##### 



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 1934
 for the quarterly period ended
June 30, 2005
 o
    
    Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 for the transition period
from  to
 Commission file number 0-15083
 The South Financial Group, Inc.
  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
    
    Quarter
    
    Cumulativethrough
    
    ending
    
    throughMarch 31,
    
    June 30,
    
    June 30,(In thousands)
    
    2005
    
    2005
    
    2005Increase (decrease) in net income
    
    $
    (18,343
    )
    
    $
    14,339
    
    
    $
    (4,004
    )




---



##### 








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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data) (Unaudited)
 June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)AssetsCash and due from banks
    
    $
    269,996
    
    
    $
    265,401
    
    
    $
    199,847Interest-bearing bank balances
    
    
    21,643
    
    
    
    603
    
    
    
    4,669SecuritiesTrading
    
    
    20
    
    
    
    2,718
    
    
    
    Available for sale
    
    
    4,260,671
    
    
    
    3,981,529
    
    
    
    4,234,843Held to maturity (market value $66,045, $80,450 and $76,552, respectively)
    
    
    65,276
    
    
    
    79,651
    
    
    
    75,245Total securities
    
    
    4,325,967
    
    
    
    4,063,898
    
    
    
    4,310,088LoansLoans held for sale
    
    
    41,427
    
    
    
    22,908
    
    
    
    21,302Loans held for investment
    
    
    8,966,337
    
    
    
    6,246,953
    
    
    
    8,107,757Allowance for loan losses
    
    
    (105,552
    )
    
    
    (75,910
    )
    
    
    (96,918
    )Net loans
    
    
    8,902,212
    
    
    
    6,193,951
    
    
    
    8,032,141Premises and equipment, net
    
    
    183,189
    
    
    
    144,861
    
    
    
    170,648Accrued interest receivable
    
    
    69,714
    
    
    
    51,307
    
    
    
    65,174Goodwill
    
    
    647,183
    
    
    
    318,810
    
    
    
    571,853Other intangible assets
    
    
    46,358
    
    
    
    25,385
    
    
    
    39,597Other assets
    
    
    420,944
    
    
    
    427,356
    
    
    
    404,188$
    14,887,206
    
    
    $
    11,491,572
    
    
    $
    13,798,205Liabilities and Shareholders EquityLiabilitiesDepositsNoninterest-bearing
    
    $
    1,466,803
    
    
    $
    971,540
    
    
    $
    1,237,877Interest-bearing
    
    
    7,406,999
    
    
    
    5,485,418
    
    
    
    6,433,067Total deposits
    
    
    8,873,802
    
    
    
    6,456,958
    
    
    
    7,670,944Federal funds purchased and repurchase agreements
    
    
    1,328,931
    
    
    
    1,001,192
    
    
    
    1,583,495Other short-term borrowings
    
    
    113,798
    
    
    
    354,692
    
    
    
    43,516Long-term debt
    
    
    2,901,532
    
    
    
    2,582,795
    
    
    
    2,972,270Accrued interest payable
    
    
    39,922
    
    
    
    23,342
    
    
    
    31,943Other liabilities
    
    
    112,149
    
    
    
    94,938
    
    
    
    102,577Total liabilities
    
    
    13,370,134
    
    
    
    10,513,917
    
    
    
    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 74,348,330, 59,796,124, and 71,252,346 shares, respectively
    
    
    74,348
    
    
    
    59,796
    
    
    
    71,252Surplus
    
    
    1,143,654
    
    
    
    724,374
    
    
    
    1,056,185Retained earnings
    
    
    329,743
    
    
    
    245,721
    
    
    
    288,002Guarantee of employee stock ownership plan debt and nonvested restricted stock
    
    
    (3,611
    )
    
    
    (4,388
    )
    
    
    (3,483
    )Common stock held in trust for deferred compensation
    
    
    (1,388
    )
    
    
    (710
    )
    
    
    (901
    )Deferred compensation payable in common stock
    
    
    1,388
    
    
    
    710
    
    
    
    901Accumulated other comprehensive loss, net of tax
    
    
    (27,062
    )
    
    
    (47,848
    )
    
    
    (18,496
    )Total shareholders equity
    
    
    1,517,072
    
    
    
    977,655
    
    
    
    1,393,460$
    14,887,206
    
    
    $
    11,491,572
    
    
    $
    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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Interest IncomeInterest and fees on loans
    
    $
    134,842
    
    
    $
    80,348
    
    
    $
    256,320
    
    
    $
    158,365Interest and dividends on securities:Taxable
    
    
    47,304
    
    
    
    35,684
    
    
    
    93,452
    
    
    
    72,894Exempt from federal income taxes
    
    
    2,595
    
    
    
    1,906
    
    
    
    5,057
    
    
    
    3,665Total interest and dividends on securities
    
    
    49,899
    
    
    
    37,590
    
    
    
    98,509
    
    
    
    76,559Interest on short-term investments
    
    
    160
    
    
    
    23
    
    
    
    321
    
    
    
    51Total interest income
    
    
    184,901
    
    
    
    117,961
    
    
    
    355,150
    
    
    
    234,975Interest ExpenseInterest on deposits
    
    
    45,573
    
    
    
    26,698
    
    
    
    85,550
    
    
    
    53,565Interest on short-term borrowings
    
    
    11,983
    
    
    
    3,273
    
    
    
    22,094
    
    
    
    5,382Interest on long-term debt
    
    
    25,060
    
    
    
    15,109
    
    
    
    46,972
    
    
    
    29,395Total interest expense
    
    
    82,616
    
    
    
    45,080
    
    
    
    154,616
    
    
    
    88,342Net Interest Income
    
    
    102,285
    
    
    
    72,881
    
    
    
    200,534
    
    
    
    146,633Provision for Loan Losses
    
    
    9,944
    
    
    
    6,996
    
    
    
    20,906
    
    
    
    14,718Net interest income after provision for loan losses
    
    
    92,341
    
    
    
    65,885
    
    
    
    179,628
    
    
    
    131,915Noninterest Income
    
    
    50,471
    
    
    
    10,163
    
    
    
    63,742
    
    
    
    57,529Noninterest Expenses
    
    
    79,535
    
    
    
    54,466
    
    
    
    146,045
    
    
    
    111,737Income before income taxes and discontinued
operations
    
    
    63,277
    
    
    
    21,582
    
    
    
    97,325
    
    
    
    77,707Income taxes
    
    
    20,565
    
    
    
    7,175
    
    
    
    31,801
    
    
    
    24,164Income from continuing operations
    
    
    42,712
    
    
    
    14,407
    
    
    
    65,524
    
    
    
    53,543Discontinued operations, net of income tax
    
    
    
    
    
    
    
    
    
    
    (396
    )
    
    
    Net Income
    
    $
    42,712
    
    
    $
    14,407
    
    
    $
    65,128
    
    
    $
    53,543Average Common Shares Outstanding, Basic
    
    
    73,083
    
    
    
    59,494
    
    
    
    72,234
    
    
    
    59,354Average Common Shares Outstanding, Diluted
    
    
    74,421
    
    
    
    60,838
    
    
    
    73,730
    
    
    
    60,824Per Common Share, BasicIncome from continuing operations
    
    $
    0.58
    
    
    $
    0.24
    
    
    $
    0.91
    
    
    $
    0.90Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.58
    
    
    $
    0.24
    
    
    $
    0.90
    
    
    $
    0.90Per Common Share, DilutedIncome from continuing operations
    
    $
    0.57
    
    
    $
    0.24
    
    
    $
    0.89
    
    
    $
    0.88Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.57
    
    
    $
    0.24
    
    
    $
    0.88
    
    
    $
    0.88Dividends per common share
    
    $
    0.16
    
    
    $
    0.15
    
    
    $
    0.32
    
    
    $
    0.30
  2




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##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes
In Shareholders Equity and Comprehensive Income (Loss)
(in thousands, except share and per share data) (Unaudited)
 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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,543
    
    
    
    
    
    
    
    53,543Other comprehensive loss, net of
income tax of $23,649 (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,702
    )
    
    
    (40,702
    )Comprehensive income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,841Cash dividends declared
($0.30 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,909
    )
    
    
    
    
    
    
    (17,909
    )Common stock activity:Acquisitions
    
    
    21,108
    
    
    
    21
    
    
    
    528
    
    
    
    241
    
    
    
    
    
    
    
    790Exercise of stock options, including
income tax benefit of $2,667
    
    
    440,596
    
    
    
    441
    
    
    
    6,479
    
    
    
    
    
    
    
    
    
    
    
    6,920Restricted stock plan
    
    
    202,289
    
    
    
    202
    
    
    
    2,818
    
    
    
    (2,259
    )
    
    
    
    
    
    
    761Dividend reinvestment plan
    
    
    58,687
    
    
    
    59
    
    
    
    1,575
    
    
    
    
    
    
    
    
    
    
    
    1,634Employee stock purchase plan
    
    
    4,371
    
    
    
    4
    
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    121Director compensation
    
    
    4,710
    
    
    
    5
    
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    136Common stock purchased by trust for
deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (559
    )
    
    
    
    
    
    
    (559
    )Deferred compensation payable in common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    559
    
    
    
    
    
    
    
    559Miscellaneous
    
    
    (12
    )
    
    
    
    
    
    
    (62
    )
    
    
    124
    
    
    
    
    
    
    
    62Balance, June 30, 2004 (restated)
    
    
    59,796,124
    
    
    $
    59,796
    
    
    $
    724,374
    
    
    $
    241,333
    
    
    $
    (47,848
    )
    
    $
    977,655Balance, 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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,128
    
    
    
    
    
    
    
    65,128Other comprehensive loss, net of
income tax of $4,876 (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,566
    )
    
    
    (8,566
    )Comprehensive income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,562Cash dividends declared ($0.32 per common
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,387
    )
    
    
    
    
    
    
    (23,387
    )Common stock activity:Acquisitions
    
    
    2,339,878
    
    
    
    2,340
    
    
    
    75,011
    
    
    
    241
    
    
    
    
    
    
    
    77,592Exercise of stock options, including
income tax benefit of $2,871
    
    
    598,133
    
    
    
    598
    
    
    
    9,161
    
    
    
    
    
    
    
    
    
    
    
    9,759Restricted stock plan
    
    
    76,661
    
    
    
    77
    
    
    
    1,070
    
    
    
    (489
    )
    
    
    
    
    
    
    658Dividend reinvestment plan
    
    
    65,665
    
    
    
    65
    
    
    
    1,707
    
    
    
    
    
    
    
    
    
    
    
    1,772Employee stock purchase plan
    
    
    8,809
    
    
    
    9
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    236Director compensation
    
    
    6,838
    
    
    
    7
    
    
    
    205
    
    
    
    
    
    
    
    
    
    
    
    212Common stock purchased by trust for
deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )
    
    
    
    
    
    
    (487
    )Deferred compensation payable in common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    487
    
    
    
    
    
    
    
    487Miscellaneous
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    120
    
    
    
    
    
    
    
    208Balance, June 30, 2005 (restated)
    
    
    74,348,330
    
    
    $
    74,348
    
    
    $
    1,143,654
    
    
    $
    326,132
    
    
    $
    (27,062
    )
    
    $
    1,517,072
 
 *
    
    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)
 Six Months Ended June 30,2005
    
    
    2004(Restated)
    
    
    (Restated)Cash Flows from Operating ActivitiesNet income
    
    $
    65,128
    
    
    $
    53,543Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation, amortization, and accretion, net
    
    
    22,724
    
    
    
    25,429Provision for loan losses
    
    
    20,906
    
    
    
    14,718Loss (gain) on sale of available for sale securities
    
    
    1,269
    
    
    
    (5,821
    )Gain on equity investments
    
    
    (2,361
    )
    
    
    (3,823
    )(Gain) loss on trading and derivative activities
    
    
    (4,940
    )
    
    
    11,008Gain on disposition of assets and liabilities
    
    
    
    
    
    
    (2,350
    )Gain on sale of loans
    
    
    (2,785
    )
    
    
    (2,665
    )(Gain) loss on disposition of premises and equipment
    
    
    (17
    )
    
    
    63(Gain) loss on disposition of other real estate owned
    
    
    (554
    )
    
    
    522Contribution to foundation
    
    
    683
    
    
    
    Conservation grant of land
    
    
    
    
    
    
    3,350Impairment loss (recovery) from write-down of assets
    
    
    917
    
    
    
    (277
    )Impairment recovery from write-down of mortgage servicing rights
    
    
    
    
    
    
    (121
    )Loss on early extinguishment of debt
    
    
    1,553
    
    
    
    1,429Trading account assets, net
    
    
    (7
    )
    
    
    (2,187
    )Origination of loans held for sale
    
    
    (244,026
    )
    
    
    (235,731
    )Sale of loans held for sale and principal repayments
    
    
    225,393
    
    
    
    245,107Other assets, net
    
    
    (17,331
    )
    
    
    (43,095
    )Other liabilities, net
    
    
    15,465
    
    
    
    11,415Net cash provided by operating activities
    
    
    82,017
    
    
    
    70,514Cash Flows from Investing ActivitiesSale of securities available for sale
    
    
    1,429,243
    
    
    
    721,727Maturity, redemption, call, or principal repayments of securities available for sale
    
    
    634,292
    
    
    
    737,430Maturity, redemption, call, or principal repayments of securities held to maturity
    
    
    9,855
    
    
    
    10,839Purchase of securities available for sale
    
    
    (2,101,949
    )
    
    
    (1,679,784
    )Origination of loans held for investment, net of principal repayments
    
    
    (571,584
    )
    
    
    (577,175
    )Sale of other real estate owned
    
    
    4,013
    
    
    
    5,903Sale of premises and equipment
    
    
    1,203
    
    
    
    1,193Sale of long-lived assets held for sale
    
    
    
    
    
    
    908Purchase of premises and equipment
    
    
    (21,876
    )
    
    
    (12,462
    )Disposition of assets and liabilities, net
    
    
    
    
    
    
    (991
    )Cash equivalents acquired, net of payment for purchase acquisitions
    
    
    76,012
    
    
    
    (360
    )Net cash used for investing activities
    
    
    (540,791
    )
    
    
    (792,772
    )
  4




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##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows  Continued
(in thousands) (Unaudited)
 Six Months Ended June 30,2005
    
    
    2004(Restated)
    
    
    (Restated)Cash Flows from Financing ActivitiesDeposits, net
    
    
    882,537
    
    
    
    482,053Federal funds purchased and repurchase agreements, net
    
    
    (300,893
    )
    
    
    166,385Other short-term borrowings, net
    
    
    69,826
    
    
    
    298,160Issuance of long-term debt
    
    
    1,638,743
    
    
    
    271,134Payment of long-term debt
    
    
    (1,729,166
    )
    
    
    (402,665
    )Prepayment penalty on early extinguishment of debt
    
    
    (1,553
    )
    
    
    (1,429
    )Cash dividends paid on common stock
    
    
    (22,913
    )
    
    
    (17,824
    )Other common stock activity
    
    
    9,316
    
    
    
    6,206Net cash provided by financing activities
    
    
    545,897
    
    
    
    802,020Net change in cash and cash equivalents
    
    
    87,123
    
    
    
    79,762Cash and cash equivalents at beginning of year
    
    
    204,516
    
    
    
    186,242Cash and cash equivalents at end of period
    
    $
    291,639
    
    
    $
    266,004Supplemental Cash Flow DataInterest paid
    
    $
    138,330
    
    
    $
    74,447Income taxes paid
    
    
    23,875
    
    
    
    27,880Significant non-cash investing and financing transactions:Change in unrealized loss on available for sale securities
    
    
    (13,390
    )
    
    
    (64,351
    )Loans transferred to other real estate owned
    
    
    5,240
    
    
    
    4,459Security sales, redemptions and calls settled subsequent to period-end
    
    
    
    
    
    
    90,643Security purchases settled subsequent to period-end
    
    
    
    
    
    
    (10,000
    )Business combinations:Fair value of assets acquired (includes cash and cash equivalents)
    
    
    506,558
    
    
    
    270Fair value of common stock issued and stock options recognized
    
    
    (77,291
    )
    
    
    (245
    )Cash paid
    
    
    (31,035
    )
    
    
    Liabilities assumed
    
    
    398,232
    
    
    
    25
  5




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Note 1  General
  Nature of Operations
  Accounting Estimates and Assumptions
  Principles of Consolidation
   6




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Reclassifications
  Restatement
       7




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
     Impact to Consolidated Balance Sheets(In thousands) (Unaudited)June 30, 2005
    
    June 30, 2004
    
    December 31, 2004As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedOther assets
    
    $
    412,819
    
    
    $
    420,944
    
    
    $
    411,053
    
    
    $
    427,356
    
    
    $
    395,797
    
    
    $
    404,188Total assets
    
    
    14,879,081
    
    
    
    14,887,206
    
    
    
    11,475,269
    
    
    
    11,491,572
    
    
    
    13,789,814
    
    
    
    13,798,205Interest-bearing deposits
    
    
    7,403,743
    
    
    
    7,406,999
    
    
    
    5,465,370
    
    
    
    5,485,418
    
    
    
    6,427,660
    
    
    
    6,433,067Total deposits
    
    
    8,870,546
    
    
    
    8,873,802
    
    
    
    6,436,910
    
    
    
    6,456,958
    
    
    
    7,665,537
    
    
    
    7,670,944Long-term debt
    
    
    2,891,308
    
    
    
    2,901,532
    
    
    
    2,569,597
    
    
    
    2,582,795
    
    
    
    2,962,143
    
    
    
    2,972,270Total liabilities
    
    
    13,356,654
    
    
    
    13,370,134
    
    
    
    10,480,671
    
    
    
    10,513,917
    
    
    
    12,389,211
    
    
    
    12,404,745Retained earnings
    
    
    333,747
    
    
    
    329,743
    
    
    
    261,049
    
    
    
    245,721
    
    
    
    294,202
    
    
    
    288,002Accumulated other
comprehensive loss,
net of tax
    
    
    (25,711
    )
    
    
    (27,062
    )
    
    
    (46,233
    )
    
    
    (47,848
    )
    
    
    (17,553
    )
    
    
    (18,496
    )Total shareholders equity
    
    
    1,522,427
    
    
    
    1,517,072
    
    
    
    994,598
    
    
    
    977,655
    
    
    
    1,400,603
    
    
    
    1,393,460
 8




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Impact to Consolidated Statements of Income(In thousands, except share data) (Unaudited)Three Months Ended
    
    Six Months EndedJune 30, 2005
    
    June 30, 2004
    
    June 30, 2005
    
    June 30, 2004As
    
    
    
    
    
    As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedInterest expense on deposits
    
    $
    40,953
    
    
    $
    45,573
    
    
    $
    20,003
    
    
    $
    26,698
    
    
    $
    75,335
    
    
    $
    85,550
    
    
    $
    39,453
    
    
    $
    53,565Interest expense on long-term
debt
    
    
    25,112
    
    
    
    25,060
    
    
    
    14,296
    
    
    
    15,109
    
    
    
    46,967
    
    
    
    46,972
    
    
    
    27,735
    
    
    
    29,395Total interest expense
    
    
    78,048
    
    
    
    82,616
    
    
    
    37,572
    
    
    
    45,080
    
    
    
    144,396
    
    
    
    154,616
    
    
    
    72,570
    
    
    
    88,342Net interest income
    
    
    106,853
    
    
    
    102,285
    
    
    
    80,389
    
    
    
    72,881
    
    
    
    210,754
    
    
    
    200,534
    
    
    
    162,405
    
    
    
    146,633Net interest income after
provision for loan losses
    
    
    96,909
    
    
    
    92,341
    
    
    
    73,393
    
    
    
    65,885
    
    
    
    189,848
    
    
    
    179,628
    
    
    
    147,687
    
    
    
    131,915Noninterest income
    
    
    24,660
    
    
    
    50,471
    
    
    
    25,995
    
    
    
    10,163
    
    
    
    50,403
    
    
    
    63,742
    
    
    
    55,283
    
    
    
    57,529Income before income taxes
and discontinued operations
    
    
    42,034
    
    
    
    63,277
    
    
    
    44,922
    
    
    
    21,582
    
    
    
    94,206
    
    
    
    97,325
    
    
    
    91,233
    
    
    
    77,707Income taxes
    
    
    13,661
    
    
    
    20,565
    
    
    
    14,935
    
    
    
    7,175
    
    
    
    30,878
    
    
    
    31,801
    
    
    
    28,953
    
    
    
    24,164Income from continuing
operations
    
    
    28,373
    
    
    
    42,712
    
    
    
    29,987
    
    
    
    14,407
    
    
    
    63,328
    
    
    
    65,524
    
    
    
    62,280
    
    
    
    53,543Net income
    
    
    28,373
    
    
    
    42,712
    
    
    
    29,987
    
    
    
    14,407
    
    
    
    62,932
    
    
    
    65,128
    
    
    
    62,280
    
    
    
    53,543Per common share, basic:Income from continuing
operations
    
    $
    0.39
    
    
    $
    0.58
    
    
    $
    0.50
    
    
    $
    0.24
    
    
    $
    0.88
    
    
    $
    0.91
    
    
    $
    1.05
    
    
    $
    0.90Net income
    
    
    0.39
    
    
    
    0.58
    
    
    
    0.50
    
    
    
    0.24
    
    
    
    0.87
    
    
    
    0.90
    
    
    
    1.05
    
    
    
    0.90Per common share, diluted:Income from continuing
operations
    
    $
    0.38
    
    
    $
    0.57
    
    
    $
    0.49
    
    
    $
    0.24
    
    
    $
    0.86
    
    
    $
    0.89
    
    
    $
    1.02
    
    
    $
    0.88Net income
    
    
    0.38
    
    
    
    0.57
    
    
    
    0.49
    
    
    
    0.24
    
    
    
    0.85
    
    
    
    0.88
    
    
    
    1.02
    
    
    
    0.88
 Impact to Consolidated Statements of ChangesIn Shareholders Equity and Comprehensive Income (Loss)(In thousands) (Unaudited)June 30, 2005
    
    June 30, 2004As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedTotal shareholders equity, January 1
    
    $
    1,400,603
    
    
    $
    1,393,460
    
    
    $
    979,869
    
    
    $
    972,299Net income
    
    
    62,932
    
    
    
    65,128
    
    
    
    62,280
    
    
    
    53,543Other comprehensive loss, net of tax
    
    
    (8,158
    )
    
    
    (8,566
    )
    
    
    (40,066
    )
    
    
    (40,702
    )Total shareholders equity, June 30
    
    
    1,522,427
    
    
    
    1,517,072
    
    
    
    994,598
    
    
    
    977,655
 9




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Impact to Consolidated Statements of Cash Flows(In thousands) (Unaudited)Six Months EndedJune 30, 2005
    
    June 30, 2004As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedCash Flows from Operating Activities:Net income
    
    $
    62,932
    
    
    $
    65,128
    
    
    $
    62,280
    
    
    $
    53,543Loss (gain) on trading and derivatives
    
    
    128
    
    
    
    (4,940
    )
    
    
    (983
    )
    
    
    11,008Change in other assets, net
    
    
    (20,203
    )
    
    
    (17,331
    )
    
    
    (39,841
    )
    
    
    (43,095
    )Cash flows from operating activities
    
    
    82,017
    
    
    
    82,017
    
    
    
    70,514
    
    
    
    70,514
 Stock-Based Compensation
   10




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(dollars in thousands, except per share data)Net IncomeNet income, as reported
    
    $
    42,712
    
    
    $
    14,407
    
    
    $
    65,128
    
    
    $
    53,543Deduct:Total stock-based employee compensation expense
determined under fair value based method for
all option awards, net of income tax
    
    
    626
    
    
    
    798
    
    
    
    1,281
    
    
    
    1,388Pro forma net income
    
    $
    42,086
    
    
    $
    13,609
    
    
    $
    63,847
    
    
    $
    52,155Basic Earnings Per ShareAs reported
    
    $
    0.58
    
    
    $
    0.24
    
    
    $
    0.90
    
    
    $
    0.90Pro forma
    
    
    0.58
    
    
    
    0.23
    
    
    
    0.88
    
    
    
    0.88Diluted Earnings Per ShareAs reported
    
    $
    0.57
    
    
    $
    0.24
    
    
    $
    0.88
    
    
    $
    0.88Pro forma
    
    
    0.57
    
    
    
    0.22
    
    
    
    0.87
    
    
    
    0.86
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Expected life (in years)
    
    
    7.25
    
    
    
    7.39
    
    
    
    7.19
    
    
    
    7.40Expected volatility
    
    
    34.50
    %
    
    
    33.99
    %
    
    
    34.54
    %
    
    
    34.44
    %Risk-free interest rate
    
    
    4.10
    
    
    
    4.08
    
    
    
    4.10
    
    
    
    3.77Expected dividend yield
    
    
    2.40
    
    
    
    2.10
    
    
    
    2.30
    
    
    
    2.10Weighted-average fair value of options granted
during the period
    
    $
    9.09
    
    
    $
    9.83
    
    
    $
    9.34
    
    
    $
    9.84
 Recently Adopted Accounting Pronouncements
 Accounting for Certain Loans or Debt Securities Acquired in a Transfer
  11




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 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
  Accounting Changes and Error Corrections
  12




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
   13




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Note 2
 Supplemental Financial Information to Consolidated Statements of Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Noninterest IncomeService charges on deposit accounts
    
    $
    9,979
    
    
    $
    8,718
    
    
    $
    18,556
    
    
    $
    16,831Debit card income
    
    
    1,652
    
    
    
    975
    
    
    
    3,167
    
    
    
    1,789Customer service fee income
    
    
    1,120
    
    
    
    800
    
    
    
    1,951
    
    
    
    1,472Total customer fee income
    
    
    12,751
    
    
    
    10,493
    
    
    
    23,674
    
    
    
    20,092Brokerage income
    
    
    1,317
    
    
    
    1,312
    
    
    
    2,607
    
    
    
    2,508Trust income
    
    
    1,078
    
    
    
    1,030
    
    
    
    2,056
    
    
    
    1,957Total brokerage and trust income
    
    
    2,395
    
    
    
    2,342
    
    
    
    4,663
    
    
    
    4,465Bank-owned life insurance income
    
    
    2,759
    
    
    
    3,458
    
    
    
    5,520
    
    
    
    5,748Merchant processing income
    
    
    2,713
    
    
    
    2,431
    
    
    
    4,751
    
    
    
    4,444Mortgage banking income
    
    
    2,140
    
    
    
    1,625
    
    
    
    3,627
    
    
    
    3,180Insurance income
    
    
    1,449
    
    
    
    1,015
    
    
    
    2,735
    
    
    
    2,037Benefits administration fees
    
    
    650
    
    
    
    461
    
    
    
    1,237
    
    
    
    1,088(Loss) gain on sale of available for sale securities
    
    
    (1,503
    )
    
    
    607
    
    
    
    (1,269
    )
    
    
    5,821Gain on equity investments
    
    
    650
    
    
    
    1,013
    
    
    
    2,361
    
    
    
    3,823(Loss) gain on trading and derivative activities
    
    
    24,779
    
    
    
    (13,480
    )
    
    
    13,211
    
    
    
    3,229Gain on disposition of assets and liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,350Other
    
    
    1,688
    
    
    
    198
    
    
    
    3,232
    
    
    
    1,252Total noninterest income
    
    $
    50,471
    
    
    $
    10,163
    
    
    $
    63,742
    
    
    $
    57,529Noninterest ExpensesSalaries and wages
    
    $
    27,480
    
    
    $
    19,917
    
    
    $
    52,057
    
    
    $
    38,776Employee benefits
    
    
    8,423
    
    
    
    7,034
    
    
    
    17,447
    
    
    
    13,949Occupancy
    
    
    6,823
    
    
    
    5,185
    
    
    
    12,922
    
    
    
    10,257Furniture and equipment
    
    
    6,023
    
    
    
    4,890
    
    
    
    11,556
    
    
    
    9,505Professional services
    
    
    5,135
    
    
    
    3,400
    
    
    
    9,571
    
    
    
    6,482Merchant processing expense
    
    
    2,211
    
    
    
    1,910
    
    
    
    3,843
    
    
    
    3,469Telecommunications
    
    
    1,384
    
    
    
    1,106
    
    
    
    2,710
    
    
    
    2,251Amortization of intangibles
    
    
    2,140
    
    
    
    1,195
    
    
    
    3,946
    
    
    
    2,390Merger-related costs
    
    
    2,194
    
    
    
    575
    
    
    
    2,499
    
    
    
    752Contribution to foundation
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    Impairment loss (recovery) from write-down of assets
    
    
    917
    
    
    
    (277
    )
    
    
    917
    
    
    
    (277
    )Conservation grant of land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,350Loss on early extinguishment of debt
    
    
    2,981
    
    
    
    
    
    
    
    1,553
    
    
    
    1,429Other
    
    
    13,824
    
    
    
    9,531
    
    
    
    26,341
    
    
    
    19,404Total noninterest expenses
    
    $
    79,535
    
    
    $
    54,466
    
    
    $
    146,045
    
    
    $
    111,737
 14




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Note 3  Accumulated Other Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Unrealized (Losses) Gains on Available for Sale SecuritiesBalance at beginning of period
    
    $
    (66,830
    )
    
    $
    10,568
    
    
    $
    (18,496
    )
    
    $
    (7,146
    )Other comprehensive income (loss):Unrealized holding gains (losses) arising during the period
    
    
    62,374
    
    
    
    (91,299
    )
    
    
    (12,298
    )
    
    
    (54,707
    )Income tax (expense) benefit
    
    
    (23,107
    )
    
    
    33,750
    
    
    
    4,491
    
    
    
    20,263Less: Reclassification adjustment for losses (gains)
included in net income
    
    
    853
    
    
    
    (1,620
    )
    
    
    (1,092
    )
    
    
    (9,644
    )Income tax (benefit) expense
    
    
    (319
    )
    
    
    753
    
    
    
    366
    
    
    
    3,38639,801
    
    
    
    (58,416
    )
    
    
    (8,533
    )
    
    
    (40,702
    )Balance at end of period
    
    
    (27,029
    )
    
    
    (47,848
    )
    
    
    (27,029
    )
    
    
    (47,848
    )Unrealized Gains (Losses) on Cash Flow HedgesBalance at beginning of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income (loss):Unrealized (loss) gain on change in fair values
    
    
    (52
    )
    
    
    
    
    
    
    (52
    )
    
    
    Income tax benefit (expense)
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    (33
    )
    
    
    
    
    
    
    (33
    )
    
    
    Balance at end of period
    
    
    (33
    )
    
    
    
    
    
    
    (33
    )
    
    
    $
    (27,062
    )
    
    $
    (47,848
    )
    
    $
    (27,062
    )
    
    $
    (47,848
    )Total other comprehensive income (loss)
    
    $
    39,768
    
    
    $
    (58,416
    )
    
    $
    (8,566
    )
    
    $
    (40,702
    )Net income
    
    
    42,712
    
    
    
    14,407
    
    
    
    65,128
    
    
    
    53,543Comprehensive income (loss)
    
    $
    82,480
    
    
    $
    (44,009
    )
    
    $
    56,562
    
    
    $
    12,841
 Note 4  Business Combinations
 Pointe Financial Corporation
    15




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
  May 6, 2005Purchase price
    
    $
    97,926Fair value of net assets acquired, net of direct acquisition costs and deferred income taxes
    
    
    25,725Excess of purchase price over fair value of net assets acquired
    
    
    72,201Core deposit intangible
    
    
    6,689Goodwill
    
    $
    65,512
   Koss Olinger
  Bowditch Insurance Corporation
   16




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Note 5  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
    
    $
    141,470
    
    
    $
    2,600
    
    
    $
    32,008
    
    
    $
    166
    
    
    $
    173,478
    
    
    $
    2,766U.S. Government agencies
    
    
    107,783
    
    
    
    236
    
    
    
    223,010
    
    
    
    2,727
    
    
    
    330,793
    
    
    
    2,963Mortgage-backed securities
    
    
    1,443,847
    
    
    
    19,646
    
    
    
    986,477
    
    
    
    21,159
    
    
    
    2,430,324
    
    
    
    40,805State and municipals
    
    
    116,936
    
    
    
    805
    
    
    
    107,211
    
    
    
    1,796
    
    
    
    224,147
    
    
    
    2,601Corporate bonds
    
    
    37,055
    
    
    
    383
    
    
    
    26,125
    
    
    
    392
    
    
    
    63,180
    
    
    
    775Federal Home Loan Mortgage
Corporation preferred stock
    
    
    11,365
    
    
    
    625
    
    
    
    
    
    
    
    
    
    
    
    11,365
    
    
    
    625Equity investments
    
    
    1,004
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    1,004
    
    
    
    55$
    1,859,460
    
    
    $
    24,350
    
    
    $
    1,374,831
    
    
    $
    26,240
    
    
    $
    3,234,291
    
    
    $
    50,590Securities Held to MaturityState and municipals
    
    $
    
    
    
    $
    
    
    
    $
    22,976
    
    
    $
    259
    
    
    $
    22,976
    
    
    $
    259
     17




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Note 6  Goodwill
  Carolina
    
    
    MercantileFirst Bank
    
    
    Bank
    
    
    Other
    
    
    TotalBalance, December 31, 2004
    
    $
    206,401
    
    
    $
    362,215
    
    
    $
    3,237
    
    
    $
    571,853Purchase accounting adjustments
    
    
    321
    
    
    
    75,009
    
    
    
    
    
    
    
    75,330Balance, June 30, 2005
    
    $
    206,722
    
    
    $
    437,224
    
    
    $
    3,237
    
    
    $
    647,183
 Note 7  Other Intangible Assets
  June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Core deposit intangible
    
    $
    58,895
    
    
    $
    37,782
    
    
    $
    52,206Less accumulated amortization
    
    
    (21,584
    )
    
    
    (15,508
    )
    
    
    (18,463
    )37,311
    
    
    
    22,274
    
    
    
    33,743Non-compete agreement intangible
    
    
    5,672
    
    
    
    2,231
    
    
    
    5,672Less accumulated amortization
    
    
    (1,756
    )
    
    
    (480
    )
    
    
    (1,099
    )3,916
    
    
    
    1,751
    
    
    
    4,573Customer list intangible
    
    
    5,613
    
    
    
    1,595
    
    
    
    1,595Less accumulated amortization
    
    
    (482
    )
    
    
    (235
    )
    
    
    (314
    )5,131
    
    
    
    1,360
    
    
    
    1,281$
    46,358
    
    
    $
    25,385
    
    
    $
    39,597
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Core deposit intangible
    
    $
    1,684
    
    
    $
    1,062
    
    
    $
    3,121
    
    
    $
    2,125Non-compete agreement intangible
    
    
    328
    
    
    
    93
    
    
    
    657
    
    
    
    186Customer list intangible
    
    
    128
    
    
    
    40
    
    
    
    168
    
    
    
    79Total amortization expense of intangible assets
    
    $
    2,140
    
    
    $
    1,195
    
    
    $
    3,946
    
    
    $
    2,390
 18




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
  Non-Core
    
    
    Compete
    
    
    CustomerDeposit
    
    
    Agreement
    
    
    ListIntangible
    
    
    Intangible
    
    
    Intangible
    
    
    Total2005
    
    $
    6,681
    
    
    $
    1,315
    
    
    $
    552
    
    
    $
    8,5482006
    
    
    6,361
    
    
    
    1,314
    
    
    
    722
    
    
    
    8,3972007
    
    
    5,663
    
    
    
    1,206
    
    
    
    660
    
    
    
    7,5292008
    
    
    4,684
    
    
    
    527
    
    
    
    583
    
    
    
    5,7942009
    
    
    3,830
    
    
    
    209
    
    
    
    519
    
    
    
    4,558Aggregate total for all years thereafter
    
    
    13,213
    
    
    
    2
    
    
    
    2,263
    
    
    
    15,478$
    40,432
    
    
    $
    4,573
    
    
    $
    5,299
    
    
    $
    50,304
 Note 8
 Commitments and Contingent Liabilities
 Legal Proceedings
  Recourse Reserve
  19




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Note 9
 Share Information
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)2005
    
    
    2004
    
    
    2005
    
    
    2004NumeratorsIncome from continuing operations
    
    $
    42,712
    
    
    $
    14,407
    
    
    $
    65,524
    
    
    $
    53,543Discontinued operations, net of income tax
    
    
    
    
    
    
    
    
    
    
    (396
    )
    
    
    Net income
    
    $
    42,712
    
    
    $
    14,407
    
    
    $
    65,128
    
    
    $
    53,543BasicAverage common shares outstanding (denominator)
    
    
    73,083,009
    
    
    
    59,494,363
    
    
    
    72,234,263
    
    
    
    59,354,354Earnings per share:Income from continuing operations
    
    $
    0.58
    
    
    $
    0.24
    
    
    $
    0.91
    
    
    $
    0.90Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.58
    
    
    $
    0.24
    
    
    $
    0.90
    
    
    $
    0.90DilutedAverage common shares outstanding
    
    
    73,083,009
    
    
    
    59,494,363
    
    
    
    72,234,263
    
    
    
    59,354,354Average dilutive potential common shares
    
    
    1,338,094
    
    
    
    1,343,429
    
    
    
    1,495,367
    
    
    
    1,469,277Average diluted shares outstanding (denominator)
    
    
    74,421,103
    
    
    
    60,837,792
    
    
    
    73,729,630
    
    
    
    60,823,631Earnings per share:Income from continuing operations
    
    $
    0.57
    
    
    $
    0.24
    
    
    $
    0.89
    
    
    $
    0.88Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.57
    
    
    $
    0.24
    
    
    $
    0.88
    
    
    $
    0.88
  Number
    
    
    Range ofof Shares
    
    
    Exercise PricesFor the Three Months EndedJune 30, 2005
    
    
    1,209,506
    
    
    $
    27.50 to $31.96June 30, 2004
    
    
    209,624
    
    
    $
    28.03 to $31.26For the Six Months EndedJune 30, 2005
    
    
    525,979
    
    
    $
    29.93 to $31.96June 30, 2004
    
    
    112,893
    
    
    $
    28.80 to $31.26
 Note
10  Disposition of Assets and Liabilities
  20




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
  Note
11  Merger-related and Direct Acquisition Costs
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Merger-Related CostsCompensation-related expenses
    
    $
    397
    
    
    $
    450
    
    
    $
    604
    
    
    $
    485System conversion costs
    
    
    607
    
    
    
    7
    
    
    
    622
    
    
    
    23Travel
    
    
    434
    
    
    
    (1
    )
    
    
    436
    
    
    
    5Other
    
    
    756
    
    
    
    119
    
    
    
    837
    
    
    
    239$
    2,194
    
    
    $
    575
    
    
    $
    2,499
    
    
    $
    752Direct Acquisition CostsInvestment banking and professional fees
    
    $
    2,412
    
    
    $
    73
    
    
    $
    2,436
    
    
    $
    150Contract and lease terminations
    
    
    654
    
    
    
    232
    
    
    
    1,012
    
    
    
    318Severance
    
    
    201
    
    
    
    (10
    )
    
    
    283
    
    
    
    (36
    )$
    3,267
    
    
    $
    295
    
    
    $
    3,731
    
    
    $
    432
  Note
12  Early Extinguishment of Debt
  Note
13  Discontinued Operations
  21




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 Note
14  Business Segments
    (Restated)Carolina
    
    
    Mercantile
    
    
    
    
    
    
    EliminatingFirst Bank
    
    
    Bank
    
    
    Other
    
    
    Entries
    
    
    TotalThree Months Ended June 30, 2005Net interest income
    
    $
    63,157
    
    
    $
    41,670
    
    
    $
    (2,542
    )
    
    $
    
    
    
    $
    102,285Provision for loan losses
    
    
    8,162
    
    
    
    1,785
    
    
    
    (3
    )
    
    
    
    
    
    
    9,944Noninterest income
    
    
    34,363
    
    
    
    14,964
    
    
    
    21,725
    
    
    
    (20,581
    )
    
    
    50,471Noninterest expenses
    
    
    45,614
    
    
    
    29,447
    
    
    
    25,055
    
    
    
    (20,581
    )
    
    
    79,535Merger-related costs (a)
    
    
    
    
    
    
    2,194
    
    
    
    
    
    
    
    
    
    
    
    2,194Amortization of intangibles (a)
    
    
    810
    
    
    
    1,293
    
    
    
    37
    
    
    
    
    
    
    
    2,140Income tax expense
    
    
    14,354
    
    
    
    8,356
    
    
    
    (2,145
    )
    
    
    
    
    
    
    20,565Net income
    
    
    29,390
    
    
    
    17,046
    
    
    
    (3,724
    )
    
    
    
    
    
    
    42,712Six Months Ended June 30, 2005Net interest income
    
    $
    126,522
    
    
    $
    78,884
    
    
    $
    (4,872
    )
    
    $
    
    
    
    $
    200,534Provision for loan losses
    
    
    17,410
    
    
    
    3,507
    
    
    
    (11
    )
    
    
    
    
    
    
    20,906Noninterest income
    
    
    40,544
    
    
    
    18,482
    
    
    
    48,048
    
    
    
    (43,332
    )
    
    
    63,742Noninterest expenses
    
    
    87,520
    
    
    
    54,065
    
    
    
    47,792
    
    
    
    (43,332
    )
    
    
    146,045Merger-related costs (a)
    
    
    
    
    
    
    2,499
    
    
    
    
    
    
    
    
    
    
    
    2,499Amortization of intangibles (a)
    
    
    1,621
    
    
    
    2,252
    
    
    
    73
    
    
    
    
    
    
    
    3,946Income tax expense
    
    
    20,277
    
    
    
    13,105
    
    
    
    (1,581
    )
    
    
    
    
    
    
    31,801Discontinued operations, net of income tax
    
    
    
    
    
    
    (396
    )
    
    
    
    
    
    
    
    
    
    
    (396
    )Net income
    
    
    41,859
    
    
    
    26,293
    
    
    
    (3,024
    )
    
    
    
    
    
    
    65,128June 30, 2005Total assets
    
    $
    9,619,461
    
    
    $
    5,699,914
    
    
    $
    1,732,569
    
    
    $
    (2,164,738
    )
    
    $
    14,887,206Total loans
    
    
    5,437,538
    
    
    
    3,660,220
    
    
    
    96
    
    
    
    (90,090
    )
    
    
    9,007,764Total deposits
    
    
    5,368,619
    
    
    
    3,571,437
    
    
    
    
    
    
    
    (66,254
    )
    
    
    8,873,802
 
 (a)
    
    - Included in noninterest expenses. 22




---



##### 



THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
 (Restated)Carolina
    
    
    Mercantile
    
    
    
    
    
    
    EliminatingFirst Bank
    
    
    Bank
    
    
    Other
    
    
    Entries
    
    
    TotalThree Months Ended June 30, 2004Net interest income
    
    $
    56,806
    
    
    $
    17,307
    
    
    $
    (1,232
    )
    
    $
    
    
    
    $
    72,881Provision for loan losses
    
    
    5,116
    
    
    
    1,866
    
    
    
    14
    
    
    
    
    
    
    
    6,996Noninterest income
    
    
    3,983
    
    
    
    1,988
    
    
    
    20,725
    
    
    
    (16,533
    )
    
    
    10,163Noninterest expenses
    
    
    39,171
    
    
    
    11,899
    
    
    
    19,929
    
    
    
    (16,533
    )
    
    
    54,466Merger-related costs (a)
    
    
    575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    575Amortization of intangibles (a)
    
    
    803
    
    
    
    320
    
    
    
    72
    
    
    
    
    
    
    
    1,195Income tax expense
    
    
    5,488
    
    
    
    1,836
    
    
    
    (149
    )
    
    
    
    
    
    
    7,175Net income
    
    
    11,014
    
    
    
    3,694
    
    
    
    (301
    )
    
    
    
    
    
    
    14,407Six Months Ended June 30, 2004Net interest income
    
    $
    115,189
    
    
    $
    33,737
    
    
    $
    (2,293
    )
    
    $
    
    
    
    $
    146,633Provision for loan losses
    
    
    11,243
    
    
    
    3,445
    
    
    
    30
    
    
    
    
    
    
    
    14,718Noninterest income
    
    
    41,547
    
    
    
    9,846
    
    
    
    38,851
    
    
    
    (32,715
    )
    
    
    57,529Noninterest expenses
    
    
    80,809
    
    
    
    24,326
    
    
    
    39,317
    
    
    
    (32,715
    )
    
    
    111,737Merger-related costs (a)
    
    
    765
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    752Amortization of intangibles (a)
    
    
    1,606
    
    
    
    641
    
    
    
    143
    
    
    
    
    
    
    
    2,390Income tax expense
    
    
    20,049
    
    
    
    4,927
    
    
    
    (812
    )
    
    
    
    
    
    
    24,164Net income
    
    
    44,635
    
    
    
    10,885
    
    
    
    (1,977
    )
    
    
    
    
    
    
    53,543June 30, 2004Total assets
    
    $
    8,963,019
    
    
    $
    2,824,299
    
    
    $
    1,214,211
    
    
    $
    (1,509,957
    )
    
    $
    11,491,572Total loans
    
    
    4,723,504
    
    
    
    1,581,314
    
    
    
    1,068
    
    
    
    (36,025
    )
    
    
    6,269,861Total deposits
    
    
    4,857,821
    
    
    
    1,654,950
    
    
    
    
    
    
    
    (55,813
    )
    
    
    6,456,958
 
 (a)
    
    Included in noninterest expenses. Note
15  Management Opinion
  23




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
        24




---



##### 



Website Availability of Reports Filed with the Securities and Exchange Commission
  25




---



##### 



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;
    
    continued availability of 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, 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
  26




---



##### 



Overview
  
    
    Carolina First Bank, the largest South Carolina-headquartered commercial bank, which
operates in South Carolina and North Carolina, and on the Internet under the brand name,
Bank CaroLine; and
    
    Mercantile Bank, which operates in Florida.
        27




---



##### 



Critical Accounting Policies and Estimates
  28




---



##### 



Allowance for Loan Losses
    Fair Value of Certain Financial Instruments
     29




---



##### 



Income Taxes
   Accounting for Acquisitions and Goodwill Impairment
 th
    30




---



##### 



Acquisitions
  Table 1
Summary of Completed Acquisitions
(dollars in thousands)
 Purchase
    
    
    IdentifiableAcquisition
    
    
    Total
    
    
    Shares
    
    
    Price Paid
    
    
    IntangibleDate
    
    
    Assets
    
    
    Issued
    
    
    in Cash
    
    
    Assets
    
    
    GoodwillBank AcquisitionsPointeBoca Raton, Florida
    
    
    5/6/05
    
    
    $
    432,550

(1)
    
    
    2,193,941
    
    
    $
    24,495
    
    
    $
    6,689
(2)
    
    $
    65,512
(2)CNB FloridaLake City, Florida
    
    
    7/16/04
    
    
    
    839,148
(1)
    
    
    5,312,974
    
    
    
    
    
    
    
    11,312
(2)
    
    
    115,255
(2)Florida BanksJacksonville, Florida
    
    
    7/16/04
    
    
    
    1,023,290
(1)
    
    
    5,418,890
    
    
    
    
    
    
    
    5,982
(2)
    
    
    141,476
(2)Insurance Agency/Other AcquisitionsKoss OlingerGainesville, Florida
    
    
    4/4/05
    
    
    
    287
(1)
    
    
    56,398
(3)
    
    
    4,500
    
    
    
    1,742
(2)
    
    
    4,644
(2)Bowditch Insurance CorporationJacksonville, Florida
    
    
    6/6/05
    
    
    
    713
(1)
    
    
    87,339
(4)
    
    
    2,040
    
    
    
    2,276
(2)
    
    
    3,131
(2)Summit Title, LLCHendersonville, North Carolina
    
    
    4/12/04
    
    
    
    86
(1)
    
    
    10,571
(5)
    
    
    
    
    
    
    55
(2)
    
    
    211
(2)
 
 (1)
    
    Book value at the acquisition date.(2)
    
    Carrying amount (identifiable intangible assets are not reported net of accumulated
amortization) at June 30, 2005.(3)
    
    In addition, TSFG agreed to issue earnout shares on May 17, 2010 based on earnings
achievement. The base earnout shares would have a total value of $3 million for achievement
of the minimum performance target, with potential additional earnout shares based on
achievement of higher performance levels.(4)
    
    In addition, TSFG agreed to issue annual earnout shares for each of May 31, 2006,
2007, 2008, and 2009, based on earnings achievement. The shares would have a maximum total
value of approximately $1.9 million.(5)
    
    In addition, TSFG agreed to issue annual earnout shares, valued at the time of
issuance at $66,906, for each of April 12, 2006, 2007, and 2008, based on revenue retention
and earnings achievement.  31




---



##### 



Table 2
Summary of Bank Acquisitions  Geographic Markets
 NumberAcquisition
    
    ofDate
    
    Branches
    
    Geographic MarketsPointe
    
    5/6/05
    
    
    10
    
    
    Broward County (Ft. Lauderdale), Miami-Dade County,
Palm Beach CountyCNB Florida
    
    7/16/04
    
    
    16
    
    
    Duval County (Jacksonville), Baker County (Mcclenny, Glenn St. Mary),
Bradford County (Starke), Columbia County (Ft. White), Union
County (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
 Balance Sheet Review
 Loans
    32




---



##### 



Table 3
Loan Portfolio Composition
(dollars in thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Commercial, financial and agricultural
    
    $
    1,841,939
    
    
    $
    1,179,215
    
    
    $
    1,584,198Real estate  construction (1)
    
    
    1,218,158
    
    
    
    747,563
    
    
    
    1,007,061Real estate  residential mortgages (1-4 family)
    
    
    1,407,088
    
    
    
    1,002,307
    
    
    
    1,278,310Commercial secured by real estate (1)
    
    
    3,353,658
    
    
    
    2,548,263
    
    
    
    3,109,242Consumer
    
    
    1,145,494
    
    
    
    769,605
    
    
    
    1,128,946Loans held for investment
    
    
    8,966,337
    
    
    
    6,246,953
    
    
    
    8,107,757Loans held for sale
    
    
    41,427
    
    
    
    22,908
    
    
    
    21,302Total loans
    
    
    9,007,764
    
    
    
    6,269,861
    
    
    
    8,129,059Allowance for loan losses
    
    
    (105,552
    )
    
    
    (75,910
    )
    
    
    (96,918
    )Total net loans
    
    $
    8,902,212
    
    
    $
    6,193,951
    
    
    $
    8,032,141Percentage of Loans Held for InvestmentCommercial, financial and agricultural
    
    
    20.5
    %
    
    
    18.9
    %
    
    
    19.5
    %Real estate  construction (1)
    
    
    13.6
    
    
    
    12.0
    
    
    
    12.4Real estate  residential mortgages (1-4 family)
    
    
    15.7
    
    
    
    16.0
    
    
    
    15.8Commercial secured by real estate (1)
    
    
    37.4
    
    
    
    40.8
    
    
    
    38.4Consumer
    
    
    12.8
    
    
    
    12.3
    
    
    
    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. 33




---



##### 



Table 4
Loan Portfolio Composition Based on Loan Purpose
(dollars in thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Commercial LoansCommercial and industrial
    
    $
    2,308,526
    
    
    $
    1,594,181
    
    
    $
    2,077,646Owner-occupied real estate (1)
    
    
    806,692
    
    
    
    674,308
    
    
    
    825,582Commercial real estate
    
    
    3,669,440
    
    
    
    2,400,767
    
    
    
    3,246,7296,784,658
    
    
    
    4,669,256
    
    
    
    6,149,957Consumer LoansIndirect-sales finance
    
    
    856,564
    
    
    
    711,004
    
    
    
    790,372Direct retail
    
    
    530,238
    
    
    
    297,548
    
    
    
    466,484Home equity
    
    
    570,362
    
    
    
    426,133
    
    
    
    535,9881,957,164
    
    
    
    1,434,685
    
    
    
    1,792,844Mortgage Loans
    
    
    224,515
    
    
    
    143,012
    
    
    
    164,956Total loans held for investment
    
    $
    8,966,337
    
    
    $
    6,246,953
    
    
    $
    8,107,757Percentage of Loans Held for InvestmentCommercial and industrial
    
    
    25.8
    %
    
    
    25.5
    %
    
    
    25.6
    %Owner-occupied real estate (1)
    
    
    9.0
    
    
    
    10.8
    
    
    
    10.3Commercial real estate
    
    
    40.9
    
    
    
    38.4
    
    
    
    40.0Consumer
    
    
    21.8
    
    
    
    23.0
    
    
    
    22.1Mortgage
    
    
    2.5
    
    
    
    2.3
    
    
    
    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
 34




---



##### 



Direct retail consumer loans
 Home equity loans
 Mortgage loans
   35




---



##### 



Table 5
Commercial Real Estate Loans
(dollars in thousands)
 June 30, 2005
    
    
    December 31, 2004% of
    
    
    
    
    
    
    % ofBalance
    
    
    Total
    
    
    Balance
    
    
    TotalCommercial Real Estate Loans
by Geographic DiversificationWestern North Carolina (Hendersonville/Asheville)
    
    $
    648,146
    
    
    
    17.7
    %
    
    $
    545,533
    
    
    
    16.8
    %Tampa Bay Florida
    
    
    390,468
    
    
    
    10.6
    
    
    
    330,130
    
    
    
    10.2Upstate South Carolina (Greenville)
    
    
    384,070
    
    
    
    10.5
    
    
    
    358,693
    
    
    
    11.0North Coastal South Carolina (Myrtle Beach)
    
    
    374,032
    
    
    
    10.2
    
    
    
    376,494
    
    
    
    11.6Midlands South Carolina (Columbia)
    
    
    304,664
    
    
    
    8.3
    
    
    
    291,139
    
    
    
    9.0Northeast Florida (Jacksonville)
    
    
    275,825
    
    
    
    7.5
    
    
    
    244,989
    
    
    
    7.5South Coastal South Carolina (Charleston)
    
    
    272,020
    
    
    
    7.4
    
    
    
    264,178
    
    
    
    8.1Central Florida (Orlando)
    
    
    271,149
    
    
    
    7.4
    
    
    
    245,398
    
    
    
    7.6South Florida (Ft. Lauderdale)
    
    
    213,069
    
    
    
    5.8
    
    
    
    102,969
    
    
    
    3.2Alachua Florida (Gainesville)
    
    
    162,665
    
    
    
    4.4
    
    
    
    151,233
    
    
    
    4.7Greater South Charlotte South Carolina (Rock Hill)
    
    
    131,465
    
    
    
    3.6
    
    
    
    110,965
    
    
    
    3.4North Central Florida
    
    
    123,711
    
    
    
    3.4
    
    
    
    105,409
    
    
    
    3.2Marion, Florida
    
    
    118,156
    
    
    
    3.2
    
    
    
    91,349
    
    
    
    2.8Other (1)
    
    
    
    
    
    
    
    
    
    
    28,250
    
    
    
    0.9Total commercial real estate loans
    
    $
    3,669,440
    
    
    
    100.0
    %
    
    $
    3,246,729
    
    
    
    100.0
    %Commercial Real Estate Loans by Product TypeCommercial construction/development
    
    $
    1,210,857
    
    
    
    33.0
    %
    
    $
    965,838
    
    
    
    29.7
    %Mixed use
    
    
    389,456
    
    
    
    10.6
    
    
    
    313,612
    
    
    
    9.71-4 family residential investment property
    
    
    318,757
    
    
    
    8.7
    
    
    
    328,558
    
    
    
    10.1Retail
    
    
    277,362
    
    
    
    7.6
    
    
    
    266,584
    
    
    
    8.2Undeveloped land
    
    
    262,278
    
    
    
    7.1
    
    
    
    301,165
    
    
    
    9.3Hotel/motel
    
    
    235,071
    
    
    
    6.4
    
    
    
    242,525
    
    
    
    7.5Residential construction
    
    
    219,345
    
    
    
    6.0
    
    
    
    152,988
    
    
    
    4.7Multi-family residential
    
    
    201,736
    
    
    
    5.5
    
    
    
    171,929
    
    
    
    5.3Other (1)
    
    
    554,578
    
    
    
    15.1
    
    
    
    503,530
    
    
    
    15.5Total commercial real estate loans
    
    $
    3,669,440
    
    
    
    100.0
    %
    
    $
    3,246,729
    
    
    
    100.0
    %
 
 (1)
    
    Other includes all loans in categories smaller than the lowest percentages shown
above.Note:
    
    At June 30, 2005 and December 31, 2004, the average loan size for commercial real estate
loans totaled $401,000 and $370,000, respectively.   36




---



##### 



Credit Quality
  Table 6
Credit Quality Indicators
(dollars in thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Loans held for investment
    
    $
    8,966,337
    
    
    $
    6,246,953
    
    
    $
    8,107,757Allowance for loan losses
    
    
    105,552
    
    
    
    75,910
    
    
    
    96,918Nonaccrual loans  commercial (1)
    
    
    34,616
    
    
    
    46,436
    
    
    
    38,015Nonaccrual loans  consumer
    
    
    3,323
    
    
    
    2,133
    
    
    
    2,312Nonaccrual loans  mortgage (2)
    
    
    4,518
    
    
    
    
    
    
    
    4,755Restructured loans still accruing interest
    
    
    
    
    
    
    
    
    
    
    Total nonperforming loans
    
    
    42,457
    
    
    
    48,569
    
    
    
    45,082Foreclosed property (other real estate owned and personal
property repossessions) (3)
    
    
    12,618
    
    
    
    8,985
    
    
    
    10,894Total nonperforming assets
    
    $
    55,075
    
    
    $
    57,554
    
    
    $
    55,976Loans past due 90 days or more (mortgage and consumer
with interest accruing) (2)
    
    $
    2,035
    
    
    $
    3,930
    
    
    $
    3,764Total nonperforming assets as a percentage of loans held for
investment and foreclosed property
    
    
    0.61
    %
    
    
    0.92
    %
    
    
    0.69
    %Allowance for loan losses to nonperforming loans
    
    
    2.49
    x
    
    
    1.56
    x
    
    
    2.15
    x
 
 (1)
    
    At June 30, 2005 and December 31, 2004, nonaccrual loans  commercial included $5.5
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 June 30, 2004, personal property repossessions
totaled $720,000.   37




---



##### 



Table 7
Impaired Loans
(dollars in thousands)
 At and For the
    
    
    At and For theSix Months
    
    
    Year EndedEnded June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Impaired loans
    
    $
    28,266
    
    
    $
    46,436
    
    
    $
    28,836Average investment in impaired loans
    
    
    27,791
    
    
    
    49,758
    
    
    
    47,791Related allowance
    
    
    4,956
    
    
    
    10,806
    
    
    
    11,129Foregone interest
    
    
    905
    
    
    
    1,523
    
    
    
    1,935
 Allowance for Loan Losses
      38




---



##### 



Table 8
Summary of Loan Loss Experience
(dollars in thousands)
 At and For
    
    
    At and ForThe Six Months
    
    
    The Year EndedEnded June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Allowance for loan losses, beginning of year
    
    $
    96,918
    
    
    $
    73,287
    
    
    $
    73,287Purchase accounting adjustments
    
    
    3,741
    
    
    
    
    
    
    
    20,682Allowance adjustment for loans sold
    
    
    
    
    
    
    (507
    )
    
    
    (506
    )Net charge-offs:Loans charged-off
    
    
    (19,791
    )
    
    
    (13,417
    )
    
    
    (37,003
    )Loans recovered
    
    
    3,778
    
    
    
    1,829
    
    
    
    5,471(16,013
    )
    
    
    (11,588
    )
    
    
    (31,532
    )Additions to allowance through provision expense
    
    
    20,906
    
    
    
    14,718
    
    
    
    34,987Allowance for loan losses, end of period
    
    $
    105,552
    
    
    $
    75,910
    
    
    $
    96,918Average loans held for investment
    
    $
    8,472,434
    
    
    $
    5,978,791
    
    
    $
    6,909,545Loans held for investment, end of period
    
    
    8,966,337
    
    
    
    6,246,953
    
    
    
    8,107,757Net charge-offs as a percentage of average loans held for
investment (annualized)
    
    
    0.38
    %
    
    
    0.39
    %
    
    
    0.46
    %Allowance for loan losses as a percentage of loans held
for investment
    
    
    1.18
    
    
    
    1.22
    
    
    
    1.20Allowance for loan losses to nonperforming loans
    
    
    2.49
    x
    
    
    1.56
    x
    
    
    2.15
    x
 39




---



##### 



Securities
  Table 9
Investment Securities Portfolio Composition
(dollars in thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Trading(at fair value)U.S. Treasury
    
    $
    20
    
    
    $
    
    
    
    $
    U.S. Government agencies
    
    
    
    
    
    
    2,633
    
    
    
    State and municipal
    
    
    
    
    
    
    85
    
    
    
    20
    
    
    
    2,718
    
    
    
    Available for Sale(at fair value)U.S. Treasury
    
    
    183,938
    
    
    
    239,337
    
    
    
    234,538U.S. Government agencies
    
    
    856,308
    
    
    
    1,133,753
    
    
    
    930,046Mortgage-backed securities
    
    
    2,696,421
    
    
    
    2,122,466
    
    
    
    2,502,440State and municipal
    
    
    318,018
    
    
    
    199,182
    
    
    
    272,535Other investments:Corporate bonds
    
    
    110,541
    
    
    
    139,815
    
    
    
    141,970Federal Home Loan Bank (FHLB) stock
    
    
    68,799
    
    
    
    53,384
    
    
    
    72,733Federal National Mortgage Association preferred stock
    
    
    
    
    
    
    51,652
    
    
    
    50,062Federal Home Loan Mortgage Corporation preferred stock
    
    
    11,365
    
    
    
    11,763
    
    
    
    11,990Community bank stocks
    
    
    10,626
    
    
    
    26,252
    
    
    
    14,899Other equity investments
    
    
    4,655
    
    
    
    3,925
    
    
    
    3,6304,260,671
    
    
    
    3,981,529
    
    
    
    4,234,843Held to Maturity(at amortized cost)State and municipal
    
    
    65,176
    
    
    
    79,551
    
    
    
    75,145Other investments
    
    
    100
    
    
    
    100
    
    
    
    10065,276
    
    
    
    79,651
    
    
    
    75,245Total
    
    $
    4,325,967
    
    
    $
    4,063,898
    
    
    $
    4,310,088Total securities as a percentage of total assets
    
    
    29.1
    %
    
    
    35.4
    %
    
    
    31.2
    %Percentage of Total Securities PortfolioU.S. Treasury
    
    
    4.2
    %
    
    
    5.9
    %
    
    
    5.4
    %U.S. Government agencies
    
    
    19.8
    
    
    
    28.0
    
    
    
    21.6Mortgage-backed securities
    
    
    62.3
    
    
    
    52.2
    
    
    
    58.0State and municipal
    
    
    8.9
    
    
    
    6.9
    
    
    
    8.1Other investments
    
    
    4.8
    
    
    
    7.0
    
    
    
    6.9Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  40




---



##### 



Community Bank Stocks.
 Intangible Assets
  41




---



##### 



Deposits
   Table 10Type of Deposits(dollars in thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)Noninterest-bearing demand deposits
    
    $
    1,466,803
    
    
    $
    971,540
    
    
    $
    1,237,877Interest-bearing checking
    
    
    971,750
    
    
    
    655,259
    
    
    
    816,933Money market accounts
    
    
    2,754,418
    
    
    
    2,379,441
    
    
    
    2,704,287Savings accounts
    
    
    200,903
    
    
    
    151,137
    
    
    
    192,769Total transaction accounts
    
    
    5,393,874
    
    
    
    4,157,377
    
    
    
    4,951,866Time deposits under $100,000
    
    
    1,097,281
    
    
    
    770,381
    
    
    
    856,386Time deposits of $100,000 or more
    
    
    1,027,466
    
    
    
    642,342
    
    
    
    645,820Customer deposits (1)
    
    
    7,518,621
    
    
    
    5,570,100
    
    
    
    6,454,072Brokered deposits
    
    
    1,355,181
    
    
    
    886,858
    
    
    
    1,216,872Total deposits
    
    $
    8,873,802
    
    
    $
    6,456,958
    
    
    $
    7,670,944Percentage of DepositsNoninterest-bearing demand deposits
    
    
    16.5
    %
    
    
    15.0
    %
    
    
    16.1
    %Interest-bearing checking
    
    
    11.0
    
    
    
    10.2
    
    
    
    10.6Money market accounts
    
    
    30.9
    
    
    
    36.9
    
    
    
    35.3Savings accounts
    
    
    2.3
    
    
    
    2.3
    
    
    
    2.5Total transaction accounts
    
    
    60.7
    
    
    
    64.4
    
    
    
    64.5Time deposits under $100,000
    
    
    12.4
    
    
    
    11.9
    
    
    
    11.2Time deposits of $100,000 or more
    
    
    11.6
    
    
    
    10.0
    
    
    
    8.4Customer deposits(1)
    
    
    84.7
    
    
    
    86.3
    
    
    
    84.1Brokered deposits
    
    
    15.3
    
    
    
    13.7
    
    
    
    15.9Total deposits
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    TSFG defines customer deposits as total deposits less brokered deposits.   42




---



##### 



Elevate
  Borrowed Funds
  43




---



##### 



Table 11
Type of Borrowings
(dollars in thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)Short-Term BorrowingsFederal funds purchased and repurchase agreements
    
    $
    1,328,931
    
    
    $
    1,001,192
    
    
    $
    1,583,495Federal Home Loan Bank (FHLB) advances
    
    
    
    
    
    
    205,000
    
    
    
    Commercial paper
    
    
    28,734
    
    
    
    39,315
    
    
    
    29,405Treasury, tax and loan note
    
    
    85,064
    
    
    
    110,377
    
    
    
    14,111Lines of credit with unaffiliated banks and other
    
    
    
    
    
    
    
    
    
    
    1,442,729
    
    
    
    1,355,884
    
    
    
    1,627,011Long-Term BorrowingsRepurchase agreements
    
    
    1,769,893
    
    
    
    1,578,434
    
    
    
    1,665,134FHLB advances
    
    
    882,153
    
    
    
    774,500
    
    
    
    1,057,167Subordinated notes
    
    
    155,695
    
    
    
    135,075
    
    
    
    155,695Mandatorily redeemable preferred stock of subsidiary
    
    
    89,800
    
    
    
    89,800
    
    
    
    89,800Note payable
    
    
    882
    
    
    
    914
    
    
    
    900Employee stock ownership plan note payable
    
    
    650
    
    
    
    950
    
    
    
    800Purchase accounting premiums, net of amortization
    
    
    2,459
    
    
    
    3,122
    
    
    
    2,7742,901,532
    
    
    
    2,582,795
    
    
    
    2,972,270Total borrowings
    
    
    4,344,261
    
    
    
    3,938,679
    
    
    
    4,599,281Brokered deposits
    
    
    1,355,181
    
    
    
    886,858
    
    
    
    1,216,872Total wholesale borrowings
    
    $
    5,699,442
    
    
    $
    4,825,537
    
    
    $
    5,816,153Total wholesale borrowings as a percentage of total assets
    
    
    38.3
    %
    
    
    42.0
    %
    
    
    42.2
    %
     44




---



##### 



Capital Resources and Dividends
     45




---



##### 



Table 12
Capital Ratios
 WellJune 30, 2005
    
    
    Capitalized(Restated)
    
    
    RequirementTSFGTotal risk-based capital
    
    
    10.68
    %
    
    
    n/aTier 1 risk-based capital
    
    
    9.07
    
    
    
    n/aLeverage ratio
    
    
    7.12
    
    
    
    n/aCarolina First BankTotal risk-based capital
    
    
    10.57
    %
    
    
    10.00
    %Tier 1 risk-based capital
    
    
    8.28
    
    
    
    6.00Leverage ratio
    
    
    6.11
    
    
    
    5.00Mercantile BankTotal risk-based capital
    
    
    11.00
    %
    
    
    10.00
    %Tier 1 risk-based capital
    
    
    7.92
    
    
    
    6.00Leverage ratio
    
    
    6.67
    
    
    
    5.00
    Earnings Review
 Net Interest Income
  46




---



##### 



Table 13
Comparative Average Balances  Yields and Costs
(dollars in thousands)
 Three Months Ended June 30,2005 (Restated)
    
    
    2004 (Restated)Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssetsEarning
assets
Loans (1)
    
    $
    8,706,276
    
    
    $
    134,842
    
    
    
    6.21
    %
    
    $
    6,144,778
    
    
    $
    80,348
    
    
    
    5.26
    %Investment securities, taxable (2)
    
    
    4,366,761
    
    
    
    47,304
    
    
    
    4.35
    
    
    
    3,716,376
    
    
    
    35,684
    
    
    
    3.86Investment securities, nontaxable (2)
(3)
    
    
    364,360
    
    
    
    3,992
    
    
    
    4.39
    
    
    
    270,858
    
    
    
    2,932
    
    
    
    4.35Federal funds sold and interest-bearing
bank balances
    
    
    22,698
    
    
    
    160
    
    
    
    2.83
    
    
    
    13,147
    
    
    
    23
    
    
    
    0.70Total earning assets
    
    
    13,460,095
    
    
    $
    186,298
    
    
    
    5.55
    
    
    
    10,145,159
    
    
    $
    118,987
    
    
    
    4.72Non-earning assets
    
    
    1,441,975
    
    
    
    
    
    
    
    
    
    
    
    955,623Total assets
    
    $
    14,902,070
    
    
    
    
    
    
    
    
    
    
    $
    11,100,782Liabilities and Shareholders EquityLiabilitiesInterest-bearing liabilitiesInterest-bearing depositsInterest-bearing checking
    
    $
    928,672
    
    
    $
    1,725
    
    
    
    0.75
    
    
    $
    678,212
    
    
    $
    853
    
    
    
    0.51Savings
    
    
    195,851
    
    
    
    152
    
    
    
    0.31
    
    
    
    160,827
    
    
    
    162
    
    
    
    0.41Money market
    
    
    2,704,178
    
    
    
    15,185
    
    
    
    2.25
    
    
    
    2,318,243
    
    
    
    8,616
    
    
    
    1.49Time deposits, excluding brokered deposits
    
    
    1,917,124
    
    
    
    13,041
    
    
    
    2.73
    
    
    
    1,309,384
    
    
    
    7,998
    
    
    
    2.46Total interest-bearing customer deposits
(4)
    
    
    5,745,825
    
    
    
    30,103
    
    
    
    2.10
    
    
    
    4,466,666
    
    
    
    17,629
    
    
    
    1.59Brokered deposits
    
    
    1,365,262
    
    
    
    15,470
    
    
    
    4.54
    
    
    
    788,073
    
    
    
    9,069
    
    
    
    4.63Total interest-bearing deposits
    
    
    7,111,087
    
    
    
    45,573
    
    
    
    2.57
    
    
    
    5,254,739
    
    
    
    26,698
    
    
    
    2.04Borrowings
    
    
    4,832,258
    
    
    
    37,043
    
    
    
    3.07
    
    
    
    3,826,962
    
    
    
    18,382
    
    
    
    1.93Total interest-bearing liabilities
    
    
    11,943,345
    
    
    $
    82,616
    
    
    
    2.77
    
    
    
    9,081,701
    
    
    $
    45,080
    
    
    
    2.00Noninterest-bearing liabilitiesNoninterest-bearing deposits
    
    
    1,349,746
    
    
    
    
    
    
    
    
    
    
    
    924,412Other noninterest-bearing liabilities
    
    
    158,305
    
    
    
    
    
    
    
    
    
    
    
    100,984Total liabilities
    
    
    13,451,396
    
    
    
    
    
    
    
    
    
    
    
    10,107,097Shareholders equity
    
    
    1,450,674
    
    
    
    
    
    
    
    
    
    
    
    993,685Total liabilities and shareholders equity
    
    $
    14,902,070
    
    
    
    
    
    
    
    
    
    
    $
    11,100,782Net interest margin (tax equivalent)
    
    
    
    
    
    $
    103,682
    
    
    
    3.09
    %
    
    
    
    
    
    $
    73,907
    
    
    
    2.93
    %Less: tax-equivalent adjustment (3)
    
    
    
    
    
    
    1,397
    
    
    
    
    
    
    
    
    
    
    
    1,026Net interest income
    
    
    
    
    
    $
    102,285
    
    
    
    
    
    
    
    
    
    
    $
    72,881Total cost of customer deposits
(5)
    
    
    7,095,571
    
    
    
    30,103
    
    
    
    1.70
    
    
    
    5,391,078
    
    
    
    17,629
    
    
    
    1.32Total cost of wholesale borrowings
(6)
    
    
    6,197,520
    
    
    
    52,513
    
    
    
    3.40
    
    
    
    4,615,035
    
    
    
    27,451
    
    
    
    2.39
 
 (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)
    
    TSFG defines interest-bearing customer deposits as total interest-bearing deposits less brokered deposits.(5)
    
    Customer deposits include total deposits less brokered deposits.(6)
    
    Wholesale borrowings include borrowings and brokered deposits.Note:
    
    Average balances are derived from daily balances. 47




---



##### 



Table 13 (Continued)
Comparative Average Balances  Yields and Costs
(dollars in thousands)
 Six Months Ended June 30,2005 (Restated)
    
    
    2004 (Restated)Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssetsEarning assetsLoans (1)
    
    $
    8,496,056
    
    
    $
    256,320
    
    
    
    6.08
    %
    
    $
    5,999,914
    
    
    $
    158,365
    
    
    
    5.31
    %Investment securities, taxable (2)
    
    
    4,305,720
    
    
    
    93,452
    
    
    
    4.38
    
    
    
    3,736,368
    
    
    
    72,894
    
    
    
    3.92Investment securities, nontaxable (2) (3)
    
    
    356,666
    
    
    
    7,780
    
    
    
    4.40
    
    
    
    250,425
    
    
    
    5,638
    
    
    
    4.53Federal funds sold and interest-bearing
bank balances
    
    
    26,342
    
    
    
    321
    
    
    
    2.46
    
    
    
    12,111
    
    
    
    51
    
    
    
    0.85Total earning assets
    
    
    13,184,784
    
    
    $
    357,873
    
    
    
    5.47
    
    
    
    9,998,818
    
    
    $
    236,948
    
    
    
    4.77Non-earning assets
    
    
    1,418,924
    
    
    
    
    
    
    
    
    
    
    
    965,942Total assets
    
    $
    14,603,708
    
    
    
    
    
    
    
    
    
    
    $
    10,964,760Liabilities and Shareholders EquityLiabilitiesInterest-bearing liabilitiesInterest-bearing depositsInterest-bearing checking
    
    $
    879,533
    
    
    $
    2,904
    
    
    
    0.67
    
    
    $
    670,156
    
    
    $
    1,681
    
    
    
    0.50Savings
    
    
    193,389
    
    
    
    299
    
    
    
    0.31
    
    
    
    159,898
    
    
    
    321
    
    
    
    0.40Money market
    
    
    2,710,367
    
    
    
    28,995
    
    
    
    2.16
    
    
    
    2,282,487
    
    
    
    16,918
    
    
    
    1.49Time deposits, excluding brokered deposits
    
    
    1,798,657
    
    
    
    23,069
    
    
    
    2.59
    
    
    
    1,313,310
    
    
    
    15,853
    
    
    
    2.43Total interest-bearing customer deposits (4)
    
    
    5,581,946
    
    
    
    55,267
    
    
    
    2.00
    
    
    
    4,425,851
    
    
    
    34,773
    
    
    
    1.58Brokered deposits
    
    
    1,344,895
    
    
    
    30,283
    
    
    
    4.54
    
    
    
    749,360
    
    
    
    18,792
    
    
    
    5.04Total interest-bearing deposits
    
    
    6,926,841
    
    
    
    85,550
    
    
    
    2.49
    
    
    
    5,175,211
    
    
    
    53,565
    
    
    
    2.08Borrowings
    
    
    4,818,722
    
    
    
    69,066
    
    
    
    2.89
    
    
    
    3,800,851
    
    
    
    34,777
    
    
    
    1.84Total interest-bearing liabilities
    
    
    11,745,563
    
    
    $
    154,616
    
    
    
    2.65
    
    
    
    8,976,062
    
    
    $
    88,342
    
    
    
    1.98Noninterest-bearing liabilitiesNoninterest-bearing deposits
    
    
    1,289,140
    
    
    
    
    
    
    
    
    
    
    
    884,516Other noninterest-bearing liabilities
    
    
    146,094
    
    
    
    
    
    
    
    
    
    
    
    110,907Total liabilities
    
    
    13,180,797
    
    
    
    
    
    
    
    
    
    
    
    9,971,485Shareholders equity
    
    
    1,422,911
    
    
    
    
    
    
    
    
    
    
    
    993,275Total liabilities and shareholders equity
    
    $
    14,603,708
    
    
    
    
    
    
    
    
    
    
    $
    10,964,760Net interest margin (tax equivalent)
    
    
    
    
    
    $
    203,257
    
    
    
    3.11
    %
    
    
    
    
    
    $
    148,606
    
    
    
    2.99
    %Less: tax-equivalent adjustment (3)
    
    
    
    
    
    
    2,723
    
    
    
    
    
    
    
    
    
    
    
    1,973Net interest income
    
    
    
    
    
    $
    200,534
    
    
    
    
    
    
    
    
    
    
    $
    146,633Total cost of customer deposits (5)
    
    
    6,871,086
    
    
    
    55,267
    
    
    
    1.62
    
    
    
    5,310,367
    
    
    
    34,773
    
    
    
    1.32Total cost of wholesale borrowings(6)
    
    
    6,163,617
    
    
    
    99,349
    
    
    
    3.25
    
    
    
    4,550,211
    
    
    
    53,569
    
    
    
    2.37
 
 (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)
    
    TSFG defines interest-bearing customer deposits as total interest-bearing deposits less brokered deposits.(5)
    
    Customer deposits include total deposits less brokered deposits.(6)
    
    Wholesale borrowings include borrowings and brokered deposits.Note:
    
    Average balances are derived from daily balances. 48




---



##### 



Provision for Loan Losses
   49




---



##### 



Noninterest Income
  Table 14
Components of Noninterest Income
(dollars in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Service charges on deposit accounts
    
    $
    9,979
    
    
    $
    8,718
    
    
    $
    18,556
    
    
    $
    16,831Debit card income
    
    
    1,652
    
    
    
    975
    
    
    
    3,167
    
    
    
    1,789Customer service fee income
    
    
    1,120
    
    
    
    800
    
    
    
    1,951
    
    
    
    1,472Total customer fee income
    
    
    12,751
    
    
    
    10,493
    
    
    
    23,674
    
    
    
    20,092Brokerage income
    
    
    1,317
    
    
    
    1,312
    
    
    
    2,607
    
    
    
    2,508Trust income
    
    
    1,078
    
    
    
    1,030
    
    
    
    2,056
    
    
    
    1,957Total brokerage and trust income
    
    
    2,395
    
    
    
    2,342
    
    
    
    4,663
    
    
    
    4,465Bank-owned life insurance income
    
    
    2,759
    
    
    
    3,458
    
    
    
    5,520
    
    
    
    5,748Merchant processing income
    
    
    2,713
    
    
    
    2,431
    
    
    
    4,751
    
    
    
    4,444Mortgage banking income
    
    
    2,140
    
    
    
    1,625
    
    
    
    3,627
    
    
    
    3,180Insurance income
    
    
    1,449
    
    
    
    1,015
    
    
    
    2,735
    
    
    
    2,037Benefits admininstration fees
    
    
    650
    
    
    
    461
    
    
    
    1,237
    
    
    
    1,088(Loss) gain on sale of available for sale securities
    
    
    (1,503
    )
    
    
    607
    
    
    
    (1,269
    )
    
    
    5,821Gain on equity investments
    
    
    650
    
    
    
    1,013
    
    
    
    2,361
    
    
    
    3,823Gain (loss) on trading and derivative activities
    
    
    24,779
    
    
    
    (13,480
    )
    
    
    13,211
    
    
    
    3,229Gain on disposition of assets and liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,350Other
    
    
    1,688
    
    
    
    198
    
    
    
    3,232
    
    
    
    1,252Total noninterest income
    
    $
    50,471
    
    
    $
    10,163
    
    
    $
    63,742
    
    
    $
    57,529
     50




---



##### 



Noninterest Expenses
  51




---



##### 



Table 15
Components of Noninterest Expenses
(dollars in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Salaries and wages
    
    $
    27,258
    
    
    $
    19,917
    
    
    $
    51,872
    
    
    $
    38,835Employee benefits
    
    
    8,423
    
    
    
    7,034
    
    
    
    17,447
    
    
    
    13,949Occupancy
    
    
    6,823
    
    
    
    5,185
    
    
    
    12,922
    
    
    
    10,257Furniture and equipment
    
    
    6,023
    
    
    
    4,890
    
    
    
    11,556
    
    
    
    9,505Professional services
    
    
    5,135
    
    
    
    3,400
    
    
    
    9,571
    
    
    
    6,482Merchant processing expense
    
    
    2,211
    
    
    
    1,910
    
    
    
    3,843
    
    
    
    3,469Telecommunications
    
    
    1,384
    
    
    
    1,106
    
    
    
    2,710
    
    
    
    2,251Amortization of intangibles
    
    
    2,140
    
    
    
    1,195
    
    
    
    3,946
    
    
    
    2,390Merger-related costs
    
    
    2,194
    
    
    
    575
    
    
    
    2,499
    
    
    
    752Impairment (recovery) from write-down of assets
    
    
    917
    
    
    
    (277
    )
    
    
    917
    
    
    
    (277
    )Charitable contribution to foundation
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    Conservation grant of land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,350Loss on early extinguishment of debt
    
    
    2,981
    
    
    
    
    
    
    
    1,553
    
    
    
    1,429Employment contract payments (reversals)
    
    
    222
    
    
    
    
    
    
    
    185
    
    
    
    (59
    )Other
    
    
    13,824
    
    
    
    9,531
    
    
    
    26,341
    
    
    
    19,404Total noninterest expenses
    
    $
    79,535
    
    
    $
    54,466
    
    
    $
    146,045
    
    
    $
    111,737
       52




---



##### 



Income Taxes
  Discontinued Operations
  Second Quarter Results
      53




---



##### 



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.
  54




---



##### 




    
    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);
    
    mortgage backed securities prepayments are based on historical industry data;
    
    loan prepayments are based upon historical bank specific analysis;
    
    deposit retention and average lives are based on historical bank specific analysis;
    
    whether callable assets and liabilities are called are based on the implied forward
yield curve for each interest rate scenario; and
    
    management takes no action to counter any change.
  55




---



##### 



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)
    
    
    3.37
    %1.00 (1)
    
    
    1.94Flat (Base Case)
    
    
    (1.00) (1)
    
    
    (6.38
    )Forward Yield Curve(2)
    
    
    0.71
 
 (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)
    
    
    (4.25
    )%1.00 (1)
    
    
    (0.06
    )Flat (Base Case)
    
    
    (1.00) (1)
    
    
    (7.65
    )
 
 (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.
  
    
    Utilization of institution specific prepayment assumptions on commercial and consumer loans;
    
    Utilization of institution specific deposit repricing betas, average lives and premiums; and
    
    Refinement in the evaluation of call dates on callable instruments.
 56




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##### 




    
    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.
     57




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##### 



Table 18  Summary of Derivative Assets and Liabilities  (dollars in thousands)
 June 30, 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
    
    $
    
    
    
    $
    52
    
    
    $
    283,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Fair Value HedgesInterest rate swaps associated with
borrowing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps associated with
deposit taking activities
    
    
    1,181
    
    
    
    8,165
    
    
    
    99,526
    
    
    
    364
    
    
    
    5,737
    
    
    
    154,721Other DerivativesFuture contracts
    
    
    
    
    
    
    135
    
    
    
    40,000
    
    
    
    6
    
    
    
    
    
    
    
    20,000Options, interest rate swaps and other
    
    
    10,403
    
    
    
    27,295
    
    
    
    1,418,576
    
    
    
    13,071
    
    
    
    32,606
    
    
    
    1,371,974$
    11,584
    
    
    $
    35,647
    
    
    $
    1,841,102
    
    
    $
    13,441
    
    
    $
    38,343
    
    
    $
    1,546,695
 Economic Risk
  Credit Risk
  Liquidity Risks
  Operational Risk
   58




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##### 



Compliance and Litigation Risks
    Off-Balance Sheet Arrangements
   Lending Commitments.
   59




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##### 



Derivatives.
 Liquidity
   Table 19   (dollars in thousands)
 Payments Due by Period(Restated)Remainder
    
    
    2006
    
    
    2008of
    
    
    and
    
    
    and
    
    
    AfterTotal
    
    
    2005
    
    
    2007
    
    
    2009
    
    
    2009Time deposits
    
    $
    3,479,928
    
    
    $
    1,195,433
    
    
    $
    1,080,273
    
    
    $
    241,020
    
    
    $
    963,202Short-term borrowings
    
    
    1,442,729
    
    
    
    1,442,729
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt
    
    
    2,899,073
    
    
    
    5,168
    
    
    
    16,579
    
    
    
    282,900
    
    
    
    2,594,426Operating leases
    
    
    155,331
    
    
    
    8,028
    
    
    
    28,099
    
    
    
    23,735
    
    
    
    95,469Total contractual obligations
    
    $
    7,977,061
    
    
    $
    2,651,358
    
    
    $
    1,124,951
    
    
    $
    547,655
    
    
    $
    3,653,097
   60




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##### 



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.
 61




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##### 




    
    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
  Accounting Changes and Error Corrections
   Item 3. Quantitative and Qualitative Disclosures about Market Risk
  62




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##### 



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.
  63




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##### 



PART II. OTHER INFORMATION
 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)April 1, 2005 to April 30, 2005
    
    
    2,789
    (1)
    
    $
    29.75
    
    
    
    
    
    
    
    1,289,502May 1, 2005 to May 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,289,502June 1, 2005 to June 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,289,502Total
    
    
    2,789
    
    
    $
    29.75
    
    
    
    
    
    
    
    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 June 30, 2005, there are 289,502 shares remaining under the February 2003
authorization and 1 million shares under the April 2003 authorization.
    64




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##### 



Item 3. Defaults upon Senior Securities
  Item 4. Submission of Matters to a Vote of Securities Holders
 Annual
Meeting of Shareholders
 Proposal #1  Election of Directors
 Voting shares in favor
    
    Withheld#
    
    %
    
    AuthorityJ.W. Davis
    
    
    59,967,273
    
    
    
    98.0
    %
    
    
    1,214,177Jon W. Pritchett
    
    
    60,367,938
    
    
    
    98.7
    %
    
    
    813,512Charles B. Schooler
    
    
    59,392,163
    
    
    
    97.1
    %
    
    
    1,789,287Edward J. Sebastian
    
    
    55,990,287
    
    
    
    91.5
    %
    
    
    5,191,163John C. B. Smith, Jr.
    
    
    56,178,549
    
    
    
    91.8
    %
    
    
    5,002,901Mack I. Whittle, Jr.
    
    
    59,808,462
    
    
    
    97.8
    %
    
    
    1,372,988
  Proposal
#2  Ratification of Auditors
 Item 5. Other Information
  65




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##### 



Item 6. Exhibits
 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
 66




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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)
 67