##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q/A
 Amendment No. 1 to Form 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934For the quarterly period ended
March 31, 2005
 o
    
    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.
  South Carolina
    
    57-0824914(State or Other Jurisdiction of
    
    (IRS Employer Identification No.)Incorporation or Organization)102 South Main Street, Greenville, South Carolina
    
    29601(Address of Principal Executive Offices)
    
    (Zip Code)
 (864) 255-7900
 þ o
 þ o
 o o




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##### 



Explanatory Note  2005 Restatement
     Effects of CorrectionTotal
    
    
    
    
    
    
    TotalCumulative
    
    
    
    
    
    
    Cumulativethrough
    
    
    Quarter ending
    
    
    throughDecember 31,
    
    
    March 31,
    
    
    March 31,(In thousands)
    
    2004
    
    
    2005
    
    
    2005Increase (decrease) in net income
    
    $
    (6,200
    )
    
    $
    (12,143
    )
    
    $
    (18,343
    )




---



##### 








---



##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) (Unaudited)
 March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)AssetsCash and due from banks
    
    $
    219,968
    
    
    $
    220,636
    
    
    $
    199,847Interest-bearing bank balances
    
    
    5,793
    
    
    
    1,048
    
    
    
    4,669Federal funds sold
    
    
    
    
    
    
    4,477
    
    
    
    SecuritiesTrading
    
    
    20
    
    
    
    1,462
    
    
    
    Available for sale
    
    
    4,763,986
    
    
    
    3,779,782
    
    
    
    4,234,843Held to maturity (market value $70,269,
$87,050 and $76,552, respectively)
    
    
    69,805
    
    
    
    84,876
    
    
    
    75,245Total securities
    
    
    4,833,811
    
    
    
    3,866,120
    
    
    
    4,310,088LoansLoans held for sale
    
    
    23,958
    
    
    
    15,850
    
    
    
    21,302Loans held for investment
    
    
    8,398,360
    
    
    
    5,986,684
    
    
    
    8,107,757Allowance for loan losses
    
    
    (98,690
    )
    
    
    (74,871
    )
    
    
    (96,918
    )Net loans
    
    
    8,323,628
    
    
    
    5,927,663
    
    
    
    8,032,141Premises and equipment, net
    
    
    178,044
    
    
    
    144,860
    
    
    
    170,648Accrued interest receivable
    
    
    63,861
    
    
    
    47,914
    
    
    
    65,174Goodwill
    
    
    574,130
    
    
    
    324,614
    
    
    
    571,853Other intangible assets
    
    
    37,791
    
    
    
    27,389
    
    
    
    39,597Other assets
    
    
    462,653
    
    
    
    311,110
    
    
    
    404,188$
    14,699,679
    
    
    $
    10,875,831
    
    
    $
    13,798,205Liabilities and Shareholders EquityLiabilitiesDepositsNoninterest-bearing
    
    $
    1,290,427
    
    
    $
    924,753
    
    
    $
    1,237,877Interest-bearing
    
    
    6,884,543
    
    
    
    5,117,006
    
    
    
    6,433,067Total deposits
    
    
    8,174,970
    
    
    
    6,041,759
    
    
    
    7,670,944Federal funds purchased and repurchase
agreements
    
    
    1,724,813
    
    
    
    1,115,432
    
    
    
    1,583,495Other short-term borrowings
    
    
    36,312
    
    
    
    43,986
    
    
    
    43,516Long-term debt
    
    
    3,211,887
    
    
    
    2,529,422
    
    
    
    2,972,270Accrued interest payable
    
    
    37,892
    
    
    
    23,090
    
    
    
    31,943Other liabilities
    
    
    149,602
    
    
    
    96,009
    
    
    
    102,577Total liabilities
    
    
    13,335,476
    
    
    
    9,849,698
    
    
    
    12,404,745Shareholders equityPreferred 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 71,757,924, 59,599,431, and
71,252,346 shares, respectively
    
    
    71,758
    
    
    
    59,599
    
    
    
    71,252Surplus
    
    
    1,064,673
    
    
    
    720,758
    
    
    
    1,056,185Retained earnings
    
    
    298,943
    
    
    
    240,279
    
    
    
    288,002Guarantee of employee stock ownership plan
debt and nonvested restricted stock
    
    
    (4,341
    )
    
    
    (5,071
    )
    
    
    (3,483
    )Common stock held in trust for deferred
compensation
    
    
    (1,383
    )
    
    
    (706
    )
    
    
    (901
    )Deferred compensation payable in common stock
    
    
    1,383
    
    
    
    706
    
    
    
    901Accumulated other comprehensive (loss)
income, net of tax
    
    
    (66,830
    )
    
    
    10,568
    
    
    
    (18,496
    )Total shareholders equity
    
    
    1,364,203
    
    
    
    1,026,133
    
    
    
    1,393,460$
    14,699,679
    
    
    $
    10,875,831
    
    
    $
    13,798,205
  1




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##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) (Unaudited)
 Three Months EndedMarch 31,2005
    
    
    2004(Restated)
    
    
    (Restated)Interest IncomeInterest and fees on loans
    
    $
    121,478
    
    
    $
    78,017Interest and dividends on securities:Taxable
    
    
    46,148
    
    
    
    37,210Exempt from federal income taxes
    
    
    2,462
    
    
    
    1,759Total interest and dividends on securities
    
    
    48,610
    
    
    
    38,969Interest on short-term investments
    
    
    161
    
    
    
    28Total interest income
    
    
    170,249
    
    
    
    117,014Interest ExpenseInterest on deposits
    
    
    39,977
    
    
    
    26,867Interest on short-term borrowings
    
    
    10,111
    
    
    
    2,109Interest on long-term debt
    
    
    21,912
    
    
    
    14,286Total interest expense
    
    
    72,000
    
    
    
    43,262Net Interest Income
    
    
    98,249
    
    
    
    73,752Provision for Loan Losses
    
    
    10,962
    
    
    
    7,722Net interest income after provision for loan
losses
    
    
    87,287
    
    
    
    66,030Noninterest Income
    
    
    13,271
    
    
    
    47,366Noninterest Expenses
    
    
    66,510
    
    
    
    57,271Income before income taxes and discontinued
operations
    
    
    34,048
    
    
    
    56,125Income taxes
    
    
    11,236
    
    
    
    16,989Income from continuing operations
    
    
    22,812
    
    
    
    39,136Discontinued operations, net of income tax
    
    
    (396
    )
    
    
    Net Income
    
    $
    22,416
    
    
    $
    39,136Average Common Shares Outstanding, Basic
    
    
    71,376
    
    
    
    59,214Average Common Shares Outstanding, Diluted
    
    
    73,021
    
    
    
    60,809Per Common Share, BasicIncome from continuing operations
    
    $
    0.32
    
    
    $
    0.66Discontinued operations
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.31
    
    
    $
    0.66Per Common Share, DilutedIncome from continuing operations
    
    $
    0.32
    
    
    $
    0.64Discontinued operations
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.31
    
    
    $
    0.64
  2




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY AND COMPREHENSIVE (LOSS) INCOME
(in thousands, except share and per share data) (Unaudited)
 Retained
    
    
    AccumulatedShares of
    
    
    
    
    
    
    
    
    
    
    Earnings
    
    
    OtherCommon
    
    
    Common
    
    
    
    
    
    
    and
    
    
    ComprehensiveStock
    
    
    Stock
    
    
    Surplus
    
    
    Other*
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2003
    
    
    59,064,375
    
    
    $
    59,064
    
    
    $
    712,788
    
    
    $
    214,184
    
    
    $
    (6,167
    )
    
    $
    979,869Prior period adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,591
    )
    
    
    (979
    )
    
    
    (7,570
    )Balance, December 31, 2003 (restated)
    
    
    59,064,375
    
    
    
    59,064
    
    
    
    712,788
    
    
    
    207,593
    
    
    
    (7,146
    )
    
    
    972,299Net income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,136
    
    
    
    
    
    
    
    39,136Other comprehensive income, net of
income tax of $10,854 (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,714
    
    
    
    17,714Comprehensive income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,850Cash dividends declared
($0.15 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,944
    )
    
    
    
    
    
    
    (8,944
    )Common stock activity:Exercise of stock options, including
income tax benefit of $1,887
    
    
    299,923
    
    
    
    300
    
    
    
    4,235
    
    
    
    
    
    
    
    
    
    
    
    4,535Acquisitions
    
    
    (294
    )
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    (7
    )Dividend reinvestment plan
    
    
    28,617
    
    
    
    29
    
    
    
    787
    
    
    
    
    
    
    
    
    
    
    
    816Restricted stock plan
    
    
    202,289
    
    
    
    202
    
    
    
    2,841
    
    
    
    (2,639
    )
    
    
    
    
    
    
    404Employee stock purchase plan
    
    
    2,091
    
    
    
    2
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    59Director compensation
    
    
    2,430
    
    
    
    2
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    68Common stock purchased by trust for
deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (555
    )
    
    
    
    
    
    
    (555
    )Deferred compensation payable in common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    555
    
    
    
    
    
    
    
    555Miscellaneous
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    62
    
    
    
    
    
    
    
    53Balance, March 31, 2004 (restated)
    
    
    59,599,431
    
    
    $
    59,599
    
    
    $
    720,758
    
    
    $
    235,208
    
    
    $
    10,568
    
    
    $
    1,026,133Balance, December 31, 2004
    
    
    71,252,346
    
    
    $
    71,252
    
    
    $
    1,056,185
    
    
    $
    290,719
    
    
    $
    (17,553
    )
    
    $
    1,400,603Prior period adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,200
    )
    
    
    (943
    )
    
    
    (7,143
    )Balance, December 31, 2004 (restated)
    
    
    71,252,346
    
    
    
    71,252
    
    
    
    1,056,185
    
    
    
    284,519
    
    
    
    (18,496
    )
    
    
    1,393,460Net income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,416
    
    
    
    
    
    
    
    22,416Other comprehensive loss, net of
income tax of $28,283 (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,334
    )
    
    
    (48,334
    )Comprehensive loss (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,918
    )Cash dividends declared ($0.16 per common
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,475
    )
    
    
    
    
    
    
    (11,475
    )Common stock activity:Exercise of stock options, including
income tax benefit of $1,975
    
    
    387,534
    
    
    
    388
    
    
    
    6,210
    
    
    
    
    
    
    
    
    
    
    
    6,598Dividend reinvestment plan
    
    
    30,741
    
    
    
    31
    
    
    
    852
    
    
    
    
    
    
    
    
    
    
    
    883Restricted stock plan
    
    
    79,796
    
    
    
    80
    
    
    
    1,159
    
    
    
    (918
    )
    
    
    
    
    
    
    321Employee stock purchase plan
    
    
    4,179
    
    
    
    4
    
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    119Director compensation
    
    
    3,328
    
    
    
    3
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    107Common stock purchased by trust for
deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (482
    )
    
    
    
    
    
    
    (482
    )Deferred compensation payable in common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    482
    
    
    
    
    
    
    
    482Miscellaneous
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    60
    
    
    
    
    
    
    
    108Balance, March 31, 2005 (restated)
    
    
    71,757,924
    
    
    $
    71,758
    
    
    $
    1,064,673
    
    
    $
    294,602
    
    
    $
    (66,830
    )
    
    $
    1,364,203
 
 *
    
    Other includes guarantee of employee stock ownership plan debt, nonvested restricted stock, and
deferred compensation.  3




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##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
 Three Months Ended March 31,2005
    
    
    2004(Restated)
    
    
    (Restated)Cash Flows from Operating ActivitiesNet income
    
    $
    22,416
    
    
    $
    39,136Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation, amortization, and accretion, net
    
    
    11,058
    
    
    
    12,642Provision for loan losses
    
    
    10,962
    
    
    
    7,722Gain on sale of available for sale securities
    
    
    (234
    )
    
    
    (5,214
    )Gain on equity investments
    
    
    (1,711
    )
    
    
    (2,810
    )Loss (gain) on trading and derivative activities
    
    
    16,305
    
    
    
    (9,707
    )Gain on disposition of assets and liabilities
    
    
    
    
    
    
    (2,350
    )Gain on sale of loans
    
    
    (1,270
    )
    
    
    (1,383
    )Loss (gain) on disposition of premises and equipment
    
    
    2
    
    
    
    (5
    )(Gain) loss on disposition of other real estate owned
    
    
    (569
    )
    
    
    189Contribution to foundation
    
    
    683
    
    
    
    Conservation grant of land
    
    
    
    
    
    
    3,350Impairment loss from write-down of mortgage servicing rights
    
    
    
    
    
    
    6(Gain) loss on early extinguishment of debt
    
    
    (1,428
    )
    
    
    1,429Trading account assets, net
    
    
    95
    
    
    
    (942
    )Origination of loans held for sale
    
    
    (108,366
    )
    
    
    (104,284
    )Sale of loans held for sale and principal repayments
    
    
    108,038
    
    
    
    119,436Other assets, net
    
    
    (35,310
    )
    
    
    (3,027
    )Other liabilities, net
    
    
    37,690
    
    
    
    3,776Net cash provided by operating activities
    
    
    58,361
    
    
    
    57,964Cash Flows from Investing ActivitiesSale of securities available for sale
    
    
    409,061
    
    
    
    459,915Maturity, redemption, call, or principal repayments of securities
available for sale
    
    
    443,744
    
    
    
    477,625Maturity, redemption, call, or principal repayments of securities
held to maturity
    
    
    5,375
    
    
    
    6,158Purchase of securities available for sale
    
    
    (1,460,538
    )
    
    
    (777,666
    )Origination of loans held for investment, net of principal repayments
    
    
    (304,274
    )
    
    
    (265,303
    )Sale of other real estate owned
    
    
    2,369
    
    
    
    2,249Sale of premises and equipment
    
    
    670
    
    
    
    5Purchase of premises and equipment
    
    
    (12,902
    )
    
    
    (5,985
    )Cash equivalents acquired, net of payment for purchase acquisitions
    
    
    
    
    
    
    (86
    )Net cash used for investing activities
    
    
    (916,495
    )
    
    
    (103,088
    )
  4




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##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
(in thousands) (Unaudited)
 Three Months Ended March 31,2005
    
    
    2004(Restated)
    
    
    (Restated)Cash Flows from Financing ActivitiesDeposits, net
    
    
    509,847
    
    
    
    8,551Federal funds purchased and repurchase agreements, net
    
    
    141,334
    
    
    
    280,596Other short-term borrowings, net
    
    
    (7,412
    )
    
    
    (12,364
    )Issuance of long-term debt
    
    
    1,084,850
    
    
    
    Payment of long-term debt
    
    
    (843,664
    )
    
    
    (185,082
    )Prepayment penalty on early extinguishment of debt
    
    
    
    
    
    
    (1,429
    )Cash dividends paid on common stock
    
    
    (11,416
    )
    
    
    (8,873
    )Other common stock activity
    
    
    5,840
    
    
    
    3,644Net cash provided by financing activities
    
    
    879,379
    
    
    
    85,043Net change in cash and cash equivalents
    
    
    21,245
    
    
    
    39,919Cash and cash equivalents at beginning of year
    
    
    204,516
    
    
    
    186,242Cash and cash equivalents at end of period
    
    $
    225,761
    
    
    $
    226,161Supplemental Cash Flow DataInterest paid
    
    $
    61,542
    
    
    $
    36,839Income taxes paid
    
    
    590
    
    
    
    1,858Significant non-cash investing and financing transactions:Change in unrealized (loss) gain on available for sale securities
    
    
    (76,617
    )
    
    
    28,568Security sales settled subsequent to quarter-end
    
    
    23,581
    
    
    
    7,133Security purchases settled subsequent to quarter-end
    
    
    18,335
    
    
    
    Loans transferred to other real estate owned
    
    
    1,396
    
    
    
    1,690
  5




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) General
  Nature of Operations
  Accounting Estimates and Assumptions
  Principles of Consolidation
   Reclassifications
  6




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##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Restatement
        7




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Impact to Consolidated Balance Sheets(In thousands)(Unaudited)March 31, 2005
    
    March 31, 2004
    
    December 31, 2004As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedOther assets
    
    $
    447,854
    
    
    $
    462,653
    
    
    $
    309,913
    
    
    $
    311,110
    
    
    $
    395,797
    
    
    $
    404,188Total assets
    
    
    14,684,880
    
    
    
    14,699,679
    
    
    
    10,874,634
    
    
    
    10,875,831
    
    
    
    13,789,814
    
    
    
    13,798,205Interest-bearing
deposits
    
    
    6,864,148
    
    
    
    6,884,543
    
    
    
    5,120,577
    
    
    
    5,117,006
    
    
    
    6,427,660
    
    
    
    6,433,067Total deposits
    
    
    8,154,575
    
    
    
    8,174,970
    
    
    
    6,045,330
    
    
    
    6,041,759
    
    
    
    7,665,537
    
    
    
    7,670,944Long-term debt
    
    
    3,197,287
    
    
    
    3,211,887
    
    
    
    2,524,966
    
    
    
    2,529,422
    
    
    
    2,962,143
    
    
    
    2,972,270Total liabilities
    
    
    13,300,481
    
    
    
    13,335,476
    
    
    
    9,848,813
    
    
    
    9,849,698
    
    
    
    12,389,211
    
    
    
    12,404,745Retained earnings
    
    
    317,286
    
    
    
    298,943
    
    
    
    240,027
    
    
    
    240,279
    
    
    
    294,202
    
    
    
    288,002Accumulated other
comprehensive (loss)
income, net of tax
    
    
    (64,977
    )
    
    
    (66,830
    )
    
    
    10,508
    
    
    
    10,568
    
    
    
    (17,553
    )
    
    
    (18,496
    )Total shareholders
equity
    
    
    1,384,399
    
    
    
    1,364,203
    
    
    
    1,025,821
    
    
    
    1,026,133
    
    
    
    1,400,603
    
    
    
    1,393,460
 8




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Impact to Consolidated Statements of Income(In thousands, except share data) (Unaudited)Three Months Ended March 31,2005
    
    2004As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedInterest expense on deposits
    
    $
    34,382
    
    
    $
    39,977
    
    
    $
    19,450
    
    
    $
    26,867Interest expense on long-term debt
    
    
    21,855
    
    
    
    21,912
    
    
    
    13,439
    
    
    
    14,286Total interest expense
    
    
    66,348
    
    
    
    72,000
    
    
    
    34,998
    
    
    
    43,262Net interest income
    
    
    103,901
    
    
    
    98,249
    
    
    
    82,016
    
    
    
    73,752Net interest income after provision for loan losses
    
    
    92,939
    
    
    
    87,287
    
    
    
    74,294
    
    
    
    66,030Noninterest income
    
    
    25,743
    
    
    
    13,271
    
    
    
    29,288
    
    
    
    47,366Income before income taxes and discontinued operations
    
    
    52,172
    
    
    
    34,048
    
    
    
    46,311
    
    
    
    56,125Income taxes
    
    
    17,217
    
    
    
    11,236
    
    
    
    14,018
    
    
    
    16,989Income from continuing operations
    
    
    34,955
    
    
    
    22,812
    
    
    
    32,293
    
    
    
    39,136Net income
    
    
    34,559
    
    
    
    22,416
    
    
    
    32,293
    
    
    
    39,136Per common share, basic:Income from continuing operations
    
    $
    0.49
    
    
    $
    0.32
    
    
    $
    0.55
    
    
    $
    0.66Net income
    
    
    0.48
    
    
    
    0.31
    
    
    
    0.55
    
    
    
    0.66Per common share, diluted:Income from continuing operations
    
    $
    0.48
    
    
    $
    0.32
    
    
    $
    0.53
    
    
    $
    0.64Net income
    
    
    0.47
    
    
    
    0.31
    
    
    
    0.53
    
    
    
    0.64
 Impact to Consolidated Statements of ChangesIn Shareholders Equity and Comprehensive Income (Loss)(In thousands) (Unaudited)March 31, 2005
    
    March 31, 2004As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedTotal shareholders
equity, January 1
    
    $
    1,400,603
    
    
    $
    1,393,460
    
    
    $
    979,869
    
    
    $
    972,299Net income
    
    
    34,559
    
    
    
    22,416
    
    
    
    32,293
    
    
    
    39,136Other comprehensive
(loss) income, net
of tax
    
    
    (47,424
    )
    
    
    (48,334
    )
    
    
    16,675
    
    
    
    17,714Total shareholders
equity, March 31
    
    
    1,384,399
    
    
    
    1,364,203
    
    
    
    1,025,821
    
    
    
    1,026,133
 9




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Impact to Consolidated Statements of Cash Flows(In thousands) (Unaudited)Three Months EndedMarch 31, 2005
    
    March 31, 2004As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedCash Flows from Operating Activities:Net income
    
    $
    34,559
    
    
    $
    22,416
    
    
    $
    32,293
    
    
    $
    39,136(Gain) loss on trading and derivatives
    
    
    (904
    )
    
    
    16,305
    
    
    
    1,369
    
    
    
    (9,707
    )Change in other assets, net
    
    
    (30,244
    )
    
    
    (35,310
    )
    
    
    (7,260
    )
    
    
    (3,027
    )Cash flows from operating activities
    
    
    58,361
    
    
    
    58,361
    
    
    
    57,964
    
    
    
    57,964
 Stock-Based Compensation
   Three Months EndedMarch 31,2005
    
    
    2004(Restated)
    
    
    (Restated)Net IncomeNet income, as reported
    
    $
    22,416
    
    
    $
    39,136Deduct:Total stock-based employee compensation expense
determined under fair value based method for
all option awards, net of income tax
    
    
    655
    
    
    
    590Pro forma net income
    
    $
    21,761
    
    
    $
    38,546Basic Earnings Per ShareAs reported
    
    $
    0.31
    
    
    $
    0.66Pro forma
    
    
    0.30
    
    
    
    0.65Diluted Earnings Per ShareAs reported
    
    $
    0.31
    
    
    $
    0.64Pro forma
    
    
    0.30
    
    
    
    0.63
  10




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Three Months EndedMarch 31,2005
    
    2004Expected life (in years)
    
    
    6.93
    
    
    
    7.41Expected volatility
    
    
    34.72
    %
    
    
    34.76
    %Risk-free interest rate
    
    
    3.97
    
    
    
    3.54Expected dividend yield
    
    
    2.10
    
    
    
    2.10Weighted-average fair value of options granted during the period
    
    $
    10.49
    
    
    $
    9.84
 11




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Recently Adopted Accounting Pronouncements
 Accounting for Certain Loans or Debt Securities Acquired in a Transfer
  Recently Issued Accounting Pronouncements
 Share-Based Payment
  
    
    Employee awards with cash-based settlement or repurchase features, such as a stock
appreciation right with a cash-settlement option;
    
    Awards for a fixed dollar amount settleable in the companys stock;
    
    Share-based awards with a net-settlement feature for an amount in excess of the minimum tax withholding; and
    
    Awards that vest or become exercisable based on the achievement of a condition other
than service, performance, or market condition.
  
    
    Share-based awards with net-settlement features for minimum tax withholdings;
    
    Awards that permit a cashless exercise using a broker unrelated to the employer; and
    
    Awards containing a put feature that give employees the right to require the company to
repurchase the shares at fair value, when the employee bears the risks and rewards normally
associated with ownership for six months or longer.
  Accounting for Nonmonetary Transactions
  12




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (2) Supplemental Financial Information To Consolidated Statements of Income
  Three Months EndedMarch 31,2005
    
    
    2004(Restated)
    
    
    (Restated)Noninterest IncomeService charges on deposit accounts
    
    $
    8,577
    
    
    $
    8,113Debit card income
    
    
    1,515
    
    
    
    814Customer service fee income
    
    
    831
    
    
    
    672Total customer fee income
    
    
    10,923
    
    
    
    9,599Brokerage income
    
    
    1,290
    
    
    
    1,196Trust income
    
    
    978
    
    
    
    927Total brokerage and trust income
    
    
    2,268
    
    
    
    2,123Bank-owned life insurance income
    
    
    2,761
    
    
    
    2,290Merchant processing income
    
    
    2,038
    
    
    
    2,013Mortgage banking income
    
    
    1,487
    
    
    
    1,555Insurance income
    
    
    1,286
    
    
    
    1,022Gain on sale of available for sale securities
    
    
    234
    
    
    
    5,214Gain on equity investments
    
    
    1,711
    
    
    
    2,810(Loss) gain on trading and derivative activities
    
    
    (11,568
    )
    
    
    16,709Gain on disposition of assets and liabilities
    
    
    
    
    
    
    2,350Other
    
    
    2,131
    
    
    
    1,681Total noninterest income
    
    $
    13,271
    
    
    $
    47,366Noninterest ExpensesSalaries and wages
    
    $
    24,577
    
    
    $
    18,859Employee benefits
    
    
    9,024
    
    
    
    6,915Occupancy
    
    
    6,099
    
    
    
    5,072Furniture and equipment
    
    
    5,533
    
    
    
    4,615Professional fees
    
    
    2,527
    
    
    
    1,648Merchant processing expense
    
    
    1,632
    
    
    
    1,559Telecommunications
    
    
    1,326
    
    
    
    1,145Amortization of intangibles
    
    
    1,806
    
    
    
    1,195Merger-related costs
    
    
    305
    
    
    
    177Contribution to foundation
    
    
    683
    
    
    
    Conservation grant of land
    
    
    
    
    
    
    3,350(Gain) loss on early extinguishment of debt
    
    
    (1,428
    )
    
    
    1,429Other
    
    
    14,426
    
    
    
    11,307Total noninterest expenses
    
    $
    66,510
    
    
    $
    57,271
 13




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (3) Accumulated Other Comprehensive (Loss) Income
  Three Months EndedMarch 31,2005
    
    
    2004(Restated)
    
    
    (Restated)Unrealized (Losses) Gains on Available for Sale SecuritiesBalance at beginning of period
    
    $
    (18,496
    )
    
    $
    (7,146
    )Other comprehensive (loss) income:Unrealized holding (losses) gains arising during the period
    
    
    (74,672
    )
    
    
    36,592Income tax benefit (expense)
    
    
    27,598
    
    
    
    (13,487
    )Less: Reclassification adjustment for gains included in net income
    
    
    (1,945
    )
    
    
    (8,024
    )Income tax expense
    
    
    685
    
    
    
    2,633(48,334
    )
    
    
    17,714Balance at end of period
    
    
    (66,830
    )
    
    
    10,568Unrealized Gains (Losses) on Cash Flow HedgesBalance at beginning of period
    
    
    
    
    
    
    Other comprehensive income:Unrealized gain (loss) on change in fair values
    
    
    
    
    
    
    Income tax benefit (expense)
    
    
    
    
    
    
    
    
    
    
    Balance at end of period
    
    
    
    
    
    
    $
    (66,830
    )
    
    $
    10,568Total other comprehensive income (loss)
    
    $
    (48,334
    )
    
    $
    17,714Net income
    
    
    22,416
    
    
    
    39,136Comprehensive income (loss)
    
    $
    (25,918
    )
    
    $
    56,850
 14




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (4) Gross Unrealized Losses on Investment Securities
  Less than 12 Months
    
    
    12 Months or Longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesSecurities Available for
SaleU.S. Treasury
    
    $
    203,115
    
    
    $
    6,425
    
    
    $
    24,015
    
    
    $
    1,101
    
    
    $
    227,130
    
    
    $
    7,526U.S. Government agencies
    
    
    958,398
    
    
    
    13,556
    
    
    
    109,532
    
    
    
    4,482
    
    
    
    1,067,930
    
    
    
    18,038Mortgage-backed securities
    
    
    2,180,434
    
    
    
    55,318
    
    
    
    578,749
    
    
    
    21,344
    
    
    
    2,759,183
    
    
    
    76,662State and municipals
    
    
    176,548
    
    
    
    2,569
    
    
    
    80,589
    
    
    
    2,423
    
    
    
    257,137
    
    
    
    4,992Corporate bonds
    
    
    78,583
    
    
    
    1,766
    
    
    
    15,953
    
    
    
    379
    
    
    
    94,536
    
    
    
    2,145Federal National Mortgage
Association preferred stock
    
    
    43,623
    
    
    
    1,101
    
    
    
    
    
    
    
    
    
    
    
    43,623
    
    
    
    1,101Federal Home Loan Mortgage
Corporation preferred stock
    
    
    11,614
    
    
    
    376
    
    
    
    
    
    
    
    
    
    
    
    11,614
    
    
    
    376Equity investments
    
    
    1,191
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    1,191
    
    
    
    76$
    3,653,506
    
    
    $
    81,187
    
    
    $
    808,838
    
    
    $
    29,729
    
    
    $
    4,462,344
    
    
    $
    110,916Securities Held to MaturityState and municipals
    
    $
    
    
    
    $
    
    
    
    $
    27,136
    
    
    $
    489
    
    
    $
    27,136
    
    
    $
    489
     15




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (5) Goodwill
  Carolina
    
    
    MercantileFirst Bank
    
    
    Bank
    
    
    Other
    
    
    TotalBalance, December 31, 2004
    
    $
    206,401
    
    
    $
    362,215
    
    
    $
    3,237
    
    
    $
    571,853Purchase accounting
adjustments
    
    
    20
    
    
    
    2,257
    
    
    
    
    
    
    
    2,277Balance, March 31, 2005
    
    $
    206,421
    
    
    $
    364,472
    
    
    $
    3,237
    
    
    $
    574,130
 (6) Other Intangible Assets
  March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Core deposit intangible
    
    $
    52,206
    
    
    $
    38,770
    
    
    $
    52,206Less accumulated amortization
    
    
    (19,900
    )
    
    
    (14,570
    )
    
    
    (18,463
    )32,306
    
    
    
    24,200
    
    
    
    33,743Non-compete agreement intangible
    
    
    5,672
    
    
    
    2,213
    
    
    
    5,672Less accumulated amortization
    
    
    (1,428
    )
    
    
    (387
    )
    
    
    (1,099
    )4,244
    
    
    
    1,826
    
    
    
    4,573Customer list intangible
    
    
    1,595
    
    
    
    1,558
    
    
    
    1,595Less accumulated amortization
    
    
    (354
    )
    
    
    (195
    )
    
    
    (314
    )1,241
    
    
    
    1,363
    
    
    
    1,281$
    37,791
    
    
    $
    27,389
    
    
    $
    39,597
  2005
    
    
    2004Core deposit intangible
    
    $
    1,437
    
    
    $
    1,063Non-compete agreement intangible
    
    
    329
    
    
    
    93Customer list intangible
    
    
    40
    
    
    
    39Total amortization expense of intangible assets
    
    $
    1,806
    
    
    $
    1,195
  Non-Core
    
    
    Compete
    
    
    CustomerDeposit
    
    
    Agreement
    
    
    ListIntangible
    
    
    Intangible
    
    
    Intangible
    
    
    Total2005
    
    $
    5,696
    
    
    $
    1,315
    
    
    $
    160
    
    
    $
    7,1712006
    
    
    5,095
    
    
    
    1,314
    
    
    
    160
    
    
    
    6,5692007
    
    
    4,607
    
    
    
    1,206
    
    
    
    160
    
    
    
    5,9732008
    
    
    3,801
    
    
    
    527
    
    
    
    160
    
    
    
    4,4882009
    
    
    3,095
    
    
    
    209
    
    
    
    160
    
    
    
    3,464Aggregate total for all years thereafter
    
    
    11,449
    
    
    
    2
    
    
    
    481
    
    
    
    11,932$
    33,743
    
    
    $
    4,573
    
    
    $
    1,281
    
    
    $
    39,597
 16




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (7) Commitments and Contingent Liabilities
 Legal Proceedings
  Recourse Reserve
  (8) Share Information
  Three Months Ended March 31,2005
    
    
    2004(Restated)
    
    
    (Restated)NumeratorsIncome from continuing operations
    
    $
    22,812
    
    
    $
    39,136Discontinued operations, net of income tax
    
    
    (396
    )
    
    
    Net income
    
    $
    22,416
    
    
    $
    39,136BasicAverage common shares outstanding (denominator)
    
    
    71,376,085
    
    
    
    59,214,344Earnings per share:Income from continuing operations
    
    $
    0.32
    
    
    $
    0.66Discontinued operations
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.31
    
    
    $
    0.66DilutedAverage common shares outstanding
    
    
    71,376,085
    
    
    
    59,214,344Average dilutive potential common shares
    
    
    1,644,920
    
    
    
    1,595,126Average diluted shares outstanding (denominator)
    
    
    73,021,005
    
    
    
    60,809,470Earnings per share:Income from continuing operations
    
    $
    0.32
    
    
    $
    0.64Discontinued operations
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.31
    
    
    $
    0.64
  17




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Number
    
    Range ofof Shares
    
    Exercise PricesFor the Three Months EndedMarch 31, 2005
    
    
    527,899
    
    
    $
    31.26 to $31.96March 31, 2004
    
    
    58,989
    
    
    $
    30.35 to $31.26
 (9) Disposition of Assets and Liabilities
  (10) Merger-Related and Direct Acquisition Costs
  Three Months EndedMarch 31,2005
    
    
    2004Merger-Related CostsCompensation-related expenses
    
    $
    207
    
    
    $
    35System conversion costs
    
    
    15
    
    
    
    16Travel
    
    
    2
    
    
    
    6Advertising
    
    
    
    
    
    
    6Other
    
    
    81
    
    
    
    114$
    305
    
    
    $
    177Direct Acquisition CostsInvestment banking and professional fees
    
    $
    24
    
    
    $
    77Contract and lease terminations
    
    
    358
    
    
    
    86Severance
    
    
    82
    
    
    
    (26
    )$
    464
    
    
    $
    137
  (11) Early Extinguishment of Debt
  18




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (12) Discontinued Operations
  (13) Business Segments
    (Restated)Carolina
    
    Mercantile
    
    
    
    
    
    EliminatingFirst Bank
    
    Bank
    
    Other
    
    Entries
    
    TotalThree Months Ended March 31, 2005Net interest income
    
    $
    63,365
    
    
    $
    37,214
    
    
    $
    (2,330
    )
    
    $
    
    
    
    $
    98,249Provision for loan losses
    
    
    9,248
    
    
    
    1,722
    
    
    
    (8
    )
    
    
    
    
    
    
    10,962Noninterest income
    
    
    6,181
    
    
    
    3,518
    
    
    
    26,323
    
    
    
    (22,751
    )
    
    
    13,271Noninterest expenses
    
    
    41,906
    
    
    
    24,618
    
    
    
    22,737
    
    
    
    (22,751
    )
    
    
    66,510Merger-related costs (a)
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    305Amortization of intangibles (a)
    
    
    811
    
    
    
    959
    
    
    
    36
    
    
    
    
    
    
    
    1,806Income tax expense
    
    
    5,923
    
    
    
    4,749
    
    
    
    564
    
    
    
    
    
    
    
    11,236Discontinued operations, net of
income tax
    
    
    
    
    
    
    (396
    )
    
    
    
    
    
    
    
    
    
    
    (396
    )Net income
    
    
    12,469
    
    
    
    9,247
    
    
    
    700
    
    
    
    
    
    
    
    22,416March 31, 2005Total assets
    
    $
    9,712,979
    
    
    $
    5,380,474
    
    
    $
    1,582,624
    
    
    $
    (1,976,398
    )
    
    $
    14,699,679Total loans
    
    
    5,227,512
    
    
    
    3,284,799
    
    
    
    892
    
    
    
    (90,885
    )
    
    
    8,422,318Total deposits
    
    
    5,051,230
    
    
    
    3,169,592
    
    
    
    
    
    
    
    (45,852
    )
    
    
    8,174,970
 19




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Restated)Carolina
    
    Mercantile
    
    
    
    
    
    EliminatingFirst Bank
    
    Bank
    
    Other
    
    Entries
    
    TotalThree Months Ended March 31,
2004Net interest income
    
    $
    58,383
    
    
    $
    16,430
    
    
    $
    (1,061
    )
    
    $
    
    
    
    $
    73,752Provision for loan losses
    
    
    6,127
    
    
    
    1,579
    
    
    
    16
    
    
    
    
    
    
    
    7,722Noninterest income
    
    
    37,564
    
    
    
    7,858
    
    
    
    18,126
    
    
    
    (16,182
    )
    
    
    47,366Noninterest expenses
    
    
    41,638
    
    
    
    12,427
    
    
    
    19,388
    
    
    
    (16,182
    )
    
    
    57,271Merger-related costs (a)
    
    
    190
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    177Amortization of intangibles (a)
    
    
    803
    
    
    
    321
    
    
    
    71
    
    
    
    
    
    
    
    1,195Income tax expense
    
    
    14,561
    
    
    
    3,091
    
    
    
    (663
    )
    
    
    
    
    
    
    16,989Net income
    
    
    33,621
    
    
    
    7,191
    
    
    
    (1,676
    )
    
    
    
    
    
    
    39,136March 31, 2004Total assets
    
    $
    8,639,537
    
    
    $
    2,451,348
    
    
    $
    1,338,330
    
    
    $
    (1,553,384
    )
    
    $
    10,875,831Total loans
    
    
    4,519,252
    
    
    
    1,478,133
    
    
    
    40,867
    
    
    
    (35,718
    )
    
    
    6,002,534Total deposits
    
    
    4,498,557
    
    
    
    1,538,800
    
    
    
    55,831
    
    
    
    (51,429
    )
    
    
    6,041,759
 
 (a)
    
    Included in noninterest expenses. (14) Subsequent Event
  (15) Managements Opinion
  20




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
        21




---



##### 



Website Availability of Reports Filed with the Securities and Exchange Commission
  Forward-Looking Statements
  
    
    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 (including net interest income at risk analysis and economic value of equity risk analysis) and inflation;
    
    risks inherent in making loans including repayment risks and value of collateral;
    
    loan growth, the adequacy of the allowance for loan losses, provision for loan losses,
and the assessment of problem loans (including loans acquired via acquisition);
    
    level, composition, and repricing characteristics of the securities portfolio;
    
    deposit growth, change in the mix or type of deposit products;
    
    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;
 22




---



##### 




    
    acquisitions, greater than expected deposit attrition or customer loss, inaccuracy of
related cost savings estimates, inaccuracy of estimates of financial results, and
unanticipated integration issues;
    
    significant delay or inability to execute strategic initiatives designed to grow revenues;
    
    changes in accounting policies and practices;
    
    changes in the evaluation of the effectiveness of our hedging strategies;
    
    changes in regulatory actions, including the potential for adverse adjustments;
    
    changes, costs, and effects of litigation, and environmental remediation; and
    
    recently-enacted or proposed legislation.
  Non-GAAP Financial Information
  23




---



##### 



Overview
  
    
    Carolina First Bank, the largest South Carolina-headquartered commercial bank, operates
in South Carolina and 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.
        24




---



##### 



Critical Accounting Policies and Estimates
  Allowance for Loan Losses
    25




---



##### 



Fair Value of Certain Financial Instruments
      Income Taxes
   26




---



##### 



Accounting for Acquisitions
      Acquisitions
  27




---



##### 



Table 1
Summary of Completed Acquisitions
(dollars in thousands)
 Purchase
    
    
    IdentifiableAcquisition
    
    
    Total
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    Price Paid
    
    
    IntangibleDate
    
    
    Assets
    
    
    
    
    
    
    Issued
    
    
    
    
    
    
    in Cash
    
    
    Assets
    
    
    
    
    
    
    GoodwillBank AcquisitionsCNB Florida
Lake City, Florida
    
    
    7/16/04
    
    
    $
    839,148
    
    
    
    (1)
    
    
    
    5,312,974
    
    
    
    
    
    
    $
    
    
    
    $
    11,312
    
    
    
    (2)
    
    
    $
    117,229
    (2)Florida Banks
Jacksonville, Florida
    
    
    7/16/04
    
    
    
    1,023,290
    
    
    
    (1)
    
    
    
    5,418,890
    
    
    
    
    
    
    
    
    
    
    
    5,982
    
    
    
    (2)
    
    
    
    140,038
    (2)Insurance Agency/Other AcquisitionsSummit Title, LLC
Hendersonville, North Carolina
    
    
    04/12/04
    
    
    
    86
    
    
    
    (1)
    
    
    
    8,371
    
    
    
    (3)
    
    
    
    
    
    
    
    55
    
    
    
    (2)
    
    
    
    150
    (2)
 
 (1)
    
    Book value at the acquisition date.(2)
    
    Carrying amount (identifiable intangible assets are not reported net of accumulated
amortization) at March 31, 2005.(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.   Table 2
Summary of Bank Acquisitions  Geographic Markets
 NumberAcquisition
    
    ofDate
    
    Branches
    
    Geographic MarketsCNB Florida
    
    7/16/04
    
    
    16
    
    
    Duval County (Jacksonville), Baker County (Mcclenny, Glenn St. Mary),Bradford County (Starke), Columbia County (Ft. White), UnionCounty (Lake Butler), Suwannee County (Live Oak), St. Johns County(St. Augustine), and Alachua County (Gainesville)Florida Banks
    
    7/16/04
    
    
    7
    
    
    Tampa, Jacksonville, Alachua County (Gainesville), Broward County(Ft. Lauderdale), Pinellas County (Largo), Marion County (Ocala),and West Palm Beach Florida markets
 Acquisitions Completed Subsequent to Quarter End
  28




---



##### 



Pending Acquisition
  Balance Sheet Review
 Loans
   29




---



##### 



Table 3
Loan Portfolio Composition
(dollars in thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Commercial, financial and agricultural
    
    $
    1,725,846
    
    
    $
    1,370,631
    
    
    $
    1,584,198Real estate  construction (1)
    
    
    1,052,269
    
    
    
    639,274
    
    
    
    1,007,061Real estate  residential mortgages (1-4 family)
    
    
    1,288,973
    
    
    
    963,699
    
    
    
    1,278,310Commercial secured by real estate (1)
    
    
    3,174,438
    
    
    
    2,314,567
    
    
    
    3,109,242Consumer
    
    
    1,156,834
    
    
    
    698,513
    
    
    
    1,128,946Loans held for investment
    
    
    8,398,360
    
    
    
    5,986,684
    
    
    
    8,107,757Loans held for sale
    
    
    23,958
    
    
    
    15,850
    
    
    
    21,302Total loans
    
    
    8,422,318
    
    
    
    6,002,534
    
    
    
    8,129,059Allowance for loan losses
    
    
    (98,690
    )
    
    
    (74,871
    )
    
    
    (96,918
    )Total net loans
    
    $
    8,323,628
    
    
    $
    5,927,663
    
    
    $
    8,032,141Percentage of Loans Held for InvestmentCommercial, financial and agricultural
    
    
    20.5
    %
    
    
    22.9
    %
    
    
    19.5
    %Real estate  construction (1)
    
    
    12.5
    
    
    
    10.7
    
    
    
    12.4Real estate  residential mortgages (1-4 family)
    
    
    15.3
    
    
    
    16.1
    
    
    
    15.8Commercial secured by real estate (1)
    
    
    37.8
    
    
    
    38.6
    
    
    
    38.4Consumer
    
    
    13.9
    
    
    
    11.7
    
    
    
    13.9Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   (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.
  30




---



##### 



Table 4
Loan Portfolio Composition Based on Loan Purpose
(dollars in thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Commercial LoansCommercial and industrial
    
    $
    2,269,951
    
    
    $
    1,585,715
    
    
    $
    2,077,646Owner-occupied real estate (1)
    
    
    824,051
    
    
    
    661,196
    
    
    
    825,582Commercial real estate
    
    
    3,289,299
    
    
    
    2,257,652
    
    
    
    3,246,7296,383,301
    
    
    
    4,504,563
    
    
    
    6,149,957Consumer LoansIndirect-sales finance
    
    
    835,629
    
    
    
    629,590
    
    
    
    790,372Direct retail
    
    
    465,266
    
    
    
    296,593
    
    
    
    466,484Home equity
    
    
    544,957
    
    
    
    399,604
    
    
    
    535,9881,845,852
    
    
    
    1,325,787
    
    
    
    1,792,844Mortgage Loans
    
    
    169,207
    
    
    
    156,334
    
    
    
    164,956Total loans held for investment
    
    $
    8,398,360
    
    
    $
    5,986,684
    
    
    $
    8,107,757Percentage of Loans Held for InvestmentCommercial and industrial
    
    
    27.0
    %
    
    
    26.5
    %
    
    
    25.6
    %Owner-occupied real estate (1)
    
    
    9.8
    
    
    
    11.0
    
    
    
    10.3Commercial real estate
    
    
    39.2
    
    
    
    37.8
    
    
    
    40.0Consumer
    
    
    22.0
    
    
    
    22.1
    
    
    
    22.1Mortgage
    
    
    2.0
    
    
    
    2.6
    
    
    
    2.0Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 (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
 Owner-occupied real estate loans
 Commercial real estate loans
 Indirect-sales finance loans
 Direct retail consumer loans
 31




---



##### 



Home equity loans
 Mortgage loans
   32




---



##### 



Table 5
Commercial Real Estate Loans
(dollars in thousands)
 March 31, 2005
    
    
    December 31, 2004% of
    
    
    
    
    
    
    % ofBalance
    
    
    Total
    
    
    Balance
    
    
    TotalCommercial Real Estate Loans
by Geographic DiversificationWestern North Carolina (Hendersonville/Asheville)
    
    $
    584,698
    
    
    
    17.8
    %
    
    $
    545,533
    
    
    
    16.8
    %Upstate South Carolina (Greenville)
    
    
    390,956
    
    
    
    11.9
    
    
    
    358,693
    
    
    
    11.0North Coastal South Carolina (Myrtle Beach)
    
    
    353,052
    
    
    
    10.7
    
    
    
    376,494
    
    
    
    11.6Tampa Bay Florida
    
    
    335,077
    
    
    
    10.2
    
    
    
    330,130
    
    
    
    10.2Midlands South Carolina (Columbia)
    
    
    277,788
    
    
    
    8.4
    
    
    
    291,139
    
    
    
    9.0Northeast Florida (Jacksonville)
    
    
    256,649
    
    
    
    7.8
    
    
    
    244,989
    
    
    
    7.5South Coastal South Carolina (Charleston)
    
    
    254,622
    
    
    
    7.7
    
    
    
    264,178
    
    
    
    8.1Central Florida (Orlando)
    
    
    245,621
    
    
    
    7.5
    
    
    
    245,398
    
    
    
    7.6Alachua Florida (Gainesville)
    
    
    153,678
    
    
    
    4.7
    
    
    
    151,233
    
    
    
    4.7North Central Florida
    
    
    110,444
    
    
    
    3.4
    
    
    
    105,409
    
    
    
    3.2Greater South Charlotte South Carolina (Rock Hill)
    
    
    108,500
    
    
    
    3.3
    
    
    
    110,965
    
    
    
    3.4South Florida (Ft. Lauderdale)
    
    
    103,472
    
    
    
    3.1
    
    
    
    102,969
    
    
    
    3.2Other (1)
    
    
    114,742
    
    
    
    3.5
    
    
    
    119,599
    
    
    
    3.7Total commercial real estate loans
    
    $
    3,289,299
    
    
    
    100.0
    %
    
    $
    3,246,729
    
    
    
    100.0
    %Commercial Real Estate Loans by Product TypeCommercial construction/development
    
    $
    1,033,761
    
    
    
    31.4
    %
    
    $
    965,838
    
    
    
    29.7
    %1-4 family residential investment property
    
    
    330,169
    
    
    
    10.0
    
    
    
    328,558
    
    
    
    10.1Mixed use
    
    
    328,525
    
    
    
    10.0
    
    
    
    313,612
    
    
    
    9.7Undeveloped land
    
    
    279,646
    
    
    
    8.5
    
    
    
    301,165
    
    
    
    9.3Retail
    
    
    263,068
    
    
    
    8.0
    
    
    
    266,584
    
    
    
    8.2Hotel/motel
    
    
    239,506
    
    
    
    7.3
    
    
    
    242,525
    
    
    
    7.5Multi-family residential
    
    
    182,039
    
    
    
    5.5
    
    
    
    171,929
    
    
    
    5.3Residential construction
    
    
    150,503
    
    
    
    4.6
    
    
    
    152,988
    
    
    
    4.7Other (1)
    
    
    482,082
    
    
    
    14.7
    
    
    
    503,530
    
    
    
    15.5Total commercial real estate loans
    
    $
    3,289,299
    
    
    
    100.0
    %
    
    $
    3,246,729
    
    
    
    100.0
    %
 
 (1)
    
    Other includes all loans in categories smaller than the lowest percentages shown
above. Note:
    
    At March 31, 2005 and December 31, 2004, average loan size for commercial real estate loans
totaled $373,000 and $370,000, respectively.
   33




---



##### 



Credit Quality
   Table 6
Credit Quality Indicators
(dollars in thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Loans held for investment
    
    $
    8,398,360
    
    
    $
    5,986,684
    
    
    $
    8,107,757Allowance for loan losses
    
    
    98,690
    
    
    
    74,871
    
    
    
    96,918Nonaccrual loans  commercial (1)
    
    
    32,329
    
    
    
    50,282
    
    
    
    38,015Nonaccrual loans  consumer
    
    
    2,901
    
    
    
    2,397
    
    
    
    2,312Nonaccrual loans  mortgage (2)
    
    
    4,333
    
    
    
    
    
    
    
    4,755Restructured loans
    
    
    
    
    
    
    
    
    
    
    Total nonperforming loans
    
    
    39,563
    
    
    
    52,679
    
    
    
    45,082Foreclosed property (other real estate owned and personal
property repossessions) (3)
    
    
    9,416
    
    
    
    10,203
    
    
    
    10,894Total nonperforming assets
    
    $
    48,979
    
    
    $
    62,882
    
    
    $
    55,976Loans past due 90 days or more (mortgage and consumer
with interest accruing) (2)
    
    $
    1,816
    
    
    $
    4,269
    
    
    $
    3,764Total nonperforming assets as a percentage of loans held for
investment and foreclosed property
    
    
    0.58
    %
    
    
    1.05
    %
    
    
    0.69
    %Allowance for loan losses to nonperforming loans
    
    
    2.49
    x

    
    
    1.42
    x

    
    
    2.15
    x
 
 (1)
    
    At March 31, 2005 and December 31, 2004, nonaccrual loans  commercial included $6.7
million and $4.7 million, respectively, in restructured loans.(2)
    
    Effective September 30, 2004, TSFG began placing residential mortgage loans in
nonaccrual status when they become 150-days delinquent. Previously, these loans were not
placed in nonaccrual status (unless impairment was evident), but any associated accrued
interest was reserved.(3)
    
    Prior to September 30, 2004, personal property repossessions were not included in
the definition of foreclosed property. At March 31, 2004, personal property repossessions
totaled $722,000.  34




---



##### 



Table 7
Impaired Loans
(dollars in thousands)
 At and For the
    
    At and For theThree Months
    
    Year EndedEnded March 31,
    
    December 31,2005
    
    2004
    
    2004Impaired loans
    
    $
    25,654
    
    
    $
    50,282
    
    
    $
    28,836Average investment in impaired loans
    
    
    27,532
    
    
    
    50,753
    
    
    
    47,791Related allowance
    
    
    5,247
    
    
    
    12,739
    
    
    
    11,129Foregone interest
    
    
    520
    
    
    
    617
    
    
    
    1,935
 Allowance for Loan Losses
       35




---



##### 



Table 8
Summary of Loan Loss Experience
(dollars in thousands)
 At and For
    
    
    At and ForThe Three Months
    
    
    The Year EndedEnded March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Allowance for loan losses, beginning of year
    
    $
    96,918
    
    
    $
    73,287
    
    
    $
    73,287Purchase accounting adjustments
    
    
    
    
    
    
    
    
    
    
    20,682Allowance adjustment for loans sold
    
    
    
    
    
    
    
    
    
    
    (506
    )Net charge-offs:Loans charged-off
    
    
    (10,974
    )
    
    
    (6,990
    )
    
    
    (37,003
    )Loans recovered
    
    
    1,784
    
    
    
    852
    
    
    
    5,471(9,190
    )
    
    
    (6,138
    )
    
    
    (31,532
    )Additions to allowance through provision expense
    
    
    10,962
    
    
    
    7,722
    
    
    
    34,987Allowance for loan losses, end of period
    
    $
    98,690
    
    
    $
    74,871
    
    
    $
    96,918Average loans held for investment
    
    $
    8,263,252
    
    
    $
    5,836,599
    
    
    $
    6,909,545Loans held for investment, end of period
    
    
    8,398,360
    
    
    
    5,986,684
    
    
    
    8,107,757Net charge-offs as a percentage of average loans held for
investment (annualized)
    
    
    0.45
    %
    
    
    0.42
    %
    
    
    0.46
    %Allowance for loan losses as a percentage of loans held
for investment
    
    
    1.18
    
    
    
    1.25
    
    
    
    1.20Allowance for loan losses to nonperforming loans
    
    
    2.49
    x
    
    
    1.42
    x
    
    
    2.15
    x
 Securities
  36




---



##### 



Table 9
Investment Securities Portfolio Composition
(dollars in thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Trading(at fair value)U.S. Treasury
    
    $
    20
    
    
    $
    
    
    
    $
    U.S. Government agencies
    
    
    
    
    
    
    1,140
    
    
    
    State and municipal
    
    
    
    
    
    
    322
    
    
    
    20
    
    
    
    1,462
    
    
    
    Available for Sale(at fair value)U.S. Treasury
    
    
    229,272
    
    
    
    247,257
    
    
    
    234,538U.S. Government agencies
    
    
    1,070,577
    
    
    
    780,316
    
    
    
    930,046Mortgage-backed securities
    
    
    2,913,531
    
    
    
    2,277,175
    
    
    
    2,502,440State and municipal
    
    
    284,241
    
    
    
    171,071
    
    
    
    272,535Other investments:Corporate bonds
    
    
    118,257
    
    
    
    148,687
    
    
    
    141,970Federal Home Loan Bank (FHLB) stock
    
    
    75,850
    
    
    
    53,559
    
    
    
    72,733Federal National Mortgage Association preferred stock
    
    
    45,741
    
    
    
    69,765
    
    
    
    50,062Federal Home Loan Mortgage Corporation preferred stock
    
    
    11,614
    
    
    
    
    
    
    
    11,990Community bank stocks
    
    
    11,602
    
    
    
    26,475
    
    
    
    14,899Other equity investments
    
    
    3,301
    
    
    
    5,477
    
    
    
    3,6304,763,986
    
    
    
    3,779,782
    
    
    
    4,234,843Held to Maturity(at amortized cost)State and municipal
    
    
    69,705
    
    
    
    84,298
    
    
    
    75,145Other investments
    
    
    100
    
    
    
    578
    
    
    
    10069,805
    
    
    
    84,876
    
    
    
    75,245Total
    
    $
    4,833,811
    
    
    $
    3,866,120
    
    
    $
    4,310,088Total securities as a percentage of total assets
    
    
    32.9
    %
    
    
    35.5
    %
    
    
    31.2
    %Percentage of Total Securities PortfolioU.S. Treasury
    
    
    4.8
    %
    
    
    6.4
    %
    
    
    5.4
    %U.S. Government agencies
    
    
    22.1
    
    
    
    20.2
    
    
    
    21.6Mortgage-backed securities
    
    
    60.3
    
    
    
    58.9
    
    
    
    58.0State and municipal
    
    
    7.3
    
    
    
    6.6
    
    
    
    8.1Other investments
    
    
    5.5
    
    
    
    7.9
    
    
    
    6.9Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    37




---



##### 



Community Bank Stocks.
 Intangible Assets
  Deposits
  38




---



##### 



Table 10
 Type of Deposits
 (dollars in thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)Noninterest-bearing demand deposits
    
    $
    1,290,427
    
    
    $
    924,753
    
    
    $
    1,237,877Interest-bearing checking
    
    
    896,844
    
    
    
    688,607
    
    
    
    816,933Money market accounts
    
    
    2,663,405
    
    
    
    2,235,544
    
    
    
    2,704,287Savings accounts
    
    
    191,128
    
    
    
    160,323
    
    
    
    192,769Total transaction accounts
    
    
    5,041,804
    
    
    
    4,009,227
    
    
    
    4,951,866Time deposits under $100,000
    
    
    942,934
    
    
    
    784,524
    
    
    
    856,386Time deposits of $100,000 or more
    
    
    837,717
    
    
    
    530,675
    
    
    
    645,820Total customer deposits (1)
    
    
    6,822,455
    
    
    
    5,324,426
    
    
    
    6,454,072Brokered deposits
    
    
    1,352,515
    
    
    
    717,333
    
    
    
    1,216,872Total deposits
    
    $
    8,174,970
    
    
    $
    6,041,759
    
    
    $
    7,670,944Percentage of DepositsNoninterest-bearing demand deposits
    
    
    15.8
    %
    
    
    15.3
    %
    
    
    16.1
    %Interest-bearing checking
    
    
    11.0
    
    
    
    11.4
    
    
    
    10.6Money market accounts
    
    
    32.6
    
    
    
    37.0
    
    
    
    35.3Savings accounts
    
    
    2.3
    
    
    
    2.6
    
    
    
    2.5Total transaction accounts
    
    
    61.7
    
    
    
    66.3
    
    
    
    64.5Time deposits under $100,000
    
    
    11.5
    
    
    
    13.0
    
    
    
    11.2Time deposits of $100,000 or more
    
    
    10.3
    
    
    
    8.8
    
    
    
    8.4Total customer deposits (1)
    
    
    83.5
    
    
    
    88.1
    
    
    
    84.1Brokered deposits
    
    
    16.5
    
    
    
    11.9
    
    
    
    15.9Total deposits
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    TSFG defines customer deposits as total deposits less brokered deposits.    Elevate
 39




---



##### 



Borrowed Funds
  Table 11
 Type of Borrowings
 (dollars in thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)Short-Term BorrowingsFederal funds purchased and repurchase agreements
    
    $
    1,724,813
    
    
    $
    1,115,432
    
    
    $
    1,583,495Commercial paper
    
    
    30,215
    
    
    
    38,904
    
    
    
    29,405Treasury, tax and loan note
    
    
    6,097
    
    
    
    4,985
    
    
    
    14,111Line of credit to unaffiliated bank and other
    
    
    
    
    
    
    97
    
    
    
    1,761,125
    
    
    
    1,159,418
    
    
    
    1,627,011Long-Term BorrowingsRepurchase agreements
    
    
    2,249,984
    
    
    
    1,309,800
    
    
    
    1,665,134FHLB advances
    
    
    712,160
    
    
    
    989,501
    
    
    
    1,057,167Subordinated notes
    
    
    155,695
    
    
    
    135,075
    
    
    
    155,695Mandatorily redeemable preferred stock of subsidiary
    
    
    89,800
    
    
    
    89,800
    
    
    
    89,800Employee stock ownership plan note payable
    
    
    725
    
    
    
    1,025
    
    
    
    800Note payable
    
    
    890
    
    
    
    920
    
    
    
    900Purchase accounting premiums, net of amortization
    
    
    2,633
    
    
    
    3,301
    
    
    
    2,7743,211,887
    
    
    
    2,529,422
    
    
    
    2,972,270Total borrowings
    
    $
    4,973,012
    
    
    $
    3,688,840
    
    
    $
    4,599,281Brokered deposits
    
    
    1,352,515
    
    
    
    717,333
    
    
    
    1,216,872Total wholesale borrowings
    
    $
    6,325,527
    
    
    $
    4,406,173
    
    
    $
    5,816,153Wholesale borrowings as a % of total assets
    
    
    43.03
    %
    
    
    40.51
    %
    
    
    42.15
    %
    40




---



##### 



Capital Resources and Dividends
      41




---



##### 



Table 12
 Capital Ratios
 WellMarch 31, 2005
    
    Capitalized(Restated)
    
    RequirementTSFGTotal risk-based capital
    
    
    10.77
    %
    
    
    n/aTier 1 risk-based capital
    
    
    9.17
    
    
    
    n/aLeverage ratio
    
    
    7.16
    
    
    
    n/aCarolina First BankTotal risk-based capital
    
    
    10.77
    %
    
    
    10.00
    %Tier 1 risk-based capital
    
    
    8.46
    
    
    
    6.00Leverage ratio
    
    
    6.19
    
    
    
    5.00Mercantile BankTotal risk-based capital
    
    
    11.50
    %
    
    
    10.00
    %Tier 1 risk-based capital
    
    
    8.29
    
    
    
    6.00Leverage ratio
    
    
    6.96
    
    
    
    5.00
    Earnings Review
 Net Interest Income
  42




---



##### 



Table 13
 Comparative Average Balances  Yields and Costs
 (dollars in thousands)
 Three Months Ended March 31,2005 (Restated)
    
    
    2004 (Restated)Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssetsEarning assetsLoans (1)
    
    $
    8,283,500
    
    
    $
    121,478
    
    
    
    5.95
    %
    
    $
    5,855,050
    
    
    $
    78,017
    
    
    
    5.36
    %Investment securities, taxable (2)
    
    
    4,244,000
    
    
    
    46,148
    
    
    
    4.41
    
    
    
    3,756,359
    
    
    
    37,210
    
    
    
    3.98Investment securities, nontaxable (2) (3)
    
    
    348,887
    
    
    
    3,788
    
    
    
    4.40
    
    
    
    229,992
    
    
    
    2,706
    
    
    
    4.73Federal funds sold and interest-bearing
bank balances
    
    
    30,027
    
    
    
    161
    
    
    
    2.17
    
    
    
    11,075
    
    
    
    28
    
    
    
    1.02Total earning assets
    
    
    12,906,414
    
    
    $
    171,575
    
    
    
    5.39
    
    
    
    9,852,476
    
    
    $
    117,961
    
    
    
    4.82Non-earning assets
    
    
    1,395,616
    
    
    
    
    
    
    
    
    
    
    
    976,258Total assets
    
    $
    14,302,030
    
    
    
    
    
    
    
    
    
    
    $
    10,828,734Liabilities and Shareholders EquityLiabilitiesInterest-bearing liabilitiesInterest-bearing depositsInterest-bearing checking
    
    $
    829,849
    
    
    $
    1,179
    
    
    
    0.58
    
    
    $
    662,099
    
    
    $
    828
    
    
    
    0.50Savings
    
    
    190,899
    
    
    
    147
    
    
    
    0.31
    
    
    
    158,969
    
    
    
    159
    
    
    
    0.40Money market
    
    
    2,716,624
    
    
    
    13,810
    
    
    
    2.06
    
    
    
    2,246,730
    
    
    
    8,302
    
    
    
    1.49Time deposits
    
    
    3,003,175
    
    
    
    24,841
    
    
    
    3.35
    
    
    
    2,027,883
    
    
    
    17,578
    
    
    
    3.49Total interest-bearing deposits
    
    
    6,740,547
    
    
    
    39,977
    
    
    
    2.41
    
    
    
    5,095,681
    
    
    
    26,867
    
    
    
    2.12Borrowings
    
    
    4,805,035
    
    
    
    32,023
    
    
    
    2.70
    
    
    
    3,774,739
    
    
    
    16,395
    
    
    
    1.75Total interest-bearing liabilities
    
    
    11,545,582
    
    
    $
    72,000
    
    
    
    2.53
    
    
    
    8,870,420
    
    
    $
    43,262
    
    
    
    1.96Noninterest-bearing liabilitiesNoninterest-bearing deposits
    
    
    1,227,861
    
    
    
    
    
    
    
    
    
    
    
    844,620Other noninterest-bearing liabilities
    
    
    133,748
    
    
    
    
    
    
    
    
    
    
    
    120,830Total liabilities
    
    
    12,907,191
    
    
    
    
    
    
    
    
    
    
    
    9,835,870Shareholders equity
    
    
    1,394,839
    
    
    
    
    
    
    
    
    
    
    
    992,864Total liabilities and shareholders equity
    
    $
    14,302,030
    
    
    
    
    
    
    
    
    
    
    $
    10,828,734Net interest income (tax equivalent)
    
    
    
    
    
    $
    99,575
    
    
    
    3.13
    %
    
    
    
    
    
    $
    74,699
    
    
    
    3.05
    %Less: tax-equivalent adjustment (3)
    
    
    
    
    
    
    1,326
    
    
    
    
    
    
    
    
    
    
    
    947Net interest income
    
    
    
    
    
    $
    98,249
    
    
    
    
    
    
    
    
    
    
    $
    73,752
 
 (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.  43




---



##### 



Provision for Loan Losses
   44




---



##### 



Noninterest Income
  Table 14
 Components of Noninterest Income
 (dollars in thousands)
 Three Months EndedMarch 31,2005
    
    
    2004(Restated)
    
    
    (Restated)Service charges on deposit accounts
    
    $
    8,577
    
    
    $
    8,113Debit card income
    
    
    1,515
    
    
    
    814Customer service fee income
    
    
    831
    
    
    
    672Total customer fee income
    
    
    10,923
    
    
    
    9,599Brokerage income
    
    
    1,290
    
    
    
    1,196Trust income
    
    
    978
    
    
    
    927Total brokerage and trust income
    
    
    2,268
    
    
    
    2,123Bank-owned life insurance income
    
    
    2,761
    
    
    
    2,290Merchant processing income
    
    
    2,038
    
    
    
    2,013Mortgage banking income
    
    
    1,487
    
    
    
    1,555Insurance income
    
    
    1,286
    
    
    
    1,022Gain on sale of available for sale securities
    
    
    234
    
    
    
    5,214Gain on equity investments
    
    
    1,711
    
    
    
    2,810(Loss) gain on trading and derivative activities
    
    
    (11,568
    )
    
    
    16,709Gain on disposition of assets and liabilities
    
    
    
    
    
    
    2,350Other
    
    
    2,131
    
    
    
    1,681Total noninterest income
    
    $
    13,271
    
    
    $
    47,366
     45




---



##### 



Noninterest Expenses
  46




---



##### 



Table 15
 Components of Noninterest Expenses
 (dollars in thousands)
 Three Months EndedMarch 31,2005
    
    
    2004Salaries and wages
    
    $
    24,577
    
    
    $
    18,859Employee benefits
    
    
    9,024
    
    
    
    6,915Occupancy
    
    
    6,099
    
    
    
    5,072Furniture and equipment
    
    
    5,533
    
    
    
    4,615Professional fees
    
    
    2,527
    
    
    
    1,648Merchant processing expense
    
    
    1,632
    
    
    
    1,559Telecommunications
    
    
    1,326
    
    
    
    1,145Amortization of intangibles
    
    
    1,806
    
    
    
    1,195Merger-related costs
    
    
    305
    
    
    
    177Charitable contribution to foundation
    
    
    683
    
    
    
    Conservation grant of land
    
    
    
    
    
    
    3,350(Gain) loss on early extinguishment of debt
    
    
    (1,428
    )
    
    
    1,429Other
    
    
    14,426
    
    
    
    11,307Total noninterest expenses
    
    $
    66,510
    
    
    $
    57,271
        47




---



##### 



Income Taxes
  Discontinued Operations
  Risk Management
    Market Risk and Asset/Liability Management
 Market Risk Management.
 
    
    assets and liabilities (including derivative positions) may mature or reprice at different times;
    
    assets and liabilities may reprice at the same time but by different amounts;
    
    short-term and long-term interest rates may change by different amounts;
    
    remaining maturities of assets or liabilities may shorten or lengthen as interest rates change;
    
    the fair value of assets and liabilities may adjust by varying amounts; and
    
    changes in interest rates may have an indirect impact on loan and deposit demand, credit
quality, and other sources of earnings.
  48




---



##### 




    
    the timing, magnitude and frequency of interest rate changes;
    
    changes in market conditions;
    
    differences in the yields on earning assets and costs of interest-bearing liabilities; and
    
    actions taken by TSFG to counter such changing market conditions.
 Interest Sensitivity Analysis.
 
    
    a static balance sheet;
    
    as assets and liabilities mature or reprice they are reinvested at current rates and
keep the same characteristics (i.e., remain as they were either variable or fixed rate);
    
    prepayments are based on historical industry data;
    
    deposit retention is based on historical industry data;
    
    whether callable assets and liabilities are called are based on the implied forward yield curve; and
    
    management takes no action to counter any change.
  49




---



##### 



Table 16
 Interest
Rate Risk Analysis  Net Interest Income
 Annualized Hypothetical Percentage Change inInterest Rate Scenario
    
    Net Interest Income when Compared with Base Case2.00% (1)
    
    1.07%1.00 (1)
    
    0.60Flat (Base Case)
    
    (1.00) (1)
    
    (2.86)Forward Yield Curve(2)
    
    (1.32)
 
 (1)
    The increase 100 and 200 basis points and decrease 100 basis points interest rate
scenarios assume a simultaneous and parallel change in interest rates along the entire yield
curve.(2)
    The forward yield curve represents market expectations for interest rates and does
not assume an instantaneous shift in all yield curves.  Table 17
 Interest Rate Shock Analysis  Economic Value of Equity
 Annualized Hypothetical Percentage Change inInterest Rate Scenario
    
    Economic Value of Equity when Compared with Base Case2.00% (1)
    
    (2.60)%1.00 (1)
    
    0.03Flat (Base Case)
    
    (1.00) (1)
    
    (5.05)
 
 (1)
    The increase 100 and 200 basis points and decrease 100 basis points interest rate
scenarios assume a simultaneous and parallel change in interest rates along the entire yield
curve.  
    
    they do not project an increase or decrease in net interest income or the fair value of
net assets, but rather the risk to net interest income and the fair value of net assets
because of changes in interest rates;
    
    the flat scenarios are base case and are not indicative of historical results;
    
    they present the balance sheet in a static position; however, when assets and
liabilities mature or reprice, they do not necessarily keep the same characteristics (i.e.,
variable or fixed interest rate);
    
    the computation of prospective effects of hypothetical interest rate changes are based
on numerous assumptions and should not be relied upon as indicative of actual results; and
    
    the computations do not contemplate any additional actions TSFG could undertake in
response to changes in interest rates.
 Derivatives and Hedging Activities.
  50




---



##### 



Table 18
 Summary of Derivative Assets and Liabilities
 (dollars in thousands)
 March 31, 2005
    
    
    December 31, 2004(Restated)
    
    
    (Restated)Fair Value
    
    
    Notional
    
    
    Fair Value
    
    
    NotionalAsset
    
    
    Liability
    
    
    Amount
    
    
    Asset
    
    
    Liability
    
    
    AmountCash Flow HedgesInterest rate swaps associated with
borrowing activities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Fair Value HedgesInterest rate swaps associated with
borrowing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps associated with
deposit taking activities
    
    
    
    
    
    
    10,899
    
    
    
    105,521
    
    
    
    364
    
    
    
    5,737
    
    
    
    154,721Other DerivativesFuture contracts
    
    
    
    
    
    
    28
    
    
    
    10,000
    
    
    
    6
    
    
    
    
    
    
    
    20,000Options, interest rate swaps and other
    
    
    14,225
    
    
    
    52,552
    
    
    
    1,492,797
    
    
    
    13,071
    
    
    
    32,606
    
    
    
    1,371,974$
    14,225
    
    
    $
    63,479
    
    
    $
    1,608,318
    
    
    $
    13,441
    
    
    $
    38,343
    
    
    $
    1,546,695
  Economic Risk
  51




---



##### 



Credit Risk
  Liquidity Risks
  Operational Risk
    Compliance and Litigation Risks
    52




---



##### 



Off-Balance Sheet Arrangements
   Lending Commitments.
    Derivatives.
 Liquidity
  53




---



##### 



Table 19
 Contractual Obligations
 (dollars in thousands)
 Payments Due by Period(Restated)Remainder
    
    
    2006
    
    
    2008of
    
    
    and
    
    
    and
    
    
    AfterTotal
    
    
    2005
    
    
    2007
    
    
    2009
    
    
    2009Time deposits
    
    $
    3,133,166
    
    
    $
    1,196,689
    
    
    $
    735,366
    
    
    $
    237,641
    
    
    $
    963,470Short-term borrowings
    
    
    1,761,125
    
    
    
    1,761,125
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt
    
    
    3,209,254
    
    
    
    9,250
    
    
    
    247,713
    
    
    
    631,900
    
    
    
    2,320,391Operating leases
    
    
    120,039
    
    
    
    8,296
    
    
    
    21,265
    
    
    
    18,174
    
    
    
    72,304Total contractual obligations
    
    $
    8,223,584
    
    
    $
    2,975,360
    
    
    $
    1,004,344
    
    
    $
    887,715
    
    
    $
    3,356,165
      54




---



##### 



Recently Adopted Accounting Pronouncements
 Accounting for Certain Loans or Debt Securities Acquired in a Transfer
  Recently Issued Accounting Pronouncements
 Share-Based Payment
  
    
    Employee awards with cash-based settlement or repurchase features, such as a stock
appreciation right with a cash-settlement option;
    
    Awards for a fixed dollar amount settleable in the companys stock;
    
    Share-based awards with a net-settlement feature for an amount in excess of the minimum tax withholding; and
    
    Awards that vest or become exercisable based on the achievement of a condition other
than service, performance, or market condition.
  
    
    Share-based awards with net-settlement features for minimum tax withholdings;
    
    Awards that permit a cashless exercise using a broker unrelated to the employer; and
    
    Awards containing a put feature that give employees the right to require the company to
repurchase the shares at fair value, when the employee bears the risks and rewards normally
associated with ownership for six months or longer.
  Accounting for Nonmonetary Transactions
  55




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  56




---



##### 



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Accounting for
Derivative Instruments and Hedging Activities (SFAS 133)
 Changes in Internal Controls over Financial Reporting
   
    
    Enhancing risk management policies and procedures related to reviewing
derivative transactions;
    
    Reviewing policies and procedures related to the initiation and
subsequent review of hedge strategies;
    
    Engaging a third party consultant to provide ongoing expertise related
to hedge documentation at inception and ongoing monitoring and to assist
management in evaluating the appropriateness of the accounting for these
transactions in accordance with Generally Accepted Accounting Principles;
    
    Changing policies and procedures to limit the Companys use of the
short-cut method.
  57




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##### 



Item 1. Legal Proceedings
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity Securities
 Total
    
    
    MaximumNumber of
    
    
    Number ofShares Purchased
    
    
    Shares thatTotal
    
    
    Average
    
    
    as Part
    
    
    May Yet BeNumber
    
    
    Price
    
    
    of Publicly
    
    
    Purchasedof Shares
    
    
    Paid per
    
    
    Announced Plans
    
    
    Under Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    or Programs
    
    
    Programs(2)January 1, 2005 to January 31, 2005
    
    
    1,809
    (1)
    
    $
    29.95
    
    
    
    
    
    
    
    1,289,502February 1, 2005 to February 28, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,289,502March 1, 2005 to March 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,289,502Total
    
    
    1,809
    
    
    $
    29.95
    
    
    
    
    
    
    
    1,289,502
 
 (1)
    These shares were canceled in connection with option exercises. Pursuant to TSFGs
stock option plans, participants may exercise stock options by surrendering shares of TSFG
common stock the participants already own as payment of the option exercise price. Shares
surrendered by participants of the plan are repurchased pursuant to the terms of the
applicable stock option plan and not pursuant to publicly announced share repurchase programs.(2)
    In February of 2003, TSFG announced a stock repurchase program authorizing TSFG to
repurchase up to 1 million shares of its common stock. In April of 2003, TSFG announced a
stock repurchase program authorizing TSFG to repurchase up to 1 million shares of its common
stock. Neither of these stock repurchase programs has an expiration date, and each respective
program will expire upon completion of repurchases totaling the amount authorized to
repurchase. At March 31, 2005, there are 289,502 shares remaining under the February 2003
authorization and 1 million shares under the April 2003 authorization. Item 3. Defaults upon Senior Securities
  Item 4. Submission of Matters to a Vote of Securities Holders
  Item 5. Other Information
  Item 6. Exhibits
 3.1
    
    Articles of Incorporation. Incorporated by reference to Exhibits 3.1 and 3.2 of TSFGs
Quarterly Report on Form 10-Q for the three months ended March 31, 2004, Commission File No.
15083.
 58




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##### 



31.1
    
    Certificate of the Principal Executive Officer pursuant to Rule 13a-14a/15(d)-14(a) of
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of the Principal Financial Officer pursuant to Rule 13a-14a/15(d)-14(a) of
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certificate of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 Note for non-filed versions of this Form 10-Q/A
  59




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##### 



SIGNATURES
  The South Financial Group, Inc.Date: November 21, 2005
    /s/ Timothy K. SchoolsTimothy K. SchoolsExecutive Vice President
 (Principal Accounting and Chief Financial Officer) 60