwill adjustments in the MBFC
transaction, as more information becomes known. There can be no guarantee that any
liability or costs arising out of this matter will not exceed any established reserves.
The related estimated net realizable value of the other real estate owned, included in
other assets, totaled $300,000 at June 30, 2004. On April 23, 2004, TSFG entered into a
contract to sell the Beacon property to an independent third party that is not expected to
result in a gain or loss. This transaction is contingent upon the purchaser conducting
normal and customary due diligence and environmental review.

Capital Resources and
Dividends

Total
shareholders equity amounted to $994.6 million, or 8.7% of total assets, at June 30,
2004, compared with $660.2 million, or 7.1% of total assets, at June 30, 2003. At December
31, 2003, total shareholders equity was $979.9 million, or 9.1% of total assets. The
increase in shareholders equity since June 30, 2003 was primarily from the issuance
of common stock from a fourth quarter 2003 equity offering and the MBFC acquisition, as
well as the retention of earnings. Cash dividends paid and the change from an unrealized
gain to an unrealized loss in the available for sale investment portfolio partially offset
these increases. TSFG has approximately 1.3 million shares remaining under its stock
repurchase authorization.

TSFGs
unrealized loss on available for sale securities, net of tax, which is included in
accumulated other comprehensive income, was $47.6 million at June 30, 2004, compared with
a $22.9 million unrealized gain at June 30, 2003. This unrealized decline in the market
value of securities, primarily from a $41.6 million decrease in MBS, was the result of
increases in long-term interest rates. The unrealized loss at December 31, 2003 was $7.0
million. Since TSFG has the ability to hold its investments in unrealized loss positions
until a market price recovery or maturity, these investments are not considered impaired
on an other-than-temporary basis.

Book
value per share at June 30, 2004 and 2003 was $16.63 and $14.08, respectively. Tangible
book value per share at June 30, 2004 and 2003 was $10.88 and $8.85, respectively.
Tangible book value was below book value as a result of the purchase premiums associated
with acquisitions of entities and assets accounted for as purchases.

---

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 its Subsidiary Banks exceeded the well-capitalized regulatory requirements at June 30,
2004. Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators, which, if undertaken, could have
a direct material effect on its consolidated financial statements.

Table
12 sets forth various capital ratios for TSFG and its Subsidiary Banks. Due to the
adoption of FIN 46, TSFG no longer reflects debt associated with trust preferred
securities on its consolidated balance sheets. Under current regulatory guidelines, these
securities continue to qualify for tier 1 capital treatment. At June 30, 2004, trust
preferred securities included in tier 1 capital totaled $115.5 million.

Table 12
CAPITAL RATIOS

| |  | June 30, 2004             | WellCapitalizedRequirement
| |  | ------------------------- | --------------------------
| |  | TSFG                      |                           
| |  | Total risk-based capital  |                           
| |  | Tier 1 risk-based capital |                           
| |  | Leverage ratio            |                           
| | 
| |  | Carolina First Bank       |                           
| |  | Total risk-based capital  |                           
| |  | Tier 1 risk-based capital |                           
| |  | Leverage ratio            |                           
| | 
| |  | Mercantile Bank           |                           
| |  | Total risk-based capital  |                           
| |  | Tier 1 risk-based capital |                           
| |  | Leverage ratio            |                           

On
June 27, 2003, TSFG filed a universal shelf registration statement registering
up to $200.0 million of securities to provide additional flexibility in managing capital
levels, both in terms of debt and equity. In July 2003, TSFG issued 91,250 shares of
common stock under the shelf to settle a share repurchase agreement. On November 12, 2003,
TSFG also completed a common stock offering under the shelf, selling 6,325,000 shares at a
gross offering price of $27.00 per share. This common stock offering generated proceeds to
TSFG of $161.1 million, net of issuance costs for underwriting and expenses. TSFG used
some of the net proceeds to increase the capital at TSFGs subsidiary banks and for
general corporate purposes. These funds were also used to support growth. As part of its
capital management, TSFG has set a desired threshold of 6% or higher for its tangible
equity to tangible assets ratio. At June 30, 2004, TSFGs tangible equity to tangible
asset ratio was at 5.84%, a decline from 6.40% at March 31, 2004 and 6.05% at December 31,
2003, due to the unrealized loss on available for sale securities associated with changes
in interest rates.

TSFGs
Subsidiary Banks are subject to certain regulatory restrictions on the amount of dividends
they are permitted to pay. TSFG has paid a cash dividend each quarter since the initiation
of cash dividends on February 1, 1994. TSFG presently intends to pay a quarterly cash
dividend on its common stock; however, future dividends will depend upon TSFGs
financial performance and capital requirements.

TSFG,
through a real estate investment trust subsidiary, had 898 mandatorily redeemable
preferred shares outstanding at June 30, 2004 with a stated value of $100,000 per share.
At June 30, 2004, these preferred shares, which are reported as long-term debt on the
consolidated balance sheet, totaled $89.9 million. Under Federal Reserve Board guidelines,
$25.3 million, net of issuance costs, qualified as tier 1 capital, and $61.7 million, net
of issuance costs, qualified as tier 2 capital. The terms for the preferred shares include
certain asset coverage and cash flow tests, which if triggered, may prohibit TSFGs
real estate trust subsidiary from paying dividends to Carolina First Bank, which in turn
may limit its ability to pay dividends to TSFG.

---

# Earnings Review

Net Interest Income

Net
interest income is TSFGs primary source of revenue. Net interest income is the
difference between the interest earned on assets, including loan fees and dividends on
investment securities, and the interest incurred for the liabilities to support such
assets. The net interest margin measures how effectively a company manages the difference
between the yield on earning assets and the rate paid 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. Table 13 presents average
balance sheets and a net interest income analysis on a tax equivalent basis for the three
and six months ended June 30, 2004 and 2003.

---

Table 13
COMPARATIVE AVERAGE BALANCES - YIELDS AND COSTS
(dollars in thousands)

|                                                  | Three Months Ended June 30, |  |   |            |  |  
|------------------------------------------------- | --------------------------- |  | - | ---------- |  | -
|
|
|Assets                                            |                             |  |   |            |  |  
|Earning assets                                    |                             | 
|Loans (1)                                         |                             |  | $ | 6,144,778  |  | $
|Investment securities, taxable (2)                |                             |  |   | 3,716,376  |  |  
|Investment securities, nontaxable(2)(3)           |                             |  |   | 270,858    |  |  
|Federal funds sold                                |                             |  |   | 3,363      |  |  
|Interest-bearing bank balances                    |                             |  |   | 2,274      |  |  
|                                                  |                             |  |   |            |  |  
|Total earning assets                              |                             |  |   | 10,137,649 |  | $
|                                                  |                             |  |   |            |  |  
|Non-earning assets                                |                             |  |   | 954,383    |  |  
|                                                  |                             |  |   |            |  |  
|Total assets                                      |                             |  | $ | 11,092,032 |  |  
|                                                  |                             |  |   |            |  |  
|                                                  |                             | 
|Liabilities and shareholders' equity              |                             | 
|Liabilities                                       |                             | 
|Interest-bearing liabilities                      |                             | 
|Interest-bearing deposits                         |                             | 
|Interest-bearing checking                         |                             |  | $ | 678,212    |  | $
|Savings                                           |                             |  |   | 160,827    |  |  
|Money market                                      |                             |  |   | 2,318,243  |  |  
|Time deposits                                     |                             |  |   | 2,089,218  |  |  
|                                                  |                             |  |   |            |  |  
|Total interest-bearing deposits                   |                             |  |   | 5,246,500  |  |  
|Borrowings                                        |                             |  |   | 3,818,136  |  |  
|                                                  |                             |  |   |            |  |  
|Total interest-bearing liabilities                |                             |  |   | 9,064,636  |  | $
|                                                  |                             |  |   |            |  |  
|Noninterest-bearing liabilities                   |                             | 
|Noninterest-bearing deposits                      |                             |  |   | 924,412    |  |  
|Other noninterest-bearing liabilities             |                             |  |   | 100,984    |  |  
|                                                  |                             |  |   |            |  |  
|Total liabilities                                 |                             |  |   | 10,090,032 |  |  
|Minority interest in consolidated   subsidiary(4) |                             |  |   | --         |  |  
|Shareholders' equity                              |                             |  |   | 1,002,000  |  |  
|                                                  |                             |  |   |            |  |  
|Total liabilities and shareholders' equity        |                             |  | $ | 11,092,032 |  |  
|                                                  |                             |  |   |            |  |  
|Net interest margin (tax equivalent)              |                             |  |   |            |  | $
|Less: tax-equivalent adjustment (3)               |                             |  |   |            |  |  
|                                                  |                             |  |   |            |  |  
|Net interest income                               |                             |  |   |            |  | $
|                                                  |                             |  |   |            |  |  
|                                                  |                             | 

|(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)   |  | The minority interest in consolidated subsidiary pertains to the REIT preferred stock, which qualifies as regulatory
     capital and pays cumulative dividends.  Effective July 1, 2003, in accordance with the adoption of SFAS 150,
     TSFG reclassified these amounts to long-term debt.
|Note: |  | Average balances are derived from daily balances.                                                                                                                                                                                                                                             

---

Table 13 (Continued)
COMPARATIVE AVERAGE BALANCES - YIELDS AND COSTS
(dollars in thousands)

|                                                 | For the Six Months Ended June 30, |  |   |            |  |  
|------------------------------------------------ | --------------------------------- |  | - | ---------- |  | -
|
|
|Assets                                           |                                   |  |   |            |  |  
|Earning assets                                   |                                   | 
|Loans (1)                                        |                                   |  | $ | 5,999,914  |  | $
|Investment securities, taxable(2)                |                                   |  |   | 3,736,368  |  |  
|Investment securities, nontaxable (2)(3)         |                                   |  |   | 250,425    |  |  
|Federal funds sold                               |                                   |  |   | 2,561      |  |  
|Interest-bearing bank balances                   |                                   |  |   | 2,833      |  |  
|                                                 |                                   |  |   |            |  |  
|Total earning assets                             |                                   |  |   | 9,992,101  |  | $
|                                                 |                                   |  |   |            |  |  
|Non-earning assets                               |                                   |  |   | 966,775    |  |  
|                                                 |                                   |  |   |            |  |  
|Total assets                                     |                                   |  | $ | 10,958,876 |  |  
|                                                 |                                   |  |   |            |  |  
|Liabilities and shareholders' equity             |                                   | 
|Liabilities                                      |                                   | 
|Interest-bearing liabilities                     |                                   | 
|Interest-bearing deposits                        |                                   | 
|Interest-bearing checking                        |                                   |  | $ | 670,156    |  | $
|Savings                                          |                                   |  |   | 159,898    |  |  
|Money market                                     |                                   |  |   | 2,282,487  |  |  
|Time deposits                                    |                                   |  |   | 2,058,546  |  |  
|                                                 |                                   |  |   |            |  |  
|Total interest-bearing deposits                  |                                   |  |   | 5,171,087  |  |  
|Borrowings                                       |                                   |  |   | 3,793,119  |  |  
|                                                 |                                   |  |   |            |  |  
|Total interest-bearing liabilities               |                                   |  |   | 8,964,206  |  | $
|                                                 |                                   |  |   |            |  |  
|Noninterest-bearing liabilities                  |                                   | 
|Noninterest-bearing deposits                     |                                   |  |   | 884,516    |  |  
|Other noninterest-bearing liabilities            |                                   |  |   | 110,907    |  |  
|                                                 |                                   |  |   |            |  |  
|Total liabilities                                |                                   |  |   | 9,959,629  |  |  
|Minority interest in consolidated subsidiary (4) |                                   |  |   | --         |  |  
|Shareholders' equity                             |                                   |  |   | 999,247    |  |  
|                                                 |                                   |  |   |            |  |  
|Total liabilities and shareholders' equity       |                                   |  | $ | 10,958,876 |  |  
|                                                 |                                   |  |   |            |  |  
|Net interest margin (tax equivalent)             |                                   |  |   |            |  | $
|Less: tax-equivalent adjustment (3)              |                                   |  |   |            |  |  
|                                                 |                                   |  |   |            |  |  
|Net interest income                              |                                   |  |   |            |  | $
|                                                 |                                   |  |   |            |  |  

|(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)   |  | The minority interest in consolidated subsidiary pertains to the REIT preferred stock, which qualifies as regulatory
     capital and pays cumulative dividends.  Effective July 1, 2003, in accordance with the adoption of SFAS 150,
     TSFG reclassified these amounts to long-term debt.
|Note: |  | Average balances are derived from daily balances.                                                                                                                                                                                                                                             

---

Fully
tax-equivalent net interest income for the first six months of 2004 increased $31.5
million, or 23.7%, to $164.4 million from $132.9 million in the first six months of 2003.
This increase was attributable to a 27.8% increase in average earning assets, principally
from strong organic loan growth, the acquisition of MountainBank, and higher investment
securities. Average loans increased $1.4 billion to $6.0 billion in the first six months
of 2004 from $4.6 billion in the first six months of 2003. The loan growth resulted from
both internally generated loans as well as the loans that were added in the MountainBank
merger. The MountainBank acquisition, which closed October 3, 2003, added approximately
$877.7 million in earning assets including $772.8 million in loans held for investment.
TSFG increased its investment portfolio to leverage available capital and take advantage
of the opportunity to increase net interest income.

The
lower net interest margin, which declined to 3.31% in the first six months of 2004 from
3.43% in the first six months of 2003, partially offset the net interest income increase
from higher earning assets. This decline was largely attributable to continued downward
repricing of loans and the July 2003 reclassification of minority interest in consolidated
subsidiary as long-term debt. In addition, TSFG has experienced solid growth in money
market accounts, principally from a product priced at a percentage of the prime interest
rate with a June 30, 2004 balance of approximately $2.0 billion. TSFG may benefit from the
relatively slower increase in rates on these accounts if interest rates continue to rise.

The
net interest margin for the second quarter 2004 declined 16 basis points to 3.23% from
3.39% for the first quarter 2004, primarily due to lower rates on new loans, increased
LIBOR funding costs, and higher prepayment speeds on MBS. This decline offset the increase
of the same amount experienced during the first quarter of 2004. During the second quarter
of 2004, the net interest margin was negatively impacted by the continued downward
repricing of loans and the limited decline in deposit rates, and increased LIBOR rates on
some of its borrowings in advance of any increase in the prime rate.

The
Federal Reserve increased the federal funds target rate by 25 basis points on June 30,
2004 following a three-year period of declining rates. The impact of this rate increase is
not reflected in the second quarter net interest margin since it occurred on the last day
of the quarter. Adjustable rate loans constitute 59.8% of the loan portfolio, and the
majority of these loans reprice immediately following an interest rate change by the
Federal Reserve. The funding source changes take slightly more time to filter into the net
interest margin, primarily as a result of the timed maturities of certificates of deposit
and borrowings.

In
connection with its adoption of SFAS 150, effective July 1, 2003, TSFG reported dividends
earned by institutional holders on preferred shares of its real estate investment trust
subsidiary as interest expense and the related preferred shares were included in
borrowings. For periods prior to July 1, 2003, these dividends earned were reported as
minority interest in consolidated subsidiary, net of tax. This reclassification lowered
the net interest margin for the first half of 2004 by six basis points.

Average
total deposits increased by $1.3 billion, or 28.5%, during the first six months of 2004
compared with the first six months of 2003. The growth in deposits since the second
quarter of 2003 was driven by growth in money market and noninterest-bearing deposits
generated through sales referrals and targeted deposit promotions. In addition, TSFG
acquired $778.3 million in deposits from MountainBank in the fourth quarter of 2003. On
average, time deposits increased $99.8 million, or 5.1%, which includes a $221.4 million
increase in average brokered deposits.

Average
borrowings increased to $3.8 billion during the six months ended June 30, 2004 from $3.1
billion during the six months ended June 30, 2003, due to increases in repurchase
agreements and federal funds purchased. These borrowings were used to fund the growth in
earning assets.

In
March 2004, TSFG recorded a loss of $1.4 million on the early extinguishment of debt
related to approximately $185.0 million in step-up and callable repurchase agreements.
TSFG continues to evaluate the relative cost and benefit of incurring additional
prepayment penalties from the early extinguishment of debt. See Borrowed
Funds.

Provision
for Loan Losses

The
provision for loan losses is recorded in amounts sufficient to bring the allowance for
loan losses 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 loan losses was $14.7 million and $10.7 million in the
first six months of 2004 and 2003, respectively. The higher provision for loan losses was
primarily attributable to increased loan growth and lower provision expense in 2003 due to
liquidation of nonperforming loans on which allocated reserves exceeded net losses
incurred.

---

Net
loan charge-offs were $11.6 million, or 0.39% of average loans held for investment, for
the first six months of 2004, compared with $16.8 million, or 0.75% of average loans held
for investment, for the first six months of 2003. The allowance for loan losses equaled
1.22%, 1.28%, and 1.37% of loans held for investment as of June 30, 2004, December 31,
2003, and June 30, 2003, respectively. The decrease was attributable to the Rock Hill
Workout Loans. See Loans. Excluding the Rock Hill Workout Loans, the allowance
for loan losses was 1.18%, 1.23%, and 1.20% of loans held for investment as of June 30,
2004, December 31, 2003, and June 30, 2003, respectively.

Noninterest
Income

Noninterest
income increased during the first six months of 2004 compared with the corresponding
period for 2003, both including and excluding gains on certain asset sales. These
increases reflect expansion in noninterest income sources and continuing benefits from
TSFGs Elevate sales process. Customer fee income, bank-owned life
insurance and merchant processing income drove the increases in noninterest income
excluding gains on certain asset sales. These increases were partially offset by declines
in mortgage banking income. In addition, TSFG realized higher gains on available for sale
securities, equity investments, and gains on disposition of assets and liabilities in the
first half of 2004.

Table
14 shows the components of noninterest income.

Table 14
COMPONENTS OF NONINTEREST INCOME
(dollars in thousands)

|                                                              | Three Months endedJune 30, | Six Months EndedJune 30, |   |       
|------------------------------------------------------------- | -------------------------- | ------------------------ | - | ------
|
|Service charges on deposit accounts                           |                            |                          | $ | 8,718 
|Debit card income                                             |                            |                          |   | 975   
|Customer service fee income                                   |                            |                          |   | 800   
|                                                              |                            |                          |   |       
|Total customer fee income                                     |                            |                          |   | 10,493
|                                                              |                            |                          |   |       
|                                                              |                            |                         
|Brokerage income                                              |                            |                          |   | 1,312 
|Trust income                                                  |                            |                          |   | 1,030 
|                                                              |                            |                          |   |       
|Total brokerage and trust income                              |                            |                          |   | 2,342 
|                                                              |                            |                         
|Bank-owned life insurance                                     |                            |                          |   | 3,458 
|Merchant processing income                                    |                            |                          |   | 2,431 
|Mortgage banking income                                       |                            |                          |   | 1,625 
|Insurance income                                              |                            |                          |   | 1,015 
|Gain on trading and derivative activities                     |                            |                          |   | 2,352 
|Other                                                         |                            |                          |   | 659   
|                                                              |                            |                          |   |       
|Noninterest income, excluding gains on certain asset sales    |                            |                          |   | 24,375
|                                                              |                            |                          |   |       
|Gain on sale of available for sale securities                 |                            |                          |   | 607   
|Gain on equity investments                                    |                            |                          |   | 1,013 
|Gain on disposition of assets and liabilities                 |                            |                          |   | --    
|                                                              |                            |                          |   |       
|Gain on certain asset sales, net                              |                            |                          |   | 1,620 
|                                                              |                            |                          |   |       
|Total noninterest income                                      |                            |                          | $ | 25,995
|                                                              |                            |                          |   |       
|                                                              |                            |                         
|Total noninterest income as a percentage of total revenue (1) |                            |                          |   | 24.4  
|Noninterest income, excluding gains on certain asset sales,   |                            |                         
|as a percentage of total revenue, exlcuding gains on certain  |                            |                         
|asset sales (1)                                               |                            |                          |   | 23.3  

|(1) |  | Calculated as noninterest income, divided by the sum of net interest income and
          noninterest income.
|--- |  | -------------------------------------------------------------------------------------------------------------

---

Total
customer fee income rose 20.3% in the first six months of 2004 compared to the same period
in 2003. Service charges on deposit accounts, the largest contributor to noninterest
income, rose 15.7% for the same period. This increase was primarily attributable to
increasing transaction accounts, including cash management, and improving collection of
fees. Average balances for deposit transaction accounts, which impact service charges,
increased 45.1% for the same period. Debit card income and customer service fee income
increased 55.3% and 45.6%, respectively, for the first half of 2004 compared with the
first half of 2003.

In
the first six months of 2004 compared with the corresponding period in 2003, brokerage
income decreased $324,000, or 11.4%, due to higher than normal levels in the first half of
2003. Trust income increased $156,000, or 8.7%, for the same period. At June 30, 2004 and
2003, the market value of assets administered by the trust department totaled $757.6
million and $674.4 million, respectively.

Bank-owned
life insurance increased $1.9 million, or 48.1%, for the first six months of 2004 versus
the corresponding period in 2003, due to additional life insurance policies, increases in
the cash values, and the second quarter 2004 receipt of life insurance proceeds (which is
not expected to recur every quarter). TSFG purchased an additional $25.0 million of life
insurance on certain officers in October 2003 and added $13.8 million from the acquisition
of MountainBank. The cash surrender value totaled $197.7 million at June 30, 2004, up from
$148.0 million at June 30, 2003.

Merchant
processing fees increased $1.0 million, or 30.4%, for the six months ended June 30, 2004
compared with the same period in 2003, primarily from increased sales efforts.

Table
15 shows the components of mortgage banking income.

Table 15
COMPONENTS OF MORTGAGE BANKING INCOME
(dollars in thousands)

|                                                                      | Three Months EndedJune 30, | Six Months EndedJune 30, |   |        
|--------------------------------------------------------------------- | -------------------------- | ------------------------ | - | -------
|
|Mortgage origination and secondary marketing income                   |                            | $ 1,761                  |   | $ 3,508
|Mortgage servicing loss, net of related amortization and subservicing |                           
|payments                                                              |                            | (263                     | ) | (713   
|(Impairment) recovery on mortgage servicing rights                    |                            | 127                      |   | (234   
|                                                                      |                            |                          |   |        
|Total mortgage banking income                                         |                            | $ 1,625                  |   | $ 2,561
|                                                                      |                            |                          |   |        

For
the first half of 2004, mortgage origination and secondary marketing income declined
46.9%, compared with the same period in 2003. Mortgage loans originated by TSFG
originators totaled $270.6 million and $354.9 million in the first six months of 2004 and
2003, respectively. The decrease in mortgage banking income was principally the result of
lower origination volumes due to higher mortgage loan rates. TSFG may experience growth in
mortgage banking income for the remainder of 2004 if new housing starts rise as expected
and the recent increase in the mortgage pipeline continues.

TSFGs
mortgage banking strategy is to sell most of the loans it originates in the secondary
market with servicing rights released. At June 30, 2004, TSFGs servicing portfolio
included 2,869 loans having an aggregate principal balance of $184.6 million, down from
$320.8 million at June 30, 2003. The servicing portfolio decline accelerated in 2003 due
to prepayments of loans from increased refinancings as a result of lower rates.

Fees
related to servicing other loans, for which Carolina First Bank owns the rights to
service, are offset by the related amortization of mortgage servicing rights. In 2004,
TSFG expects its net mortgage servicing loss to improve due to lower amortization of
mortgage servicing rights as prepayments slow. Mortgage servicing rights, net of the
valuation allowance, totaled $1.4 million and $2.2 million at June 30, 2004 and 2003,
respectively. At June 30, 2004 and 2003, the valuation allowance for capitalized mortgage
servicing rights totaled $1.7 million and $2.3 million, respectively.

In
the first six months of 2004 compared with the same period in 2003, insurance income
increased $480,000, or 30.8%, principally from acquiring an insurance agency.

---

TSFG
uses derivatives as economic hedges of on-balance sheet assets and liabilities or
forecasted transactions, which result in realized gains and losses included in earnings.
Such activities may result in volatility in realized gains and losses on trading and
derivative activities, as demonstrated by a first quarter 2004 loss of $1.4 million
followed by a second quarter 2004 gain of $2.4 million. The gain on trading and derivative
activities totaled $983,000 and $1.1 million in the first six months of 2004 and 2003,
respectively. See Market Risk and Asset/Liability Management  Derivatives and
Hedging Activities.

For
the first six months of 2004, the gain on sale of available for sale securities included
gains on the sales of MBS totaling $3.8 million, U.S. Treasury totaling $1.5 million,
corporate bonds totaling $315,000, and U.S. Government agencies totaling $156,000. In the
first half of 2004, the gain on equity investments was realized from the sale of 346,000
shares of NetBank common stock. For the six months ended June 30, 2003, the gain on equity
investments was realized from the sale of 207,096 shares of NetBank common stock. At June
30, 2004, TSFG owned 11,904 shares of NetBank common stock.

During
the first six months of 2004, the gain on disposition of assets and liabilities resulted
from the contribution of land at fair value associated with a conservation grant in North
Carolina.

Other
noninterest income includes income related to benefits administration, international
banking services, and other services. Total income from these fee income sources increased
over the prior year due in part to TSFGs continued emphasis on its customer-centered
sales process, Elevate. The increase in other noninterest income in the first half
of 2004 compared with the same period in 2003 was largely due to increases in benefits
administration fees (due to the American Pensions, Inc. acquisition), which increased
$799,000, and business referral fees, which increased $531,000. These increases were
partially offset by an increase in the loss on the disposition of other real estate owned,
which increased $171,000.

Noninterest
Expenses

TSFG
is expanding in new and existing markets within its targeted geographic footprint in the
Southeast, both through organic growth and acquisitions. TSFG also makes strategic
investments in its products and services and technology systems. These factors contributed
to TSFGs increases in noninterest expense, which increased 12.9%, or 10.0% excluding
non-operating items, for the first half of 2004 over the first half of 2003. TSFGs
market expansion included the October 2003 acquisition of MountainBank. TSFG also
purchased an insurance agency and benefit plan administrator in 2003, and a title
insurance company in April 2004.

Table
16 shows the components of noninterest expenses and TSFGs efficiency ratio, a
measure of TSFGs expenses relative to total revenues.

---

Table 16
COMPONENTS OF NONINTEREST EXPENSES
(dollars in thousands)

|                                                     | Three Months EndedJune 30, | Six Months EndedJune 30, |   |       
|---------------------------------------------------- | -------------------------- | ------------------------ | - | ------
|
|Salaries and wages                                   |                            |                          | $ | 19,917
|Employee benefits                                    |                            |                          |   | 7,034 
|Occupancy                                            |                            |                          |   | 5,185 
|Furniture and equipment                              |                            |                          |   | 4,890 
|Professional fees                                    |                            |                          |   | 1,960 
|Merchant processing expense                          |                            |                          |   | 1,910 
|Telecommunications                                   |                            |                          |   | 1,106 
|Amortization of intangibles                          |                            |                          |   | 1,195 
|Other                                                |                            |                          |   | 10,971
|                                                     |                            |                          |   |       
|Noninterest expenses, excluding non-operating items  |                            |                          |   | 54,168
|                                                     |                            |                          |   |       
|Conservation grant of land                           |                            |                          |   | --    
|Loss on early extinguishment of debt                 |                            |                          |   | --    
|Merger-related costs                                 |                            |                          |   | 575   
|Impairment (recovery) loss from write-down of assets |                            |                          |   | (277  
|Employment contract reversals                        |                            |                          |   | --    
|                                                     |                            |                          |   |       
|Non-operating noninterest expenses                   |                            |                          |   | 298   
|                                                     |                            |                          |   |       
|Total noninterest expenses                           |                            |                          | $ | 54,466
|                                                     |                            |                          |   |       
|                                                     |                            |                         
|Efficiency ratio (1)                                 |                            |                          |   | 51.2  
|Efficiency ratio, operating basis (2)                |                            |                          |   | 51.7  

|(1) |  | Calculated as noninterest expenses, divided by the sum of net interest income
          and noninterest income.                                                                                                
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Calculated as noninterest expenses, excluding non-operating items, divided by
          the sum of net interest income and noninterest income, excluding gains on
          certain asset sales (see Table 15).

Salaries,
wages, and employee benefits rose $2.4 million, or 4.8%, in the first half of 2004
compared with the same period in 2003. Full-time equivalent employees as of June 30, 2004
increased to 1,971 from 1,718 at June 30, 2003. The increase in personnel expense was
primarily attributable to the MountainBank acquisition, higher health insurance costs,
higher Supplemental Executive Retirement Plan Benefits, and certain annual pay increases,
which were effective April 1, 2004. This increase was partially offset by lower short-term
and long-term incentive accruals as no discretionary short-term or long-term incentive
compensation has been accrued during the first six months of 2004.

Occupancy
and furniture and equipment expense increased 9.3% for the first six months of 2004
compared with the corresponding period in 2003, primarily from the addition of branch
offices from TSFGs acquisition of MountainBank. The increase in professional fees
was partially related to deposit pricing modeling and fee initiatives. The increase in
merchant processing expense was offset by related revenue increases.

Amortization
of intangibles increased $961,000 for the six months ended June 30, 2004, primarily
attributable to the addition of core deposit premiums from the acquisition of
MountainBank. In addition, TSFG added customer list intangibles and non-compete
intangibles in connection with its acquisitions.

During
the first half of 2004, TSFG executed a conservation grant of land in North Carolina and
expensed the fair value of the contribution of $3.4 million.

In
the first six months of 2004, TSFG recorded a loss on early extinguishment of debt
totaling $1.4 million for prepayment penalties for repurchase agreement borrowings. See
Borrowed Funds.

---

During
both the six months ended June 30, 2004 and 2003, TSFG incurred pre-tax merger-related
costs, in connection with TSFGs acquisitions in 2003 and 2002. See Note 13 to
the consolidated financial statements for the types and balances of pre-tax merger-related
costs. TSFG anticipates incurring aggregate pre-tax merger-related costs between
approximately $9 million and $10 million, included in noninterest expenses, largely in the
third quarter.

Other
noninterest expenses rose 18.9% in the first six months of 2004 compared with the same
period in 2003. The overall increase in other noninterest expenses was principally
attributable to increases in business development, insurance, outside service fees, loan
collection, and deposit account charge-offs, partially offset by a decrease in intangible
tax expense.

Income
Taxes

The
effective income tax rate as a percentage of pretax income was 31.7% for the first six
months of 2004 and 32.0% for the first six months of 2003. The effective income tax rate
declined in connection with decreases in TSFGs valuation allowance associated with
its deferred income tax assets, primarily associated with TSFGs ability to utilize a
capital loss carry forward. TSFG expects the effective income tax rate for the remainder
of 2004 to remain approximately 32%. The blended statutory federal and state income tax
rate was approximately 37% for both of these periods.

Second
Quarter Results

Net
income for the three months ended June 30, 2004 totaled $30.0 million, up 32.1% compared
with $22.7 million for the three months ended June 30, 2003. Earnings per diluted share
for the three months ended June 30, 2004 were $0.49, a 2.1% increase from earnings per
diluted share of $0.48 for the three months ended June 30, 2003.

Fully
tax-equivalent net interest income totaled $81.4 million, an increase of $14.6 million, or
21.9%, compared with the second quarter of 2003. Net interest income increased from a
25.7% growth in average earning assets, principally from strong organic loan growth,
higher investment securities, and the acquisition of MountainBank. The MountainBank
acquisition, which closed October 3, 2003, added approximately $877.7 million in earning
assets. TSFG increased its investment portfolio to leverage capital and take advantage of
the opportunity to increase net income. Partially offsetting the net interest income
increase was a decline in the net interest margin. The net interest margin declined to
3.23% in the second quarter 2004 from 3.32% in the same period in 2003. The decrease in
the net interest margin was largely attributable to higher investment securities (which
generally have a lower yield than loans), lower rates on new commercial loans, and the
July 2003 reclassification of minority interest in consolidated subsidiary as long-term
debt. In addition, during the second quarter 2004, 78% of TSFGs new commercial loans
were variable rate loans (tied to prime), higher than its historical norm of 60%. While
these variable rate loans are currently lower yielding than some fixed rate alternatives,
in the longer term if rates increase, these variable rate loans should improve TSFGs
loan yield.

The
provision for loan losses totaled $7.0 million and $5.2 million in the second quarters of
2004 and 2003, respectively. The higher provision for loan losses was primarily
attributable to increased loan growth and lower provision expense in 2003 due to the
liquidation of nonperforming loans on which allocated reserves exceeded net losses
incurred. Net loan charge-offs declined to 0.36% for the second quarter 2004 versus 0.63%
for the second quarter 2003.

Noninterest
income for the three months ended June 30, 2004 and 2003 included certain pre-tax gains on
asset sales, which totaled $1.6 million and $3.8 million, respectively. See Earnings
Review  Noninterest Income for details on the gains on asset sales.
Noninterest income, excluding these gains on asset sales, increased 20.8% to $24.4 million
for the second quarter of 2004 compared with $20.2 million for the second quarter of 2003.
Customer fee income, bank-owned life insurance, and gains on trading and derivative
activities drove the increases in noninterest income. The increase in noninterest income,
excluding gains on certain asset sales, was partially offset by a decrease in mortgage
banking income from lower origination volumes due to higher mortgage loan rates.

For
the second quarters 2004 and 2003, noninterest expenses included pre-tax other
non-operating items of $298,000 and $650,000, respectively. See Earnings Review
 Noninterest Expenses for details on the other non-operating items.
Noninterest expenses, excluding non-operating items, increased 9.6% to $54.2 million for
the second quarter 2004 from $49.4 million for the second quarter 2003, which was
primarily attributable to the October 2003 acquisition of MountainBank and the acquisition
of two insurance companies. Salaries, wages, and employee benefits increased to $27.0
million in the second quarter 2004 from $25.7 million in the second quarter 2003,
primarily due to acquisitions, higher health insurance costs, and certain annual pay
increases, which were effective April 1, 2004. This increase was partially offset by lower
short-term and long-term incentive accruals as no discretionary short-term or long-term
incentive compensation has been accrued during the second quarter of 2004.

---

# Market Risk and
Asset/Liability Management

Market
risk is the risk of loss from adverse changes in market prices and interest rates.
TSFGs market risk arises principally from interest rate risk inherent in its core
banking activities. Interest rate risk is the risk to net income represented by the impact
of changes in market interest rates. TSFG has risk management policies and practices to
monitor and limit exposure to interest rate risk. These policies and practices are
described in the annual report on Form 10-K for the year ended December 31, 2003. At June
30, 2004, the overall interest rate risk position of TSFG falls within the interest rate
risk guidelines established by its Asset/Liability Committee (ALCO).

TSFGs
primary tool used to monitor and manage interest rate risk is a balance sheet and earnings
simulation model. This model is used to derive the earnings at risk analysis and interest
sensitivity gap. The model takes into account interest rate changes as well as estimated
changes in the mix and volume of assets and liabilities. The models inputs (such as
interest rates, the shape of the yield curve, and the projected levels and mix of loans
and deposits) are updated on a regular basis.

TSFG
considers the earnings at risk analysis to be its best gauge of the sensitivity of its
earnings to changes in interest rates. The earnings at risk analysis simulates TSFGs
consolidated balance sheet and consolidated statements of income under several different
rate scenarios over a twelve-month period. It reports the estimated impact on net interest
income with rates remaining flat, rates gradually increasing 100 and 200 basis points, and
rates decreasing 100 basis points over the next twelve-month period. These rates assume a
parallel shift in the treasury yield curve, except for lower limits in the declining rate
scenario as discussed below. Computation of the prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative levels of
market interest rates, call features, and loan and securities prepayments, and should not
be relied upon as indicative of actual results. Further, these computations do not
contemplate any additional actions TSFG could undertake in response to changes in interest
rates. Table 17 shows the estimated effect that the indicated changes in interest rates
would have on net interest income as projected for the next twelve months using the
most likely projected balance sheet (excluding the impact of TSFGs
acquisitions of CNB Florida and Florida Banks, which closed in July 2004).

# Table 17
EARNINGS AT RISK ANALYSIS

|Interest Rate Scenario | Net Interest Income
|---------------------- | -------------------
|                       | 2.00%              
|                       | 1.00               
|                       | Flat               
|                       | (1.00)             

As
indicated in Table 17, the risk to net interest income is nominal under each of these
interest rate scenarios. The earnings at risk analysis indicates that TSFG will benefit
from an increase in interest rates.

Although
net interest income declines in the 100 basis point declining rate scenario, lower limits
are in place in the model, which limit the rate declines and the impact on net interest
income. Due to the low level of current interest rates, many of the key rates (such as
Federal Funds and LIBOR), to which much of the balance sheet is indexed, are not lowered
the full 100 basis points. The floors placed on these key rates restrict the reduction in
both interest income and expense in the declining rate scenario. In addition, many deposit
rates are reaching what management believes to be an acceptable lower limit, thus limiting
the interest expense reduction from repricing deposits by the entire 100 basis points.

Interest
sensitivity gap (the static GAP position) measures the amount of
rate-sensitive assets and rate-sensitive liabilities that either mature or are subject to
change as of a point-in-time and is not necessarily indicative of positions on other
dates. It is used to periodically review the static repricing structure of assets and
liabilities. Management believes that the analysis provided by the static GAP position is
limited, as it does not take into account a number of important factors, such as projected
changes in the balance sheet. Most importantly, it only shows the timing of the next
repricing opportunity, not the differing magnitude of rate changes on both assets and
liabilities. In other words, it assumes that all rate-sensitive assets and liabilities
adjust equally when rates change, which is an inaccurate assumption. In addition, it
ignores actions that may be taken by management in response to future rate changes. For
these reasons, TSFG relies principally on its earnings simulation analysis, a dynamic
model, to evaluate and manage interest rate risk.

---

The
impact of rising rates on TSFGs money market accounts demonstrates why TSFG believes
the earnings at risk analysis to be superior to the static gap analysis. At June 30, 2004,
the static gap analysis reflects $2.0 billion in money market accounts in the 0-3 month
column, the majority of which are money market accounts that reprice with the prime
interest rate. However, these accounts increase only 40% of the total increase in prime,
not the full amount. By contrast, TSFGs assets that reprice will reflect most, if
not all, of the full rate increase. Contrary to the static gap analysis, this relative
impact of rising rates is taken into account in the earnings at risk analysis.

Table 18
shows TSFGs static GAP position at June 30, 2004 based on its most
likely rate scenario, which assumes a 100 basis point rate increase over the next
twelve months. The carrying amounts of rate-sensitive assets and liabilities are presented
in the periods in which they next reprice to market rates or mature, ignoring the
magnitude of the repricing. For assets, projected repayments, anticipated principal
prepayments, and potential calls are taken into account. To reflect anticipated
prepayments, certain asset categories are shown using estimated cash flows rather than
contractual cash flows. For core deposits without contractual maturities (i.e., interest
checking, savings, money market, and noninterest-bearing deposit accounts), Table 18
presents principal cash flows based on managements judgment concerning their most
likely runoff. The actual maturities and runoff could vary substantially if future
prepayments, runoff, and call options exercised differ from TSFGs historical
experience or managements estimates.

TSFG
changed its most likely rate scenario to an up 100 basis point scenario (over
the next twelve months) from a flat scenario at December 31, 2003. In the up 100 basis
point scenario, prepayment speeds on mortgage-backed securities slow down, agency
securities are less likely to be called, and borrowings are more likely to be called,
resulting in a larger static gap liability-sensitive position than presented in the flat
rate scenario at year-end.

---

Table 18
INTEREST SENSITIVITY GAP ANALYSIS
(dollars in thousands)

|                                               | 0-3Months | 4-12Months | One toThree Years | AfterThree Years | Total
|---------------------------------------------- | --------- | ---------- | ----------------- | ---------------- | -----
|Interest-sensitive assets                      |           |            |                   |                  |      
|Earning assets                                 |           |           
|Loans                                          |           |            | $                 | 3,828,736        |      
|Investment securities (1)                      |           |            |                   | 293,982          |      
|Interest-bearing bank balances                 |           |            |                   | 353              |      
|                                               |           |            |                   |                  |      
|Total earning assets                           |           |            | $                 | 4,123,071        |      
|                                               |           |            |                   |                  |      
|                                               |           |           
|Interest-sensitive liabilities                 |           |           
|Interest-sensitive liabilities                 |           |           
|Interest-bearing deposits                      |           |           
|Interest-bearing checking                      |           |            | $                 | --               |      
|Savings                                        |           |            |                   | --               |      
|Money market accounts                          |           |            |                   | 2,021,070        |      
|Time deposits                                  |           |            |                   | 816,971          |      
|                                               |           |            |                   |                  |      
|Total interest-bearing deposits                |           |            |                   | 2,838,041        |      
|Noninterest-bearing deposits (2)               |           |            |                   | --               |      
|Borrowings                                     |           |            |                   | 3,148,547        |      
|                                               |           |            |                   |                  |      
|Total interest-sensitive liabilities           |           |            |                   | 5,986,588        |      
|                                               |           |            |                   |                  |      
|                                               |           |           
|Periodic interest-sensitive gap                |           |            |                   | (1,863,517       | )    
|                                               |           |           
|Notional amount of interest rate swaps         |           |            |                   | (457,501         | )    
|                                               |           |            |                   |                  |      
|                                               |           |           
|Periodic interest-sensitive gap after interest |           |           
|rate swaps                                     |           |            | $                 | (2,321,018       | )    
|                                               |           |            |                   |                  |      
|                                               |           |           
|Cumulative interest -sensitive gap             |           |            | $                 | (2,321,018       | )    
|                                               |           |            |                   |                  |      
|                                               |           |           

|(1) |  | Investment securities exclude the unrealized loss on the available for sale of securities of $75.9 million (pre-tax).
|--- |  | ---------------------------------------------------------------------------------------------------------------------
|(2) |  | Noninterest-bearing deposits respond in part to changes in interest rates.                                           

As
indicated in Table 18, at June 30, 2004, on a cumulative basis through twelve months,
rate-sensitive liabilities exceeded rate-sensitive assets, resulting in a
liability-sensitive position of $2.0 billion, or 17.5% of total assets. The position
indicated by the static gap has no direct reflection on net interest income. Although the
static gap reflects a liability-sensitive position, the earnings at risk analysis shows
TSFG with an asset-sensitive position, and one in which TSFG will benefit from an increase
in interest rates.

Derivatives
and Hedging Activities. TSFG uses derivative instruments as part of its interest rate
risk management activities to reduce risks associated with its lending, investment,
deposit taking, and borrowing activities. Derivatives used for interest rate risk
management include various interest rate swaps, options, and futures contracts. Options
and futures contracts typically have indices that relate to the pricing of specific
on-balance sheet instruments and forecasted transactions and may be more speculative in
nature.

TSFG
has interest rate swap agreements that qualify as fair value hedges and those that qualify
as cash flow hedges. Fair value hedges are used to hedge fixed rate deposits. TSFG uses
cash flow hedges to hedge interest rate risk associated with variable rate borrowings.

---

In
connection with its interest rate management activities, TSFG uses futures, options, and
other derivatives as economic hedges of on-balance sheet assets and liabilities or
forecasted transactions, which do not qualify for hedge accounting under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133) as amended by SFAS No. 137, 138, and 149. Accordingly, these
derivatives are reported at fair value on the consolidated balance sheet with realized
gains and losses included in earnings. Such activities may result in increased volatility
in realized gains and losses on trading activities. In 2003, TSFG increased its use of
derivatives. For the first half of 2004, gains on trading and derivative activities
totaled $983,000, compared with $1.1 million for the same period in 2003. At June 30,
2004, TSFG had no open option or futures contracts.

By
using derivative instruments, TSFG is exposed to credit and market risk. Credit risk,
which is the risk that a counterparty to a derivative instrument will fail to perform, is
equal to the extent of the fair value gain in a derivative. Credit risk is created when
the fair value of a derivative contract is positive, since this generally indicates that
the counterparty owes us. When the fair value of a derivative is negative, no credit risk
exists since TSFG would owe the counterparty. TSFG minimizes the credit risk in derivative
instruments by entering into transactions with high-quality counterparties as evaluated by
management. Market risk is the adverse effect on the value of a financial instrument from
a change in interest rates or implied volatility of rates. TSFG manages the market risk
associated with interest rate contracts by establishing and monitoring limits as to the
types and degree of risk that may be undertaken. The market risk associated with
derivatives used for interest rate risk management activity is fully incorporated into our
market risk sensitivity analysis.

In
accordance with SFAS 133, TSFG records derivatives at fair value, as either assets or
liabilities, on the consolidated balance sheets. At June 30, 2004, the fair value of
derivative assets totaled $2.6 million and was primarily related to cash flow hedges. At
June 30, 2004, the fair value of derivative liabilities totaled $31.5 million for fair
value hedges and cash flow hedges.

# 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.

TSFGs
off-balance sheet arrangements, which principally include lending commitments and
derivatives, are described below.

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.

For
commercial customers, loan commitments generally take the form of revolving credit
arrangements to finance customers working capital requirements. For retail
customers, loan commitments are generally lines of credit secured by residential property.
At June 30, 2004, commercial and retail loan commitments totaled $1.3 billion. Documentary
letters of credit are typically issued in connection with customers trade financing
requirements and totaled $2.3 million at June 30, 2004. Unused business credit card lines,
which totaled $18.0 million at June 30, 2004, are generally for short-term
borrowings.

Standby
letters of credit represent an obligation of TSFG to a third party contingent upon the
failure of TSFGs customer to perform under the terms of an underlying contract with
the third party. The underlying contract may entail either financial or nonfinancial
obligations and may involve such things as the customers delivery of merchandise,
completion of a construction contract, release of a lien, or repayment of an obligation.
Under the terms of a standby letter, drafts will be generally drawn only when the
underlying event fails to occur as intended. TSFG has legal recourse to its customers for
amounts paid, and these obligations are secured or unsecured, depending on the
customers creditworthiness. Commitments under standby letters of credit are usually
for one year or less. TSFG evaluates its obligation to perform as a guarantor and records
reserves as deemed necessary. The maximum potential amount of undiscounted future payments
related to standby letters of credit at June 30, 2004 was $100.9 million.

TSFG
applies essentially the same credit policies and standards as it does in the lending
process when making these commitments.

---

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

At
June 30, 2004, the fair value of derivative assets totaled $2.6 million and was primarily
related to cash flow hedges. At June 30, 2004, the fair value of derivative liabilities
totaled $31.5 million for fair value hedges and cash flow hedges. The related notional
amounts, which are not recorded on the consolidated balance sheets, totaled $96.4 million
for the derivative assets and $1.1 billion for the derivative liabilities.

Credit
Life & Disability Insurance.Carolina First Guaranty Reinsurance, Ltd.
(CFGRL), a wholly-owned subsidiary of TSFG, offers credit life and disability
insurance up to a single policy limit of $100,000 to customers of the Subsidiary Banks. As
of June 30, 2004, CFGRL had in force insurance not recorded on the consolidated balance
sheets of $25.5 million. A loss reserve, determined based on reported and past loss
experience of in-force policies, totaled $177,000 at June 30, 2004.

# 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. Funds are primarily provided by the
Subsidiary Banks through customers deposits, principal and interest payments on
loans, loan sales or securitizations, securities available for sale, maturities and
paydowns of securities, temporary investments, and earnings. Securities classified as
available for sale, which are not pledged, may be sold in response to changes in interest
rates or liquidity needs. A substantial majority of TSFGs securities are pledged.
Management believes the projected cash flows from the securities portfolio are sufficient,
under different interest rate scenarios, including a rising rate scenario, to provide much
of the necessary funding estimated for the remainder of 2004.

Proper
liquidity management is crucial to ensure that TSFG is able to take advantage of new
business opportunities as well as meet the demands of its customers. In this process, TSFG
focuses on assets and liabilities and on the manner in which they combine to provide
adequate liquidity to meet our needs. Table 19 summarizes future contractual obligations
as of June 30, 2004. Table 19 excludes the impact of TSFGs acquisitions of CNB
Florida and Florida Banks, which closed in July 2004 and does not include payments that
may be required under employment and deferred compensation agreements. In addition, Table
19 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 six months ended June 30, 2004).

Table 19
CONTRACTUAL OBLIGATIONS
(dollars in thousands)

|                                   | Payments Due by Period |  |   |           | 
|---------------------------------- | ---------------------- |  | - | --------- | 
|
|Time deposits                      |                        |  | $ | 2,279,533 | 
|Short-term borrowings              |                        |  |   | 1,355,884 | 
|Long-term debt                     |                        |  |   | 2,566,475 | 
|Operating leases                   |                        |  |   | 104,463   | 
|                                   |                        |  |   |           | 
|Total contractual cash obligations |                        |  | $ | 6,306,355 | 
|                                   |                        |  |   |           | 

Net
cash provided by operations and deposits from customers have been the primary sources of
liquidity for TSFG. Liquidity is also enhanced by the ability to acquire new deposits
through the Subsidiary Banks established branch network. In addition, TSFG can raise
deposits on the Internet through Bank CaroLine. Liquidity needs are a factor in developing
the Subsidiary Banks deposit pricing structure, which may be altered to retain or
grow deposits if deemed necessary.

---

The
Subsidiary Banks have access to borrowing from the FHLB and maintain short-term lines of
credit from unrelated banks. FHLB advances, outstanding as of June 30, 2004, totaled
$966.3 million. At June 30, 2004, the Subsidiary Banks had $1.2 billion of unused
borrowing capacity from the FHLB. This capacity may be used when the Subsidiary Banks have
available collateral to pledge. Until the Subsidiary Banks make collateral available to
secure additional FHLB advances, TSFG will fund its short-term needs principally with
deposits, including brokered deposits, federal funds purchased, repurchase agreements, and
the sale of securities available for sale. In addition, the Subsidiary Banks may purchase
securities or may repay repurchase agreements to provide additional FHLB-qualifying
collateral. At June 30, 2004, the Subsidiary Banks had unused, unsecured short-term lines
of credit from unrelated banks totaling $684.2 million (which are withdrawable at the
lenders option).

The
Federal Reserve Bank provides back-up funding for commercial banks. Collateralized
borrowing relationships with the Federal Reserve Banks of Richmond and Atlanta are in
place for the Subsidiary Banks to meet emergency funding needs. At June 30, 2004, the
Subsidiary Banks had qualifying collateral to secure advances up to $813.6 million, of
which none was outstanding.

At
June 30, 2004, the parent company had unused short-term lines of credit totaling $35.0
million. These lines of credit, which are withdrawable at the lenders option, mature
September 1, 2004 for $10.0 million, May 14, 2005 for $15.0 million, and June 30, 2005 for
$10.0 million.

In
the normal course of business, to meet the financial needs of its customers, TSFG,
principally through the Subsidiary Banks, enters into agreements to extend credit. For
amounts and types of such agreements at June 30, 2004, see Off-Balance Sheet
Arrangements. Increased demand for funds under these agreements would reduce
TSFGs liquidity and could require additional sources of liquidity.

---

# Item 3.     Quantitative and
Qualitative Disclosures about Market Risk

See
Market Risk and Asset/Liability 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.     Disclosure
Controls and Procedures

Evaluation
of Disclosure Controls and Procedures

TSFGs
Chief Executive Officer and Chief Financial Officer have evaluated TSFGs disclosure
controls and procedures as of June 30, 2004, and they concluded that these controls and
procedures are effective.

Changes
in Internal Controls

There
have been no changes in internal control over financial reporting during the second
quarter of 2004 that have materially affected, or are reasonably likely to materially
affect, the internal control over financial reporting.

---

# PART II. OTHER
INFORMATION

# Item 1     Legal Proceedings

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

# Item 2     Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

# Issuer Purchases of Equity Securities

|Period                          | TotalNumberof SharesPurchased | AveragePricePaid perShare | TotalNumber ofShares asof PubliclyAnnouncedPlans orPrograms | MaximumNumber ofShares thatMay Yet BetPurchasedUnder Plansor Programs
|------------------------------- | ----------------------------- | ------------------------- | ----------------------------------------------------------- | ---------------------------------------------------------------------
|April 1, 2004 to April 30, 2004 |                               | --                        | $                                                           | --                                                                   
|May 1, 2004 to May 31, 2004     |                               | --                        |                                                             | --                                                                   
|June 1, 2004 to June 30, 2004   |                               | --                        |                                                             | --                                                                   
|                                |                               |                           |                                                             |                                                                      
|Total                           |                               | --                        | $                                                           | --                                                                   
|                                |                               |                           |                                                             |                                                                      

# Item 3     Defaults Upon
Senior Securities

None.

# Item 4     Submission of Matters
to a Vote of Securities Holders

Annual
Meeting of Shareholders

On
April 27, 2004, TSFG held its 2004 Annual Meeting of Shareholders. The results of the 2004
Annual Meeting of Shareholders follow.

Proposal
#1  Election of Directors

|                       | Voting shares in favor | WithheldAuthority | 
|---------------------- | ---------------------- | ----------------- | 
|
|William P. Brant       |                        | 47,299,972        | 
|J.W. Davis             |                        | 47,060,209        | 
|C. Claymon Grimes, Jr  |                        | 47,635,515        | 
|William S. Hummers III |                        | 47,122,671        | 
|William R. Timmons III |                        | 46,801,852        | 
|David C. Wakefield III |                        | 43,654,639        | 

| | Gordon
W. Campbell, M. Dexter Hagy, H. Earle Russell, Jr., Charles B. Schooler, Edward J.
Sebastian, John C.B. Smith, Jr., William R. Timmons, Jr., Samuel H. Vickers, and Mack I.
Whittle, Jr. continued in their present terms as directors.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Proposal
#2  Approval of Amended Stock Option Plan

| | The
shareholders approved TSFGs Amended and Restated Stock Option Plan to increase the
shares available for issuance by 1 million shares with 27,778,300 shares, or 69.0% voting
in favor, 12,488,583 shares voting against, and 569,692 shares abstaining.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Proposal
#3  Approval of Certain Amendments to TSFGs 2004 Long-Term Incentive Plan

| | The
shareholders approved certain amendments to TSFGs 2004 Long-Term Incentive Plan with
28,105,960 shares, or 70.0%, voting in favor, 12,027,668 shares voting against, and
702,949 shares abstaining.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Proposal
#4  Approval to Increase Authorized Common Stock Shares

| | The
shareholders approved an increase in TSFGs authorized common stock from 100 million
shares to 200 million shares with 43,462,043 shares, or 73.6%, voting in favor, 5,629,878
shares voting against, and 356,479 shares abstaining.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

Proposal
#5  Approval of Amended and Restated Directors Stock Option Plan

| | The
shareholders approved TSFGs Amended and Restated Directors Stock Option Plan with
36,135,187 shares, or 90.0%, voting in favor, 4,028,267 shares voting against, and 575,749
shares abstaining.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Proposal
#6  Approval of an Amendment to Employee Stock Purchase Plan

| | The
shareholders approved an amendment to TSFGs Employee Stock Purchase Plan with
38,288,608 shares, or 64.8%, voting in favor, 1,307,547 shares voting against, and
1,240,424 shares abstaining.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Proposal
#7  Ratification of Auditors

| | The
shareholders approved the appointment of KPMG LLP as independent auditors of TSFG for
fiscal year 2004 with 43,034,570 shares, or 87.4%, voting in favor, 6,171,373 shares
voting against, and 242,457 shares abstaining.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 5     Other Information

None.

# Item 6     Exhibits and
Reports on Form 8-K

(a)   Exhibits

| | 10.1 |  | Amendment #1 to The South Financial Group Amended and Restated Employee Stock Purchase Plan.                                                                                                             
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.2 |  | Amendment #1 to The South Financial Group 2004 Long-Term Incentive Plan.                                                                                                                                 
| | 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  Executive  Officer  pursuant  to 18 U.S.C.  1350,  as adopted  pursuant  to Section 906 of the Sarbanes-Oxley Act
of 2002.                                                        

(b)    
          Reports on Form 8-K

Form
8-K dated April 14, 2004 furnishing under Item 12 TSFGs first quarter earnings
release for 2004.

Form
8-K dated July 20, 2004 furnishing under Item 12 TSFGs second quarter earnings
release for 2004.

Form
8-K dated July 16, 2004 announcing under Items 2 and 7 that TSFG had completed its
acquisition of CNB Florida Bancshares, Inc.

Form
8-K dated July 16, 2004 announcing under Items 2 and 7 that TSFG had completed its
acquisition of Florida Banks, Inc.

Form 8-K/A dated July 16, 2004 amending and restating under Item 2 certain information about TSFG's
acquisition of Florida Banks, Inc.

---

# 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.

|Date:  August 6, 2004 | The South Financial Group, Inc.


                                        /s/ William S. Hummers III
   William S. Hummers III
                                                              Vice Chairman and Executive Vice President
                                                              (Principal Accounting and Chief Financial Officer)
|--------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

INDEX TO EXHIBITS

ExhibitNo.

| | ExhibitNo. |  | Description                                                                                                                                                                                                                            
| | ---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1       |  | Amendment #1 to The South Financial Group Amended and Restated Employee Stock Purchase Plan.                                                                                                                                           
| | 10.2       |  | Amendment #1 to The South Financial Group 2004 Long-Term Incentive Plan.                                                                                                                                                               
| | 31.1       |  | Certificate  of  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  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.