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

**Form        10-Q**

|                              |                                                                                                                                                                                   |
|-----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(Mark                    One)** |
| x                                 | Quarterly report                    pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the                    quarterly period ended June 30, 2008             |
|                              |                                                                                                                                                                                   |
| o                                 | Transition report                    pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the                    transition period from __________ to __________ |

Commission file        number 0-15083

**The South        Financial Group, Inc.**(Exact Name of Registrant as Specified in Its Charter)

|                                                                     |                                                 |
|--------------------------------------------------------------------------|------------------------------------------------------|
| **South                    Carolina**                                    | **57-0824914**                                       |
| (State or                    Other Jurisdiction of                       | (IRS                    Employer Identification No.) |
| Incorporation or                    Organization)                        |                                                 |
|                                                                     |                                                 |
| **102                    South Main Street, Greenville, South Carolina** | **29601**                                            |
| (Address                    of Principal Executive Offices)              | (Zip                    Code)                        |

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

Indicate by check        mark whether the registrant: (1) has filed all reports required to be filed by Section 13        or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such        shorter period that the Registrant was required to file such reports), and (2) has been        subject to such filing requirements for the past 90 days. Yes        x No o.

Indicate by check        mark whether the registrant is a large accelerated filer, an accelerated filer, a        non-accelerated filer, or a smaller reporting company. See the definitions of “large        accelerated filer,” “accelerated filer” and “smaller reporting        company” in Rule 12b-2 of the Exchange Act. (Check One):

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

Indicate by check mark whether the        registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes        o No x.

The number of outstanding shares of        the issuer’s $1.00 par value common stock as of August 4, 2008 was        72,827,699.

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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,                    2007** |   |
|                                                                                                                                                                                         |   | **2008**                        |       | **2007**                                 |   |       |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| **Assets**                                                                                                                                                                                   |   |                            |       |                                     |   |       |   |   |       |   |
| Cash and due from                    banks                                                                                                                                                   |   | $                               | 224,991    |                                     | $      | 267,005    |   | $      | 290,974    |   |
| Interest-bearing bank                    balances                                                                                                                                            |   |                            | 55,713     |                                     |   | 263        |   |   | 5,551      |   |
| Federal funds sold and                    securities purchased to resell                                                                                                                     |   |                            | 50,000     |                                     |   | —    |   |   | —    |   |
| Securities                                                                                                                                                                                   |   |                            |       |                                     |   |       |   |   |       |   |
| Available for sale, at fair                    value                                                                                                                                         |   |                            | 1,987,232  |                                     |   | 2,433,341  |   |   | 1,986,212  |   |
| Held to maturity (fair                    value $26,775, $41,501, and $39,782, respectively)                                                                                                 |   |                            | 26,677     |                                     |   | 41,892     |   |   | 39,691     |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Total securities                                                                                                                                                                             |   |                            | 2,013,909  |                                     |   | 2,475,233  |   |   | 2,025,903  |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Loans held for sale                    (includes $21,871 measured at fair value at June 30, 2008)                                                                                            |   |                            | 21,871     |                                     |   | 35,718     |   |   | 17,867     |   |
| Loans held for                    investment                                                                                                                                                 |   |                            | 10,475,731 |                                     |   | 10,029,228 |   |   | 10,213,420 |   |
| Less: Allowance for loan                    losses                                                                                                                                           |   |                            | (191,727   | )                                        |   | (125,545   | )      |   | (126,427   | )      |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Net loans held for                    investment                                                                                                                                             |   |                            | 10,284,004 |                                     |   | 9,903,683  |   |   | 10,086,993 |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Premises and equipment,                    net                                                                                                                                               |   |                            | 265,853    |                                     |   | 224,951    |   |   | 233,852    |   |
| Accrued interest                    receivable                                                                                                                                               |   |                            | 56,118     |                                     |   | 75,851     |   |   | 70,464     |   |
| Goodwill                                                                                                                                                                                     |   |                            | 463,300    |                                     |   | 650,544    |   |   | 651,003    |   |
| Other intangible assets,                    net                                                                                                                                              |   |                            | 24,586     |                                     |   | 30,939     |   |   | 27,179     |   |
| Other assets                                                                                                                                                                                 |   |                            | 516,525    |                                     |   | 475,488    |   |   | 467,798    |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Total assets                                                                                                                                                                                 |   | $                               | 13,976,870 |                                     | $      | 14,139,675 |   | $      | 13,877,584 |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
|                                                                                                                                                                                         |   |                            |       |                                     |   |       |   |   |       |   |
| **Liabilities and                    Shareholders’ Equity**                                                                                                                            |   |                            |       |                                     |   |       |   |   |       |   |
| Liabilities                                                                                                                                                                                  |   |                            |       |                                     |   |       |   |   |       |   |
| Deposits                                                                                                                                                                                     |   |                            |       |                                     |   |       |   |   |       |   |
| Noninterest-bearing retail                    and commercial deposits                                                                                                                        |   | $                               | 1,107,115  |                                     | $      | 1,244,834  |   | $      | 1,127,657  |   |
| Interest-bearing retail and                    commercial deposits                                                                                                                           |   |                            | 6,388,904  |                                     |   | 6,547,479  |   |   | 6,402,503  |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Total retail and commercial                    deposits                                                                                                                                      |   |                            | 7,496,019  |                                     |   | 7,792,313  |   |   | 7,530,160  |   |
| Brokered                    deposits                                                                                                                                                         |   |                            | 2,390,350  |                                     |   | 2,293,493  |   |   | 2,258,408  |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Total deposits                                                                                                                                                                               |   |                            | 9,886,369  |                                     |   | 10,085,806 |   |   | 9,788,568  |   |
| Short-term                    borrowings                                                                                                                                                     |   |                            | 1,581,601  |                                     |   | 1,432,650  |   |   | 1,637,550  |   |
| Long-term debt                                                                                                                                                                               |   |                            | 772,957    |                                     |   | 857,248    |   |   | 698,340    |   |
| Accrued interest                    payable                                                                                                                                                  |   |                            | 55,880     |                                     |   | 77,751     |   |   | 69,288     |   |
| Other                    liabilities                                                                                                                                                         |   |                            | 120,861    |                                     |   | 168,033    |   |   | 133,530    |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Total                    liabilities                                                                                                                                                         |   |                            | 12,417,668 |                                     |   | 12,621,488 |   |   | 12,327,276 |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
|                                                                                                                                                                                         |   |                            |       |                                     |   |       |   |   |       |   |
| Commitments and                    contingencies (Note 10)                                                                                                                                   |   |                            | —    |                                     |   | —    |   |   | —    |   |
|                                                                                                                                                                                         |   |                            |       |                                     |   |       |   |   |       |   |
| Shareholders’                    equity                                                                                                                                                |   |                            |       |                                     |   |       |   |   |       |   |
| Preferred stock-no par                    value; authorized 10,000,000 shares; issued and outstanding 250,000 shares at                    June 30, 2008                                     |   |                            | 250,000    |                                     |   | —    |   |   | —    |   |
| Common stock-par value $1                    per share; authorized 200,000,000 shares; issued and outstanding 72,795,797,                    73,698,807, and 72,455,205 shares, respectively |   |                            | 72,796     |                                     |   | 73,699     |   |   | 72,455     |   |
| Surplus                                                                                                                                                                                      |   |                            | 1,101,524  |                                     |   | 1,129,499  |   |   | 1,107,601  |   |
| Retained                    earnings                                                                                                                                                         |   |                            | 152,567    |                                     |   | 378,399    |   |   | 386,061    |   |
| Guarantee of employee stock                    ownership plan debt                                                                                                                           |   |                            | —    |                                     |   | (39        | )      |   | —    |   |
| Accumulated other                    comprehensive income (loss), net of tax                                                                                                                 |   |                            | (17,685    | )                                        |   | (63,371    | )      |   | (15,809    | )      |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Total shareholders’                    equity                                                                                                                                          |   |                            | 1,559,202  |                                     |   | 1,518,187  |   |   | 1,550,308  |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |
| Total liabilities and                    shareholders’ equity                                                                                                                          |   | $                               | 13,976,870 |                                     | $      | 14,139,675 |   | $      | 13,877,584 |   |
|                                                                                                                                                                                         |   |                                 |            |                                     |        |            |   |        |            |   |

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

1

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

|                                                                      |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|---------------------------------------------------------------------|--------|----------|--------|----------|----------|--------|--------|---------|--------|
|                                                                      |   | **Three                    Months Ended                    June 30,** |    | **Six                    Months Ended                    June 30,** |   |
|                                                                      |   |                                                                       |    |                                                                     |   |
|                                                                      |   | **2008**                                                              |    | **2007**                                                            |   | **2008** |   | **2007** |     |
|                                                                      |   |                                                                       |    |                                                                     |   |          |   |          |     |
| **Interest                    Income**                                    |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| Interest and fees on                    loans                             |   | $                                                                     | 158,016 |                                                                | $      | 191,961  |   | $        | 329,244  |   | $      | 378,589 |   |
| Interest and dividends on                    securities:                  |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| Taxable                                                                   |   |                                                                  | 20,591  |                                                                |   | 26,879   |   |     | 40,983   |   |   | 55,704  |   |
| Exempt from federal income                    taxes                       |   |                                                                  | 2,479   |                                                                |   | 2,888    |   |     | 5,172    |   |   | 5,936   |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| Total interest and                    dividends on securities             |   |                                                                  | 23,070  |                                                                |   | 29,767   |   |     | 46,155   |   |   | 61,640  |   |
| Interest on short-term                    investments                     |   |                                                                  | 106     |                                                                |   | 97       |   |     | 178      |   |   | 238     |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| Total interest                    income                                  |   |                                                                  | 181,192 |                                                                |   | 221,825  |   |     | 375,577  |   |   | 440,467 |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| **Interest                    Expense**                                   |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| Interest on                    deposits                                   |   |                                                                  | 63,180  |                                                                |   | 92,066   |   |     | 140,286  |   |   | 180,545 |   |
| Interest on short-term                    borrowings                      |   |                                                                  | 8,089   |                                                                |   | 21,165   |   |     | 20,289   |   |   | 42,429  |   |
| Interest on long-term                    debt                             |   |                                                                  | 9,718   |                                                                |   | 12,073   |   |     | 22,091   |   |   | 26,434  |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| Total interest                    expense                                 |   |                                                                  | 80,987  |                                                                |   | 125,304  |   |     | 182,666  |   |   | 249,408 |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| **Net Interest                    Income**                                |   |                                                                  | 100,205 |                                                                |   | 96,521   |   |     | 192,911  |   |   | 191,059 |   |
| **Provision for Credit                    Losses**                        |   |                                                                  | 63,763  |                                                                |   | 17,125   |   |     | 137,055  |   |   | 26,138  |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| Net interest income after                    provision for credit losses  |   |                                                                  | 36,442  |                                                                |   | 79,396   |   |     | 55,856   |   |   | 164,921 |   |
| **Noninterest                    Income**                                 |   |                                                                  | 32,190  |                                                                |   | 27,683   |   |     | 63,106   |   |   | 54,653  |   |
| **Noninterest                    Expenses**                               |   |                                                                  | 87,620  |                                                                |   | 80,151   |   |     | 355,799  |   |   | 161,628 |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| (Loss) income before income                    taxes                      |   |                                                                  | (18,988 | )                                                                   |   | 26,928   |   |     | (236,837 | )      |   | 57,946  |   |
| Income taxes                                                              |   |                                                                  | (8,056  | )                                                                   |   | 8,998    |   |     | (24,613  | )      |   | 19,498  |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| **Net (Loss)                    Income**                                  |   |                                                                  | (10,932 | )                                                                   |   | 17,930   |   |     | (212,224 | )      |   | 38,448  |   |
| Preferred stock                    dividends                              |   |                                                                  | 5,833   |                                                                |   | —  |   |     | 5,833    |   |   | — |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| **Net (Loss) Income                    Available to Common Shareholders** |   | $                                                                     | (16,765 | )                                                                   | $      | 17,930   |   | $        | (218,057 | )      | $      | 38,448  |   |
|                                                                      |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
|                                                                      |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| **Average Common Shares                    Outstanding, Basic**           |   |                                                                  | 72,611  |                                                                |   | 74,050   |   |     | 72,530   |   |   | 74,390  |   |
| **Average Common Shares                    Outstanding, Diluted**         |   |                                                                  | 72,611  |                                                                |   | 74,397   |   |     | 72,530   |   |   | 74,815  |   |
| **Earnings Per Common                    Share, Basic**                   |   | $                                                                     | (0.23   | )                                                                   | $      | 0.24     |   | $        | (3.01    | )      | $      | 0.52    |   |
| **Earnings Per Common                    Share, Diluted**                 |   |                                                                  | (0.23   | )                                                                   |   | 0.24     |   |     | (3.01    | )      |   | 0.51    |   |
| **Dividends per common                    share**                         |   |                                                                  | 0.01    |                                                                |   | 0.18     |   |     | 0.20     |   |   | 0.36    |   |

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

2

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

|                                                                                       |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|------------|-------------------------------------|--------|----------------------------------------|--------|-------------|---------|-------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|----------|--------|--------|---------|--------|--------|-----------|--------|
|                                                                                       |   | **Shares                    of                    Common                    Stock** |       | **Common                    Stock** |   | **Preferred                    Stock** |   | **Surplus** |    | **Retained                    Earnings                    and                    Other*** |   | **Accumulated                    Other                    Comprehensive                    Income                    (Loss), Net** |   | **Total** |     |
|                                                                                       |   |                                                                                     |       |                                     |   |                                        |   |             |    |                                                                                           |   |                                                                                                                                    |   |           |     |
| Balance, December 31,                    2006                                              |   |                                                                                | 75,341,276 |                                | $      | 75,341                                 |   | $           | — |                                                                                      | $      | 1,167,685                                                                                                                          |   | $         | 367,110  |   | $      | (48,104 | )      | $      | 1,562,032 |   |
| Net income                                                                                 |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | 38,448   |   |   | — |   |   | 38,448    |   |
| Other comprehensive loss,                    net of income tax of $8,756                   |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | —  |   |   | (15,267 | )      |   | (15,267   | )      |
|                                                                                       |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |        |           |   |
| Comprehensive                    income                                                    |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | —  |   |   | — |   |   | 23,181    |   |
|                                                                                       |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |        |           |   |
| Cash dividends declared                    ($0.36 per common share)                        |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | (26,750  | )      |   | — |   |   | (26,750   | )      |
| Common stock                    activity:                                                  |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Repurchase of                    stock                                                     |   |                                                                                | (2,150,000 | )                                   |   | (2,150                                 | )      |        | — |                                                                                      |   | (50,522                                                                                                                            | )      |      | —  |   |   | — |   |   | (52,672   | )      |
| Exercise of stock options,                    including income tax benefit of $849         |   |                                                                                | 382,357    |                                |   | 383                                    |   |        | — |                                                                                      |   | 7,224                                                                                                                              |   |      | —  |   |   | — |   |   | 7,607     |   |
| Dividend reinvestment                    plan                                              |   |                                                                                | 71,002     |                                |   | 71                                     |   |        | — |                                                                                      |   | 1,575                                                                                                                              |   |      | —  |   |   | — |   |   | 1,646     |   |
| Restricted stock                    plan                                                   |   |                                                                                | 29,349     |                                |   | 29                                     |   |        | — |                                                                                      |   | 973                                                                                                                                |   |      | (72      | )      |   | — |   |   | 930       |   |
| Employee stock purchase                    plan                                            |   |                                                                                | 10,299     |                                |   | 11                                     |   |        | — |                                                                                      |   | 229                                                                                                                                |   |      | —  |   |   | — |   |   | 240       |   |
| Director                    compensation                                                   |   |                                                                                | 10,237     |                                |   | 10                                     |   |        | — |                                                                                      |   | 250                                                                                                                                |   |      | —  |   |   | — |   |   | 260       |   |
| Acquisitions                                                                               |   |                                                                                | 4,287      |                                |   | 4                                      |   |        | — |                                                                                      |   | 100                                                                                                                                |   |      | —  |   |   | — |   |   | 104       |   |
| Common stock released by                    trust for deferred compensation                |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | 12       |   |   | — |   |   | 12        |   |
| Deferred compensation                    payable in common stock                           |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | (12      | )      |   | — |   |   | (12       | )      |
| Cumulative effect of                    initial application of FIN 48                      |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | (488     | )      |   | — |   |   | (488      | )      |
| Stock option                    expense                                                    |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | 1,946                                                                                                                              |   |      | —  |   |   | — |   |   | 1,946     |   |
| Other, net                                                                                 |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | 39                                                                                                                                 |   |      | 112      |   |   | — |   |   | 151       |   |
|                                                                                       |   |                                                                                     |            |                                |        |                                        |   |             |         |                                                                                      |        |                                                                                                                                    |   |           |          |   |        |         |   |        |           |   |
| Balance, June 30,                    2007                                                  |   |                                                                                | 73,698,807 |                                | $      | 73,699                                 |   | $           | — |                                                                                      | $      | 1,129,499                                                                                                                          |   | $         | 378,360  |   | $      | (63,371 | )      | $      | 1,518,187 |   |
|                                                                                       |   |                                                                                     |            |                                |        |                                        |   |             |         |                                                                                      |        |                                                                                                                                    |   |           |          |   |        |         |   |        |           |   |
|                                                                                       |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Balance, December 31,                    2007                                              |   |                                                                                | 72,455,205 |                                | $      | 72,455                                 |   | $           | — |                                                                                      | $      | 1,107,601                                                                                                                          |   | $         | 386,061  |   | $      | (15,809 | )      | $      | 1,550,308 |   |
| Net loss                                                                                   |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | (212,224 | )      |   | — |   |   | (212,224  | )      |
| Other comprehensive loss,                    net of income tax of $1,142                   |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | —  |   |   | (1,876  | )      |   | (1,876    | )      |
|                                                                                       |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |        |           |   |
| Comprehensive                    loss                                                      |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | —  |   |   | — |   |   | (214,100  | )      |
|                                                                                       |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |        |           |   |
| Cash dividends                    declared:                                                |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Common ($0.20 per common                    share)                                         |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | (14,602  | )      |   | — |   |   | (14,602   | )      |
| Preferred                                                                                  |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | (5,833   | )      |   | — |   |   | (5,833    | )      |
| Issuance of preferred                    stock                                             |   |                                                                                | —    |                                |   | —                                |   |        | 250,000 |                                                                                      |   | (10,953                                                                                                                            | )      |      | —  |   |   | — |   |   | 239,047   |   |
| Common stock                    activity:                                                  |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Dividend reinvestment                    plan                                              |   |                                                                                | 185,542    |                                |   | 186                                    |   |        | — |                                                                                      |   | 1,532                                                                                                                              |   |      | —  |   |   | — |   |   | 1,718     |   |
| Restricted stock                    plan                                                   |   |                                                                                | 100,150    |                                |   | 100                                    |   |        | — |                                                                                      |   | 1,462                                                                                                                              |   |      | (158     | )      |   | — |   |   | 1,404     |   |
| Director                    compensation                                                   |   |                                                                                | 29,184     |                                |   | 29                                     |   |        | — |                                                                                      |   | 248                                                                                                                                |   |      | —  |   |   | — |   |   | 277       |   |
| Employee stock purchase                    plan                                            |   |                                                                                | 17,711     |                                |   | 18                                     |   |        | — |                                                                                      |   | 150                                                                                                                                |   |      | —  |   |   | — |   |   | 168       |   |
| Acquisitions                                                                               |   |                                                                                | 4,403      |                                |   | 4                                      |   |        | — |                                                                                      |   | 20                                                                                                                                 |   |      | —  |   |   | — |   |   | 24        |   |
| Exercise of stock options,                    including income tax benefit of $6           |   |                                                                                | 3,602      |                                |   | 4                                      |   |        | — |                                                                                      |   | 37                                                                                                                                 |   |      | —  |   |   | — |   |   | 41        |   |
| Common and preferred stock                    purchased by trust for deferred compensation |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | (450     | )      |   | — |   |   | (450      | )      |
| Deferred compensation                    payable in common and preferred stock             |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | 450      |   |   | — |   |   | 450       |   |
| Cumulative effect of                    initial application of:                            |   |                                                                                |       |                                |   |                                   |   |        |    |                                                                                      |   |                                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| SFAS 159, net of                    tax                                                    |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | 60       |   |   | — |   |   | 60        |   |
| EITF 06-4                                                                                  |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | —                                                                                                                            |   |      | (737     | )      |   | — |   |   | (737      | )      |
| Stock option                    expense                                                    |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | 1,486                                                                                                                              |   |      | —  |   |   | — |   |   | 1,486     |   |
| Other, net                                                                                 |   |                                                                                | —    |                                |   | —                                |   |        | — |                                                                                      |   | (59                                                                                                                                | )      |      | —  |   |   | — |   |   | (59       | )      |
|                                                                                       |   |                                                                                     |            |                                |        |                                        |   |             |         |                                                                                      |        |                                                                                                                                    |   |           |          |   |        |         |   |        |           |   |
| Balance, June 30,                    2008                                                  |   |                                                                                | 72,795,797 |                                | $      | 72,796                                 |   | $           | 250,000 |                                                                                      | $      | 1,101,524                                                                                                                          |   | $         | 152,567  |   | $      | (17,685 | )      | $      | 1,559,202 |   |
|                                                                                       |   |                                                                                     |            |                                |        |                                        |   |             |         |                                                                                      |        |                                                                                                                                    |   |           |          |   |        |         |   |        |           |   |

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

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

3

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

|                                                                                                       |   |                                             |     |     |   |     |   |
|------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|----------|----------|--------|----------|--------|
|                                                                                                       |   | **Six                    Months Ended June 30,** |     |
|                                                                                                       |   |                                                  |     |
|                                                                                                       |   | **2008**                                         |     | **2007** |   |
|                                                                                                       |   |                                                  |     |          |   |
| **Cash Flows from                    Operating Activities**                                                |   |                                             |     |     |   |     |   |
| Net (loss)                    income                                                                       |   | $                                                | (212,224 | )        | $      | 38,448   |   |
| Adjustments to reconcile                    net (loss) income to net cash provided by operating activities |   |                                             |     |     |   |     |   |
| Depreciation, amortization,                    and accretion, net                                          |   |                                             | 18,165   |     |   | 16,782   |   |
| Provision for credit                    losses                                                             |   |                                             | 137,055  |     |   | 26,138   |   |
| Share-based compensation                    expense                                                        |   |                                             | 3,772    |     |   | 3,775    |   |
| Goodwill                    impairment                                                                     |   |                                             | 188,431  |     |   | —  |   |
| (Gain) loss on                    securities                                                               |   |                                             | (2,272   | )        |   | 3,622    |   |
| Gain on Visa IPO share                    redemption                                                       |   |                                             | (1,904   | )        |   | —  |   |
| (Gain) loss on certain                    derivative activities                                            |   |                                             | (248     | )        |   | 1,400    |   |
| Gain on sale of mortgage                    loans                                                          |   |                                             | (2,156   | )        |   | (2,999   | )      |
| Loss on early                    extinguishment of debt                                                    |   |                                             | 464      |     |   | 231      |   |
| Loss on disposition of                    premises and equipment                                           |   |                                             | 327      |     |   | 46       |   |
| Loss on disposition of                    other real estate owned                                          |   |                                             | 183      |     |   | 163      |   |
| Excess tax benefits from                    share-based compensation                                       |   |                                             | (6       | )        |   | (849     | )      |
| Origination of loans held                    for sale                                                      |   |                                             | (149,661 | )        |   | (243,785 | )      |
| Sale of loans held for sale                    and principal repayments                                    |   |                                             | 159,600  |     |   | 254,634  |   |
| Increase in other                    assets                                                                |   |                                             | (17,888  | )        |   | (18,839  | )      |
| (Decrease) increase in                    other liabilities                                                |   |                                             | (19,134  | )        |   | 8,600    |   |
|                                                                                                       |   |                                                  |          |     |        |          |   |
| Net cash provided by                    operating activities                                               |   |                                             | 102,504  |     |   | 87,367   |   |
|                                                                                                       |   |                                                  |          |     |        |          |   |
| **Cash Flows from                    Investing Activities**                                                |   |                                             |     |     |   |     |   |
| Sale of securities                    available for sale                                                   |   |                                             | 155,342  |     |   | 129,781  |   |
| Maturity, redemption, call,                    or principal repayments of securities available for sale    |   |                                             | 317,065  |     |   | 161,177  |   |
| Maturity, redemption, call,                    or principal repayments of securities held to maturity      |   |                                             | 13,010   |     |   | 10,499   |   |
| Purchase of securities                    available for sale                                               |   |                                             | (479,119 | )        |   | (4,370   | )      |
| Purchase of securities held                    to maturity                                                 |   |                                             | —  |     |   | (140     | )      |
| Origination of loans held                    for investment, net of principal repayments                   |   |                                             | (376,727 | )        |   | (358,682 | )      |
| Sale of loans held for                    investment                                                       |   |                                             | 22,473   |     |   | —  |   |
| Sale of other real estate                    owned                                                         |   |                                             | 1,072    |     |   | 3,154    |   |
| Sale of premises and                    equipment                                                          |   |                                             | 5        |     |   | 144      |   |
| Purchase of premises and                    equipment                                                      |   |                                             | (29,058  | )        |   | (16,201  | )      |
| Cash equivalents acquired,                    net of payment for purchase acquisition                      |   |                                             | 3,788    |     |   | —  |   |
|                                                                                                       |   |                                                  |          |     |        |          |   |
| Net cash used for investing                    activities                                                  |   |                                             | (372,149 | )        |   | (74,638  | )      |
|                                                                                                       |   |                                                  |          |     |        |          |   |
| **Cash Flows from                    Financing Activities**                                                |   |                                             |     |     |   |     |   |
| Increase in                    deposits                                                                    |   |                                             | 76,824   |     |   | 577,344  |   |
| Decrease in short-term                    borrowings                                                       |   |                                             | (56,617  | )        |   | (336,953 | )      |
| Issuance of long-term                    debt                                                              |   |                                             | 200,000  |     |   | 77,320   |   |
| Payment of long-term                    debt                                                               |   |                                             | (129,047 | )        |   | (350,307 | )      |
| Issuance of preferred                    stock, net                                                        |   |                                             | 239,047  |     |   | —  |   |
| Cash dividends paid on                    common stock                                                     |   |                                             | (27,637  | )        |   | (27,030  | )      |
| Repurchase of common                    stock                                                              |   |                                             | —  |     |   | (52,672  | )      |
| Excess tax benefits from                    share-based compensation                                       |   |                                             | 6        |     |   | 849      |   |
| Other common stock                    activity                                                             |   |                                             | 1,248    |     |   | 8,157    |   |
|                                                                                                       |   |                                                  |          |     |        |          |   |
| Net cash provided by (used                    for) financing activities                                    |   |                                             | 303,824  |     |   | (103,292 | )      |
|                                                                                                       |   |                                                  |          |     |        |          |   |
| Net change in cash and cash                    equivalents                                                 |   |                                             | 34,179   |     |   | (90,563  | )      |
| Cash and cash equivalents                    at beginning of year                                          |   |                                             | 296,525  |     |   | 357,831  |   |
|                                                                                                       |   |                                                  |          |     |        |          |   |
| Cash and cash equivalents                    at end of period                                              |   | $                                                | 330,704  |     | $      | 267,268  |   |
|                                                                                                       |   |                                                  |          |     |        |          |   |
| **Supplemental Cash Flow                    Data**                                                         |   |                                             |     |     |   |     |   |
| Interest paid, net of                    amounts capitalized                                               |   | $                                                | 193,550  |     | $      | 240,163  |   |
| Income tax payments,                    net                                                                |   |                                             | 2,672    |     |   | 20,583   |   |
| Significant non-cash                    investing and financing transactions:                              |   |                                             |     |     |   |     |   |
| Increase in unrealized loss                    on available for sale securities                            |   |                                             | (5,550   | )        |   | (19,284  | )      |
| Loans transferred to other                    real estate owned                                            |   |                                             | 13,452   |     |   | 3,502    |   |

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

4

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

**Note 1 –        General**

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

*Nature of        Operations*

          TSFG        is a bank holding company headquartered in Greenville, South Carolina that offers a broad        range of financial products and services, including banking, merchant processing, mortgage,        treasury services, and wealth management (which consists of benefits administration,        insurance, private banking, retail investment, and trust and investment management).        TSFG’s banking subsidiary Carolina First Bank conducts banking operations in South        Carolina and North Carolina (as Carolina First Bank) and in Florida (as Mercantile Bank).        TSFG also owns several non-bank subsidiaries. At June 30, 2008, TSFG operated through 81        branch offices in South Carolina, 72 in Florida, and 27 in North Carolina. In South        Carolina, the branches are primarily located in the state’s largest metropolitan        areas. The Florida operations are principally concentrated in the Jacksonville, Orlando,        Tampa Bay, Southeast Florida, and Gainesville areas. The North Carolina branches are        primarily located in the Hendersonville and Asheville areas of western North Carolina and        in the Wilmington area of eastern North Carolina.

*Accounting Estimates and        Assumptions*

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

*Preferred Stock*

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

*Principles of        Consolidation*

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

*Reclassifications*

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

5

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

*Recently Adopted Accounting        Pronouncements*

*     Fair        Value Measurements*

          SFAS        No. 157 (“SFAS 157”), “Fair Value Measurements,” defines fair        value, establishes guidelines for measuring fair value and expands disclosures regarding        fair value measurements. SFAS 157 does not require any new fair value measurements but        rather eliminates inconsistencies in guidance found in various prior accounting        pronouncements. TSFG adopted SFAS 157 for its financial assets and liabilities on January        1, 2008 with no significant impact on its Consolidated Financial Statements. See Note 13        for fair value disclosures. Financial Accounting Standards Board (“FASB”) Staff        Position FAS 157-2 (“FSP 157-2”) delays the effective date of SFAS 157 for        nonfinancial assets and liabilities measured at fair value on a nonrecurring basis until        fiscal years beginning after November 15, 2008. As a result, TSFG will adopt this standard        for nonfinancial assets and liabilities effective January 1, 2009.

*     Endorsement        Split-Dollar Life Insurance Arrangements*

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

*     Fair        Value Option for Financial Assets and Financial Liabilities*

          SFAS        No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and        Financial Liabilities,” allows an entity the irrevocable option to elect fair value        for the initial and subsequent measurement for certain financial assets and liabilities on        a contract-by-contract basis. Subsequent changes in fair value of these financial assets        and liabilities would be recognized in earnings when they occur. SFAS 159 further        establishes certain additional disclosure requirements. TSFG adopted this standard        effective January 1, 2008 and elected to account for its portfolio of mortgage loans held        for sale at fair value. The impact of adoption was an increase to retained earnings of        $60,000, net of income tax of $32,000. For additional information on the fair value option,        see Note 13.

*     Written        Loan Commitments Recorded at Fair Value through Earnings*

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

*Recently Issued Accounting        Pronouncements*

*     Business        Combinations*

          SFAS        No. 141R (“SFAS 141R”), “Business Combinations,” requires an        acquirer, upon initially obtaining control of another entity, to recognize the assets,        liabilities and any non-controlling interest in the acquiree at fair value as of the        acquisition date. Contingent consideration is required to be recognized and measured at        fair value on the date of acquisition rather than at a later date when the amount of that        consideration may be determinable beyond a reasonable doubt. This fair value approach        replaces the cost-allocation process required under SFAS 141 whereby the cost of an        acquisition was allocated to the individual assets acquired and liabilities assumed based        on their estimated fair value. SFAS 141R requires acquirers to expense acquisition-related        costs as incurred rather than allocating such costs to the assets acquired and liabilities        assumed, as was previously the case under SFAS 141. Under SFAS 141R, the requirements of        SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal        Activities,” would have to be

6

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

met in order to        accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are        to be recognized at fair value, unless it is a non-contractual contingency that is not        likely to materialize, in which case nothing should be recognized in purchase accounting        and, instead, that contingency would be subject to the probable and estimable recognition        criteria of SFAS No. 5, “Accounting for Contingencies.” SFAS 141R is effective        for business combinations closing in fiscal years beginning after December 15, 2008. TSFG        expects SFAS 141R to have a significant impact on its accounting for business combinations,        if any, closing on or after January 1, 2009.

*     Noncontrolling        Interests in Consolidated Financial Statements*

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

*     Disclosures        about Derivative Instruments and Hedging Activities*

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

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

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

*     Determination        of the Useful Life of Intangible Assets*

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

7

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

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

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

|                                                            |   |                                                                  |    |                                                                |   |     |   |     |    |   |   |    |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|---------------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|---------|--------|
|                                                            |   | **Three                    Months Ended                    June 30,** |    | **Six                    Months Ended                    June 30,** |   |
|                                                            |   |                                                                       |    |                                                                     |   |
|                                                            |   | **2008**                                                              |    | **2007**                                                            |   | **2008** |   | **2007** |    |
|                                                            |   |                                                                       |    |                                                                     |   |          |   |          |    |
| **Noninterest                    Income**                       |   |                                                                  |    |                                                                |   |     |   |     |    |   |   |    |   |
| Service charges on deposit                    accounts          |   | $                                                                     | 10,986  |                                                                | $      | 11,223   |   | $        | 21,415  |   | $      | 21,836  |   |
| Debit card income, net                    (1)                   |   |                                                                  | 2,056   |                                                                |   | 1,839    |   |     | 3,932   |   |   | 3,406   |   |
| Customer service fee                    income                  |   |                                                                  | 1,358   |                                                                |   | 1,402    |   |     | 2,689   |   |   | 2,693   |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |
| Total customer fee                    income                    |   |                                                                  | 14,400  |                                                                |   | 14,464   |   |     | 28,036  |   |   | 27,935  |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |
| Insurance income                                                |   |                                                                  | 2,388   |                                                                |   | 2,987    |   |     | 5,448   |   |   | 6,284   |   |
| Retail investment services,                    net (2)          |   |                                                                  | 2,120   |                                                                |   | 2,021    |   |     | 3,666   |   |   | 3,735   |   |
| Trust and investment                    management income       |   |                                                                  | 1,857   |                                                                |   | 1,734    |   |     | 3,523   |   |   | 3,328   |   |
| Benefits administration                    fees                 |   |                                                                  | 734     |                                                                |   | 749      |   |     | 1,490   |   |   | 1,491   |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |
| Total wealth management                    income               |   |                                                                  | 7,099   |                                                                |   | 7,491    |   |     | 14,127  |   |   | 14,838  |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |
| Bank-owned life insurance                    income             |   |                                                                  | 2,910   |                                                                |   | 4,454    |   |     | 6,057   |   |   | 7,305   |   |
| Mortgage banking                    income                      |   |                                                                  | 1,858   |                                                                |   | 1,877    |   |     | 3,343   |   |   | 3,946   |   |
| Merchant processing income,                    net              |   |                                                                  | 809     |                                                                |   | 771      |   |     | 1,666   |   |   | 1,506   |   |
| Gain (loss) on certain                    derivative activities |   |                                                                  | 236     |                                                                |   | (1,497   | )      |     | 248     |   |   | (1,400  | )      |
| Gain (loss) on                    securities                    |   |                                                                  | 1,876   |                                                                |   | (2,237   | )      |     | 2,272   |   |   | (3,622  | )      |
| Gain on Visa IPO share                    redemption            |   |                                                                  | — |                                                                |   | —  |   |     | 1,904   |   |   | — |   |
| Other                                                           |   |                                                                  | 3,002   |                                                                |   | 2,360    |   |     | 5,453   |   |   | 4,145   |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |
| Total noninterest                    income                     |   | $                                                                     | 32,190  |                                                                | $      | 27,683   |   | $        | 63,106  |   | $      | 54,653  |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |
|                                                            |   |                                                                  |    |                                                                |   |     |   |     |    |   |   |    |   |
| **Noninterest                    Expenses**                     |   |                                                                  |    |                                                                |   |     |   |     |    |   |   |    |   |
| Salaries and                    wages                           |   | $                                                                     | 38,435  |                                                                | $      | 34,804   |   | $        | 73,288  |   | $      | 71,636  |   |
| Employee                    benefits                            |   |                                                                  | 9,113   |                                                                |   | 9,245    |   |     | 18,411  |   |   | 19,004  |   |
| Occupancy                                                       |   |                                                                  | 8,972   |                                                                |   | 8,545    |   |     | 17,595  |   |   | 17,153  |   |
| Furniture and                    equipment                      |   |                                                                  | 6,733   |                                                                |   | 6,486    |   |     | 13,116  |   |   | 12,948  |   |
| Professional                    services                        |   |                                                                  | 3,579   |                                                                |   | 4,914    |   |     | 7,106   |   |   | 9,017   |   |
| Advertising and business                    development         |   |                                                                  | 2,731   |                                                                |   | 1,973    |   |     | 5,202   |   |   | 3,904   |   |
| Regulatory                    assessments                       |   |                                                                  | 2,374   |                                                                |   | 436      |   |     | 4,451   |   |   | 864     |   |
| Loan collection and                    monitoring               |   |                                                                  | 2,167   |                                                                |   | 460      |   |     | 3,137   |   |   | 1,179   |   |
| Amortization of                    intangibles                  |   |                                                                  | 1,589   |                                                                |   | 2,136    |   |     | 3,247   |   |   | 4,137   |   |
| Goodwill                    impairment                          |   |                                                                  | — |                                                                |   | —  |   |     | 188,431 |   |   | — |   |
| Telecommunications                                              |   |                                                                  | 1,476   |                                                                |   | 1,418    |   |     | 2,899   |   |   | 2,811   |   |
| Branch acquisition and                    conversion costs      |   |                                                                  | 731     |                                                                |   | —  |   |     | 731     |   |   | — |   |
| (Gain) loss on early                    extinguishment of debt  |   |                                                                  | (83     | )                                                                   |   | 231      |   |     | 464     |   |   | 231     |   |
| Visa-related                    litigation                      |   |                                                                  | — |                                                                |   | —  |   |     | (863    | )      |   | — |   |
| Other                                                           |   |                                                                  | 9,803   |                                                                |   | 9,503    |   |     | 18,584  |   |   | 18,744  |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |
| Total noninterest                    expenses                   |   | $                                                                     | 87,620  |                                                                | $      | 80,151   |   | $        | 355,799 |   | $      | 161,628 |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | In fourth quarter 2007,                    TSFG began presenting its debit card income net of related expenses. Debit card                    expense totaled (in thousands) $696 and $1,343 respectively, for the three and                    six months ended June 30, 2008, and $564 and $1,174, respectively, for the                    three and six months ended June 30, 2007. Amounts presented for prior periods                    have been reclassified to conform to the current presentation.                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (2)    | In fourth quarter 2007,                    TSFG began presenting its retail investment services income net of certain                    revenue sharing arrangements with a third party. Such amounts for these                    arrangements totaled (in thousands) $270 and $461, respectively, for the three                    and six months ended June 30, 2008, and $261 and $505, respectively, for the                    three and six months ended June 30, 2007. Amounts presented for prior periods                    have been reclassified to conform to the current presentation. |

8

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

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

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

|                                                                                          |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|---------------------------------------------------------------------|--------|----------|--------|----------|----------|--------|--------|---------|--------|
|                                                                                          |   | **Three                    Months Ended                    June 30,** |    | **Six                    Months Ended                    June 30,** |   |
|                                                                                          |   |                                                                       |    |                                                                     |   |
|                                                                                          |   | **2008**                                                              |    | **2007**                                                            |   | **2008** |   | **2007** |     |
|                                                                                          |   |                                                                       |    |                                                                     |   |          |   |          |     |
| **Net Unrealized Losses on                    Securities Available for Sale**                 |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| Balance at beginning of                    period                                             |   | $                                                                     | (1,912  | )                                                                   | $      | (37,601  | )      | $        | (30,765  | )      | $      | (47,378 | )      |
| Other comprehensive income                    (loss):                                         |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| Unrealized holding losses                    arising during the period                        |   |                                                                  | (52,276 | )                                                                   |   | (36,732  | )      |     | (5,851   | )      |   | (22,579 | )      |
| Income tax                    benefit                                                         |   |                                                                  | 19,298  |                                                                |   | 13,526   |   |     | 2,133    |   |   | 8,250   |   |
| Less: Reclassification                    adjustment for losses included in net (loss) income |   |                                                                  | 927     |                                                                |   | 1,910    |   |     | 301      |   |   | 3,295   |   |
| Income tax                    benefit                                                         |   |                                                                  | (324    | )                                                                   |   | (668     | )      |     | (105     | )      |   | (1,153  | )      |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
|                                                                                          |   |                                                                  | (32,375 | )                                                                   |   | (21,964  | )      |     | (3,522   | )      |   | (12,187 | )      |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| Balance at end of                    period                                                   |   |                                                                  | (34,287 | )                                                                   |   | (59,565  | )      |     | (34,287  | )      |   | (59,565 | )      |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
|                                                                                          |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| **Net Unrealized Gains                    (Losses) on Cash Flow Hedges**                      |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| Balance at beginning of                    period                                             |   |                                                                  | 27,061  |                                                                |   | 557      |   |     | 14,956   |   |   | (726    | )      |
| Other comprehensive income                    (loss):                                         |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| Unrealized (loss) gain on                    change in fair values                            |   |                                                                  | (16,092 | )                                                                   |   | (6,603   | )      |     | 2,532    |   |   | (4,198  | )      |
| Income tax benefit                    (expense)                                               |   |                                                                  | 5,633   |                                                                |   | 2,312    |   |     | (886     | )      |   | 1,470   |   |
| Less: Amortization of                    terminated swaps                                     |   |                                                                  | — |                                                                |   | (110     | )      |     | —  |   |   | (541    | )      |
| Income tax                    expense                                                         |   |                                                                  | — |                                                                |   | 38       |   |     | —  |   |   | 189     |   |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
|                                                                                          |   |                                                                  | (10,459 | )                                                                   |   | (4,363   | )      |     | 1,646    |   |   | (3,080  | )      |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| Balance at end of                    period                                                   |   |                                                                  | 16,602  |                                                                |   | (3,806   | )      |     | 16,602   |   |   | (3,806  | )      |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
|                                                                                          |   | $                                                                     | (17,685 | )                                                                   | $      | (63,371  | )      | $        | (17,685  | )      | $      | (63,371 | )      |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
|                                                                                          |   |                                                                  |    |                                                                |   |     |   |     |     |   |   |    |   |
| Total other comprehensive                    loss                                             |   | $                                                                     | (42,834 | )                                                                   | $      | (26,327  | )      | $        | (1,876   | )      | $      | (15,267 | )      |
| Net (loss)                    income                                                          |   |                                                                  | (10,932 | )                                                                   |   | 17,930   |   |     | (212,224 | )      |   | 38,448  |   |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |
| Comprehensive (loss)                    income                                                |   | $                                                                     | (53,766 | )                                                                   | $      | (8,397   | )      | $        | (214,100 | )      | $      | 23,181  |   |
|                                                                                          |   |                                                                       |         |                                                                |        |          |   |          |          |   |        |         |   |

**Note 4 – Branch        Acquisition**

          In        June 2008, Carolina First Bank acquired five branch offices (including related loans and        deposits) in Florida from an unrelated financial institution. In connection with this        branch acquisition, TSFG acquired loans of $6.4 million, premises and equipment of $13.4        million, and deposits totaling $24.5 million, and recorded a core deposit intangible asset        of $654,000. The core deposit intangible asset is being amortized over 5 years using an        accelerated method.

9

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

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

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

|                                                        |   |                                       |    |                                       |   |                              |   |                                     |    |                              |   |                                     |   |   |      |   |   |   |   |
|-------------------------------------------------------------|--------|--------------------------------------------|---------|--------------------------------------------|--------|-----------------------------------|--------|------------------------------------------|---------|-----------------------------------|--------|------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|
|                                                        |   | **June                    30, 2008**       |    |
|                                                        |   |                                            |    |
|                                                        |   | **Less                    than 12 Months** |    | **12                    Months or Longer** |   | **Total**                         |   |
|                                                        |   |                                            |    |                                            |   |                                   |   |
|                                                        |   | **Fair                    Value**          |    | **Unrealized                    Losses**   |   | **Fair                    Value** |   | **Unrealized                    Losses** |    | **Fair                    Value** |   | **Unrealized                    Losses** |   |
|                                                        |   |                                            |    |                                            |   |                                   |   |                                          |    |                                   |   |                                          |   |
| **Securities Available for                    Sale**        |   |                                       |    |                                       |   |                              |   |                                     |    |                              |   |                                     |   |   |      |   |   |   |   |
| US government                    agencies                   |   | $                                          | 179,554 |                                       | $      | 3,644                             |   | $                                        | — |                              | $      | —                                  |   | $      | 179,554   |   | $      | 3,644  |   |
| Agency mortgage-backed                    securities        |   |                                       | 707,784 |                                       |   | 14,859                            |   |                                     | 526,800 |                              |   | 35,755                                   |   |   | 1,234,584 |   |   | 50,614 |   |
| Private label                    mortgage-backed securities |   |                                       | 15,544  |                                       |   | 728                               |   |                                     | — |                              |   | —                                  |   |   | 15,544    |   |   | 728    |   |
| State and                    municipals                     |   |                                       | 87,803  |                                       |   | 553                               |   |                                     | 3,384   |                              |   | 87                                       |   |   | 91,187    |   |   | 640    |   |
| Equity                    investments                       |   |                                       | 96      |                                       |   | 82                                |   |                                     | 2,719   |                              |   | 1,231                                    |   |   | 2,815     |   |   | 1,313  |   |
|                                                        |   |                                            |         |                                       |        |                                   |   |                                          |         |                              |        |                                          |   |        |           |   |        |        |   |
|                                                        |   | $                                          | 990,781 |                                       | $      | 19,866                            |   | $                                        | 532,903 |                              | $      | 37,073                                   |   | $      | 1,523,684 |   | $      | 56,939 |   |
|                                                        |   |                                            |         |                                       |        |                                   |   |                                          |         |                              |        |                                          |   |        |           |   |        |        |   |
|                                                        |   |                                       |    |                                       |   |                              |   |                                     |    |                              |   |                                     |   |   |      |   |   |   |   |
| **Securities Held to                    Maturity**          |   |                                       |    |                                       |   |                              |   |                                     |    |                              |   |                                     |   |   |      |   |   |   |   |
| State and                    municipals                     |   | $                                          | 5,929   |                                       | $      | 48                                |   | $                                        | 1,290   |                              | $      | 26                                       |   | $      | 7,219     |   | $      | 74     |   |
|                                                        |   |                                            |         |                                       |        |                                   |   |                                          |         |                              |        |                                          |   |        |           |   |        |        |   |

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

          At        June 30, 2008, TSFG had 434 individual investments that were in an unrealized loss        position. The unrealized losses summarized above, except for equity investments, were        primarily attributable to increases in interest rates, rather than deterioration in credit        quality. The majority of these securities are government or agency securities and,        therefore, pose minimal credit risk. TSFG believes it has the ability and intent to hold        these debt securities until a market price recovery or maturity. Therefore, at June 30,        2008, these investments are not considered impaired on an other-than-temporary        basis.

          In        second quarter 2008, TSFG recorded $927,000 in other-than-temporary impairment on its $18.2        million corporate bond portfolio due to a change in intent to hold the securities until a        recovery in value based on a change in investment strategy. Subsequent to quarter-end, TSFG        sold approximately $8.4 million of corporate bonds and recognized a gain on sale of        approximately $129,000. In second quarter 2007, TSFG recorded $2.9 million in        other-than-temporary impairment on its corporate bond portfolio.

          TSFG        also invests in limited partnerships, limited liability companies (“LLCs”) and        other privately held companies. These investments are included in other assets. In the        three and six months ended June 30, 2008, TSFG recorded $359,000 and $589,000 in        other-than-temporary impairment on these investments. In the three and six months ended        June 30, 2007, TSFG recorded $342,000 in other-than-temporary impairment on these        investments. At June 30, 2008, TSFG’s investment in these entities totaled $17.4        million, of which $5.3 million were accounted for under the cost method and $12.1 million        were accounted for under the equity method.

10

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

**Note****6****– Loans**

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

|                                                                  |   |                                 |       |                                     |   |       |   |
|-----------------------------------------------------------------------|--------|--------------------------------------|------------|------------------------------------------|--------|------------|--------|
|                                                                  |   | **June                    30, 2008** |       | **December 31,                    2007** |   |
|                                                                  |   |                                      |       |                                          |   |
| Commercial, financial and                    agricultural             |   | $                                    | 2,389,048  |                                     | $      | 2,309,294  |   |
| Real estate -                    construction                         |   |                                 | 1,827,861  |                                     |   | 1,763,365  |   |
| Real estate - residential                    mortgages (1-4 family)   |   |                                 | 1,521,974  |                                     |   | 1,390,729  |   |
| Commercial secured by real                    estate                  |   |                                 | 3,909,030  |                                     |   | 3,946,440  |   |
| Consumer                                                              |   |                                 | 827,818    |                                     |   | 803,592    |   |
|                                                                  |   |                                      |            |                                     |        |            |   |
| Loans held for                    investment                          |   | $                                    | 10,475,731 |                                     | $      | 10,213,420 |   |
|                                                                  |   |                                      |            |                                     |        |            |   |
|                                                                  |
| Included in the                    above:                             |   |                                 |       |                                     |   |       |   |
| Nonaccrual loans                                                      |   | $                                    | 218,726    |                                     | $      | 80,191     |   |
|                                                                  |   |                                      |            |                                     |        |            |   |
| Loans past due 90 days and                    still accruing interest |   | $                                    | 8,779      |                                     | $      | 5,349      |   |
|                                                                  |   |                                      |            |                                     |        |            |   |

          During        the second quarter of 2008, TSFG sold $40.0 million of nonperforming loans included in        loans held for investment. In the three and six months ended June 30, 2008, TSFG        charged-off $16.1 million and $17.6 million, respectively, of these loans against the        allowance for loan losses.

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

|                                          |   |                                                                                                       |    |                                                                                                     |   |   |   |
|-----------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                          |   | **At and                    For the                    Six Months Ended                    June 30, 2008** |    | **At and                    For the                    Year Ended                    December 31, 2007** |   |
|                                          |   |                                                                                                            |    |                                                                                                          |   |
| Impaired loans                                |   | $                                                                                                          | 195,774 |                                                                                                     | $      | 68,102 |   |
| Related                    allowance          |   |                                                                                                       | 39,238  |                                                                                                     |   | 11,340 |   |
| Interest income                    recognized |   |                                                                                                       | 29      |                                                                                                     |   | 59     |   |
| Foregone                    interest          |   |                                                                                                       | 7,008   |                                                                                                     |   | 3,437  |   |

11

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

**Note 7 –        Allowance for Credit Losses**

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

|                                                            |   |                                                                                                  |    |                                                                                                                        |   |    |   |   |    |   |
|-----------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|
|                                                            |   | **At and                    For the                    Six Months                    Ended June 30,** |    | **At and                    For the                    Year Ended                    December 31,                    2007** |   |
|                                                            |   |                                                                                                       |    |                                                                                                                        |
|                                                            |   | **2008**                                                                                              |    | **2007**                                                                                                                    |   |    |
|                                                            |   |                                                                                                       |    |                                                                                                                             |   |         |   |
| **Allowance for loan                    losses**                |   |                                                                                                  |    |                                                                                                                        |   |    |   |   |    |   |
| Balance at beginning of                    period               |   | $                                                                                                     | 126,427 |                                                                                                                        | $      | 111,663 |   | $      | 111,663 |   |
| Provision for loan                    losses                    |   |                                                                                                  | 137,225 |                                                                                                                        |   | 25,987  |   |   | 67,325  |   |
| Loans                    charged-off                            |   |                                                                                                  | (76,106 | )                                                                                                                           |   | (16,233 | )      |   | (59,408 | )      |
| Recoveries of loans                    previously charged off   |   |                                                                                                  | 4,181   |                                                                                                                        |   | 4,128   |   |   | 6,847   |   |
|                                                            |   |                                                                                                       |         |                                                                                                                        |        |         |   |        |         |   |
| Balance at end of                    period                     |   | $                                                                                                     | 191,727 |                                                                                                                        | $      | 125,545 |   | $      | 126,427 |   |
|                                                            |   |                                                                                                       |         |                                                                                                                        |        |         |   |        |         |   |
|                                                            |
| **Reserve for unfunded                    lending commitments** |   |                                                                                                  |    |                                                                                                                        |   |    |   |   |    |   |
| Balance at beginning of                    year                 |   | $                                                                                                     | 2,268   |                                                                                                                        | $      | 1,025   |   | $      | 1,025   |   |
| Provision for unfunded                    lending commitments   |   |                                                                                                  | (170    | )                                                                                                                           |   | 151     |   |   | 1,243   |   |
|                                                            |   |                                                                                                       |         |                                                                                                                        |        |         |   |        |         |   |
| Balance at end of                    period                     |   | $                                                                                                     | 2,098   |                                                                                                                        | $      | 1,176   |   | $      | 2,268   |   |
|                                                            |   |                                                                                                       |         |                                                                                                                        |        |         |   |        |         |   |
|                                                            |
| **Allowance for credit                    losses**              |   |                                                                                                  |    |                                                                                                                        |   |    |   |   |    |   |
| Balance at beginning of                    year                 |   | $                                                                                                     | 128,695 |                                                                                                                        | $      | 112,688 |   | $      | 112,688 |   |
| Provision for credit                    losses                  |   |                                                                                                  | 137,055 |                                                                                                                        |   | 26,138  |   |   | 68,568  |   |
| Loans                    charged-off                            |   |                                                                                                  | (76,106 | )                                                                                                                           |   | (16,233 | )      |   | (59,408 | )      |
| Recoveries of loans                    previously charged off   |   |                                                                                                  | 4,181   |                                                                                                                        |   | 4,128   |   |   | 6,847   |   |
|                                                            |   |                                                                                                       |         |                                                                                                                        |        |         |   |        |         |   |
| Balance at end of                    period                     |   | $                                                                                                     | 193,825 |                                                                                                                        | $      | 126,721 |   | $      | 128,695 |   |
|                                                            |   |                                                                                                       |         |                                                                                                                        |        |         |   |        |         |   |

**Note 8 –        Goodwill**

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

|                                                                 |   |                                                          |    |                                                          |   |                                |   |      |     |      |   |    |   |   |     |   |
|----------------------------------------------------------------------|--------|---------------------------------------------------------------|---------|---------------------------------------------------------------|--------|-------------------------------------|--------|-----------|----------|-----------|--------|---------|--------|--------|----------|--------|
|                                                                 |   | **South                    Carolina                    Bank** |    | **North                    Carolina                    Bank** |   | **Florida                    Bank** |   | **Other** |     | **Total** |   |
|                                                                 |   |                                                               |    |                                                               |   |                                     |   |           |     |           |   |
|                                                                 |
| Balance, December 31,                    2007                        |   | $                                                             | 119,267 |                                                          | $      | 87,961                              |   | $         | 440,538  |      | $      | 3,237   |   | $      | 651,003  |   |
| Reclassification for change                    in operating segments |   |                                                          | (3,085  | )                                                             |   | (343                                | )      |      | (12,651  | )         |   | 16,079  |   |   | —  |   |
|                                                                 |   |                                                               |         |                                                          |        |                                     |   |           |          |      |        |         |   |        |          |   |
| Revised balance, December                    31, 2007                |   |                                                          | 116,182 |                                                          |   | 87,618                              |   |      | 427,887  |      |   | 19,316  |   |   | 651,003  |   |
| Goodwill impairment                    charge                        |   |                                                          | — |                                                          |   | —                             |   |      | (188,431 | )         |   | — |   |   | (188,431 | )      |
| Purchase accounting                    adjustments                   |   |                                                          | — |                                                          |   | —                             |   |      | —  |      |   | 728     |   |   | 728      |   |
|                                                                 |   |                                                               |         |                                                          |        |                                     |   |           |          |      |        |         |   |        |          |   |
| Balance, June 30,                    2008                            |   | $                                                             | 116,182 |                                                          | $      | 87,618                              |   | $         | 239,456  |      | $      | 20,044  |   | $      | 463,300  |   |
|                                                                 |   |                                                               |         |                                                          |        |                                     |   |           |          |      |        |         |   |        |          |   |

          Effective        January 1, 2008, TSFG changed its operating segments to exclude insurance agencies from the        geographic banking segments. The insurance line of business is now included in        “Other” (see Note 15). As a result, the goodwill balance as of December 31,        2007 has been reclassified for comparability.

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

12

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

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

          The        annual impairment evaluation as of June 30, 2008 indicated that no additional impairment        charge was required, and there have been no events or circumstances since that date        indicating impairment.

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

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

|                                                                      |   |                                 |   |                                     |   |    |                              |                                   |          |   |   |   |   |   |    |   |   |      |   |
|---------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------------|--------|---------|-----------------------------------|----------------------------------------|---------------|--------|--------|--------|--------|--------|---------|--------|--------|-----------|--------|
|                                                                      |   | **June                    30, 2008** |   | **December 31,                    2007** |   |
|                                                                      |   |                                      |   |                                          |   |
|                                                                      |   | **Fair                    Value**    |   |                                     |   |    | **Fair                    Value** |                                   |          |   |   |
|                                                                      |   |                                      |   | **Notional                    Amount**   |   |         |                              | **Notional                    Amount** |          |
|                                                                      |   | **Asset**                            |   | **Liability**                            |   |    | **Asset**                         |                                   | **Liability** |   |   |
|                                                                      |   |                                      |   |                                          |   |         |                              |                                        |          |        |   |        |   |
| **Cash                    Flow Hedges**                                   |
| Interest rate swaps                    associated with lending activities |   | $                                    | 21,315 |                                     | $      | — |                              | $                                      | 800,000       |   | $      | 20,114 |   | $      | — |   | $      | 830,000   |   |
| Interest rate floor                    associated with lending activities |   |                                 | 5,427  |                                     |   | — |                              |                                   | 200,000       |   |   | 4,531  |   |   | — |   |   | 200,000   |   |
|                                                                      |
| **Fair Value                    Hedges**                                  |   |                                 |   |                                     |   |    |                              |                                   |          |   |   |   |   |   |    |   |   |      |   |
| Interest rate swaps                    associated with brokered CDs       |   |                                 | 2,299  |                                     |   | 5,166   |                              |                                   | 326,352       |   |   | 672    |   |   | 8,235   |   |   | 988,477   |   |
|                                                                      |
| **Other                    Derivatives**                                  |   |                                 |   |                                     |   |    |                              |                                   |          |   |   |   |   |   |    |   |   |      |   |
| Forward foreign currency                    contracts                     |   |                                 | 1      |                                     |   | 1       |                              |                                   | 159           |   |   | 5      |   |   | 5       |   |   | 653       |   |
| Customer swap                    contracts                                |   |                                 | 6,564  |                                     |   | 6,640   |                              |                                   | 615,469       |   |   | 5,065  |   |   | 5,065   |   |   | 238,224   |   |
| Options, interest rate                    swaps and other                 |   |                                 | 4,240  |                                     |   | 4,632   |                              |                                   | 142,098       |   |   | 5,807  |   |   | 7,712   |   |   | 161,832   |   |
|                                                                      |   |                                      |        |                                     |        |         |                              |                                        |               |   |        |        |   |        |         |   |        |           |   |
|                                                                      |   | $                                    | 39,846 |                                     | $      | 16,439  |                              | $                                      | 2,084,078     |   | $      | 36,194 |   | $      | 21,017  |   | $      | 2,419,186 |   |
|                                                                      |   |                                      |        |                                     |        |         |                              |                                        |               |   |        |        |   |        |         |   |        |           |   |

          In        the three and six months ended June 30, 2008, noninterest income included a gain of        $236,000 and $248,000, respectively, for certain derivative activities. In the three and        six months ended June 30, 2007, noninterest income included a loss of $1.5 million and $1.4        million, respectively, for certain derivative activities. These amounts include the        following: the change in fair value of derivatives that do not qualify for hedge accounting        under SFAS 133, as well as the net cash settlement from these interest rate swaps; hedge        ineffectiveness for fair value hedges, which totaled a loss of $388,000 and a gain of        $246,000, respectively, for the three and six months ended June 30, 2008, and losses of        $601,000 and $742,000, respectively, for three and six months ended June 30, 2007; and        other miscellaneous items.

**Note 10 –        Commitments and Contingent Liabilities**

*Legal        Proceedings*

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

13

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

*Recourse Reserve*

          As        part of its 2004 acquisition of Florida Banks, Inc. (“Florida Banks”), TSFG        acquired a recourse reserve associated with loans previously sold from Florida Banks’        wholesale mortgage operation. This recourse requires the repurchase of loans at par plus        accrued interest from the buyer, upon the occurrence of certain events. At June 30, 2008,        the estimated recourse reserve liability, included in other liabilities, totaled $6.1        million. TSFG will continue to evaluate the reserve level and may make adjustments through        earnings as more information becomes known. There can be no guarantee that any liability or        cost arising out of this matter will not exceed any established reserves.

*Expanded        Corporate Facilities*

          During        2005, TSFG initiated plans for a “corporate campus” to meet current and future        facility needs and serve as the primary headquarters for its banking operations. Through        June 30, 2008, TSFG had invested approximately $45 million in the project (which is        included in premises and equipment on the consolidated balance sheet as construction in        progress) and had entered into additional contractual commitments of approximately $26        million.

*Loan        Commitments*

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

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

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

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

|                                                              |   |                                           |      |                                     |   |      |   |
|-------------------------------------------------------------------|--------|------------------------------------------------|-----------|------------------------------------------|--------|-----------|--------|
|                                                              |   | **Outstanding                    Commitments** |      |
|                                                              |   |                                                |      |
|                                                              |   | **June                    30, 2008**           |      | **December 31,                    2007** |   |
|                                                              |   |                                                |      |                                          |   |
| Loan                    commitments:                              |   |                                           |      |                                     |   |      |   |
| Commercial, financial,                    agricultural, and other |   | $                                              | 991,057   |                                     | $      | 988,962   |   |
| Commercial secured by real                    estate              |   |                                           | 541,053   |                                     |   | 698,179   |   |
| Home equity                    loans                              |   |                                           | 506,393   |                                     |   | 530,626   |   |
| Standby letters of                    credit                      |   |                                           | 225,823   |                                     |   | 184,529   |   |
| Documentary letters of                    credit                  |   |                                           | 3,112     |                                     |   | 153       |   |
| Unused business credit card                    lines              |   |                                           | 34,258    |                                     |   | 32,948    |   |
|                                                              |   |                                                |           |                                     |        |           |   |
| Total                                                             |   | $                                              | 2,301,696 |                                     | $      | 2,435,397 |   |
|                                                              |   |                                                |           |                                     |        |           |   |

**Note 11 – Preferred        Stock**

          On        May 8, 2008, TSFG issued, in the aggregate, 250,000 shares of no par value, mandatory        convertible non-cumulative preferred stock (“Preferred Stock”), at a purchase        price and liquidation preference of $1,000 per share. Dividends are payable quarterly, if        declared by the Board of Directors, at an annual rate of 10%. Each share of Preferred Stock        is mandatorily convertible into 153.846 shares of TSFG’s common stock, based on a        conversion price of

14

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

$6.50 per share of        common stock, on May 1, 2011. On or after July 18, 2010, the Preferred Stock is also        automatically convertible if, for a period of 20 consecutive trading days, the closing        price of TSFG’s common stock has been at least $21.00 per share. In addition, the        Preferred Stock is convertible at the option of the holder before the mandatory conversion        events described above.

          The        following is a summary of TSFG’s Preferred Stock outstanding as of June 30,        2008:

|                                |   |                                    |    |                                                 |   |    |   |
|-------------------------------------|--------|-----------------------------------------|---------|------------------------------------------------------|--------|---------|--------|
|                                |   | **Number                    of shares** |    | **Carrying value                    (in thousands)** |   |
|                                |   |                                         |    |                                                      |   |
| Series                    2008ND-V  |   |                                    | 55,562  |                                                 | $      | 55,562  |   |
| Series                    2008ND-NV |   |                                    | 184,718 |                                                 |   | 184,718 |   |
| Series                    2008D-V   |   |                                    | 2,248   |                                                 |   | 2,248   |   |
| Series                    2008D-NV  |   |                                    | 7,472   |                                                 |   | 7,472   |   |
|                                |   |                                         |         |                                                 |        |         |   |
| Total                               |   |                                    | 250,000 |                                                 | $      | 250,000 |   |
|                                |   |                                         |         |                                                 |        |         |   |

          Under        the NASDAQ market rules, the Series 2008ND-V and Series 2008D-V (an aggregate of 57,810        shares) became eligible, at the holder’s option, for conversion into TSFG common        stock following the special shareholders’ meeting on July 18, 2008 (at which the        voting and conversion rights of the Preferred Stock were voted upon and approved). Such        right of conversion would have arisen after the shareholders’ meeting, however, even        if shareholder approval had not been obtained. As such, these shares were considered common        stock equivalents at June 30, 2008 and approximately 8.9 million shares would have been        included in computing diluted earnings per share, if the effect had not been antidilutive.        Conversion of the Series 2008ND-NV and Series 2008D-NV (an aggregate of 192,190 shares) was        contingent upon shareholder approval. Prior to receipt of shareholder approval, the shares        were not considered common stock equivalents and thus were excluded from the computation of        diluted earnings per share at June 30, 2008. Since shareholder approval was obtained on        July 18, 2008, these shares will be considered common stock equivalents and will add        approximately 29.6 million shares to the calculation of diluted earnings per share for        future periods, unless such shares are considered antidilutive.

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

15

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

**Note 12 – Share        Information**

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

|                                                                              |   |                                                  |       |                                                |   |       |   |     |       |   |   |       |   |
|-----------------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|-----------------------------------------------------|--------|------------|--------|----------|------------|--------|--------|------------|--------|
|                                                                              |   | **Three                    Months Ended****June 30,** |       | **Six                    Months Ended****June 30,** |   |
|                                                                              |   |                                                       |       |                                                     |   |
|                                                                              |   | **2008**                                              |       | **2007**                                            |   | **2008**   |   | **2007** |       |
|                                                                              |   |                                                       |       |                                                     |   |            |   |          |       |
| Net (loss)                    income                                              |   | $                                                     | (10,932    | )                                                   | $      | 17,930     |   | $        | (212,224   | )      | $      | 38,448     |   |
| Preferred stock                    dividends                                      |   |                                                  | (5,833     | )                                                   |   | —    |   |     | (5,833     | )      |   | —    |   |
|                                                                              |   |                                                       |            |                                                |        |            |   |          |            |   |        |            |   |
| Net (loss) income available                    to common shareholders (numerator) |   | $                                                     | (16,765    | )                                                   | $      | 17,930     |   | $        | (218,057   | )      | $      | 38,448     |   |
|                                                                              |   |                                                       |            |                                                |        |            |   |          |            |   |        |            |   |
| **Basic**                                                                         |   |                                                  |       |                                                |   |       |   |     |       |   |   |       |   |
| Average common shares                    outstanding (denominator)                |   |                                                  | 72,611,024 |                                                |   | 74,050,115 |   |     | 72,530,399 |   |   | 74,390,456 |   |
| (Loss) earnings per                    share                                      |   | $                                                     | (0.23      | )                                                   | $      | 0.24       |   | $        | (3.01      | )      | $      | 0.52       |   |
| **Diluted**                                                                       |   |                                                  |       |                                                |   |       |   |     |       |   |   |       |   |
| Average common shares                    outstanding                              |   |                                                  | 72,611,024 |                                                |   | 74,050,115 |   |     | 72,530,399 |   |   | 74,390,456 |   |
| Average dilutive potential                    common shares                       |   |                                                  | —    |                                                |   | 346,976    |   |     | —    |   |   | 424,465    |   |
|                                                                              |   |                                                       |            |                                                |        |            |   |          |            |   |        |            |   |
| Average diluted shares                    outstanding (denominator)               |   |                                                  | 72,611,024 |                                                |   | 74,397,091 |   |     | 72,530,399 |   |   | 74,814,921 |   |
|                                                                              |   |                                                       |            |                                                |        |            |   |          |            |   |        |            |   |
| (Loss) earnings per                    share                                      |   | $                                                     | (0.23      | )                                                   | $      | 0.24       |   | $        | (3.01      | )      | $      | 0.51       |   |

          For        the three and six months ended June 30, 2008, options to purchase an additional 3.7 million        shares of common stock were outstanding but were not included in the computation of diluted        earnings per share because their inclusion would have had an antidilutive effect. Likewise,        for the three and six months ended June 30, 2007, options to purchase an additional 2.2        million and 2.1 million shares, respectively, of common stock were outstanding but were not        included in the computation of diluted earnings per share because their inclusion would        have had an antidilutive effect.

          Also        excluded from the computation of diluted earnings per share for the three and six months        ended June 30, 2008 because of their antidilutive effect were 8.9 million shares of common        stock related to Preferred Stock and 656,000 shares of common stock related to restricted        stock and restricted stock units granted under equity incentive programs.

**Note 13 – Fair Value        Disclosures**

          Effective        January 1, 2008, TSFG adopted SFAS 157 (for its financial assets and liabilities) and        SFAS 159. SFAS 157 defines fair value, establishes a consistent framework for        measuring fair value and expands disclosure requirements about fair value measurements.        SFAS 157 requires, among other things, the Company to maximize the use of observable        inputs and minimize the use of unobservable inputs in its fair value measurement        techniques. The adoption of SFAS 157 resulted in no change to January 1, 2008 retained        earnings. SFAS 159 allows an entity the irrevocable option to elect fair value for the        initial and subsequent measurement for certain financial assets and liabilities on a        contract-by-contract basis. TSFG elected the fair value option for its portfolio of        mortgage loans held for sale in order to reduce certain timing differences and better match        changes in fair values of the loans with changes in the value of derivative instruments        used to economically hedge them. As a result of its election, TSFG recorded the following        entry to opening retained earnings (in thousands):

16

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

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

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

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

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

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

|                                             |   |                                 |      |                           |   |                           |   |                           |      |   |   |    |   |
|--------------------------------------------------|--------|--------------------------------------|-----------|--------------------------------|--------|--------------------------------|--------|--------------------------------|-----------|--------|--------|---------|--------|
|                                             |   | **June                    30, 2008** |      |
|                                             |   |                                      |      |
|                                             |   | **Total**                            |      | **Level                    1** |   | **Level                    2** |   | **Level                    3** |      |
|                                             |   |                                      |      |                                |   |                                |   |                                |      |
|                                             |
| Securities available for                    sale |   | $                                    | 1,987,232 |                           | $      | 159,247                        |   | $                              | 1,787,794 |   | $      | 40,191  |   |
| Loans held for                    sale           |   |                                 | 21,871    |                           |   | —                        |   |                           | 21,871    |   |   | — |   |
| Derivative                    assets             |   |                                 | 39,846    |                           |   | —                        |   |                           | 33,166    |   |   | 6,680   |   |
|                                             |   |                                      |           |                           |        |                                |   |                                |           |   |        |         |   |
| Total                                            |   | $                                    | 2,048,949 |                           | $      | 159,247                        |   | $                              | 1,842,831 |   | $      | 46,871  |   |
|                                             |   |                                      |           |                           |        |                                |   |                                |           |   |        |         |   |
|                                             |
| Derivative                    liabilities        |   | $                                    | 16,439    |                           | $      | —                        |   | $                              | 11,787    |   | $      | 4,652   |   |
|                                             |   |                                      |           |                           |        |                                |   |                                |           |   |        |         |   |

17

----

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

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

|                                                                                                  |   |                                                                       |    |                                                                                          |   |                                                                    |   |                                                                                          |    |   |   |   |   |
|-------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|---------|--------|--------|--------|--------|
|                                                                                                  |   | **Three                    Months Ended                    June 30, 2008** |    | **Six                    Months Ended                    June 30, 2008**                      |   |
|                                                                                                  |   |                                                                            |    |                                                                                               |   |
|                                                                                                  |   | **Securities                    Available                    For Sale**    |    | **Net                    Derivative                    Asset                    (Liability)** |   | **Securities                    Available                    For Sale** |   | **Net                    Derivative                    Asset                    (Liability)** |    |
|                                                                                                  |   |                                                                            |    |                                                                                               |   |                                                                         |   |                                                                                               |    |
|                                                                                                  |
| Balance at beginning of                    period                                                     |   | $                                                                          | 41,897  |                                                                                          | $      | 2,562                                                                   |   | $                                                                                             | 37,735  |   | $      | 370    |   |
| Total net (losses) gains                    included in net income                                    |   |                                                                       | — |                                                                                          |   | (150                                                                    | )      |                                                                                          | — |   |   | 2,226  |   |
| Purchases, sales, issuances                    and settlements, net                                   |   |                                                                       | (1,706  | )                                                                                             |   | (384                                                                    | )      |                                                                                          | 2,456   |   |   | (568   | )      |
|                                                                                                  |   |                                                                            |         |                                                                                          |        |                                                                         |   |                                                                                               |         |   |        |        |   |
| Balance at end of                    period                                                           |   | $                                                                          | 40,191  |                                                                                          | $      | 2,028                                                                   |   | $                                                                                             | 40,191  |   | $      | 2,028  |   |
|                                                                                                  |   |                                                                            |         |                                                                                          |        |                                                                         |   |                                                                                               |         |   |        |        |   |
|                                                                                                  |
| Net (losses) gains included                    in net income relating to assets held at June 30, 2008 |   | $                                                                          | — |                                                                                          | $      | (150                                                                    | )      | $                                                                                             | — |   | $      | 2,226  |   |
|                                                                                                  |   |                                                                            |         |                                                                                          |        |                                                                         |   |                                                                                               |         |   |        |        |   |

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

|                                             |   |                                                   |    |                                                                                          |   |                                                                                        |   |                           |    |                                        |   |    |   |   |    |   |   |    |   |
|--------------------------------------------------|--------|--------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|--------------------------------|---------|---------------------------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                             |   |                                                   |    |                                                                                          |   |                                                                                        |   |                           |    | **Total                    gains (losses)** |   |
|                                             |   |                                                   |    |                                                                                          |   |                                                                                        |   |                           |    |                                             |   |
|                                             |   | **Carrying value at June                    30, 2008** |    | **Three                    months                    ended                    June 30, 2008** |   | **Six                    months                    ended                    June 30, 2008** |   |
|                                             |   |                                                        |    |                                                                                          |   |
|                                             |   | **Total**                                              |    | **Level                    1**                                                                |   | **Level                    2**                                                              |   | **Level                    3** |    |                                        |   |
|                                             |   |                                                        |    |                                                                                               |   |                                                                                             |   |                                |    |                                             |   |         |   |
|                                             |
| Loans held for                    investment (1) |   | $                                                      | 155,111 |                                                                                          | $      | —                                                                                     |   | $                              | — |                                        | $      | 155,111 |   | $      | (30,260 | )      | $      | (60,233 | )      |

|   |                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Represents carrying value                    and related write-downs of loans for which adjustments are based on the                    appraised value of the collateral. |

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

          *Fair Value Option*

          At        June 30, 2008, loans held for sale for which the fair value option was elected had an        aggregate fair value and outstanding principal balance of $21.9 million. Interest income on        these loans is calculated based on the note rate of the loan and is recorded in interest        income in the income statement. During the three and six months ended June 30, 2008, net        losses resulting from changes in fair value of these loans of $55,000 and $74,000,        respectively, were recorded in mortgage banking income. These changes in fair value were        mostly offset by hedging activities. An immaterial portion of these amounts was        attributable to changes in instrument-specific credit risk.

**Note 14 – Income        Taxes**

          The        effective income tax rate as a percentage of pretax income was 42.4% and 10.4%,        respectively, for the three and six months ended June 30, 2008. Income tax expense differed        from the amount computed by applying TSFG’s statutory U.S. federal income tax rate of        35% to pretax income for the three and six months ended June 30,

18

----

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

2008 primarily as a result of the        impact of the nondeductible goodwill impairment, other nontaxable and nondeductible items,        and management’s projections.

**Note 15 – Business        Segments**

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

          The        results for these segments are based on TSFG’s management reporting process, which        assigns balance sheet and income statement items to each segment. Unlike financial        reporting, there is no authoritative guidance for management reporting equivalent to        generally accepted accounting principles. The Company uses an internal funding methodology        to assign funding costs to assets and earning credits to liabilities with an offset in        “Other.” The management reporting process measures the performance of the        defined segments based on TSFG’s management structure and is not necessarily        comparable with similar information for other financial services companies or        representative of results that would be achieved if the segments operated as stand-alone        entities. If the management structure and/or allocation process changes, allocations,        transfers and assignments may change. Segment information (in thousands) is shown in the        table below.

19

----

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

|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
|------------------------------------------------------------------------------|--------|---------------------------------------------------------------|-----------|---------------------------------------------------------------|--------|-------------------------------------|--------|-----------|-----------|-----------|--------|-----------|--------|--------|------------|--------|
|                                                                         |   | **South                    Carolina                    Bank** |      | **North                    Carolina                    Bank** |   | **Florida                    Bank** |   | **Other** |      | **Total** |   |
|                                                                         |   |                                                               |      |                                                               |   |                                     |   |           |      |           |   |
| **Three Months Ended June                    30, 2008**                      |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
| Net interest income before                    inter-segment income (expense) |   | $                                                             | 37,355    |                                                          | $      | 16,879                              |   | $         | 33,100    |      | $      | 12,871    |   | $      | 100,205    |   |
| Inter-segment interest                    income (expense)                   |   |                                                          | 3,802     |                                                          |   | (3,046                              | )      |      | (176      | )         |   | (580      | )      |   | —    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Net interest                    income                                       |   |                                                          | 41,157    |                                                          |   | 13,833                              |   |      | 32,924    |      |   | 12,291    |   |   | 100,205    |   |
| Provision for credit                    losses                               |   |                                                          | 6,493     |                                                          |   | 7,629                               |   |      | 41,284    |      |   | 8,357     |   |   | 63,763     |   |
| Noninterest                    income                                        |   |                                                          | 12,124    |                                                          |   | 2,639                               |   |      | 7,934     |      |   | 9,493     |   |   | 32,190     |   |
| Other noninterest expenses                    - direct (1)                   |   |                                                          | 17,268    |                                                          |   | 5,837                               |   |      | 16,439    |      |   | 48,076    |   |   | 87,620     |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Contribution before                    allocation                            |   |                                                          | 29,520    |                                                          |   | 3,006                               |   |      | (16,865   | )         |   | (34,649   | )      |   | (18,988    | )      |
| Noninterest expenses -                    allocated (2)                      |   |                                                          | 18,679    |                                                          |   | 5,313                               |   |      | 15,763    |      |   | (39,755   | )      |   | —    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Contribution before income                    taxes                          |   | $                                                             | 10,841    |                                                          | $      | (2,307                              | )      | $         | (32,628   | )         | $      | 5,106     |   |   | (18,988    | )      |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |   |       |   |
| Income tax                    expense                                        |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   | (8,056     | )      |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |        |            |   |
| Net income                                                                   |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   | $      | (10,932    | )      |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |        |            |   |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
| **Six Months Ended June                    30, 2008**                        |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
| Net interest income before                    inter-segment income (expense) |   | $                                                             | 73,155    |                                                          | $      | 35,092                              |   | $         | 68,376    |      | $      | 16,288    |   | $      | 192,911    |   |
| Inter-segment interest                    income (expense)                   |   |                                                          | 10,423    |                                                          |   | (6,771                              | )      |      | 1,080     |      |   | (4,732    | )      |   | —    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Net interest                    income                                       |   |                                                          | 83,578    |                                                          |   | 28,321                              |   |      | 69,456    |      |   | 11,556    |   |   | 192,911    |   |
| Provision for credit                    losses                               |   |                                                          | 14,218    |                                                          |   | 16,048                              |   |      | 97,624    |      |   | 9,165     |   |   | 137,055    |   |
| Noninterest                    income                                        |   |                                                          | 23,756    |                                                          |   | 4,958                               |   |      | 14,845    |      |   | 19,547    |   |   | 63,106     |   |
| Goodwill                    impairment                                       |   |                                                          | —   |                                                          |   | —                             |   |      | 188,431   |      |   | —   |   |   | 188,431    |   |
| Other noninterest expenses                    - direct (1)                   |   |                                                          | 32,686    |                                                          |   | 11,013                              |   |      | 31,013    |      |   | 92,656    |   |   | 167,368    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Contribution before                    allocation                            |   |                                                          | 60,430    |                                                          |   | 6,218                               |   |      | (232,767  | )         |   | (70,718   | )      |   | (236,837   | )      |
| Noninterest expenses -                    allocated (2)                      |   |                                                          | 37,449    |                                                          |   | 10,697                              |   |      | 31,884    |      |   | (80,030   | )      |   | —    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Contribution before income                    taxes                          |   | $                                                             | 22,981    |                                                          | $      | (4,479                              | )      | $         | (264,651  | )         | $      | 9,312     |   |   | (236,837   | )      |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |   |       |   |
| Income tax                    expense                                        |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   | (24,613    | )      |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |        |            |   |
| Net income                                                                   |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   | $      | (212,224   | )      |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |        |            |   |
| **June 30,                    2008**                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
| Total assets                                                                 |   | $                                                             | 4,194,967 |                                                          | $      | 1,850,015                           |   | $         | 3,939,549 |      | $      | 3,992,339 |   | $      | 13,976,870 |   |
| Total loans held for                    investment                           |   |                                                          | 4,004,049 |                                                          |   | 1,761,563                           |   |      | 3,677,743 |      |   | 1,032,376 |   |   | 10,475,731 |   |
| Total deposits                                                               |   |                                                          | 3,325,003 |                                                          |   | 1,101,587                           |   |      | 2,999,039 |      |   | 2,460,740 |   |   | 9,886,369  |   |

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

20

----

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

|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
|------------------------------------------------------------------------------|--------|---------------------------------------------------------------|-----------|---------------------------------------------------------------|--------|-------------------------------------|--------|-----------|-----------|-----------|--------|-----------|--------|--------|------------|--------|
|                                                                         |   | **South                    Carolina                    Bank** |      | **North                    Carolina                    Bank** |   | **Florida                    Bank** |   | **Other** |      | **Total** |   |
|                                                                         |   |                                                               |      |                                                               |   |                                     |   |           |      |           |   |
| **Three Months Ended                    June 30, 2007**                      |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
| Net interest income before                    inter-segment income (expense) |   | $                                                             | 43,395    |                                                          | $      | 21,238                              |   | $         | 41,607    |      | $      | (9,719    | )      | $      | 96,521     |   |
| Inter-segment interest                    income (expense)                   |   |                                                          | (72       | )                                                             |   | (6,902                              | )      |      | (3,168    | )         |   | 10,142    |   |   | —    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Net interest                    income                                       |   |                                                          | 43,323    |                                                          |   | 14,336                              |   |      | 38,439    |      |   | 423       |   |   | 96,521     |   |
| Provision for credit                    losses                               |   |                                                          | 1,297     |                                                          |   | 12,612                              |   |      | 1,883     |      |   | 1,333     |   |   | 17,125     |   |
| Noninterest                    income                                        |   |                                                          | 12,267    |                                                          |   | 2,312                               |   |      | 7,251     |      |   | 5,853     |   |   | 27,683     |   |
| Noninterest expenses -                    direct (1)                         |   |                                                          | 15,286    |                                                          |   | 4,899                               |   |      | 13,851    |      |   | 46,115    |   |   | 80,151     |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Contribution before                    allocation                            |   |                                                          | 39,007    |                                                          |   | (863                                | )      |      | 29,956    |      |   | (41,172   | )      |   | 26,928     |   |
| Noninterest expenses -                    allocated (2)                      |   |                                                          | 18,059    |                                                          |   | 6,141                               |   |      | 14,597    |      |   | (38,797   | )      |   | —    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Contribution before                    income taxes                          |   | $                                                             | 20,948    |                                                          | $      | (7,004                              | )      | $         | 15,359    |      | $      | (2,375    | )      |   | 26,928     |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |   |       |   |
| Income tax                    expense                                        |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   | 8,998      |   |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |        |            |   |
| Net income                                                                   |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   | $      | 17,930     |   |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |        |            |   |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
| **Six Months Ended June                    30, 2007**                        |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
| Net interest income before                    inter-segment income (expense) |   | $                                                             | 84,879    |                                                          | $      | 41,397                              |   | $         | 81,516    |      | $      | (16,733   | )      | $      | 191,059    |   |
| Inter-segment interest                    income (expense)                   |   |                                                          | 1,009     |                                                          |   | (13,408                             | )      |      | (4,596    | )         |   | 16,995    |   |   | —    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Net interest                    income                                       |   |                                                          | 85,888    |                                                          |   | 27,989                              |   |      | 76,920    |      |   | 262       |   |   | 191,059    |   |
| Provision for credit                    losses                               |   |                                                          | 4,167     |                                                          |   | 12,471                              |   |      | 6,342     |      |   | 3,158     |   |   | 26,138     |   |
| Noninterest                    income                                        |   |                                                          | 23,324    |                                                          |   | 4,410                               |   |      | 14,077    |      |   | 12,842    |   |   | 54,653     |   |
| Noninterest expenses -                    direct (1)                         |   |                                                          | 30,700    |                                                          |   | 9,900                               |   |      | 28,950    |      |   | 92,078    |   |   | 161,628    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Contribution before                    allocation                            |   |                                                          | 74,345    |                                                          |   | 10,028                              |   |      | 55,705    |      |   | (82,132   | )      |   | 57,946     |   |
| Noninterest expenses -                    allocated (2)                      |   |                                                          | 35,740    |                                                          |   | 12,247                              |   |      | 29,500    |      |   | (77,487   | )      |   | —    |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |        |            |   |
| Contribution before                    income taxes                          |   | $                                                             | 38,605    |                                                          | $      | (2,219                              | )      | $         | 26,205    |      | $      | (4,645    | )      |   | 57,946     |   |
|                                                                         |   |                                                               |           |                                                          |        |                                     |   |           |           |      |        |           |   |   |       |   |
| Income tax                    expense                                        |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   | 19,498     |   |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |        |            |   |
| Net income                                                                   |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   | $      | 38,448     |   |
|                                                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |        |            |   |
| **June 30,                    2007**                                         |   |                                                          |      |                                                          |   |                                |   |      |      |      |   |      |   |   |       |   |
| Total assets                                                                 |   | $                                                             | 3,920,047 |                                                          | $      | 1,737,408                           |   | $         | 3,651,893 |      | $      | 4,830,327 |   | $      | 14,139,675 |   |
| Total loans held for                    investment                           |   |                                                          | 3,800,857 |                                                          |   | 1,712,220                           |   |      | 3,541,956 |      |   | 974,195   |   |   | 10,029,228 |   |
| Total                    deposits                                            |   |                                                          | 3,564,506 |                                                          |   | 1,159,407                           |   |      | 2,997,327 |      |   | 2,364,566 |   |   | 10,085,806 |   |

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

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

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

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

|                                                                                                                    |     |
|-------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                    | **Page** |
|                                                                                                                    |          |
|                                                                                                                    |     |
| Website                    Availability of Reports Filed with the Securities and Exchange                    Commission | 22       |
| Forward-Looking                    Statements                                                                           | 22       |
| Non-GAAP                    Financial Information                                                                       | 23       |
| Overview                                                                                                                | 23       |
| Critical                    Accounting Policies and Estimates                                                           | 25       |
| Expanded                    Corporate Facilities                                                                        | 28       |
| Balance                    Sheet Review                                                                                 | 28       |
| Earnings                    Review                                                                                      | 48       |
| Enterprise                    Risk Management                                                                           | 54       |
| Off-Balance                    Sheet Arrangements                                                                       | 56       |
| Liquidity                                                                                                               | 56       |
| Recently                    Adopted/Issued Accounting Pronouncements                                                    | 58       |

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

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

**Forward-Looking        Statements**

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

|   |   |                                                                                                                                                                                                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | risks from changes in                    economic, monetary policy, and industry conditions;                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                |
|   | • | changes in interest                    rates, shape of the yield curve, deposit rates, the net interest margin, and                    funding sources;                                                                             |
|   |   |                                                                                                                                                                                                                                |
|   | • | market risk (including                    net interest income at risk analysis and economic value of equity risk                    analysis) and inflation;                                                                        |
|   |   |                                                                                                                                                                                                                                |
|   | • | risks inherent in making                    loans including repayment risks and changes in the value of                    collateral;                                                                                              |
|   |   |                                                                                                                                                                                                                                |
|   | • | loan growth, the                    adequacy of the allowance for credit losses, provision for credit losses, and                    the assessment of problem loans (including loans acquired via                    acquisition); |
|   |   |                                                                                                                                                                                                                                |
|   | • | continued deterioration                    in the overall credit environment;                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                |
|   | • | level, composition, and                    repricing characteristics of the securities portfolio;                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                |
|   | • | deposit growth, change                    in the mix or type of deposit products, and cost of deposits;                                                                                                                             |
|   |   |                                                                                                                                                                                                                                |
|   | • | loss of deposits due to                    perceived capital weakness or otherwise;                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                |
|   | • | availability of                    wholesale funding;                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                |
|   | • | adequacy of capital and                    future capital needs;                                                                                                                                                                    |

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

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

**Non-GAAP        Financial Information**

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

**Overview**

          The        South Financial Group is a bank holding company, headquartered in Greenville, South        Carolina, with $14.0 billion in total assets and 180 branch offices in South Carolina,        Florida, and North Carolina at June 30, 2008. Founded in 1986, TSFG focuses on attractive        Southeastern banking markets with long-term growth potential. TSFG operates Carolina First        Bank, which conducts banking operations in North Carolina and South Carolina (as Carolina        First Bank), in Florida (as Mercantile Bank), and on the Internet (as Bank Caroline). At        June 30, 2008, approximately 45% of TSFG’s customer deposits (total deposits less        brokered deposits) were in South Carolina, 40% were in Florida, and 15% were in North        Carolina.

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

          TSFG        reported a net loss available to common shareholders of $218.1 million, or $(3.01) per        diluted share, for the first six months of 2008, compared with net income of $38.4 million,        or $0.51 per diluted share, for the first six months of 2007. The net loss was primarily        due to a $137.1 million provision for credit losses resulting from continued credit        deterioration in the Florida market and a $188.4 million goodwill impairment charge        resulting from a decrease in value of the Florida banking segment.

          At        June 30, 2008, nonperforming assets as a percentage of loans held for investment and        foreclosed property increased to 2.30% from 0.88% at December 31, 2007 and 0.45% at June        30, 2007. The increase in nonperforming assets was primarily attributable to accelerating        deterioration in residential construction and development-related loans, principally in        Florida markets. For the six months ended June 30, 2008, annualized net loan charge-offs        totaled 1.40% of average loans held for investment, compared to 0.53% for the year ended        December 31, 2007. TSFG’s provision for credit losses increased to $137.1 million for        the first six months of 2008 compared to $26.1 million for the first six months of        2007.

          In        order to strengthen its capital and liquidity position, TSFG issued $250.0 million of        mandatory convertible non-cumulative preferred stock on May 8, 2008, with net proceeds of        $239.0 million. The preferred securities pay dividends at an annual rate of 10%, have a        conversion price of $6.50 per common share, and will convert into approximately 38.5        million common shares on or before May 1, 2011.

          Tax-equivalent        net interest income was $195.7 million for the first six months of 2008, compared to $194.3        million for the first six months of 2007. The net interest margin increased to 3.16% for        the first half of 2008 from 3.10% for the first half of 2007. This margin improvement is        partly due to an earning asset mix shift into loans and away from securities and the        issuance of preferred stock. Federal Reserve actions to reduce the targeted fed funds rate        by 225 basis points during the first half of 2008 led to decreased earning asset yields and        a decline in average funding costs.

          Noninterest        income totaled $63.1 million for the first six months of 2008, compared to $54.6 million        for the first six months of 2007. The increase in noninterest income was largely        attributable to a gain on mandatory partial redemption of shares received in the Visa IPO        of $1.9 million and a net gain on securities of $2.3 million in the first half of 2008        versus a $3.6 million net loss during the first half of 2007. In addition, during the first        six months of 2008, TSFG recorded a net gain on certain derivative activities of $248,000        compared to a net loss of $1.4 million in the first six months of 2007. TSFG’s        merchant processing income (net) and customer fee income for the first six months of 2008        increased over the prior year amounts.

          Noninterest        expenses totaled $355.8 million for the first six months of 2008, compared to $161.6 for        the six months ended June 30, 2007. This increase was primarily due to the $188.4 million        goodwill impairment charge in the first quarter of 2008. The increase in noninterest        expenses also included higher advertising and business development expenses, higher        regulatory assessments, higher loan collection and monitoring expenses, and branch        acquisition and conversion costs related to the acquisition of five branches in Orlando,        partially offset by declines in professional fees.

          TSFG        continues to focus on improving its balance sheet mix by increasing the relative level and        mix of customer assets and liabilities. Due to the reduction of investment securities,        average loans as a percentage of average earning assets increased to 83.1% for the first        six months of 2008 from 78.5% for the first six months of 2007. On the funding side,        average customer funding (which includes deposits less brokered deposits plus customer        sweep accounts) as a percentage of average total funding decreased to 67.0% for the first        six months of 2008, down from 67.3% for the first six months of 2007.

          Using        period-end balances, TSFG’s loans held for investment at June 30, 2008 increased 2.6%        from December 31, 2007, and total deposit balances increased 1.0%. Customer funding        (deposits less brokered deposits plus customer sweep accounts) decreased 1.8% from December        31, 2007 to June 30, 2008.

          TSFG’s        tangible equity to tangible asset ratio increased to 7.94% at June 30, 2008, from 6.61% at        December 31, 2007, due primarily to the issuance of preferred stock.

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**Critical Accounting        Policies and Estimates**

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

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

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

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

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

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

*     Derivatives        and Hedging Activities*

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

*     Fair        Value of Certain Financial Instruments*

          Effective        January 1, 2008, TSFG adopted SFAS No. 157 (“SFAS 157”), “Fair Value        Measurements” for its financial assets and liabilities and SFAS No. 159 (“SFAS        159”), “The Fair Value Option for Financial Assets and Financial        Liabilities” with no significant impact on its Consolidated Financial Statements.        These standards define fair

25

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value, establish        guidelines for measuring fair value, and allow an irrevocable option to elect fair value        for the initial and subsequent measurement for certain financial assets and liabilities on        a contract-by-contract basis.

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

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

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

          The        fair values of TSFG’s investments in privately held limited partnerships,        corporations and LLCs are not readily available. These investments are accounted for using        either the cost or the equity method of accounting. The accounting treatment depends upon        TSFG’s percentage ownership and degree of management influence. TSFG’s        management evaluates its investments in limited partnerships and LLCs quarterly for        impairment based on the investee’s ability to generate cash through its operations,        obtain alternative financing, and subjective factors. There are inherent risks associated        with TSFG’s investments in privately held limited partnerships, corporations and        LLCs, which may result in income statement volatility in future periods.

          The        process for valuing financial instruments, particularly those with little or no liquidity,        is subjective and involves a high degree of judgment. Small changes in assumptions can        result in significant changes in valuation. Valuations are subject to change as a result of        external factors beyond our control that have a substantial degree of uncertainty. The        inherent risks associated with determining the fair value of a financial instrument may        result in income statement volatility in future periods.

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

          See        Note 13 to the Consolidated Financial Statements for more information on fair value        measurements for the three and six months ended June 30, 2008.

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*     Income        Taxes*

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

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

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

*     Share-Based        Compensation*

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

*     Accounting        for Acquisitions*

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

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

27

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

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

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

**Expanded Corporate        Facilities**

          During        2007, TSFG started construction on its Expanded Corporate Facilities. Through June 30,        2008, TSFG had invested approximately $45 million in the project (which has been        capitalized in premises and equipment on the consolidated balance sheet as construction in        progress) and had entered into additional contractual commitments of approximately $26        million. The initial phase of the facilities is expected to be placed in service in the        first half of 2009.

**Balance Sheet        Review**

*     Loans*

          TSFG        focuses its lending activities on small and middle market businesses and individuals in its        geographic markets. At June 30, 2008, outstanding loans totaled $10.5 billion, which        equaled 106.2% of total deposits (140.0% of customer deposits) and 75.1% of total assets.        Loans held for investment increased $262.3 million, or 2.6%, to $10.5 billion at June 30,        2008 from $10.2 billion at December 31, 2007. The major components of the loan portfolio        were commercial loans, commercial real estate loans, and consumer loans (including both        direct and indirect loans). Substantially all loans were to borrowers located in        TSFG’s market areas in South Carolina, Florida, and North Carolina. At June 30, 2008,        approximately 7% of the portfolio was unsecured.

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

          TSFG        generally sells a majority of its residential mortgage loans in the secondary market. TSFG        also retains certain of its mortgage loans in its held for investment portfolio as part of        its overall balance sheet management strategy. Loans held for sale increased to $21.9        million at June 30, 2008 from $17.9 million at December 31, 2007, primarily due to timing        of mortgage sales. Effective January 1, 2008, TSFG elected to account for its mortgage        loans held for sale at fair value pursuant to SFAS 159.

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

28

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

|                                                                |   |                                 |       |                                     |   |       |   |   |       |   |
|---------------------------------------------------------------------|--------|--------------------------------------|------------|------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                                |   | **June                    30, 2008** |       | **December 31,                    2007** |   |
|                                                                |   |                                      |
|                                                                |   | **2008**                             |       | **2007**                                 |
|                                                                |   |                                      |       |                                          |   |            |   |
| Commercial, financial                    and agricultural           |   | $                                    | 2,389,048  |                                     | $      | 2,285,920  |   | $      | 2,309,294  |   |
| Real estate -                    construction (1)                   |   |                                 | 1,827,861  |                                     |   | 1,738,387  |   |   | 1,763,365  |   |
| Real estate -                    residential mortgages (1-4 family) |   |                                 | 1,521,974  |                                     |   | 1,388,485  |   |   | 1,390,729  |   |
| Commercial secured by                    real estate (1)            |   |                                 | 3,909,030  |                                     |   | 3,819,818  |   |   | 3,946,440  |   |
| Consumer                                                            |   |                                 | 827,818    |                                     |   | 796,618    |   |   | 803,592    |   |
|                                                                |   |                                      |            |                                     |        |            |   |        |            |   |
| Loans held for                    investment                        |   | $                                    | 10,475,731 |                                     | $      | 10,029,228 |   | $      | 10,213,420 |   |
|                                                                |   |                                      |            |                                     |        |            |   |        |            |   |

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

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

|                                                           |   |                                 |       |                                     |   |       |   |   |       |   |
|----------------------------------------------------------------|--------|--------------------------------------|------------|------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                           |   | **June                    30, 2008** |       | **December 31,                    2007** |   |
|                                                           |   |                                      |
|                                                           |   | **2008**                             |       | **2007**                                 |
|                                                           |   |                                      |       |                                          |   |            |   |
| **Commercial                    Loans**                        |   |                                 |       |                                     |   |       |   |   |       |   |
| Commercial and                    industrial (1)               |   | $                                    | 2,891,007  |                                     | $      | 2,569,628  |   | $      | 2,742,863  |   |
| Owner - occupied real                    estate (2)            |   |                                 | 1,183,618  |                                     |   | 961,806    |   |   | 1,070,376  |   |
| Commercial real estate                    (3)                  |   |                                 | 4,162,248  |                                     |   | 4,258,837  |   |   | 4,158,384  |   |
|                                                           |   |                                      |            |                                     |        |            |   |        |            |   |
|                                                           |   |                                 | 8,236,873  |                                     |   | 7,790,271  |   |   | 7,971,623  |   |
|                                                           |   |                                      |            |                                     |        |            |   |        |            |   |
|                                                           |   |                                 |       |                                     |   |       |   |   |       |   |
| **Consumer                    Loans**                          |   |                                 |       |                                     |   |       |   |   |       |   |
| Indirect - sales                    finance                    |   |                                 | 728,433    |                                     |   | 684,053    |   |   | 699,014    |   |
| Consumer lot                    loans                          |   |                                 | 266,242    |                                     |   | 350,539    |   |   | 311,386    |   |
| Direct retail                    (1)                           |   |                                 | 99,951     |                                     |   | 108,876    |   |   | 107,827    |   |
| Home equity                    (1)                             |   |                                 | 781,120    |                                     |   | 742,430    |   |   | 754,158    |   |
|                                                           |   |                                      |            |                                     |        |            |   |        |            |   |
|                                                           |   |                                 | 1,875,746  |                                     |   | 1,885,898  |   |   | 1,872,385  |   |
|                                                           |   |                                      |            |                                     |        |            |   |        |            |   |
|                                                           |   |                                 |       |                                     |   |       |   |   |       |   |
| **Mortgage Loans                    (1)**                      |   |                                 | 363,112    |                                     |   | 353,059    |   |   | 369,412    |   |
|                                                           |   |                                      |            |                                     |        |            |   |        |            |   |
|                                                           |   |                                 |       |                                     |   |       |   |   |       |   |
| Total loans held for                    investment             |   | $                                    | 10,475,731 |                                     | $      | 10,029,228 |   | $      | 10,213,420 |   |
|                                                           |   |                                      |            |                                     |        |            |   |        |            |   |
|                                                           |   |                                 |       |                                     |   |       |   |   |       |   |
| **Percentage of Loans                    Held for Investment** |   |                                 |       |                                     |   |       |   |   |       |   |
| Commercial and                    industrial                   |   |                                 | 27.6       | %                                        |   | 25.6       | %      |   | 26.9       | %      |
| Owner - occupied real                    estate (2)            |   |                                 | 11.3       |                                     |   | 9.6        |   |   | 10.5       |   |
| Commercial real                    estate                      |   |                                 | 39.7       |                                     |   | 42.5       |   |   | 40.7       |   |
| Consumer                                                       |   |                                 | 17.9       |                                     |   | 18.8       |   |   | 18.3       |   |
| Mortgage                                                       |   |                                 | 3.5        |                                     |   | 3.5        |   |   | 3.6        |   |
|                                                           |   |                                      |            |                                     |        |            |   |        |            |   |
| Total                                                          |   |                                 | 100.0      | %                                        |   | 100.0      | %      |   | 100.0      | %      |
|                                                           |   |                                      |            |                                     |        |            |   |        |            |   |

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

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

29

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

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

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

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

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

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

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

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

          Portfolio        risk is partially managed by maintaining a “house” lending limit at a level        significantly lower than the legal lending limit of Carolina First Bank and by requiring        approval by the Risk Committee of the Board of Directors to exceed this house limit. At        June 30, 2008, TSFG’s house lending limit was $35 million, and 11 credit        relationships totaling $475.8 million were in excess of the house lending limit (but not        the legal lending limit). The 20 largest credit relationships had an aggregate outstanding        principal balance of $455.0 million, or 4.3% of total loans held for investment at June 30,        2008, compared to 4.2% of total loans held for investment at December 31, 2007.

          TSFG,        through its Corporate Banking group, participates in “shared national credits”        (multi-bank credit facilities of $20 million or more, or “SNCs”), primarily to        borrowers who are headquartered or conduct business in or near our markets. At June 30,        2008, the loan portfolio included commitments totaling $1.3 billion in SNCs. Outstanding        borrowings under these commitments totaled $709.1 million at June 30, 2008, increasing from        $660.7 million at December 31, 2007. The largest commitment was $40.0 million and the        largest outstanding balance was $27.8 million at June 30, 2008. In addition to internal        limits that control our credit exposure to individual borrowers, we have established limits        on the size of the overall SNC portfolio, and have established a sub-limit for total credit        exposure to borrowers located outside of our markets. All of our SNC relationships are        underwritten and managed in a centralized Corporate Banking Group staffed with experienced        bankers. Our strategy targets borrowers whose management teams are well known to us and        whose risk profile is above average. Our ongoing strategic plan is to maintain diversity in        our portfolio and expand the profitability of our relationships through the sale of        non-credit products.

*     Commercial        Real Estate Concentration*

          The        portfolio’s largest concentration is in commercial real estate loans. Real estate        development and construction are major components of the economic activity that occurs in        TSFG’s markets. We attempt to manage the risk attributable to the concentration in        commercial real estate loans by focusing our lending on markets with which we are familiar        and on borrowers with proven track records whom we believe possess the financial means to        weather adverse market conditions.

30

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Also, management        believes that diversification by geography, property type, and borrower partially        diversifies the risk of loss in its commercial real estate loan portfolio.

          TSFG’s        commercial real estate products include the following:

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

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

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

|                                         |   |                                 |   |                                                                       |   |                                 |   |                            |   |   |   |    |   |
|----------------------------------------------|--------|--------------------------------------|--------|----------------------------------------------------------------------------|--------|--------------------------------------|--------|---------------------------------|--------|--------|--------|---------|--------|
|                                         |   | **June                    30, 2008** |   |
|                                         |   |                                      |   |
|                                         |   | **Policy                    LTV**    |   | **Weighted                    Average****Time to Maturity****(in months)** |   | **Weighted****Average****Loan Size** |   | **Largest****Ten****Total O/S** |   |
|                                         |   |                                      |   |                                                                            |   |                                      |   |                                 |   |
| Completed income                    property |   | 85                                   | %      |                                                                       | 46.1   |                                 |   | $                               | 472    |   | $      | 132,284 |   |
| Residential                    A&D       |   | 75                                   |   |                                                                       | 9.9    |                                 |   |                            | 724    |   |   | 126,546 |   |
| Commercial                    A&D        |   | 75                                   |   |                                                                       | 13.0   |                                 |   |                            | 817    |   |   | 81,375  |   |
| Commercial                    construction   |   | 80                                   |   |                                                                       | 29.1   |                                 |   |                            | 2,098  |   |   | 135,431 |   |
| Residential                    construction  |   | 80                                   |   |                                                                       | 11.4   |                                 |   |                            | 344    |   |   | 73,848  |   |
| Residential                    condo         |   | 80                                   |   |                                                                       | 8.8    |                                 |   |                            | 1,478  |   |   | 140,660 |   |
| Undeveloped                    land          |   | 65                                   |   |                                                                       | 11.1   |                                 |   |                            | 718    |   |   | 82,625  |   |
|                                         |   |                                 |   |                                                                       |   |                                 |   |                            |   |   |   |    |   |
| Overall                                      |   |                                 |   |                                                                       | 29.6   |                                 |   | $                               | 583    |   | $      | 772,770 |   |

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

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

*          Construction        Advances.* TSFG monitors construction advances on all construction projects greater than        $1 million to ensure inspections are properly obtained and advances are consistent with the        construction budget. The appropriateness of the construction budget is part of the        underwriting package and considered during the approval process. The monitoring is        administered by the centralized Construction Loan Administration department on an ongoing        basis.

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

*          Appraisal        Policies.* It is TSFG’s policy to comply with Interagency Appraisal and Evaluation        Guidelines as issued by the Office of the Comptroller of the Currency, the Board of        Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the        Office of Thrift Supervision (the “Agencies”). These guidelines address        supervisory matters relating to real estate appraisals and evaluations used to support real        estate-related financial transactions and provide guidance to both examiners and regulated        institutions about prudent appraisal and evaluation

31

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programs. Under the        Agencies’ appraisal regulations, the appraiser is selected and engaged directly by        TSFG or its agent. Additionally, because the appraisal and evaluation process is an        integral component of the credit underwriting process, these processes should be isolated        from influence by our loan production process. TSFG orders and reviews all appraisals for        loans over a set threshold through a centralized review function.

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

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

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

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

|   |   |                                                                                                                                                                                                                                                                                   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Funds                    are being advanced to increase the loan above the originally committed loan                    amount and the appraisal is more than 18 months old;                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                   |
|   | • | Loan is                    downgraded to substandard or worse and the appraisal is more than three years                    old or significant adverse changes have occurred in the market where the                    property is located;                                           |
|   |   |                                                                                                                                                                                                                                                                                   |
|   | • | Loan is                    downgraded to watch and the appraisal is more than five years old or                    significant adverse changes have occurred in the market where the property is                    located;                                                           |
|   |   |                                                                                                                                                                                                                                                                                   |
|   | • | Loan is                    restructured to advance additional funds or extend the original amortization                    term and the appraisal is over three years old or significant adverse changes                    have occurred in the market where the property is located; |
|   |   |                                                                                                                                                                                                                                                                                   |
|   | • | Property                    is being cross-pledged to another loan (other than an abundance of caution) and                    the appraisal is over three years old or significant adverse changes have                    occurred in the market where the property is located.      |

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

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

          Late        in first quarter 2008, the land portfolio in Florida began to exhibit indicators of        distress which prompted additional analysis of the existing portfolio and potential losses        based on existing loan to value ratios and anticipated default probabilities. This analysis        is further discussed in “Allowance for Loan Losses and Reserve for Unfunded Lending        Commitments” below. The allowance for loan losses was increased by approximately $27        million during the first half of 2008 as a result of this analysis.

          Table        4 presents the commercial real estate portfolio by geography, while Table 5 presents the        commercial real estate portfolio by geography and property type. Commercial real estate        nonaccruals, past dues, and net charge-offs are

32

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presented in Tables        7, 8, and 12, respectively. TSFG monitors trends in these categories in order to evaluate        the possibility of higher credit risk in its commercial real estate portfolio.

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

|                                                                  |   |                                 |      |                                                     |   |        |   |                                                     |      |   |   |   |   |
|-----------------------------------------------------------------------|--------|--------------------------------------|-----------|----------------------------------------------------------|--------|-------------|--------|----------------------------------------------------------|-----------|--------|--------|--------|--------|
|                                                                  |   | **June                    30, 2008** |      | **December 31,                    2007**                 |   |
|                                                                  |   |                                      |      |                                                          |   |
|                                                                  |   | **Balance**                          |      | **%                    of                    Total CRE** |   | **Balance** |   | **%                    of                    Total CRE** |      |
|                                                                  |   |                                      |      |                                                          |   |             |   |                                                          |      |
| Western North Carolina                    (Hendersonville/Asheville)  |   | $                                    | 851,873   |                                                     |   | 20.5        | %      | $                                                        | 868,226   |   |   | 20.9   | %      |
| Tampa Bay                    Florida                                  |   |                                 | 501,274   |                                                     |   | 12.0        |   |                                                     | 565,917   |   |   | 13.6   |   |
| South Carolina, exluding                    Coastal:                  |   |                                 |      |                                                     |   |        |   |                                                     |      |   |   |   |   |
| Upstate South Carolina                    (Greenville)                |   |                                 | 419,375   |                                                     |   | 10.1        |   |                                                     | 400,936   |   |   | 9.6    |   |
| Midlands South Carolina                    (Columbia)                 |   |                                 | 262,484   |                                                     |   | 6.3         |   |                                                     | 300,414   |   |   | 7.2    |   |
| Greater South Charlotte                    South Carolina (Rock Hill) |   |                                 | 152,899   |                                                     |   | 3.7         |   |                                                     | 134,166   |   |   | 3.2    |   |
| Coastal South                    Carolina:                            |   |                                 |      |                                                     |   |        |   |                                                     |      |   |   |   |   |
| North Coastal South                    Carolina (Myrtle Beach)        |   |                                 | 327,735   |                                                     |   | 7.9         |   |                                                     | 297,075   |   |   | 7.2    |   |
| South Coastal South                    Carolina (Charleston)          |   |                                 | 297,383   |                                                     |   | 7.1         |   |                                                     | 231,881   |   |   | 5.6    |   |
| North Florida:                                                        |   |                                 |      |                                                     |   |        |   |                                                     |      |   |   |   |   |
| Northeast Florida                    (Jacksonville)                   |   |                                 | 303,577   |                                                     |   | 7.3         |   |                                                     | 327,877   |   |   | 7.9    |   |
| North Central                    Florida                              |   |                                 | 314,608   |                                                     |   | 7.5         |   |                                                     | 301,485   |   |   | 7.3    |   |
| Central Florida:                                                      |   |                                 |      |                                                     |   |        |   |                                                     |      |   |   |   |   |
| Central Florida                    (Orlando)                          |   |                                 | 289,804   |                                                     |   | 7.0         |   |                                                     | 278,416   |   |   | 6.7    |   |
| Marion County, Florida                    (Ocala)                     |   |                                 | 175,560   |                                                     |   | 4.2         |   |                                                     | 168,054   |   |   | 4.0    |   |
| South Florida (Ft.                    Lauderdale)                     |   |                                 | 265,676   |                                                     |   | 6.4         |   |                                                     | 283,937   |   |   | 6.8    |   |
|                                                                  |   |                                      |           |                                                     |        |             |   |                                                          |           |   |        |        |   |
| Total commercial real                    estate loans                 |   | $                                    | 4,162,248 |                                                     |   | 100.0       | %      | $                                                        | 4,158,384 |   |   | 100.0  | %      |
|                                                                  |   |                                      |           |                                                     |        |             |   |                                                          |           |   |        |        |   |

|   |                                                                                                                                                                                                                                                                                                                                                                               |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Geography is primarily                    determined by the originating operating geographic market and not necessarily                    the ultimate location of the underlying collateral.                    Note: At June 30, 2008 and December 31, 2007, average loan size for commercial                    real estate loans totaled $583,000 and $557,000, respectively. |

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

|                                                                |   |                                                                           |    |                              |   |                              |   |                              |    |                            |   |                            |   |                             |    |                             |   |                                                |   |   |    |   |   |      |   |   |   |   |
|---------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|---------|-----------------------------------|--------|-----------------------------------|--------|-----------------------------------|---------|---------------------------------|--------|---------------------------------|--------|----------------------------------|---------|----------------------------------|--------|-----------------------------------------------------|--------|--------|---------|--------|--------|-----------|--------|--------|--------|--------|
|                                                                |   | **June                    30, 2008 Commercial Real Estate Loans by Geography** |    |
|                                                                |   |                                                                                |    |
|                                                                |   | **SC,                    Excl                    Coastal**                     |    | **Coastal                    SC** |   | **Western                    NC** |   | **Central                    FL** |    | **North                    FL** |   | **South                    FL** |   | **Tampa                    Bay** |    | **Total                    CRE** |   | **%                    of                    LHFI** |   |
|                                                                |   |                                                                                |    |                                   |   |                                   |   |                                   |    |                                 |   |                                 |   |                                  |    |                                  |   |                                                     |   |
| **Commercial Real Estate                    Loans by Product Type** |   |                                                                           |    |                              |   |                              |   |                              |    |                            |   |                            |   |                             |    |                             |   |                                                |   |   |    |   |   |      |   |   |   |   |
| Completed income                    property                        |   | $                                                                              | 415,726 |                              | $      | 276,938                           |   | $                                 | 447,678 |                            | $      | 194,812                         |   | $                                | 352,039 |                             | $      | 150,295                                             |   | $      | 199,102 |   | $      | 2,036,590 |   |   | 19.5   | %      |
| Residential                    A&D                              |   |                                                                           | 108,986 |                              |   | 79,209                            |   |                              | 174,272 |                            |   | 77,549                          |   |                             | 87,618  |                             |   | 5,001                                               |   |   | 88,398  |   |   | 621,033   |   |   | 5.9    |   |
| Commercial                    A&D                               |   |                                                                           | 46,706  |                              |   | 25,985                            |   |                              | 44,853  |                            |   | 26,705                          |   |                             | 12,149  |                             |   | 13,298                                              |   |   | 46,696  |   |   | 216,392   |   |   | 2.1    |   |
| Commercial                    construction                          |   |                                                                           | 146,692 |                              |   | 47,660                            |   |                              | 36,970  |                            |   | 42,915                          |   |                             | 42,180  |                             |   | 15,142                                              |   |   | 27,173  |   |   | 358,732   |   |   | 3.4    |   |
| Residential                    construction                         |   |                                                                           | 54,369  |                              |   | 39,336                            |   |                              | 65,612  |                            |   | 33,062                          |   |                             | 41,786  |                             |   | 12,116                                              |   |   | 16,126  |   |   | 262,407   |   |   | 2.5    |   |
| Residential                    condo                                |   |                                                                           | 23,893  |                              |   | 108,543                           |   |                              | 10,379  |                            |   | 11,189                          |   |                             | 6,170   |                             |   | 22,487                                              |   |   | 40,589  |   |   | 223,250   |   |   | 2.1    |   |
| Undeveloped land                                                    |   |                                                                           | 38,386  |                              |   | 47,447                            |   |                              | 72,109  |                            |   | 79,132                          |   |                             | 76,243  |                             |   | 47,337                                              |   |   | 83,190  |   |   | 443,844   |   |   | 4.2    |   |
|                                                                |   |                                                                                |         |                              |        |                                   |   |                                   |         |                            |        |                                 |   |                                  |         |                             |        |                                                     |   |        |         |   |        |           |   |        |        |   |
| Total CRE Loans                                                     |   | $                                                                              | 834,758 |                              | $      | 625,118                           |   | $                                 | 851,873 |                            | $      | 465,364                         |   | $                                | 618,185 |                             | $      | 265,676                                             |   | $      | 501,274 |   | $      | 4,162,248 |   |   | 39.7   | %      |
|                                                                |   |                                                                                |         |                              |        |                                   |   |                                   |         |                            |        |                                 |   |                                  |         |                             |        |                                                     |   |        |         |   |        |           |   |        |        |   |
|                                                                |   |                                                                           |    |                              |   |                              |   |                              |    |                            |   |                            |   |                             |    |                             |   |                                                |   |   |    |   |   |      |   |   |   |   |
| CRE Loans as % of Total                    Loans HFI                |   |                                                                           | 8.0     | %                                 |   | 6.0                               | %      |                              | 8.1     | %                               |   | 4.4                             | %      |                             | 5.9     | %                                |   | 2.5                                                 | %      |   | 4.8     | %      |   | 39.7      | %      |   |   |   |

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

33

----

*     Credit        Quality*

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

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

          Table        6 presents our credit quality indicators.

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

|                                                                                                               |   |                            |       |                                     |   |       |   |   |       |   |
|--------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|------------|------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                                                                               |   | **June                    30,** |       | **December 31,                    2007** |   |
|                                                                                                               |   |                                 |       |                                     |
|                                                                                                               |   | **2008**                        |       | **2007**                                 |   |       |
|                                                                                                               |   |                                 |            |                                     |        |            |   |        |            |   |
| Loans held for                    investment                                                                       |   | $                               | 10,475,731 |                                     | $      | 10,029,228 |   | $      | 10,213,420 |   |
| Allowance for loan                    losses                                                                       |   |                            | 191,727    |                                     |   | 125,545    |   |   | 126,427    |   |
| Allowance for credit losses                    (1)                                                                 |   |                            | 193,825    |                                     |   | 126,721    |   |   | 128,695    |   |
| Nonaccrual loans -                    commercial and industrial (2)(3)                                             |   |                            | 28,234     |                                     |   | 10,465     |   |   | 22,963     |   |
| Nonaccrual loans - owner -                    occupied real estate (2)                                             |   |                            | 5,112      |                                     |   | 3,605      |   |   | 4,085      |   |
| Nonaccrual loans -                    commercial real estate (2)                                                   |   |                            | 151,579    |                                     |   | 18,692     |   |   | 36,634     |   |
| Nonaccrual loans - consumer                    (3)                                                                 |   |                            | 16,246     |                                     |   | 5,413      |   |   | 10,697     |   |
| Nonaccrual loans - mortgage                    (3)                                                                 |   |                            | 17,555     |                                     |   | 3,352      |   |   | 5,812      |   |
| Restructured loans accruing                    interest                                                            |   |                            | 1,425      |                                     |   | —    |   |   | 1,440      |   |
|                                                                                                               |   |                                 |            |                                     |        |            |   |        |            |   |
| Total nonperforming                    loans                                                                       |   |                            | 220,151    |                                     |   | 41,527     |   |   | 81,631     |   |
|                                                                                                               |   |                            |       |                                     |   |       |   |   |       |   |
| Foreclosed property (other                    real estate owned and personal property repossessions)               |   |                            | 21,780     |                                     |   | 4,028      |   |   | 8,276      |   |
|                                                                                                               |   |                                 |            |                                     |        |            |   |        |            |   |
| Total nonperforming                    assets                                                                      |   | $                               | 241,931    |                                     | $      | 45,555     |   | $      | 89,907     |   |
|                                                                                                               |   |                                 |            |                                     |        |            |   |        |            |   |
|                                                                                                               |   |                            |       |                                     |   |       |   |   |       |   |
| Loans past due 90 days or                    more (mortgage and consumer with interest accruing)                   |   | $                               | 8,779      |                                     | $      | 2,503      |   | $      | 5,349      |   |
|                                                                                                               |   |                                 |            |                                     |        |            |   |        |            |   |
|                                                                                                               |   |                            |       |                                     |   |       |   |   |       |   |
| Total nonperforming assets                    as a percentage of loans held for investment and foreclosed property |   |                            | 2.30       | %                                        |   | 0.45       | %      |   | 0.88       | %      |
|                                                                                                               |   |                                 |            |                                     |        |            |   |        |            |   |
| Allowance for loan losses                    to nonperforming loans                                                |   |                            | 0.87       | x                                        |   | 3.02       | x      |   | 1.55       | x      |
|                                                                                                               |   |                                 |            |                                     |        |            |   |        |            |   |

|   |                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | The allowance for credit                    losses is the sum of the allowance for loan losses and the reserve for unfunded                    lending commitments.                                           |
|   |                                                                                                                                                                                                          |
| (2)    | At June 30, 2008, December                    31, 2007, and June 30, 2007, commercial nonaccrual loans included $181,000,                    $218,000, and $1.9 million, respectively, in restructured loans. |
|   |                                                                                                                                                                                                          |
| (3)    | In second quarter 2008,                    TSFG reclassified certain loan balances. Amounts presented for prior periods                    have been reclassified to conform to the current presentation.     |

          TSFG’s        nonperforming asset ratio (nonperforming assets as a percentage of loans held for        investment and foreclosed property) increased to 2.30% at June 30, 2008 from 0.88% at        December 31, 2007 and 0.45% at June 30, 2007.

34

----

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

          During        the second quarter of 2008, TSFG sold $40.0 million of nonperforming loans included in        loans held for investment. In the three and six months ended June 30, 2008, TSFG        charged-off $16.1 million and $17.6 million, respectively, of these loans against the        allowance for loan losses.

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

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

|                                                                   |   |                                                                                       |    |                              |   |                              |   |                              |    |                            |   |                            |   |                             |    |                                 |   |                                               |   |   |    |   |   |    |   |   |   |   |
|------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|---------|-----------------------------------|--------|-----------------------------------|--------|-----------------------------------|---------|---------------------------------|--------|---------------------------------|--------|----------------------------------|---------|--------------------------------------|--------|----------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|
|                                                                   |   | **June                    30, 2008 CRE Nonaccrual Loans (“NAL”) by Geography** |    |
|                                                                   |   |                                                                                            |    |
|                                                                   |   | **SC,                    Excl                    Coastal**                                 |    | **Coastal                    SC** |   | **Western                    NC** |   | **Central                    FL** |    | **North                    FL** |   | **South                    FL** |   | **Tampa                    Bay** |    | **Total                    CRE NAL** |   | **%                    of                    NAL** |   |
|                                                                   |   |                                                                                            |    |                                   |   |                                   |   |                                   |    |                                 |   |                                 |   |                                  |    |                                      |   |                                                    |   |
| **CRE Nonaccrual Loans by                    Product Type**            |   |                                                                                       |    |                              |   |                              |   |                              |    |                            |   |                            |   |                             |    |                                 |   |                                               |   |   |    |   |   |    |   |   |   |   |
| Completed income                    property                           |   | $                                                                                          | 1,204   |                              | $      | 237                               |   | $                                 | 5,741   |                            | $      | 9,020                           |   | $                                | 700     |                                 | $      | —                                            |   | $      | 107     |   | $      | 17,009  |   |   | 7.8    | %      |
| Residential                    A&D                                 |   |                                                                                       | 1,403   |                              |   | 5,523                             |   |                              | 12,049  |                            |   | 24,050                          |   |                             | 4,980   |                                 |   | 250                                                |   |   | 14,492  |   |   | 62,747  |   |   | 28.7   |   |
| Commercial                    A&D                                  |   |                                                                                       | — |                              |   | —                           |   |                              | 590     |                            |   | 901                             |   |                             | — |                                 |   | —                                            |   |   | — |   |   | 1,491   |   |   | 0.7    |   |
| Commercial                    construction                             |   |                                                                                       | — |                              |   | —                           |   |                              | — |                            |   | —                         |   |                             | — |                                 |   | 1,776                                              |   |   | — |   |   | 1,776   |   |   | 0.8    |   |
| Residential                    construction                            |   |                                                                                       | 1,521   |                              |   | 2,573                             |   |                              | 7,121   |                            |   | 3,078                           |   |                             | 2,879   |                                 |   | 11                                                 |   |   | — |   |   | 17,183  |   |   | 7.8    |   |
| Residential                    condo                                   |   |                                                                                       | — |                              |   | 3,467                             |   |                              | — |                            |   | 2,177                           |   |                             | — |                                 |   | 9,700                                              |   |   | 14,674  |   |   | 30,018  |   |   | 13.7   |   |
| Undeveloped land                                                       |   |                                                                                       | 147     |                              |   | —                           |   |                              | 1,535   |                            |   | 558                             |   |                             | 4,549   |                                 |   | 12,002                                             |   |   | 2,564   |   |   | 21,355  |   |   | 9.8    |   |
|                                                                   |   |                                                                                            |         |                              |        |                                   |   |                                   |         |                            |        |                                 |   |                                  |         |                                 |        |                                                    |   |        |         |   |        |         |   |        |        |   |
| Total CRE Nonaccrual                    Loans                          |   | $                                                                                          | 4,275   |                              | $      | 11,800                            |   | $                                 | 27,036  |                            | $      | 39,784                          |   | $                                | 13,108  |                                 | $      | 23,739                                             |   | $      | 31,837  |   | $      | 151,579 |   |   | 69.3   | %      |
|                                                                   |   |                                                                                            |         |                              |        |                                   |   |                                   |         |                            |        |                                 |   |                                  |         |                                 |        |                                                    |   |        |         |   |        |         |   |        |        |   |
|                                                                   |   |                                                                                       |    |                              |   |                              |   |                              |    |                            |   |                            |   |                             |    |                                 |   |                                               |   |   |    |   |   |    |   |   |   |   |
| CRE Nonaccrual Loans as %                    of Total Nonaccrual Loans |   |                                                                                       | 2.0     | %                                 |   | 5.4                               | %      |                              | 12.4    | %                               |   | 18.2                            | %      |                             | 6.0     | %                                    |   | 10.8                                               | %      |   | 14.5    | %      |   | 69.3    | %      |   |   |   |

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

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

|                                                        |   |                                 |   |                                     |   |        |   |                            |   |   |   |   |   |
|-------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------------|--------|-------------|--------|---------------------------------|--------|--------|--------|--------|--------|
|                                                        |   | **June                    30, 2008** |   | **December 31,                    2007** |   |
|                                                        |   |                                      |   |                                          |   |
|                                                        |   | **Balance**                          |   | **% of                    CRE**          |   | **Balance** |   | **% of                    CRE** |   |
|                                                        |   |                                      |   |                                          |   |             |   |                                 |   |
| North                    Carolina                           |   | $                                    | 4,039  |                                     |   | 0.10        | %      | $                               | 10,029 |   |   | 0.24   | %      |
| South                    Carolina                           |   |                                 | 3,372  |                                     |   | 0.08        |   |                            | 1,889  |   |   | 0.05   |   |
| Florida                                                     |   |                                 | 22,554 |                                     |   | 0.54        |   |                            | 14,383 |   |   | 0.34   |   |
|                                                        |   |                                      |        |                                     |        |             |   |                                 |        |   |        |        |   |
| Total CRE loans past due 30                    days or more |   | $                                    | 29,965 |                                     |   | 0.72        | %      | $                               | 26,301 |   |   | 0.63   | %      |
|                                                        |   |                                      |        |                                     |        |             |   |                                 |        |   |        |        |   |

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

35

----

|                                                    |   |                                                                                                  |    |                                                                                                                        |   |   |   |   |   |   |
|---------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| **Table                    9**                          |   |                                                                                                  |    |                                                                                                                        |   |   |   |   |   |   |
|                                                         |        |                                                                                                       |         |                                                                                                                             |        |        |        |        |        |        |
| **Impaired                    Loans**                   |   |                                                                                                  |    |                                                                                                                        |   |   |   |   |   |   |
|                                                         |        |                                                                                                       |         |                                                                                                                             |        |        |        |        |        |        |
| **(dollars in                    thousands)**           |   |                                                                                                  |    |                                                                                                                        |   |   |   |   |   |   |
|                                                    |   | **At and                    For the                    Six Months                    Ended June 30,** |    | **At and                    For the                    Year Ended                    December 31,                    2007** |   |
|                                                    |   |                                                                                                       |    |                                                                                                                        |
|                                                    |   | **2008**                                                                                              |    | **2007**                                                                                                                    |   |   |
|                                                    |   |                                                                                                       |    |                                                                                                                             |   |        |   |
| Impaired                    loans                       |   | $                                                                                                     | 195,774 |                                                                                                                        | $      | 33,596 |   | $      | 68,102 |   |
| Average                    investment in impaired loans |   |                                                                                                  | 175,621 |                                                                                                                        |   | 34,602 |   |   | 40,360 |   |
| Related                    allowance                    |   |                                                                                                  | 39,238  |                                                                                                                        |   | 9,414  |   |   | 11,340 |   |
| Foregone                    interest                    |   |                                                                                                  | 7,008   |                                                                                                                        |   | 1,386  |   |   | 3,437  |   |

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

|                                                                    |   |                                                      |   |       |                                                 |                                                                              |   |   |   |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|------------|------------------------------------------------------|-----------------------------------------------------------------------------------|--------|--------|--------|--------|
| **Table                    10**                                         |   |                                                      |   |
|                                                                         |        |                                                           |        |
| **Potential Problem                    Loans**                          |   |                                                      |   |
|                                                                         |        |                                                           |        |
| **(dollars in                    thousands)**                           |   |                                                      |   |
|                                                                    |   | **June                    30, 2008**                      |   |
|                                                                    |   |                                                           |   |
|                                                                    |   |                                                      |   |       | **Outstanding Principal                    Balance** |                                                                              |
|                                                                    |   |                                                      |   |       |                                                      |                                                                              |
|                                                                    |   | **Number                    of                    Loans** |   | **Amount** |                                                 | **Percentage of                    Loans Held for                    Investment** |   |
|                                                                    |   |                                                           |   |            |                                                 |                                                                                   |   |
| Large                    potential problem loans ($5 million or more)   |   |                                                      | 10     |       | $                                                    | 112,817                                                                           |   |   | 1.08   | %      |
| Small                    potential problem loans (less than $5 million) |   |                                                      | 761    |       |                                                 | 248,801                                                                           |   |   | 2.37   |   |
|                                                                    |   |                                                           |        |       |                                                      |                                                                                   |   |        |        |   |
| Total potential problem                    loans (1)                    |   |                                                      | 771    |       | $                                                    | 361,618                                                                           |   |   | 3.45   | %      |
|                                                                    |   |                                                           |        |       |                                                      |                                                                                   |   |        |        |   |

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

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

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

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

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

36

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

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

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

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

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

          The        adjusted loss ratio for each pool is multiplied by the dollar amount of loans in the pool        in order to create a range. We then add and subtract five percent (5.0%) to and from this        amount to create the upper and lower boundaries of the range. The upper and lower boundary        amounts for each pool are summed to establish the total range. Although TSFG generally uses        the actual historical loss rate, on occasion management may decide to select a higher or        lower boundary based on known market trends or internal behaviors that would impact the        performance of a specific portfolio grouping. The Level I reserves totaled $54.1 million at        June 30, 2008, based on the portfolio historical loss rates, compared to $48.7 million at        December 31, 2007.

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

          TSFG        tests a broad group of loans for impairment each quarter (this includes all loans over        $500,000 that have been placed in nonaccrual status). Once a loan is identified as        impaired, reserves are based on a thorough analysis of the most probable source of        repayment which is normally the liquidation of collateral, but may also include discounted        future cash flows or the market value of the loan itself. Generally, for collateral        dependent loans, current market appraisals are utilized for larger credits; however, in        situations where a current market appraisal is not available, management uses the best        available information (including appraisals for similar properties, communications with        qualified real estate professionals, information contained in reputable publications and        other observable market data) to estimate the current fair value (less cost to sell) of the        subject property. TSFG had Level II reserves of $39.2 million at June 30, 2008, compared to        $11.3 million at December 31, 2007.

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

37

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

          During        first quarter 2008, undeveloped land loans were experiencing distressed default rates, and        higher loss severities could also be expected. TSFG performed two separate analyses to        determine an accurate adjustment to this category. Both analyses concluded that an        adjustment to the allowance of $23.8 million would be appropriate. This adjustment was        added to the Allowance in the Florida Bank segment for the first time during first quarter        2008. This analysis was updated during second quarter 2008 with updated loan balances on        this subportfolio using an adjusted appraisal discount, which resulted in the new Level III        allowance component increasing $3.2 million to $27.0 million.

          TSFG        also experienced an increase in losses in the indirect portfolio, as $5.2 million was        charged-off during the first half of 2008, compared to $2.4 million in the first half of        2007. As a result of that recognizable increase, an adjustment was made to the component of        economic conditions increasing that portion of the Allowance by $3.8 million.

          As        a result of the two areas mentioned above, the Level III Reserves increased to $98.4        million at June 30, 2008, from $66.4 million at December 31, 2007.

*          Reserve        for Unfunded Commitments.* The June 30, 2008 reserve for unfunded commitments decreased        to $2.1 million from $2.3 million at December 31, 2007. This reserve is determined by        formula; historical loss ratios are multiplied by potential usage levels (i.e., the        difference between actual usage levels and the second highest historical usage        level).

*          Unallocated        Reserves.* The calculated Level I, II and III reserves are then segregated into        allocated and unallocated components. The allocated component is the sum of the loss        estimates at the lower end of the probable loss ranges, and is distributed to the loan        categories based on the mix of loans in each category. The unallocated portion is        calculated as the sum of the differences between the actual calculated Allowance and the        lower boundary amounts for each category in our model. The sum of these differences at June        30, 2008 was $7.7 million, up from $7.3 million at March 31, 2008 and $6.0 million at        December 31, 2007. The unallocated Allowance is the result of management’s best        estimate of risks inherent in the portfolio, economic uncertainties and other subjective        factors, including industry trends, as well as the imprecision inherent in estimates used        for the allocated portions of the Allowance. Management reviews the overall level of the        Allowance as well as the unallocated component and considers the level of both amounts in        determining the appropriate level of reserves for the overall inherent risk in TSFG’s        total loan portfolio.

          Changes        in the Level II reserves (and the overall Allowance) may not correlate to the relative        change in impaired loans depending on a number of factors including whether the impaired        loans are secured, the collateral type, and the estimated loss severity on individual        loans. Specifically, impaired loans increased to $195.8 million at June 30, 2008 from $68.1        million at December 31, 2007, primarily attributable to commercial real estate loans in        Florida. Most of the loans contributing to the increase were over $500,000 and were        evaluated for whether a specific reserve was warranted based on the analysis of the most        probable source of repayment including liquidation of the collateral. Based on this        analysis, the Level II Reserves increased 246% compared to the 187% increase in impaired        loans.

          Changes        in the other components of the Allowance (reserves for Level I, Level III, unallocated, and        unfunded commitments) are not related to specific loans but reflect changes in loss        experience and subjective and judgmental adjustments made by management. For example, due        to indicators of stress on the land portfolio in Florida and other credit quality        indicators, these reserves were increased by $27 million during the first half of        2008.

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

          The        Allowance is also subject to examination and adequacy testing by regulatory agencies, which        may consider such factors as the methodology used to determine adequacy and the size of the        Allowance relative to that of peer

38

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institutions, and        other adequacy tests. In addition, such regulatory agencies could require us to adjust our        Allowance based on information available to them at the time of their        examination.

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

|                                                                                                 |   |                                                                                                  |       |                                                                                                                        |   |       |   |   |       |   |
|------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|--------|------------|--------|
| **Table 11**                                                                                         |   |                                                                                                  |       |                                                                                                                        |   |       |   |   |
|                                                                                                      |        |                                                                                                       |            |                                                                                                                             |        |            |        |        |
| **Summary of Loan and                    Credit Loss Experience**                                    |   |                                                                                                  |       |                                                                                                                        |   |       |   |   |
|                                                                                                      |        |                                                                                                       |            |                                                                                                                             |        |            |        |        |
| **(dollars in                    thousands)**                                                        |   |                                                                                                  |       |                                                                                                                        |   |       |   |   |
|                                                                                                 |   | **At and                    For the                    Six Months                    Ended June 30,** |       | **At and                    For the                    Year Ended                    December 31,                    2007** |   |
|                                                                                                 |   |                                                                                                       |       |                                                                                                                        |
|                                                                                                 |   | **2008**                                                                                              |       | **2007**                                                                                                                    |   |       |
|                                                                                                 |   |                                                                                                       |       |                                                                                                                             |   |            |   |
| Allowance for loan losses,                    beginning of year                                      |   | $                                                                                                     | 126,427    |                                                                                                                        | $      | 111,663    |   | $      | 111,663    |   |
| Net charge-offs:                                                                                     |   |                                                                                                  |       |                                                                                                                        |   |       |   |   |       |   |
| Loans                    charged-off                                                                 |   |                                                                                                  | (76,106    | )                                                                                                                           |   | (16,233    | )      |   | (59,408    | )      |
| Loans recovered                                                                                      |   |                                                                                                  | 4,181      |                                                                                                                        |   | 4,128      |   |   | 6,847      |   |
|                                                                                                 |   |                                                                                                       |            |                                                                                                                        |        |            |   |        |            |   |
|                                                                                                 |   |                                                                                                  | (71,925    | )                                                                                                                           |   | (12,105    | )      |   | (52,561    | )      |
| Additions to allowance                    through provision expense                                  |   |                                                                                                  | 137,225    |                                                                                                                        |   | 25,987     |   |   | 67,325     |   |
|                                                                                                 |   |                                                                                                       |            |                                                                                                                        |        |            |   |        |            |   |
| Allowance for loan losses,                    end of period                                          |   | $                                                                                                     | 191,727    |                                                                                                                        | $      | 125,545    |   | $      | 126,427    |   |
|                                                                                                 |   |                                                                                                       |            |                                                                                                                        |        |            |   |        |            |   |
| Reserve for unfunded                    lending commitments, beginning of year                       |   | $                                                                                                     | 2,268      |                                                                                                                        | $      | 1,025      |   | $      | 1,025      |   |
| Provision for unfunded                    lending commitments                                        |   |                                                                                                  | (170       | )                                                                                                                           |   | 151        |   |   | 1,243      |   |
|                                                                                                 |   |                                                                                                       |            |                                                                                                                        |        |            |   |        |            |   |
| Reserve for unfunded                    lending commitments, end of period                           |   | $                                                                                                     | 2,098      |                                                                                                                        | $      | 1,176      |   | $      | 2,268      |   |
|                                                                                                 |   |                                                                                                       |            |                                                                                                                        |        |            |   |        |            |   |
|                                                                                                 |
| Allowance for credit                    losses, beginning of year                                    |   | $                                                                                                     | 128,695    |                                                                                                                        | $      | 112,688    |   | $      | 112,688    |   |
| Net charge-offs:                                                                                     |   |                                                                                                  |       |                                                                                                                        |   |       |   |   |       |   |
| Loans                    charged-off                                                                 |   |                                                                                                  | (76,106    | )                                                                                                                           |   | (16,233    | )      |   | (59,408    | )      |
| Loans recovered                                                                                      |   |                                                                                                  | 4,181      |                                                                                                                        |   | 4,128      |   |   | 6,847      |   |
|                                                                                                 |   |                                                                                                       |            |                                                                                                                        |        |            |   |        |            |   |
|                                                                                                 |   |                                                                                                  | (71,925    | )                                                                                                                           |   | (12,105    | )      |   | (52,561    | )      |
| Additions to allowance                    through provision expense                                  |   |                                                                                                  | 137,055    |                                                                                                                        |   | 26,138     |   |   | 68,568     |   |
|                                                                                                 |   |                                                                                                       |            |                                                                                                                        |        |            |   |        |            |   |
| Allowance for credit                    losses, end of period                                        |   | $                                                                                                     | 193,825    |                                                                                                                        | $      | 126,721    |   | $      | 128,695    |   |
|                                                                                                 |   |                                                                                                       |            |                                                                                                                        |        |            |   |        |            |   |
|                                                                                                 |
| Average loans held for                    investment                                                 |   | $                                                                                                     | 10,328,336 |                                                                                                                        | $      | 9,865,936  |   | $      | 9,985,751  |   |
| Loans held for investment,                    end of period                                          |   |                                                                                                  | 10,475,731 |                                                                                                                        |   | 10,029,228 |   |   | 10,213,420 |   |
| Net charge-offs as a                    percentage of average loans held for investment (annualized) |   |                                                                                                  | 1.40       | %                                                                                                                           |   | 0.25       | %      |   | 0.53       | %      |
| Allowance for loan losses                    as a percentage of loans held for investment            |   |                                                                                                  | 1.83       |                                                                                                                        |   | 1.25       |   |   | 1.24       |   |
| Allowance for credit losses                    as a percentage of loans held for investment          |   |                                                                                                  | 1.85       |                                                                                                                        |   | 1.26       |   |   | 1.26       |   |
| Allowance for loan losses                    to nonperforming loans                                  |   |                                                                                                  | 0.87       | x                                                                                                                           |   | 3.02       | x      |   | 1.55       | x      |

          The        provision for credit losses for the first half of 2008 totaled $137.1 million, which        exceeded net loan charge-offs by $65.1 million. The higher provision largely reflected        credit deterioration due to continued weakness in housing markets, particularly in Florida,        and additional specific reserves for nonperforming loans and the overall land development        portfolios in Florida. The overall allowance for credit losses as a percentage of loans        held for investment increased to 1.85% at June 30, 2008 from 1.26% at December 31, 2007 and        June 30, 2007. Table 12 provides additional detail for commercial real estate net        charge-offs.

39

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|                                                          |
|---------------------------------------------------------------|
| **Table                    12**                               |
|                                                               |
| **Commercial Real                    Estate Net Charge-Offs** |
|                                                               |
| **(dollars in                    thousands)**                 |

|                                                                 |   |                                                                                                                          |    |                              |   |                              |   |                              |   |                            |   |                            |   |                             |    |                                 |   |                               |   |   |    |   |   |   |   |   |   |   |
|----------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------|---------|-----------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|---------------------------------|--------|---------------------------------|--------|----------------------------------|---------|--------------------------------------|--------|------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
|                                                                 |   | **Six                    Months Ended June 30, 2008 CRE Net Charge-Offs (“NCO”) by                    Geography** |    |
|                                                                 |   |                                                                                                                               |    |
|                                                                 |   | **SC,                    Excl                    Coastal**                                                                    |    | **Coastal                    SC** |   | **Western                    NC** |   | **Central                    FL** |   | **North                    FL** |   | **South                    FL** |   | **Tampa                    Bay** |    | **Total                    CRE NCO** |   | **%                    of****NCO** |   |
|                                                                 |   |                                                                                                                               |    |                                   |   |                                   |   |                                   |   |                                 |   |                                 |   |                                  |    |                                      |   |                                    |   |
| **CRE Net Charge-Offs by                    Product Type**           |   |                                                                                                                          |    |                              |   |                              |   |                              |   |                            |   |                            |   |                             |    |                                 |   |                               |   |   |    |   |   |   |   |   |   |   |
| Completed income                    property                         |   | $                                                                                                                             | 464     |                              | $      | 220                               |   | $                                 | 1,527  |                            | $      | 200                             |   | $                                | (1      | )                                    | $      | —                            |   | $      | 535     |   | $      | 2,945  |   |   | 4.1    | %      |
| Residential                    A&D                               |   |                                                                                                                          | 427     |                              |   | —                           |   |                              | 336    |                            |   | 1,500                           |   |                             | 9,766   |                                 |   | —                            |   |   | 200     |   |   | 12,229 |   |   | 17.0   |   |
| Commercial                    A&D                                |   |                                                                                                                          | (4      | )                                 |   | —                           |   |                              | 311    |                            |   | —                         |   |                             | — |                                 |   | —                            |   |   | 8,424   |   |   | 8,731  |   |   | 12.1   |   |
| Commercial                    construction                           |   |                                                                                                                          | — |                              |   | —                           |   |                              | (45    | )                               |   | —                         |   |                             | — |                                 |   | 1,280                              |   |   | — |   |   | 1,235  |   |   | 1.7    |   |
| Residential                    construction                          |   |                                                                                                                          | 459     |                              |   | —                           |   |                              | 548    |                            |   | —                         |   |                             | 2,348   |                                 |   | —                            |   |   | — |   |   | 3,355  |   |   | 4.7    |   |
| Residential                    condo                                 |   |                                                                                                                          | — |                              |   | —                           |   |                              | 185    |                            |   | —                         |   |                             | 140     |                                 |   | 1,500                              |   |   | 8,986   |   |   | 10,811 |   |   | 15.0   |   |
| Undeveloped land                                                     |   |                                                                                                                          | 150     |                              |   | —                           |   |                              | 679    |                            |   | 503                             |   |                             | 4,083   |                                 |   | 2,250                              |   |   | (494    | )      |   | 7,171  |   |   | 10.0   |   |
|                                                                 |   |                                                                                                                               |         |                              |        |                                   |   |                                   |        |                            |        |                                 |   |                                  |         |                                 |        |                                    |   |        |         |   |        |        |   |        |        |   |
| Total CRE Net                    Charge-Offs                         |   | $                                                                                                                             | 1,496   |                              | $      | 220                               |   | $                                 | 3,541  |                            | $      | 2,203                           |   | $                                | 16,336  |                                 | $      | 5,030                              |   | $      | 17,651  |   | $      | 46,477 |   |   | 64.6   | %      |
|                                                                 |   |                                                                                                                               |         |                              |        |                                   |   |                                   |        |                            |        |                                 |   |                                  |         |                                 |        |                                    |   |        |         |   |        |        |   |        |        |   |
| CRE Net Charge-Offs as % of                    Total Net Charge-Offs |   |                                                                                                                          | 2.1     | %                                 |   | 0.3                               | %      |                              | 4.9    | %                               |   | 3.1                             | %      |                             | 22.7    | %                                    |   | 7.0                                | %      |   | 24.5    | %      |   | 64.6   | %      |   |   |   |

*     Securities*

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

40

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

|                                                                 |   |                            |      |                                     |   |      |   |   |      |   |
|----------------------------------------------------------------------|--------|---------------------------------|-----------|------------------------------------------|--------|-----------|--------|--------|-----------|--------|
|                                                                 |   | **June                    30,** |      | **December 31,                    2007** |   |
|                                                                 |   |                                 |      |                                     |
|                                                                 |   | **2008**                        |      | **2007**                                 |   |      |
|                                                                 |   |                                 |      |                                          |   |           |   |
| **Available for Sale**                    (at fair value)            |   |                            |      |                                     |   |      |   |   |      |   |
| U.S. Treasury                                                        |   | $                               | 27,703    |                                     | $      | 167,195   |   | $      | 27,592    |   |
| U.S. Government                    agencies                          |   |                            | 335,593   |                                     |   | 650,581   |   |   | 503,571   |   |
| Agency mortgage-backed                    securities                 |   |                            | 1,276,145 |                                     |   | 1,158,498 |   |   | 1,088,427 |   |
| Private label                    mortgage-backed securities          |   |                            | 15,544    |                                     |   | —   |   |   | —   |   |
| State and                    municipal                               |   |                            | 270,521   |                                     |   | 308,070   |   |   | 302,586   |   |
| Other                    investments:                                |   |                            |      |                                     |   |      |   |   |      |   |
| Corporate bonds                                                      |   |                            | 18,211    |                                     |   | 93,187    |   |   | 20,380    |   |
| Federal Home Loan Bank                    (“FHLB”) stock |   |                            | 38,614    |                                     |   | 44,119    |   |   | 35,333    |   |
| Community bank                    stocks                             |   |                            | 2,078     |                                     |   | 7,921     |   |   | 4,988     |   |
| Other equity                    investments                          |   |                            | 2,823     |                                     |   | 3,770     |   |   | 3,335     |   |
|                                                                 |   |                                 |           |                                     |        |           |   |        |           |   |
|                                                                 |   |                            | 1,987,232 |                                     |   | 2,433,341 |   |   | 1,986,212 |   |
|                                                                 |   |                                 |           |                                     |        |           |   |        |           |   |
| **Held to Maturity** (at                    amortized cost)          |   |                            |      |                                     |   |      |   |   |      |   |
| State and                    municipal                               |   |                            | 26,577    |                                     |   | 41,792    |   |   | 39,451    |   |
| Other                    investments                                 |   |                            | 100       |                                     |   | 100       |   |   | 240       |   |
|                                                                 |   |                                 |           |                                     |        |           |   |        |           |   |
|                                                                 |   |                            | 26,677    |                                     |   | 41,892    |   |   | 39,691    |   |
|                                                                 |   |                                 |           |                                     |        |           |   |        |           |   |
| Total                                                                |   | $                               | 2,013,909 |                                     | $      | 2,475,233 |   | $      | 2,025,903 |   |
|                                                                 |   |                                 |           |                                     |        |           |   |        |           |   |
|                                                                 |   |                            |      |                                     |   |      |   |   |      |   |
| Total securities as a                    percentage of total assets  |   |                            | 14.4      | %                                        |   | 17.5      | %      |   | 14.6      | %      |
|                                                                 |   |                                 |           |                                     |        |           |   |        |           |   |
|                                                                 |   |                            |      |                                     |   |      |   |   |      |   |
| **Percentage of Total                    Securities Portfolio**      |   |                            |      |                                     |   |      |   |   |      |   |
| U.S. Treasury                                                        |   |                            | 1.4       | %                                        |   | 6.8       | %      |   | 1.4       | %      |
| U.S. Government                    agencies                          |   |                            | 16.6      |                                     |   | 26.3      |   |   | 24.8      |   |
| Agency mortgage-backed                    securities                 |   |                            | 63.4      |                                     |   | 46.8      |   |   | 53.7      |   |
| Private label                    mortgage-backed securities          |   |                            | 0.8       |                                     |   | —   |   |   | —   |   |
| State and                    municipal                               |   |                            | 14.7      |                                     |   | 14.1      |   |   | 16.9      |   |
| Other                    investments                                 |   |                            | 3.1       |                                     |   | 6.0       |   |   | 3.2       |   |
|                                                                 |   |                                 |           |                                     |        |           |   |        |           |   |
| Total                                                                |   |                            | 100.0     | %                                        |   | 100.0     | %      |   | 100.0     | %      |
|                                                                 |   |                                 |           |                                     |        |           |   |        |           |   |

          Securities        (i.e., securities available for sale and securities held to maturity) excluding the        unrealized loss on securities available for sale averaged $2.1 billion for the first half        of 2008, 22.7% below the average for the first half of 2007 of $2.7 billion.

          The        average tax-equivalent portfolio yield decreased for the six months ended June 30, 2008 to        4.69% from 4.80% for the six months ended June 30, 2007.

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

          The        available for sale portfolio constituted 98.7% of total securities at June 30, 2008.        Management believes that maintaining most of its securities in the available for sale        category provides greater flexibility in the management of the overall investment        portfolio. The majority of these securities are government or agency securities and,        therefore, pose minimal credit risk.

          Approximately        63% of mortgage-backed securities (“MBS”) are collateralized mortgage        obligations (“CMOs”) with an average duration of 5.5 years. At June 30, 2008,        approximately 15% of the MBS portfolio was variable rate or

41

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hybrid variable        rate, where the rate adjusts on an annual basis after a specified fixed rate period,        generally ranging from one to ten years. The majority of these securities are government        agency securities.

          In        second quarter 2008, TSFG recorded $927,000 in other-than-temporary impairment on its $18.2        million corporate bond portfolio due to a change in intent to hold the securities until a        recovery in value based on a change in investment strategy. Subsequent to quarter-end, TSFG        sold approximately $8.4 million of corporate bonds and recognized a gain on sale of        approximately $129,000. In second quarter 2007, TSFG recorded $2.9 million in        other-than-temporary impairment on its corporate bond portfolio, and sold approximately $70        million of corporate bonds in third quarter 2007.

          The        net unrealized loss on securities available for sale (pre-tax) totaled $54.4 million at        June 30, 2008, compared with a $3.0 million loss at March 31, 2008 and a $48.8 million loss        at December 31, 2007, as the increase in long term rates since March 31 was combined with        widening credit spreads and current market illiquidity. If interest rates increase, credit        spreads continue to widen, and/or market illiquidity worsens, TSFG expects its net        unrealized loss on securities available for sale to increase. See Item 1, Note 5 to the        Consolidated Financial Statements for information about TSFG’s securities in        unrealized loss positions.

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

42

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

|                                                                                                      |   |                                 |      |                                     |   |        |   |                              |      |   |   |    |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|------------------------------------------|--------|-------------|--------|-----------------------------------|-----------|--------|--------|---------|--------|
|                                                                                                      |   | **June                    30, 2008** |      | **December 31,                    2007** |   |
|                                                                                                      |   |                                      |      |                                          |   |
|                                                                                                      |   | **Balance**                          |      | **% of                    Total**        |   | **Balance** |   | **% of                    Total** |      |
|                                                                                                      |   |                                      |      |                                          |   |             |   |                                   |      |
| **Government and                    agency**                                                              |   |                                 |      |                                     |   |        |   |                              |      |   |   |    |   |
| U.S. Treasury                                                                                             |   | $                                    | 27,703    |                                     |   | 1.4         | %      | $                                 | 27,592    |   |   | 1.4     | %      |
| U.S. Government                    agencies                                                               |   |                                 | 335,593   |                                     |   | 16.7        |   |                              | 503,571   |   |   | 24.9    |   |
| Agency mortgage-backed                    securities (MBS) (1)                                            |   |                                 | 1,276,145 |                                     |   | 63.3        |   |                              | 1,088,427 |   |   | 53.7    |   |
| Federal Home Loan Bank                    Stock                                                           |   |                                 | 38,614    |                                     |   | 1.9         |   |                              | 35,333    |   |   | 1.7     |   |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| Total government and                    agency                                                            |   |                                 | 1,678,055 |                                     |   | 83.3        |   |                              | 1,654,923 |   |   | 81.7    |   |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| **State and municipal                    (2)(3)(4)**                                                      |   |                                 |      |                                     |   |        |   |                              |      |   |   |    |   |
| Pre-funded with collateral                    or AAA-rated backed by Texas Permanent School Fund          |   |                                 | 195,662   |                                     |   | 9.7         |   |                              | 214,675   |   |   | 10.6    |   |
| Underlying issuer or                    collateral rated A or better (including South Carolina State Aid) |   |                                 | 82,290    |                                     |   | 4.1         |   |                              | 102,187   |   |   | 5.1     |   |
| Underlying issuer or                    collateral rated BBB                                              |   |                                 | 7,338     |                                     |   | 0.4         |   |                              | 12,930    |   |   | 0.6     |   |
| Non-rated                                                                                                 |   |                                 | 11,808    |                                     |   | 0.6         |   |                              | 12,245    |   |   | 0.6     |   |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| Total state and                    municipal                                                              |   |                                 | 297,098   |                                     |   | 14.8        |   |                              | 342,037   |   |   | 16.9    |   |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| **Corporate                    bonds**                                                                    |   |                                 |      |                                     |   |        |   |                              |      |   |   |    |   |
| AA or A-rated                                                                                             |   |                                 | 13,243    |                                     |   | 0.7         |   |                              | 17,068    |   |   | 0.8     |   |
| BBB-rated                                                                                                 |   |                                 | 4,968     |                                     |   | 0.2         |   |                              | 3,312     |   |   | 0.2     |   |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| Total corporate                    bonds                                                                  |   |                                 | 18,211    |                                     |   | 0.9         |   |                              | 20,380    |   |   | 1.0     |   |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| **Private label                    mortgage-backed securities AAA-rated (1)**                             |   |                                 | 15,544    |                                     |   | 0.8         |   |                              | —   |   |   | — |   |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| **Community bank stocks                    and other**                                                    |   |                                 | 5,001     |                                     |   | 0.2         |   |                              | 8,563     |   |   | 0.4     |   |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| Total securities                                                                                          |   | $                                    | 2,013,909 |                                     |   | 100.0       | %      | $                                 | 2,025,903 |   |   | 100.0   | %      |
|                                                                                                      |   |                                      |           |                                     |        |             |   |                                   |           |   |        |         |   |
| Percent of total                    securities: (3)                                                       |   |                                 |      |                                     |   |        |   |                              |      |   |   |    |   |
| Rated A or                    higher                                                                      |   |                                 |      |                                     |   | 98.6        | %      |                              |      |   |   | 98.2    | %      |
| Investment grade                                                                                          |   |                                 |      |                                     |   | 99.2        |   |                              |      |   |   | 99.0    |   |

|   |                                                                                                                                                                                                                                                                                                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Current policies restrict                    MBS/CMO purchases to agency-backed and a small percent of private-label                    securities and prohibit securities collateralized by sub-prime                    assets.                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                 |
| (2)    | At June 30, 2008 and                    December 31, 2007, state and municipal securities include $26.6 million and                    $39.5 million, respectively, of securities held to maturity at amortized                    cost.                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                 |
| (3)    | Ratings shown above do not                    reflect the benefit of guarantees by bond insurers. At June 30, 2008, $36.5                    million of municipal bonds are guaranteed by bond insurers. At December 31,                    2007, $43.5 million of municipal bonds are guaranteed by bond                    insurers.               |
|   |                                                                                                                                                                                                                                                                                                                                                 |
| (4)    | At June 30, 2008, the                    breakdown by current bond rating is as follows: $195.7 million pre-funded with                    collateral or AAA-rated backed by Texas Permanent School Fund, $9.4 million                    AAA-rated, $85.5 million AA or A-rated, $860,000 BBB-rated, and $5.6 million                    non-rated. |

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

*          Community        Bank Stocks.* At June 30, 2008, TSFG had equity investments in four community banks        located in the Southeast with a fair value of $2.1 million. In each case, TSFG owns less        than 5% of the community bank’s outstanding common stock. These investments in        community banks are included in securities available for sale.

*          Investments        Included in Other Assets.* TSFG also invests in limited partnerships, limited liability        companies (“LLCs”) and other privately held companies. These investments are        included in other assets. During the first six months of 2008, TSFG sold $1.0 million of        such investments for a net gain of $3.2 million. In the three and six months ended June 30,        2008, TSFG recorded $359,000 and $589,000 in other-than-temporary impairment on these        investments. In the three and six months ended June 30, 2007, TSFG recorded $342,000 in        other-than-temporary impairment on these investments. At June 30, 2008, TSFG’s        investment in these entities totaled $17.4 million, of which $5.3 million were accounted        for under the cost method and $12.1 million were accounted for under the equity        method.

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*     Goodwill*

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

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

          The        annual impairment evaluation as of June 30, 2008 indicated that no additional impairment        charge was required, and there have been no events or circumstances since that date        indicating impairment.

*     Derivative        Financial Instruments*

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

          In        the three and six months ended June 30, 2008, noninterest income included a gain of        $236,000 and $248,000, respectively, for derivative activities. These amounts include the        following: the change in fair value of derivatives that do not qualify for hedge accounting        under SFAS 133, as well as the net cash settlement from these interest rate swaps; hedge        ineffectiveness; and other miscellaneous items.

*     Deposits*

          Deposits        remain TSFG’s primary source of funds. Average customer deposits equaled 61.8% of        average total funding in the first half of 2008. TSFG faces strong competition from other        banking and financial services companies in gathering deposits. TSFG also maintains short        and long-term wholesale sources including federal funds, repurchase agreements, brokered        CDs, and FHLB advances to fund a portion of loan demand and, if appropriate, any increases        in investment securities.

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

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|                                                   |   |                            |      |                                     |   |       |   |   |      |   |
|--------------------------------------------------------|--------|---------------------------------|-----------|------------------------------------------|--------|------------|--------|--------|-----------|--------|
| **Table                    15**                        |   |                            |      |                                     |   |       |   |   |      |   |
|                                                        |        |                                 |           |                                          |        |            |        |        |           |        |
| **Type                    of Deposits**                |   |                            |      |                                     |   |       |   |   |      |   |
|                                                        |        |                                 |           |                                          |        |            |        |        |           |        |
| **(dollars in                    thousands)**          |   |                            |      |                                     |   |       |   |   |      |   |
|                                                   |
|                                                   |   | **June                    30,** |      | **December 31,                    2007** |   |
|                                                   |   |                                 |      |                                     |
|                                                   |   | **2008**                        |      | **2007**                                 |   |       |
|                                                   |   |                                 |      |                                          |   |            |   |
| Noninterest-bearing demand                    deposits |   | $                               | 1,107,115 |                                     | $      | 1,244,834  |   | $      | 1,127,657 |   |
| Interest-bearing                    checking           |   |                            | 1,127,497 |                                     |   | 1,177,609  |   |   | 1,117,850 |   |
| Money                    market accounts               |   |                            | 2,162,599 |                                     |   | 2,245,466  |   |   | 2,188,261 |   |
| Savings                    accounts                    |   |                            | 150,696   |                                     |   | 177,289    |   |   | 158,092   |   |
| Time                    deposits under $100,000        |   |                            | 1,468,372 |                                     |   | 1,363,462  |   |   | 1,442,030 |   |
| Time                    deposits of $100,000 or more   |   |                            | 1,479,740 |                                     |   | 1,583,653  |   |   | 1,496,270 |   |
|                                                   |   |                                 |           |                                     |        |            |   |        |           |   |
| Customer deposits                    (1)               |   |                            | 7,496,019 |                                     |   | 7,792,313  |   |   | 7,530,160 |   |
| Brokered                    deposits                   |   |                            | 2,390,350 |                                     |   | 2,293,493  |   |   | 2,258,408 |   |
|                                                   |   |                                 |           |                                     |        |            |   |        |           |   |
| Total deposits                                         |   | $                               | 9,886,369 |                                     | $      | 10,085,806 |   | $      | 9,788,568 |   |
|                                                   |   |                                 |           |                                     |        |            |   |        |           |   |
| **Percentage of Deposits**                             |   |                            |      |                                     |   |       |   |   |      |   |
| Noninterest-bearing demand                    deposits |   |                            | 11.2      | %                                        |   | 12.3       | %      |   | 11.5      | %      |
| Interest-bearing                    checking           |   |                            | 11.4      |                                     |   | 11.7       |   |   | 11.4      |   |
| Money                    market accounts               |   |                            | 21.9      |                                     |   | 22.3       |   |   | 22.4      |   |
| Savings                    accounts                    |   |                            | 1.5       |                                     |   | 1.8        |   |   | 1.6       |   |
| Time                    deposits under $100,000        |   |                            | 14.8      |                                     |   | 13.5       |   |   | 14.7      |   |
| Time                    deposits of $100,000 or more   |   |                            | 15.0      |                                     |   | 15.7       |   |   | 15.3      |   |
|                                                   |   |                                 |           |                                     |        |            |   |        |           |   |
| Customer deposits                    (1)               |   |                            | 75.8      |                                     |   | 77.3       |   |   | 76.9      |   |
| Brokered                    deposits                   |   |                            | 24.2      |                                     |   | 22.7       |   |   | 23.1      |   |
|                                                   |   |                                 |           |                                     |        |            |   |        |           |   |
| Total deposits                                         |   |                            | 100.0     | %                                        |   | 100.0      | %      |   | 100.0     | %      |
|                                                   |   |                                 |           |                                     |        |            |   |        |           |   |

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

|                                            |   |                            |      |                                     |   |      |   |   |      |   |
|-------------------------------------------------|--------|---------------------------------|-----------|------------------------------------------|--------|-----------|--------|--------|-----------|--------|
| **Table                    16**                 |   |                            |      |                                     |   |      |   |   |      |   |
|                                                 |        |                                 |           |                                          |        |           |        |        |           |
| **Type                    of Customer Funding** |   |                            |      |                                     |   |
|                                                 |        |                                 |           |                                          |        |
| **(dollars in                    thousands)**   |   |                            |      |                                     |   |
|                                            |
|                                            |   | **June                    30,** |      | **December 31,                    2007** |   |
|                                            |   |                                 |      |                                     |
|                                            |   | **2008**                        |      | **2007**                                 |   |      |
|                                            |   |                                 |      |                                          |   |           |   |
| Customer                    deposits (1)        |   | $                               | 7,496,019 |                                     | $      | 7,792,313 |   | $      | 7,530,160 |   |
| Customer                    sweep accounts(2)   |   |                            | 536,642   |                                     |   | 556,622   |   |   | 648,311   |   |
|                                            |   |                                 |           |                                     |        |           |   |        |           |   |
| Customer funding                                |   | $                               | 8,032,661 |                                     | $      | 8,348,935 |   | $      | 8,178,471 |   |
|                                            |   |                                 |           |                                     |        |           |   |        |           |   |

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

          At        June 30, 2008, period-end customer funding decreased $145.8 million, or 1.8%, from December        31, 2007, primarily due to a decrease in customer sweep accounts. While reported in        short-term borrowings on the consolidated balance sheet, customer sweep accounts represent        excess overnight cash from commercial customer operating accounts and are a source of        funding for TSFG. Currently, sweep balances are generated through two products: 1)        collateralized customer repurchase agreements ($428.9 million at June 30, 2008) and 2)        uninsured Eurodollar deposits ($107.7 million at June 30, 2008). These balances are tied        directly to commercial customer checking accounts, and these sweep accounts generate        treasury services noninterest income. The decrease in customer deposits was primarily a        result of lower commercial deposits, which decreased due in part to lower overall liquidity        from commercial customers and customers seeking diversification among banks.

          TSFG        typically experiences seasonality in its customer deposits due to tax receipts from several        of its large public deposit customers. During second quarter 2008, TSFG attracted several        new public deposit customers. As a result, at June 30, 2008, public deposits totaled        approximately $661 million, compared to approximately $645 million at March 31, 2008 and        $582 million at December 31, 2007.

45

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

          Table        19 in “Earnings Review - Net Interest Income” details average balances for the        deposit portfolio for the three and six months ended June 30, 2008 and 2007. Comparing the        six months ended June 30, 2008 and 2007, average customer funding decreased $174.8 million,        or 2.1%. Within customer funding, the mix continues to shift toward higher cost products,        with increases in average time deposits and customer sweep accounts more than offset by a        decrease in noninterest-bearing deposits, interest checking, savings and money markets.        Average brokered deposits increased $100.5 million, or 5.3%.

          Average        customer funding equaled 67.0% of average total funding in the first six months of 2008 and        67.3% in the first six months of 2007. As part of its overall funding strategy, TSFG        expects to continue its focus on lowering its funding costs by trying to improve the        customer funding level, mix, and rate paid. TSFG attempts to enhance its deposit mix by        working to attract lower-cost transaction accounts through actions such as new transaction        account opening goals, new checking products, and changing incentive plans to place a        greater emphasis on lower-cost customer deposit growth. Deposit pricing is very        competitive, and we expect this pricing environment to continue, together with customer        behavior driving the mix towards higher rate deposit products—money markets and        CDs.

*     Borrowed        Funds*

          Table        17 shows the breakdown of borrowed funds by type.

|                                                                    |   |                            |      |                                     |   |      |   |   |      |   |
|-------------------------------------------------------------------------|--------|---------------------------------|-----------|------------------------------------------|--------|-----------|--------|--------|-----------|--------|
| **Table                    17**                                         |   |                            |      |                                     |   |      |   |   |      |   |
|                                                                         |        |                                 |           |                                          |        |           |        |        |           |        |
| **Type                    of Borrowed Funds**                           |   |                            |      |                                     |   |      |   |   |      |   |
|                                                                         |        |                                 |           |                                          |        |           |        |        |           |        |
| **(dollars in                    thousands)**                           |   |                            |      |                                     |   |      |   |   |      |
|                                                                    |
|                                                                    |   | **June                    30,** |      | **December 31,                    2007** |   |
|                                                                    |   |                                 |      |                                     |
|                                                                    |   | **2008**                        |      | **2007**                                 |   |      |
|                                                                    |   |                                 |      |                                          |   |           |   |
| **Short-Term                    Borrowings**                            |   |                            |      |                                     |   |      |   |
| Federal                    funds purchased and repurchase agreements    |   | $                               | 169,074   |                                     | $      | 654,299   |   | $      | 206,216   |   |
| Customer                    sweep accounts                              |   |                            | 536,642   |                                     |   | 556,622   |   |   | 648,311   |   |
| Term                    auction facility                                |   |                            | 500,000   |                                     |   | —   |   |   | —   |   |
| FHLB                    advances                                        |   |                            | —   |                                     |   | 75,000    |   |   | —   |   |
| Commercial paper                                                        |   |                            | 25,155    |                                     |   | 32,687    |   |   | 30,828    |   |
| Treasury, tax and loan                    note                          |   |                            | 350,730   |                                     |   | 114,042   |   |   | 752,195   |   |
|                                                                    |   |                                 |           |                                     |        |           |   |        |           |   |
| **Total short-term                    borrowings**                      |   |                            | 1,581,601 |                                     |   | 1,432,650 |   |   | 1,637,550 |   |
|                                                                    |   |                                 |           |                                     |        |           |   |        |           |   |
|                                                                    |
| **Long-Term                    Borrowings**                             |   |                            |      |                                     |   |      |   |   |      |   |
| Repurchase                    agreements                                |   |                            | 200,000   |                                     |   | 200,000   |   |   | 200,000   |   |
| FHLB                    advances                                        |   |                            | 297,873   |                                     |   | 328,100   |   |   | 223,087   |   |
| Subordinated                    notes                                   |   |                            | 216,704   |                                     |   | 262,067   |   |   | 216,704   |   |
| Mandatorily redeemable                    preferred stock of subsidiary |   |                            | 56,800    |                                     |   | 64,800    |   |   | 56,800    |   |
| Note                    payable                                         |   |                            | 791       |                                     |   | 808       |   |   | 786       |   |
| Employee                    stock ownership plan note payable           |   |                            | —   |                                     |   | 50        |   |   | —   |   |
| Purchase                    accounting premiums, net of amortization    |   |                            | 789       |                                     |   | 1,423     |   |   | 963       |   |
|                                                                    |   |                                 |           |                                     |        |           |   |        |           |   |
| **Total long term                    borrowings**                       |   |                            | 772,957   |                                     |   | 857,248   |   |   | 698,340   |   |
|                                                                    |   |                                 |           |                                     |        |           |   |        |           |   |
| **Total                    borrowings**                                 |   |                            | 2,354,558 |                                     |   | 2,289,898 |   |   | 2,335,890 |   |
| Less:                    Customer sweep accounts                        |   |                            | (536,642  | )                                        |   | (556,622  | )      |   | (648,311  | )      |
| Add:                    Brokered deposits (1)                           |   |                            | 2,390,350 |                                     |   | 2,293,493 |   |   | 2,258,408 |   |
|                                                                    |   |                                 |           |                                     |        |           |   |        |           |   |
| **Total wholesale                    borrowings**                       |   | $                               | 4,208,266 |                                     | $      | 4,026,769 |   | $      | 3,945,987 |   |
|                                                                    |   |                                 |           |                                     |        |           |   |        |           |   |
| Wholesale borrowings as a %                    of total assets          |   |                            | 30.1      | %                                        |   | 28.5      | %      |   | 28.4      | %      |

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

46

----

          TSFG        uses both short-term and long-term borrowings to fund growth of earning assets in excess of        deposit growth. In the first six months of 2008 and 2007, average borrowings totaled $2.6        billion.

          Period-end        wholesale borrowings increased to $4.2 billion at June 30, 2008, compared to $3.9 billion        at December 31, 2007 as TSFG replaced certain customer funding with brokered deposits.        Average wholesale borrowings totaled $4.0 billion in the first six months of 2008 and 2007.        TSFG plans to continue its efforts to reduce its reliance on wholesale borrowings,        principally by growth in customer funding.

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

          In        December 2007, the Federal Reserve announced the establishment of a temporary Term Auction        Facility (“TAF”) in which the Federal Reserve would auction term funds to        depository institutions. Similar programs are being offered through other central banks to        ensure that liquidity is disseminated efficiently. The program is similar to term TT&L        auctions in that institutions place bids for the borrowing and the rate on the awarded        amount is based on the results of the auction. The collateral used to secure the borrowings        is the same that is currently held at the Discount Window (see “Liquidity”). At        June 30, 2008, TSFG had $500 million of TAF borrowings from the Federal Reserve. In July        2008, the Federal Reserve extended the TAF through November 2008.

          FHLB        advances are a source of funding that TSFG uses depending on the current level of deposits        and the availability of collateral to secure FHLB borrowings. At June 30, 2008, TSFG had        $625.9 million of unused borrowing capacity from the FHLB. See “Liquidity” for        further discussion.

          During        the first half of 2008, TSFG recognized a net loss on early extinguishment of debt of        $464,000, primarily due to prepayment penalties for FHLB advances partially offset by gains        on the extinguishment of called brokered CDs.

*     Capital        Resources and Dividends*

          Total        shareholders’ equity totaled $1.6 billion, or 11.2% of total assets, at June 30, 2008        and December 31, 2007. Shareholders’ equity remained basically flat as the net loss        for the first half of 2008 (which includes the $188.4 million goodwill impairment charge)        and cash dividends paid were largely offset by the net proceeds from the issuance of        preferred stock.

          On        May 8, 2008, TSFG issued $250.0 million of mandatory convertible non-cumulative preferred        stock, with net proceeds of $239.0 million. The preferred securities pay dividends at an        annual rate of 10%, have a conversion price of $6.50 per common share, and will convert        into approximately 38.5 million common shares by May 1, 2011. Although this issuance        strengthened TSFG’s overall capital and liquidity position and regulatory capital        ratios, it had a dilutive effect on book value/tangible book value per share and will have        a dilutive effect on earnings per share.

          Common        book value per common share at June 30, 2008 (assuming conversion of the preferred stock)        and December 31, 2007 was $14.01 and $21.40, respectively. Common tangible book value per        common share at June 30, 2008 (assuming conversion of the preferred stock) and December 31,        2007 was $9.63 and $12.04, respectively. Tangible book value was below book value as a        result of goodwill and intangibles associated with acquisitions of entities and assets        accounted for as purchases. Since TSFG’s net loss for the six months ended June 30,        2008 was largely due to the $188.4 million goodwill impairment charge which was reported in        first quarter 2008, book value per share decreased much more than tangible book value per        share. At June 30, 2008, goodwill totaled $463.3 million, or $6.36 per share, and is not        being amortized, while other intangibles totaled $24.6 million and will continue to be        amortized.

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

47

----

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

|                                         |   |                                 |   |                                                                   |   |   |   |
|----------------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------------|--------|--------|--------|
| **Table                    18**              |   |                                 |   |                                                                   |   |   |   |
|                                              |        |                                      |        |                                                                        |        |        |        |
| **Capital                    Ratios**        |   |                                 |   |                                                                   |   |   |   |
|                                              |        |                                      |        |                                                                        |        |        |        |
|                                         |   |                                 |   |                                                                   |   |   |   |
|                                         |   | **June                    30, 2008** |   | **Well                    Capitalized                    Requirement** |   |
|                                         |   |                                      |   |                                                                        |   |
| **TSFG**                                     |   |                                 |   |                                                                   |   |   |   |
| Total                    risk-based capital  |   | 12.54                                | %      |                                                                   | n/a    |   |   |
| Tier 1                    risk-based capital |   | 11.05                                |   |                                                                   | n/a    |   |   |
| Leverage                    ratio            |   | 9.81                                 |   |                                                                   | n/a    |   |   |
|                                         |   |                                 |   |                                                                   |   |   |   |
| **Carolina First                    Bank**   |   |                                 |   |                                                                   |   |   |   |
| Total                    risk-based capital  |   | 11.43                                | %      |                                                                   | 10.00  | %      |   |
| Tier 1                    risk-based capital |   | 9.71                                 |   |                                                                   | 6.00   |   |   |
| Leverage                    ratio            |   | 8.61                                 |   |                                                                   | 5.00   |   |   |

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

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

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

**Earnings        Review**

*     Net        Interest Income*

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

48

----

|                                                                     |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
|--------------------------------------------------------------------------|--------|----------------------------------------------------|------------|----------------------------------------|--------|------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|------------------------------------|--------|--------|---------|--------|--------|--------|--------|
| **Table                    19**                                          |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
|                                                                          |        |                                                    |            |                                        |        |                                    |        |                                        |        |                                        |        |                                    |        |        |         |        |        |        |        |
| **Comparative Average                    Balances - Yields and Costs**   |   |                                               |       |                                   |   |                               |   |                                   |   |
|                                                                          |        |                                                    |            |                                        |        |                                    |        |                                        |        |                                        |        |                                    |        |        |         |        |        |        |        |
| **(dollars in                    thousands)**                            |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
|                                                                     |
|                                                                     |   | **Three                    Months Ended June 30,** |       |
|                                                                     |   |                                                    |       |
|                                                                     |   | **2008**                                           |       | **2007**                               |   |
|                                                                     |   |                                                    |       |                                        |   |
|                                                                     |   | **Average                    Balance**             |       | **Income/                    Expense** |   | **Yield/                    Rate** |   | **Average                    Balance** |   | **Income/                    Expense** |   | **Yield/                    Rate** |   |
|                                                                     |   |                                                    |       |                                        |   |                                    |   |                                        |   |                                        |   |                                    |   |
| **Assets**                                                               |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Earning assets                                                           |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Loans                    (1)                                             |   | $                                                  | 10,458,571 |                                   | $      | 158,016                            |   |                                   | 6.08   | %                                      | $      | 9,984,137                          |   | $      | 191,961 |   |   | 7.71   | %      |
| Investment securities,                    taxable (2)                    |   |                                               | 1,799,907  |                                   |   | 20,591                             |   |                                   | 4.58   |                                   |   | 2,247,092                          |   |   | 26,879  |   |   | 4.79   |   |
| Investment securities,                    nontaxable (2) (3)             |   |                                               | 299,350    |                                   |   | 3,814                              |   |                                   | 5.10   |                                   |   | 359,043                            |   |   | 4,443   |   |   | 4.95   |   |
|                                                                     |   |                                                    |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total investment                    securities                           |   |                                               | 2,099,257  |                                   |   | 24,405                             |   |                                   | 4.65   |                                   |   | 2,606,135                          |   |   | 31,322  |   |   | 4.81   |   |
| Federal funds sold and                    interest-bearing bank balances |   |                                               | 20,256     |                                   |   | 106                                |   |                                   | 2.10   |                                   |   | 6,376                              |   |   | 97      |   |   | 6.10   |   |
|                                                                     |   |                                                    |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total earning                    assets                                  |   |                                               | 12,578,084 |                                   | $      | 182,527                            |   |                                   | 5.83   |                                   |   | 12,596,648                         |   | $      | 223,380 |   |   | 7.11   |   |
|                                                                     |   |                                               |       |                                   |        |                                    |   |                                   |   |                                   |   |                               |   |        |         |   |   |   |   |
| Non-earning                    assets                                    |   |                                               | 1,290,065  |                                   |   |                               |   |                                   |   |                                   |   | 1,496,431                          |   |   |    |   |   |   |   |
|                                                                     |   |                                                    |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| Total assets                                                             |   | $                                                  | 13,868,149 |                                   |   |                               |   |                                   |   |                                   | $      | 14,093,079                         |   |   |    |   |   |   |   |
|                                                                     |   |                                                    |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| **Liabilities and                    Shareholders’ Equity**        |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Liabilities                                                              |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Interest-bearing                    liabilities                          |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Interest-bearing                    deposits                             |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Interest-bearing                    checking                             |   | $                                                  | 1,120,716  |                                   | $      | 2,683                              |   |                                   | 0.96   |                                   | $      | 1,176,182                          |   | $      | 6,029   |   |   | 2.06   |   |
| Savings                                                                  |   |                                               | 152,023    |                                   |   | 304                                |   |                                   | 0.80   |                                   |   | 181,166                            |   |   | 736     |   |   | 1.63   |   |
| Money market                                                             |   |                                               | 2,104,322  |                                   |   | 11,822                             |   |                                   | 2.26   |                                   |   | 2,294,181                          |   |   | 22,528  |   |   | 3.94   |   |
| Time deposits, excluding                    brokered deposits            |   |                                               | 2,997,131  |                                   |   | 29,172                             |   |                                   | 3.91   |                                   |   | 2,910,284                          |   |   | 36,407  |   |   | 5.02   |   |
| Brokered                    deposits                                     |   |                                               | 2,081,224  |                                   |   | 19,199                             |   |                                   | 3.71   |                                   |   | 2,042,664                          |   |   | 26,366  |   |   | 5.18   |   |
|                                                                     |   |                                                    |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total interest-bearing                    deposits                       |   |                                               | 8,455,416  |                                   |   | 63,180                             |   |                                   | 3.01   |                                   |   | 8,604,477                          |   |   | 92,066  |   |   | 4.29   |   |
| Customer sweep                    accounts                               |   |                                               | 573,957    |                                   |   | 2,621                              |   |                                   | 1.84   |                                   |   | 496,030                            |   |   | 5,528   |   |   | 4.47   |   |
| Other borrowings                    (4)                                  |   |                                               | 2,078,730  |                                   |   | 15,186                             |   |                                   | 2.94   |                                   |   | 1,989,109                          |   |   | 27,710  |   |   | 5.59   |   |
|                                                                     |   |                                                    |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total interest-bearing                    liabilities                    |   |                                               | 11,108,103 |                                   | $      | 80,987                             |   |                                   | 2.93   |                                   |   | 11,089,616                         |   | $      | 125,304 |   |   | 4.53   |   |
|                                                                     |   |                                               |       |                                   |        |                                    |   |                                   |   |                                   |   |                               |   |        |         |   |   |   |   |
| Noninterest-bearing                    liabilities                       |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Noninterest-bearing                    deposits                          |   |                                               | 1,079,390  |                                   |   |                               |   |                                   |   |                                   |   | 1,225,075                          |   |   |    |   |   |   |   |
| Other noninterest-bearing                    liabilities                 |   |                                               | 185,275    |                                   |   |                               |   |                                   |   |                                   |   | 231,996                            |   |   |    |   |   |   |   |
|                                                                     |   |                                                    |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| Total                    liabilities                                     |   |                                               | 12,372,768 |                                   |   |                               |   |                                   |   |                                   |   | 12,546,687                         |   |   |    |   |   |   |   |
| Shareholders’                    equity                            |   |                                               | 1,495,381  |                                   |   |                               |   |                                   |   |                                   |   | 1,546,392                          |   |   |    |   |   |   |   |
|                                                                     |   |                                                    |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| Total liabilities and                    shareholders’ equity      |   | $                                                  | 13,868,149 |                                   |   |                               |   |                                   |   |                                   | $      | 14,093,079                         |   |   |    |   |   |   |   |
|                                                                     |   |                                                    |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| Net interest income                    (tax-equivalent)                  |   |                                               |       |                                   | $      | 101,540                            |   |                                   | 3.24   | %                                      |   |                               |   | $      | 98,076  |   |   | 3.12   | %      |
| Less: tax-equivalent                    adjustment (3)                   |   |                                               |       |                                   |   | 1,335                              |   |                                   |   |                                   |   |                               |   |   | 1,555   |   |   |   |   |
|                                                                     |   |                                               |       |                                   |        |                                    |   |                                   |   |                                   |   |                               |   |        |         |   |   |   |   |
| Net interest                    income                                   |   |                                               |       |                                   | $      | 100,205                            |   |                                   |   |                                   |   |                               |   | $      | 96,521  |   |   |   |   |
|                                                                     |   |                                               |       |                                   |        |                                    |   |                                   |   |                                   |   |                               |   |        |         |   |   |   |   |
| Supplemental                    data:                                    |   |                                               |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Customer funding                    (5)                                  |   | $                                                  | 8,027,539  |                                   | $      | 46,602                             |   |                                   | 2.33   | %                                      | $      | 8,282,918                          |   | $      | 71,228  |   |   | 3.45   | %      |
| Wholesale borrowings                    (6)                              |   |                                               | 4,159,954  |                                   |   | 34,385                             |   |                                   | 3.32   |                                   |   | 4,031,773                          |   |   | 54,076  |   |   | 5.38   |   |
|                                                                     |   |                                                    |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total funding                    (7)                                     |   | $                                                  | 12,187,493 |                                   | $      | 80,987                             |   |                                   | 2.67   | %                                      | $      | 12,314,691                         |   | $      | 125,304 |   |   | 4.08   | %      |
|                                                                     |   |                                                    |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |

|   |                                                                                                                                                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Nonaccrual loans are                    included in average balances for yield computations.                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (2)    | The average balances for                    investment securities exclude the unrealized loss recorded for available for                    sale securities.                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (3)    | The tax-equivalent                    adjustment to net interest income adjusts the yield for assets earning                    tax-exempt income to a comparable yield on a taxable basis.                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (4)    | During the three months                    ended June 30, 2008, TSFG capitalized $332,000 of interest in conjunction with                    the construction of its expanded corporate facilities.                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (5)    | Customer funding includes                    total deposits (total interest-bearing plus noninterest-bearing deposits) less                    brokered deposits plus customer sweep accounts.                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (6)    | Wholesale borrowings                    include borrowings less customer sweep accounts plus brokered deposits. For                    purposes of this table, wholesale borrowings equal the sum of other borrowings                    and brokered deposits, as customer sweep accounts are presented                    separately. |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (7)    | Total funding includes                    customer funding and wholesale borrowings.                                                                                                                                                                                                                                                    |

Note: Average balances are derived        from daily balances.

49

----

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

|                                                                     |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
|--------------------------------------------------------------------------|--------|--------------------------------------------------|------------|----------------------------------------|--------|------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|------------------------------------|--------|--------|---------|--------|--------|--------|--------|
|                                                                     |   | **Six                    Months Ended June 30,** |       |
|                                                                     |   |                                                  |       |
|                                                                     |   | **2008**                                         |       | **2007**                               |   |
|                                                                     |   |                                                  |       |                                        |   |
|                                                                     |   | **Average                    Balance**           |       | **Income/                    Expense** |   | **Yield/                    Rate** |   | **Average                    Balance** |   | **Income/                    Expense** |   | **Yield/                    Rate** |   |
|                                                                     |   |                                                  |       |                                        |   |                                    |   |                                        |   |                                        |   |                                    |   |
| **Assets**                                                               |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Earning assets                                                           |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Loans                    (1)                                             |   | $                                                | 10,347,045 |                                   | $      | 329,244                            |   |                                   | 6.40   | %                                      | $      | 9,899,046                          |   | $      | 378,589 |   |   | 7.71   | %      |
| Investment securities,                    taxable (2)                    |   |                                             | 1,774,664  |                                   |   | 40,983                             |   |                                   | 4.62   |                                   |   | 2,330,531                          |   |   | 55,704  |   |   | 4.78   |   |
| Investment securities,                    nontaxable (2) (3)             |   |                                             | 312,834    |                                   |   | 7,957                              |   |                                   | 5.09   |                                   |   | 371,355                            |   |   | 9,132   |   |   | 4.92   |   |
|                                                                     |   |                                                  |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total investment                    securities                           |   |                                             | 2,087,498  |                                   |   | 48,940                             |   |                                   | 4.69   |                                   |   | 2,701,886                          |   |   | 64,836  |   |   | 4.80   |   |
| Federal funds sold and                    interest-bearing bank balances |   |                                             | 14,486     |                                   |   | 178                                |   |                                   | 2.47   |                                   |   | 7,348                              |   |   | 238     |   |   | 6.53   |   |
|                                                                     |   |                                                  |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total earning                    assets                                  |   |                                             | 12,449,029 |                                   | $      | 378,362                            |   |                                   | 6.11   |                                   |   | 12,608,280                         |   | $      | 443,663 |   |   | 7.09   |   |
|                                                                     |   |                                             |       |                                   |        |                                    |   |                                   |   |                                   |   |                               |   |        |         |   |   |   |   |
| Non-earning                    assets                                    |   |                                             | 1,407,498  |                                   |   |                               |   |                                   |   |                                   |   | 1,512,135                          |   |   |    |   |   |   |   |
|                                                                     |   |                                                  |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| Total                    assets                                          |   | $                                                | 13,856,527 |                                   |   |                               |   |                                   |   |                                   | $      | 14,120,415                         |   |   |    |   |   |   |   |
|                                                                     |   |                                                  |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| **Liabilities and                    Shareholders’ Equity**        |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Liabilities                                                              |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Interest-bearing                    liabilities                          |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Interest-bearing                    deposits                             |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Interest-bearing                    checking                             |   | $                                                | 1,138,067  |                                   | $      | 7,336                              |   |                                   | 1.30   |                                   | $      | 1,181,680                          |   | $      | 11,964  |   |   | 2.04   |   |
| Savings                                                                  |   |                                             | 154,435    |                                   |   | 731                                |   |                                   | 0.95   |                                   |   | 180,060                            |   |   | 1,442   |   |   | 1.61   |   |
| Money market                                                             |   |                                             | 2,148,913  |                                   |   | 28,455                             |   |                                   | 2.66   |                                   |   | 2,335,745                          |   |   | 46,065  |   |   | 3.98   |   |
| Time deposits, excluding                    brokered deposits            |   |                                             | 2,975,248  |                                   |   | 62,823                             |   |                                   | 4.25   |                                   |   | 2,902,007                          |   |   | 71,988  |   |   | 5.00   |   |
| Brokered                    deposits                                     |   |                                             | 2,008,073  |                                   |   | 40,941                             |   |                                   | 4.10   |                                   |   | 1,907,623                          |   |   | 49,086  |   |   | 5.19   |   |
|                                                                     |   |                                                  |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total interest-bearing                    deposits                       |   |                                             | 8,424,736  |                                   |   | 140,286                            |   |                                   | 3.35   |                                   |   | 8,507,115                          |   |   | 180,545 |   |   | 4.28   |   |
| Customer sweep                    accounts                               |   |                                             | 629,355    |                                   |   | 8,093                              |   |                                   | 2.59   |                                   |   | 475,095                            |   |   | 10,509  |   |   | 4.46   |   |
| Other borrowings                    (4)                                  |   |                                             | 2,000,845  |                                   |   | 34,287                             |   |                                   | 3.45   |                                   |   | 2,128,838                          |   |   | 58,354  |   |   | 5.53   |   |
|                                                                     |   |                                                  |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total interest-bearing                    liabilities                    |   |                                             | 11,054,936 |                                   | $      | 182,666                            |   |                                   | 3.32   |                                   |   | 11,111,048                         |   | $      | 249,408 |   |   | 4.53   |   |
|                                                                     |   |                                             |       |                                   |        |                                    |   |                                   |   |                                   |   |                               |   |        |         |   |   |   |   |
| Noninterest-bearing                    liabilities                       |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Noninterest-bearing                    deposits                          |   |                                             | 1,081,447  |                                   |   |                               |   |                                   |   |                                   |   | 1,227,683                          |   |   |    |   |   |   |   |
| Other noninterest-bearing                    liabilities                 |   |                                             | 189,964    |                                   |   |                               |   |                                   |   |                                   |   | 232,618                            |   |   |    |   |   |   |   |
|                                                                     |   |                                                  |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| Total                    liabilities                                     |   |                                             | 12,326,347 |                                   |   |                               |   |                                   |   |                                   |   | 12,571,349                         |   |   |    |   |   |   |   |
| Shareholders’                    equity                            |   |                                             | 1,530,180  |                                   |   |                               |   |                                   |   |                                   |   | 1,549,066                          |   |   |    |   |   |   |   |
|                                                                     |   |                                                  |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| Total liabilities and                    shareholders’ equity      |   | $                                                | 13,856,527 |                                   |   |                               |   |                                   |   |                                   | $      | 14,120,415                         |   |   |    |   |   |   |   |
|                                                                     |   |                                                  |            |                                   |   |                               |   |                                   |   |                                   |        |                                    |   |   |    |   |   |   |   |
| Net interest income                    (tax-equivalent)                  |   |                                             |       |                                   | $      | 195,696                            |   |                                   | 3.16   | %                                      |   |                               |   | $      | 194,255 |   |   | 3.10   | %      |
| Less: tax-equivalent                    adjustment (3)                   |   |                                             |       |                                   |   | 2,785                              |   |                                   |   |                                   |   |                               |   |   | 3,196   |   |   |   |   |
|                                                                     |   |                                             |       |                                   |        |                                    |   |                                   |   |                                   |   |                               |   |        |         |   |   |   |   |
| Net interest                    income                                   |   |                                             |       |                                   | $      | 192,911                            |   |                                   |   |                                   |   |                               |   | $      | 191,059 |   |   |   |   |
|                                                                     |   |                                             |       |                                   |        |                                    |   |                                   |   |                                   |   |                               |   |        |         |   |   |   |   |
| Supplemental                    data:                                    |   |                                             |       |                                   |   |                               |   |                                   |   |                                   |   |                               |   |   |    |   |   |   |   |
| Customer funding                    (5)                                  |   | $                                                | 8,127,465  |                                   | $      | 107,438                            |   |                                   | 2.66   | %                                      | $      | 8,302,270                          |   | $      | 141,968 |   |   | 3.45   | %      |
| Wholesale borrowings                    (6)                              |   |                                             | 4,008,918  |                                   |   | 75,228                             |   |                                   | 3.77   |                                   |   | 4,036,461                          |   |   | 107,440 |   |   | 5.37   |   |
|                                                                     |   |                                                  |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |
| Total funding                    (7)                                     |   | $                                                | 12,136,383 |                                   | $      | 182,666                            |   |                                   | 3.03   | %                                      | $      | 12,338,731                         |   | $      | 249,408 |   |   | 4.08   | %      |
|                                                                     |   |                                                  |            |                                   |        |                                    |   |                                   |   |                                   |        |                                    |   |        |         |   |   |   |   |

|   |                                                                                                                                                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Nonaccrual loans are                    included in average balances for yield computations.                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (2)    | The average balances for                    investment securities exclude the unrealized loss recorded for available for                    sale securities.                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (3)    | The tax-equivalent                    adjustment to net interest income adjusts the yield for assets earning                    tax-exempt income to a comparable yield on a taxable basis.                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (4)    | During the six months ended                    June 30, 2008, TSFG capitalized $661,000 of interest in conjunction with the                    construction of its expanded corporate facilities.                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (5)    | Customer funding includes                    total deposits (total interest-bearing plus noninterest-bearing deposits) less                    brokered deposits plus customer sweep accounts.                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (6)    | Wholesale borrowings                    include borrowings less customer sweep accounts plus brokered deposits. For                    purposes of this table, wholesale borrowings equal the sum of other borrowings                    and brokered deposits, as customer sweep accounts are presented                    separately. |
|   |                                                                                                                                                                                                                                                                                                                                    |
| (7)    | Total funding includes                    customer funding and wholesale borrowings.                                                                                                                                                                                                                                                    |

Note: Average balances are derived        from daily balances.

50

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          Fully        tax-equivalent net interest income increased 0.7% to $195.7 million for the first six        months of 2008 from $194.3 million for the first six months of 2007. TSFG’s average        earning assets declined 1.3% to $12.4 billion for the first six months of 2008 from $12.6        billion for the first six months of 2007 due primarily to the planned reduction of        securities exceeding loan growth. As a result, average loans as a percentage of average        earning assets increased to 83.1% for first six months of 2008, up from 78.5% for the first        half of 2007, improving the earning asset mix. At June 30, 2008, approximately 61% of        TSFG’s accruing loans were variable rate loans, the majority of which are tied to the        prime rate. TSFG has entered into receive-fixed interest rate swaps to hedge the forecasted        interest income from certain prime-based commercial loans as part of its overall interest        rate risk management. TSFG also has an interest rate floor that is designated as a hedge of        commercial loans and is intended to mitigate earnings exposure to falling interest        rates.

          The        net interest margin for the first half of 2008 was 3.16%, compared with 3.10% for the first        half of 2007. The yield on average earning assets decreased 98 basis points, primarily due        to decreased loan yields, which were down 131 basis points. The decrease in earning asset        yields was more than offset by a decrease in the average cost of funding of 105 basis        points. The Federal Reserve has decreased the federal funds target rate by 325 basis points        since June 30, 2007.

          Fully        tax-equivalent net interest income for second quarter 2008 totaled $101.5 million, an        increase of $7.4 million from $94.2 million for first quarter 2008 and $3.5 million from        $98.1 million for second quarter 2007. The net interest margin for second quarter 2008 was        3.24%, compared to 3.07% for first quarter 2008 and 3.12% for second quarter 2007. This        increase was primarily due to lower funding costs and the net proceeds from the preferred        stock issuance. TSFG’s blended mix of funding sources responds more slowly to a        declining interest rate environment than its earning assets. Second quarter 2008’s        lower funding costs reflect the lagged benefit from the repricing of funding        sources.

*     Provision        for Credit Losses*

          The        provision for credit losses is recorded in amounts sufficient to bring the allowance for        loan losses and the reserve for unfunded lending commitments to a level deemed appropriate        by management. Management determines this amount based upon many factors, including its        assessment of loan portfolio quality, loan growth, changes in loan portfolio composition,        net loan charge-off levels, and expected economic conditions. The provision for credit        losses was $137.1 million in the first six months of 2008, compared to $26.1 million in the        first six months of 2007. The higher provision largely reflected credit deterioration due        to continued weakness in housing markets, particularly in Florida, and additional specific        reserves for nonperforming loans and the overall land development portfolios in        Florida.

          For        second quarter 2008, the provision for credit losses totaled $63.8 million, compared to        $73.3 million for first quarter 2008 and $17.1 million for second quarter 2007. Second        quarter provision exceeded net loan charge-offs by $16.8 million.

          Net        loan charge-offs were $71.9 million, or 1.40% of average loans held for investment, for the        first six months of 2008, compared with $12.1 million, or 0.25% of average loans held for        investment, for the first six months of 2007. The allowance for credit losses equaled 1.85%        of loans held for investment as of June 30, 2008, compared to 1.26% for both December 31,        2007 and June 30, 2007. See “Loans,” “Credit Quality,” and        “Allowance for Loan Losses and Reserve for Unfunded Lending        Commitments.”

51

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*     Noninterest        Income*

          Table        20 shows the components of noninterest income.

|                                                    |
|---------------------------------------------------------|
| **Table                    20**                         |
|                                                         |
| **Components of                    Noninterest Income** |
|                                                         |
| **(dollars in                    thousands)**           |

|                                                            |   |                                                                  |    |                                                                |   |     |   |     |   |   |   |    |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|---------------------------------------------------------------------|--------|----------|--------|----------|--------|--------|--------|---------|--------|
|                                                            |   | **Three                    Months Ended                    June 30,** |    | **Six                    Months Ended                    June 30,** |   |
|                                                            |   |                                                                       |    |                                                                     |   |
|                                                            |   | **2008**                                                              |    | **2007**                                                            |   | **2008** |   | **2007** |   |
|                                                            |   |                                                                       |    |                                                                     |   |          |   |          |   |
| Service charges on deposit                    accounts          |   | $                                                                     | 10,986  |                                                                | $      | 11,223   |   | $        | 21,415 |   | $      | 21,836  |   |
| Debit card income,                    net                       |   |                                                                  | 2,056   |                                                                |   | 1,839    |   |     | 3,932  |   |   | 3,406   |   |
| Customer service fee                    income                  |   |                                                                  | 1,358   |                                                                |   | 1,402    |   |     | 2,689  |   |   | 2,693   |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |        |   |        |         |   |
| Total customer fee                    income                    |   |                                                                  | 14,400  |                                                                |   | 14,464   |   |     | 28,036 |   |   | 27,935  |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |        |   |        |         |   |
|                                                            |
| Insurance income                                                |   |                                                                  | 2,388   |                                                                |   | 2,987    |   |     | 5,448  |   |   | 6,284   |   |
| Retail investment services,                    net              |   |                                                                  | 2,120   |                                                                |   | 2,021    |   |     | 3,666  |   |   | 3,735   |   |
| Trust and investment                    management income       |   |                                                                  | 1,857   |                                                                |   | 1,734    |   |     | 3,523  |   |   | 3,328   |   |
| Benefits administration                    fees                 |   |                                                                  | 734     |                                                                |   | 749      |   |     | 1,490  |   |   | 1,491   |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |        |   |        |         |   |
| Total wealth management                    income               |   |                                                                  | 7,099   |                                                                |   | 7,491    |   |     | 14,127 |   |   | 14,838  |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |        |   |        |         |   |
|                                                            |
| Bank-owned life insurance                    income             |   |                                                                  | 2,910   |                                                                |   | 4,454    |   |     | 6,057  |   |   | 7,305   |   |
| Mortgage banking                    income                      |   |                                                                  | 1,858   |                                                                |   | 1,877    |   |     | 3,343  |   |   | 3,946   |   |
| Gain (loss) on                    securities                    |   |                                                                  | 1,876   |                                                                |   | (2,237   | )      |     | 2,272  |   |   | (3,622  | )      |
| Gain on Visa IPO share                    redemption            |   |                                                                  | — |                                                                |   | —  |   |     | 1,904  |   |   | — |   |
| Merchant processing income,                    net              |   |                                                                  | 809     |                                                                |   | 771      |   |     | 1,666  |   |   | 1,506   |   |
| Gain (loss) on certain                    derivative activities |   |                                                                  | 236     |                                                                |   | (1,497   | )      |     | 248    |   |   | (1,400  | )      |
| Other                                                           |   |                                                                  | 3,002   |                                                                |   | 2,360    |   |     | 5,453  |   |   | 4,145   |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |        |   |        |         |   |
| Total noninterest                    income                     |   | $                                                                     | 32,190  |                                                                | $      | 27,683   |   | $        | 63,106 |   | $      | 54,653  |   |
|                                                            |   |                                                                       |         |                                                                |        |          |   |          |        |   |        |         |   |

          Noninterest        income increased 15.5% to $63.1 million in the first six months of 2008 due primarily to a        gain on mandatory partial redemption of shares received in the Visa IPO of $1.9 million and        a net gain on securities of $2.3 million in the first six months of 2008 compared to a $3.6        million net loss on securities in the first six months of 2007. In addition, TSFG recorded        a gain on certain derivative activities of $248,000 in the first half of 2008, compared to        a loss of $1.4 million in the first half of 2007.

          Total        customer fee income increased slightly in the first six months of 2008 compared to the same        period in 2007, primarily due to increased debit card usage, and merchant processing income        (net of direct processing costs) increased 10.6% in the first six months of 2008 compared        to the same period in 2007 as a result of increased transactions. Bank-owned life insurance        decreased in the first half of 2008 relative to 2007 due to the receipt of fewer life        insurance proceeds.

          Mortgage        banking income decreased 15.3% in the first six months of 2008 when compared to the same        period in 2007. Mortgage loans originated by TSFG originators totaled $174.1 million and        $301.7 million in the first six months of 2008 and 2007, respectively. The decrease in        mortgage banking income was principally the result of lower origination volumes in response        to industry conditions.

          For        second quarter 2008, noninterest income totaled $32.2 million, compared to $30.9 million        first quarter 2008 and $27.7 million second quarter 2007. The increase from first quarter        2008 to second quarter 2008 was largely attributable to increases in service charges on        deposit accounts (in keeping with seasonal trends) and mortgage banking income. The        increase from second quarter 2007 to second quarter 2008 was primarily due to the swing in        gains/losses on securities and certain derivative activities.

52

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*     Noninterest        Expenses*

          Table        21 shows the components of noninterest expenses.

|                                                      |
|-----------------------------------------------------------|
| **Table                    21**                           |
|                                                           |
| **Components of                    Noninterest Expenses** |
|                                                           |
| **(dollars in                    thousands)**             |

|                                                                            |   |                                                                  |    |                                                                |   |     |   |     |    |   |   |    |   |
|---------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|---------------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|---------|--------|
|                                                                            |   | **Three                    Months Ended                    June 30,** |    | **Six                    Months Ended                    June 30,** |   |
|                                                                            |   |                                                                       |    |                                                                     |   |
|                                                                            |   | **2008**                                                              |    | **2007**                                                            |   | **2008** |   | **2007** |    |
|                                                                            |   |                                                                       |    |                                                                     |   |          |   |          |    |
| Salaries and wages,                    excluding contract buyouts and severance |   | $                                                                     | 36,136  |                                                                | $      | 34,258   |   | $        | 70,989  |   | $      | 69,330  |   |
| Employee                    benefits                                            |   |                                                                  | 9,113   |                                                                |   | 9,245    |   |     | 18,411  |   |   | 19,004  |   |
| Occupancy                                                                       |   |                                                                  | 8,972   |                                                                |   | 8,545    |   |     | 17,595  |   |   | 17,153  |   |
| Furniture and                    equipment                                      |   |                                                                  | 6,733   |                                                                |   | 6,486    |   |     | 13,116  |   |   | 12,948  |   |
| Professional                    services                                        |   |                                                                  | 3,579   |                                                                |   | 4,914    |   |     | 7,106   |   |   | 9,017   |   |
| Advertising and business                    development                         |   |                                                                  | 2,731   |                                                                |   | 1,973    |   |     | 5,202   |   |   | 3,904   |   |
| Regulatory                    assessments                                       |   |                                                                  | 2,374   |                                                                |   | 436      |   |     | 4,451   |   |   | 864     |   |
| Loan collection and                    monitoring                               |   |                                                                  | 2,167   |                                                                |   | 460      |   |     | 3,137   |   |   | 1,179   |   |
| Amortization of                    intangibles                                  |   |                                                                  | 1,589   |                                                                |   | 2,136    |   |     | 3,247   |   |   | 4,137   |   |
| Telecommunications                                                              |   |                                                                  | 1,476   |                                                                |   | 1,418    |   |     | 2,899   |   |   | 2,811   |   |
| Employment contract buyouts                    and severance                    |   |                                                                  | 2,299   |                                                                |   | 546      |   |     | 2,299   |   |   | 2,306   |   |
| Branch acquisition and                    conversion costs                      |   |                                                                  | 731     |                                                                |   | —  |   |     | 731     |   |   | — |   |
| Gain (loss) on early                    extinguishment of debt                  |   |                                                                  | (83     | )                                                                   |   | 231      |   |     | 464     |   |   | 231     |   |
| Goodwill                    impairment                                          |   |                                                                  | — |                                                                |   | —  |   |     | 188,431 |   |   | — |   |
| Visa-related                    litigation                                      |   |                                                                  | — |                                                                |   | —  |   |     | (863    | )      |   | — |   |
| Other                                                                           |   |                                                                  | 9,803   |                                                                |   | 9,503    |   |     | 18,584  |   |   | 18,744  |   |
|                                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |
| Total noninterest                    expenses                                   |   | $                                                                     | 87,620  |                                                                | $      | 80,151   |   | $        | 355,799 |   | $      | 161,628 |   |
|                                                                            |   |                                                                       |         |                                                                |        |          |   |          |         |   |        |         |   |

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

          Salaries        and wages (excluding contract buyouts and severance) and employee benefits increased $1.1        million, or 1.2%, in the first six months of 2008 compared with the same period in 2007.        The number of full-time equivalent employees increased to 2,572 at June 30, 2008 from 2,467        at June 30, 2007.

          Advertising        and business development increased 33.2% for the first half of 2008 compared with the first        half of 2007, primarily due to costs related to customer funding initiatives. In addition,        regulatory assessments increased as the one-time credit which had been offsetting FDIC        premiums for all of 2006 and the first three quarters of 2007 was fully utilized in fourth        quarter 2007. Loan collection and monitoring expense increased $2.0 million for the first        six months of 2008 compared with the first six months of 2007 due to the current credit        environment, and may continue to increase.

          Professional        services decreased by 21.2% for the first six months of 2008 compared with the first six        months of 2007, primarily due to a decrease in legal fees and expenses related to        development of TSFG’s strategic initiatives.

          During        the first six months of 2008, TSFG recognized a loss on early extinguishment of debt of        $464,000, which reflects prepayment penalties on FHLB advances, offset by swap calls on        brokered CDs, versus a loss of $231,000 in the first six months of 2007. See        “Borrowed Funds.”

          TSFG        incurred branch acquisition and conversion costs during the first half of 2008 related to        the June 6, 2008 purchase of five retail branch offices in the Orlando area. This        transaction could result in additional noninterest expense in future periods.

53

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          Excluding        the goodwill impairment charge in first quarter 2008, second quarter 2008 noninterest        expenses increased $7.9 million from first quarter 2008 due primarily to contract buyouts        and severance, branch acquisition and conversion costs, and loan collection and        monitoring.

*     Income        Taxes*

          The        effective income tax rate as a percentage of pretax income was 10.4% for the first half of        2008 and 33.6% for the first half of 2007. The 2008 tax rate was driven by the impact of        the nondeductible goodwill impairment, other nontaxable and nondeductible items, and        management’s projections. The effective income tax rate for future quarters of 2008        could be significantly impacted by changes in management’s projections and variances        to actual results. The statutory U.S. federal income tax rate was 35% for both 2008 and        2007.

**Enterprise Risk        Management**

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

*     Credit        Risk*

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

*     Liquidity        Risks*

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

*     Market        Risk and Asset/Liability Management*

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

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

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

          Table        22 reflects the sensitivity of net interest income to changes in interest rates. It shows        the effect that the indicated changes in interest rates would have on net interest income        over the next 12 months compared with the base case

54

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or flat interest        rate scenario. The base case or flat scenario assumes interest rates stay at June 30, 2008,        and 2007 levels, respectively.

|                                                        |                                                                                                                                   |   |     |   |     |    |   |   |
|-------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|
| **Table                    22**                             |                                                                                                                                   |   |     |   |     |    |   |
|                                                             |                                                                                                                                        |        |          |        |          |         |        |
| **Net Interest Income                    at Risk Analysis** |                                                                                                                                   |   |     |   |     |    |
|                                                             |                                                                                                                                        |        |          |        |          |         |        |        |
|                                                        |
| **Interest Rate                    Scenario (1)**           | **Annualized Hypothetical                    Percentage Change in                    Net Interest Income                    June 30,** |   |
|                                                        |                                                                                                                                   |        |
|                                                        |                                                                                                                                   |   | **2008** |   | **2007** |
|                                                        |                                                                                                                                   |   |          |   |          |
| 2.00                                                        | %                                                                                                                                      |   | 1.7      | %      |     | (0.7    | )%     |   |
| 1.00                                                        |                                                                                                                                   |   | 1.0      |   |     | (0.3    | )      |   |
| Flat                                                        |                                                                                                                                   |   | —  |   |     | — |   |   |
| (1.00                                                       | )                                                                                                                                      |   | (1.1     | )      |     | (0.1    | )      |   |
| (2.00                                                       | )                                                                                                                                      |   | (2.5     | )      |     | — |   |   |

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

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

|                                                          |                                                                                                                                        |   |     |   |     |    |   |   |
|---------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|
| **Table                    23**                               |                                                                                                                                        |   |     |   |
|                                                               |
| **Economic Value of                    Equity Risk Analysis** |                                                                                                                                        |   |
|                                                               |
|                                                          |                                                                                                                                        |   |     |   |     |    |   |   |
| **Interest Rate                    Scenario (1)**             | **Annualized Hypothetical                    Percentage Change in                    Economic Value of Equity                    June 30,** |   |
|                                                          |                                                                                                                                        |   |          |
|                                                          |                                                                                                                                        |   | **2008** |   | **2007** |
|                                                          |                                                                                                                                        |   |          |   |          |
| 2.00                                                          | %                                                                                                                                           |   | (7.7     | )%     |     | (11.4   | )%     |   |
| 1.00                                                          |                                                                                                                                        |   | (2.8     | )      |     | (5.4    | )      |   |
| Flat                                                          |                                                                                                                                        |   | —  |   |     | — |   |   |
| (1.00                                                         | )                                                                                                                                           |   | 1.7      |   |     | 2.8     |   |   |
| (2.00                                                         | )                                                                                                                                           |   | (1.2     | )      |     | 0.5     |   |   |

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

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

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

55

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**Off-Balance        Sheet Arrangements**

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

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

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

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

**Liquidity**

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

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

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

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

          Under        normal business conditions, the sources above are adequate to meet both the short-term and        longer-term funding needs of the Company; however, TSFG’s contingency funding plan        establishes early warning triggers to alert management to potentially negative liquidity        trends. The plan provides a framework to manage through various scenarios – including        identification of alternative actions and an executive management team to navigate through        a

56

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crisis. Limits        ensure that liquidity is sufficient to manage through crises of various degrees of        severity, triggered by TSFG-specific events, such as significant adverse changes to        earnings, credit quality or credit ratings, or general industry or market events, such as        market instability or rapid adverse changes in the economy.

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

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

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

|                                                       |   |                                          |      |                                                        |   |                                                    |   |                                                    |      |                              |   |    |   |   |    |   |
|------------------------------------------------------------|--------|-----------------------------------------------|-----------|-------------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------------------------------------|-----------|-----------------------------------|--------|---------|--------|--------|---------|--------|
| **Table                    24**                            |   |                                          |
|                                                            |
| **Contractual                    Obligations**             |   |                                          |
|                                                            |
| **(dollars in                    thousands)**              |
|                                                       |
|                                                       |   | **Payments Due by                    Period** |
|                                                       |   |                                               |
|                                                       |   | **Total**                                     |      | **Remainder                    of                    2008** |   | **2009                    and                    2010** |   | **2011                    and                    2012** |      | **After                    2012** |   |
|                                                       |   |                                               |      |                                                             |   |                                                         |   |                                                         |      |                                   |   |
| Time deposits                                              |   | $                                             | 5,338,462 |                                                        | $      | 3,078,329                                               |   | $                                                       | 1,711,881 |                              | $      | 273,416 |   | $      | 274,836 |   |
| Short-term                    borrowings                   |   |                                          | 1,581,601 |                                                        |   | 1,581,601                                               |   |                                                    | —   |                              |   | — |   |   | — |   |
| Long-term                    debt                          |   |                                          | 772,168   |                                                        |   | 36                                                      |   |                                                    | 69,759    |                              |   | 259,216 |   |   | 443,157 |   |
| Operating                    leases                        |   |                                          | 194,050   |                                                        |   | 10,197                                                  |   |                                                    | 38,122    |                              |   | 31,981  |   |   | 113,750 |   |
| Expanded corporate                    facilities contracts |   |                                          | 26,174    |                                                        |   | 26,056                                                  |   |                                                    | 118       |                              |   | — |   |   | — |   |
|                                                       |   |                                               |           |                                                        |        |                                                         |   |                                                         |           |                              |        |         |   |        |         |   |
| Total contractual                    obligations           |   | $                                             | 7,912,455 |                                                        | $      | 4,696,219                                               |   | $                                                       | 1,819,880 |                              | $      | 564,613 |   | $      | 831,743 |   |
|                                                       |   |                                               |           |                                                        |        |                                                         |   |                                                         |           |                              |        |         |   |        |         |   |

          TSFG        has the ability to borrow from the FHLB and maintain short-term lines of credit from        unrelated banks. FHLB advances outstanding as of June 30, 2008 totaled $297.9 million. At        June 30, 2008, TSFG had $625.9 million of unused borrowing capacity from the FHLB. TSFG        funds its short-term needs principally with deposits, including brokered deposits, federal        funds purchased, repurchase agreements, FHLB advances, Federal Reserve borrowings, treasury        tax and loan notes, and the principal run-off of investment securities. At June 30, 2008,        TSFG had unused short-term lines of credit totaling $814.7 million (which may be canceled        at the lender’s option and which are subject to funds availability at the lender),        compared to $1.9 billion at December 31, 2007.

          A        collateralized borrowing relationship with the Federal Reserve Bank of Richmond is in place        for Carolina First Bank. At June 30, 2008, TSFG had qualifying collateral to secure        advances up to $3.5 billion, of which $500.0 million was outstanding, placed through the        Federal Reserve’s Term Auction Facility (see “Borrowed        Funds”).

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

          Typically,        the primary sources of funding for the parent company include dividends received from its        banking subsidiary, proceeds from the issuance of subordinated debt, equity, and commercial        paper. Currently, dividends are not payable from Carolina First Bank to the parent without        regulatory approval. The primary uses of funds for the parent company include repayment of        maturing debt and commercial paper, share repurchases, dividends paid to common and        preferred shareholders, and capital contributions to subsidiaries. At June 30, 2008, the        parent company had one $10.0

57

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million short-term        unused line of credit. During the first half of 2008, two of its lines of credit totaling        $25.0 million were cancelled.

          During        second quarter 2008, TSFG issued $250 million of mandatory convertible non-cumulative        preferred stock (with net proceeds of $239 million) and reduced its quarterly common stock        cash dividend to $0.01 per share in an effort to strengthen its capital and liquidity        position. The parent company contributed $125 million of the preferred capital proceeds to        Carolina First Bank during second quarter 2008.

          TSFG’s        original capital plan, announced in May 2008, included the possibility of issuing up to        $100 million in bank-level subordinated debt. Subsequent to quarter-end, after further        examination of our capital needs, we decided to suspend the offering.

**Recently        Adopted/Issued Accounting Pronouncements**

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

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

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

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

     *Evaluation        of Disclosure Controls and Procedures*

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

*     Changes        in Internal Controls over Financial Reporting*

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

58

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PART II. OTHER        INFORMATION

**Item 1. *Legal        Proceedings***

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

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

          There        have been no material changes to the risk factors previously disclosed under Item 1A (pages        9-11) of TSFG’s Annual Report on Form 10-K for the year ended December 31,        2007.

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

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

**Issuer Purchases        of Equity Securities**

|                                               |   |                                                                                          |   |                                                                                      |   |                                                                                                                                                                                                   |   |                                                                                                                                                                                                                         |    |   |   |    |   |
|----------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------|--------|---------|--------|
| **Period**                                         |   | **Total                    Number                    of Shares                    Purchased** |   | **Average                    Price                    Paid per                    Share** |   | **Total                    Number of                    Shares Purchased                    as Part                    of Publicly                    Announced Plans                    or Programs** |   | **Approximate                    Dollar Value of                    Shares that                    May Yet Be                    Purchased                    Under Plans or                    Programs (2)(in thousands)** |    |
|                                                    |   |                                                                                               |   |                                                                                           |   |                                                                                                                                                                                                        |   |                                                                                                                                                                                                                              |    |
| April 1, 2008 to April                    30, 2008 |   |                                                                                          | 105    | (1)                                                                                       | $      | 11.95                                                                                                                                                                                                  |   |                                                                                                                                                                                                                         | — |   | $      | 88,024  |   |
| May 1, 2008 to May 31,                    2008     |   |                                                                                          | 876    | (1)                                                                                       |   | 6.57                                                                                                                                                                                                   |   |                                                                                                                                                                                                                         | — |   |   | 88,024  |   |
| June 1, 2008 to June 30,                    2008   |   |                                                                                          | 1,248  | (1)                                                                                       |   | 5.01                                                                                                                                                                                                   |   |                                                                                                                                                                                                                         | — |   |   | — |   |
|                                               |   |                                                                                               |        |                                                                                      |        |                                                                                                                                                                                                        |   |                                                                                                                                                                                                                              |         |   |        |         |   |
| Total                                              |   |                                                                                          | 2,229  |                                                                                      | $      | 5.95                                                                                                                                                                                                   |   |                                                                                                                                                                                                                         | — |   | $      | — |   |
|                                               |   |                                                                                               |        |                                                                                      |        |                                                                                                                                                                                                        |   |                                                                                                                                                                                                                              |         |   |        |         |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | These shares were canceled                    in connection with exercise of options, vesting of restricted stock, or                    distribution from the deferred compensation plan. Pursuant to TSFG’s                    stock option plans, participants may exercise stock options by surrendering                    shares of TSFG common stock the participants already own or, in some cases, by                    surrendering fully vested stock options as payment of the option exercise                    price. Pursuant to TSFG’s restricted stock plans, participants may tender                    shares of vested restricted stock as payment for taxes due at the time of                    vesting. Pursuant to TSFG’s Executive Deferred Compensation Plan,                    participants may tender shares of stock as payment for taxes due at the time of                    distribution. Shares surrendered by participants of these plans are repurchased                    at current market value pursuant to the terms of the applicable stock option,                    restricted stock, or deferred compensation plan and not pursuant to publicly                    announced share repurchase programs. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (2)    | In August 2007, the Board                    of Directors amended and restated TSFG’s existing stock repurchase                    authorization to be an aggregate of $100.0 million, $88.0 million of which                    expired unused on June 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

          On        June 3, 2008, we issued 4,403 common shares to the former shareholder of Summit Title, LLC,        a title insurance agency acquired by TSFG in 2004. These shares were issued in connection        with earnout provisions in the acquisition documents. This issuance of shares was not        registered under the Securities Act of 1933 in reliance upon the exemption set forth in        Section 4(2) thereof.

          On        May 8, 2008, we issued 250,000 shares of preferred stock to certain institutional investors        and certain Company affiliates (including directors) through a private placement. This        issuance of shares was not registered under the Securities Act of 1933 in reliance upon the        exemption set forth in Section 4(2) thereof.

59

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

          None.

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

          On        May 6, 2008, TSFG held its 2008 Annual Meeting of Shareholders. The results of the 2008        Annual Meeting of Shareholders follow.

          **Proposal #1 – Election of Directors**

|                                    |   |                                      |       |   |   |                                  |   |   |       |   |
|-----------------------------------------|--------|-------------------------------------------|------------|--------|--------|---------------------------------------|--------|--------|------------|--------|
|                                    |   | Voting                    shares in favor |       |   |   |                                  |
|                                    |   |                                           |       |   |   |                                  |
|                                    |   | #                                         |       | %      |   | Withheld                    Authority |   |
|                                    |   |                                           |       |        |   |                                       |   |
| Michael R.                    Hogan     |   |                                      | 59,144,716 |   |   | 87.6                                  | %      |   | 8,407,270  |   |
| Jon W.                    Pritchett     |   |                                      | 59,356,413 |   |   | 87.9                                  | %      |   | 8,195,573  |   |
| Edward J.                    Sebastian  |   |                                      | 58,581,359 |   |   | 86.7                                  | %      |   | 8,970,627  |   |
| John C.B. Smith,                    Jr. |   |                                      | 58,851,814 |   |   | 87.1                                  | %      |   | 8,700,172  |   |
| Mack I. Whittle,                    Jr. |   |                                      | 55,885,790 |   |   | 82.7                                  | %      |   | 11,666,196 |   |

          William        P. Brant, J.W. Davis, M. Dexter Hagy, William S. Hummers III, Challis M. Lowe, Darla D.        Moore, H. Earle Russell, Jr., William R. Timmons III, and David C. Wakefield III continued        in their present terms as directors.

          C.        Claymon Grimes, Jr., Samuel H. Vickers and Charles B. Schooler retired from the Board,        effective as of the annual meeting.

          **Proposal #2 – Approve Amendments to Articles of Incorporation to replace        supermajority voting provisions with majority voting provisions.** These proposed        amendments were approved with 62,739,031 shares, or 92.9%, voting in favor, 4,363,927        shares voting against, and 449,219 shares abstaining.

          **Proposal #3 – Approve Amendments to Articles of Incorporation to Phase Out        TSFG’s Classified Board Structure.** This proposed amendment was approved with        62,813,621 shares, or 93.0%, voting in favor, 4,267,577 shares voting against, and 471,105        shares abstaining.

          **Proposal #4 – To Approve TSFG’s Stock Option Plan, including to increase the        shares available for issuance thereunder by 500,000.** This Plan was approved with        48,692,670 shares, or 81.7%, voting in favor, 10,927,736 shares voting against, and 891,103        shares abstaining.

          **Proposal #5 – Approve TSFG’s Long Term Incentive Plan.** This Plan was        approved with 49,158,962 shares, or 82.5%, voting in favor, 10,423,510 shares voting        against, and 929,137 shares abstaining.

          **Proposal #6 – Approve TSFG’s Management Performance Incentive Plan** This        Plan was approved with 52,092,137 shares, or 87.5%, voting in favor, 7,473,546 shares        voting against, and 945,826 shares abstaining.

          **Proposal #7 – A shareholder proposal requiring an annual, non-binding shareholder        vote to ratify executive compensation.** This Proposal was approved with 30,183,294        shares, or 51.9%, voting in favor, 28,008,426 shares voting against, and 2,319,789 shares        abstaining.

          **Proposal #8 – Ratification of Auditors.** The shareholders approved the appointment        of PricewaterhouseCoopers LLP as independent auditors of TSFG for fiscal year 2008 with        65,349,276 shares, or 97.3%, voting in favor, 1,782,459 shares voting against, and 420,474        shares abstaining.

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

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

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

**Item 5. *Other        Information***

          On        August 8, 2008, Michael R. Hogan resigned from the TSFG Board of Directors. On August 1,        2008, Mr. Hogan’s insurance company (of which he was a founding principal) was        acquired by BB&T Corporation and in connection therewith, he became an officer of        BB&T. Under the terms of the acquisition agreement, Mr. Hogan was precluded from        serving on the board of any other financial institution. It was in compliance with this        requirement that Mr. Hogan submitted his resignation to the TSFG Board of        Directors.

**Item 6.        *Exhibits***

|   |                                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 17.1   | Letter of resignation dated August 8, 2008 from Michael R.                Hogan                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                              |
| 31.1   | Certificate of the                    Principal Executive Officer pursuant to Rule 13a-14a/15(d)-14(a) of Securities                    Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the                    Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                                                                                                                                                              |
| 31.2   | Certificate of the                    Principal Financial Officer pursuant to Rule 13a-14a/15(d)-14(a) of Securities                    Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the                    Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                                                                                                                                                              |
| 32.1+  | Certificate of Chief                    Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section                    906 of the Sarbanes-Oxley Act of 2002                                                                                     |
|   |                                                                                                                                                                                                                                                              |
| 32.2+  | Certificate of Chief                    Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section                    906 of the Sarbanes-Oxley Act of 2002                                                                                     |

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

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

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

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**SIGNATURES**

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

|                                     |                                                   |
|------------------------------------------|--------------------------------------------------------|
|                                     | The South Financial                    Group, Inc.     |
|                                     |                                                   |
| Date: August 11,                    2008 | */s/ James R.                    Gordon*               |
|                                     |                                                        |
|                                     | James R.                    Gordon                     |
|                                     | Senior Executive Vice                    President and |
|                                     | Chief Financial                    Officer             |
|                                     | (Principal Financial                    Officer)       |

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