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

Form 10-Q

| | X | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
| | - | -------------------------------------------------------------------------------------------------------------------------------------
|
| |   | 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 ofincorporation or organization) |  | (IRS Employer Identification No.)

|102 South Main Street, Greenville, South Carolina |  | 29601     
|------------------------------------------------- |  | ----------
|(Address of principal executive offices)          |  | (ZIP Code)

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

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

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

The number of outstanding shares of
the issuers $1.00 par value common stock as of May 5, 2004 was 59,682,627.

---

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

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

|                                                                    | March 31, | December 31, |  
|------------------------------------------------------------------- | --------- | ------------ | -
|
|Assets                                                              |           |              |  
|Cash and due from banks                                             |           |              | $
|Interest-bearing bank balances                                      |           |              |  
|Federal funds sold                                                  |           |              |  
|Securities                                                          |           |             
|Trading                                                             |           |              |  
|Available for sale                                                  |           |              |  
|Held to maturity (market value $87,050, $63,789 and                 |           |             
|$93,188, respectively)                                              |           |              |  
|                                                                    |           |              |  
|Total securities                                                    |           |              |  
|                                                                    |           |              |  
|Loans                                                               |           |             
|Loans held for sale                                                 |           |              |  
|Loans held for investment                                           |           |              |  
|Allowance for loan losses                                           |           |              |  
|                                                                    |           |              |  
|Net loans                                                           |           |              |  
|                                                                    |           |              |  
|Premises and equipment, net                                         |           |              |  
|Accrued interest receivable                                         |           |              |  
|Intangible assets                                                   |           |              |  
|Other assets                                                        |           |              |  
|                                                                    |           |              |  
|                                                                    |           |              | $
|                                                                    |           |              |  
|                                                                    |           |             
|Liabilities and shareholders' equity                                |           |             
|Liabilities                                                         |           |             
|Deposits                                                            |           |             
|Noninterest-bearing                                                 |           |              | $
|Interest-bearing                                                    |           |              |  
|                                                                    |           |              |  
|Total deposits                                                      |           |              |  
|Federal funds purchased and repurchase agreements                   |           |              |  
|Other short-term borrowings                                         |           |              |  
|Long-term debt                                                      |           |              |  
|Debt associated with trust preferred securities                     |           |              |  
|Accrued interest payable                                            |           |              |  
|Other liabilities                                                   |           |              |  
|                                                                    |           |              |  
|Total liabilities                                                   |           |              |  
|                                                                    |           |              |  
|Minority interest in consolidated subsidiary                        |           |              |  
|                                                                    |           |              |  
|Shareholders' equity                                                |           |             
|Preferred stock-no par value; authorized 10,000,000 shares; issued  |           |             
|and outstandin- none                                                |           |              |  
|Common stock-par value $1 per share; authorized 100,000,000 shares; |           |             
|issued and outstanding 59,599,431, 46,405,600, and 59,064,375       |           |             
|shares, respectively                                                |           |              |  
|Surplus                                                             |           |              |  
|Retained earnings                                                   |           |              |  
|Guarantee of employee stock ownership plan debt and nonvested       |           |             
|restricted stock                                                    |           |              |  
|Common stock held in trust for deferred compensation                |           |              |  
|Deferred compensation payable in common stock                       |           |              |  
|Accumulated other comprehensive income (loss), net of tax           |           |              |  
|                                                                    |           |              |  
|Total shareholders' equity                                          |           |              |  
|                                                                    |           |              |  
|                                                                    |           |              | $
|                                                                    |           |              |  

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

---

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

|                                                         | Three Months EndedMarch 31, | 
|-------------------------------------------------------- | --------------------------- | 
|
|Interest income                                          |                             | 
|Interest and fees on loans                               |                             | 
|Interest and dividends on securities                     |                             | 
|Taxable                                                  |                             | 
|Exempt from Federal income taxes                         |                             | 
|                                                         |                             | 
|Total interest and dividends on securities               |                             | 
|                                                         |                             | 
|Interest on short-term investments                       |                             | 
|Total interest income                                    |                             | 
|Interest expense                                         |                             | 
|Interest on deposits                                     |                             | 
|Interest on borrowed funds                               |                             | 
|                                                         |                             | 
|Total interest expense                                   |                             | 
|                                                         |                             | 
|Net interest income                                      |                             | 
|Provision for loan losses                                |                             | 
|                                                         |                             | 
|Net interest income after provision for loan losses      |                             | 
|Noninterest income                                       |                             | 
|Noninterest expenses                                     |                             | 
|                                                         |                             | 
|Income before income taxes and minority interest         |                             | 
|Income taxes                                             |                             | 
|                                                         |                             | 
|Income before minority interest                          |                             | 
|Minority interest in consolidated subsidiary, net of tax |                             | 
|                                                         |                             | 
|Net income                                               |                             | 
|                                                         |                             | 
|                                                         |                             | 
|Average common shares outstanding, basic                 |                             | 
|Average common shares outstanding, diluted               |                             | 
|Basic earnings per share                                 |                             | 
|                                                         |                             | 
|Diluted earnings per share                               |                             | 
|                                                         |                             | 

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

---

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

|                                                | Shares ofCommonStock | CommonStock | Surplus | RetainedEarningsandOther* | AccumulatedOtherComprehensiveIncome(Loss) | Total
|----------------------------------------------- | -------------------- | ----------- | ------- | ------------------------- | ----------------------------------------- | -----
|Balance, December 31, 2002                      |                      |             |         | 47,347,375                |                                           | $    
|Net income                                      |                      |             |         | --                        |                                           |      
|Other comprehensive loss, net of tax of $37     |                      |             |         | --                        |                                           |      
|                                                |                      |             |         |                           |                                           |      
|Comprehensive income                            |                      |             |         | --                        |                                           |      
|                                                |                      |             |         |                           |                                           |      
|Cash dividends declared                         |                      |            
|($0.14 per common share)                        |                      |             |         | --                        |                                           |      
|Common stock activity:                          |                      |            
|Repurchase of stock                             |                      |             |         | (1,266,308                | )                                         |      
|Acquisitions                                    |                      |             |         | --                        |                                           |      
|Dividend reinvestment plan                      |                      |             |         | 39,339                    |                                           |      
|Employee stock purchase plan                    |                      |             |         | 13,960                    |                                           |      
|Restricted stock plan                           |                      |             |         | 68,793                    |                                           |      
|Exercise of stock options                       |                      |             |         | 202,441                   |                                           |      
|Common stock purchased by trust for             |                      |            
|deferred compensation                           |                      |             |         | --                        |                                           |      
|Deferred compensation payable in   common stock |                      |            
|                                                |                      |             |         | --                        |                                           |      
|Miscellaneous                                   |                      |             |         | --                        |                                           |      
|                                                |                      |             |         |                           |                                           |      
|Balance, March 31, 2003                         |                      |             |         | 46,405,600                |                                           | $    
|                                                |                      |             |         |                           |                                           |      
|                                                |                      |            
|                                                |                      |            
|Balance, December 31, 2003                      |                      |             |         | 59,064,375                |                                           | $    
|Net income                                      |                      |             |         | --                        |                                           |      
|Other comprehensive income, net of tax          |                      |            
|of $9,608                                       |                      |             |         | --                        |                                           |      
|                                                |                      |             |         |                           |                                           |      
|Comprehensive income                            |                      |             |         | --                        |                                           |      
|                                                |                      |             |         |                           |                                           |      
|Cash dividends declared ($0.15 per common       |                      |            
|share)                                          |                      |             |         | --                        |                                           |      
|Common stock activity:                          |                      |            
|Exercise of stock options, including tax        |                      |            
|benefit of $1,887                               |                      |             |         | 299,923                   |                                           |      
|Restricted stock plan                           |                      |             |         | 202,289                   |                                           |      
|Director compensation                           |                      |             |         | 2,430                     |                                           |      
|Dividend reinvestment plan                      |                      |             |         | 28,617                    |                                           |      
|Employee stock purchase plan                    |                      |             |         | 2,091                     |                                           |      
|Acquisitions                                    |                      |             |         | (294                      | )                                         |      
|Common stock purchased by trust for             |                      |            
|deferred compensation                           |                      |             |         | --                        |                                           |      
|Deferred compensation payable in   common stock |                      |            
|                                                |                      |             |         | --                        |                                           |      
|Miscellaneous                                   |                      |             |         | --                        |                                           |      
|                                                |                      |             |         |                           |                                           |      
|Balance, March 31, 2004                         |                      |             |         | 59,599,431                |                                           | $    
|                                                |                      |             |         |                           |                                           |      

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

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

---

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

|                                                                                 | Three Months Ended March 31, | 
|-------------------------------------------------------------------------------- | ---------------------------- | 
|
|Cash flows from operating activities                                             |                              | 
|Net income                                                                       |                              | 
|Adjustments to reconcile net income to net cash provided by operating activities |                              | 
|Depreciation, amortization, and accretion, net                                   |                              | 
|Provision for loan losses                                                        |                              | 
|Gain on sale of available for sale securities                                    |                              | 
|Gain on equity investments                                                       |                              | 
|Loss on trading and derivative activities                                        |                              | 
|Gain on disposition of assets and liabilities                                    |                              | 
|Gain on sale of loans                                                            |                              | 
|Gain on disposition of premises and equipment                                    |                              | 
|Loss on disposition of other real estate owned                                   |                              | 
|Conservation grant of land                                                       |                              | 
|Impairment loss from write-down of assets                                        |                              | 
|Impairment loss from write-down of mortgage servicing rights                     |                              | 
|Loss on early extinguishment of debt                                             |                              | 
|Minority interest in consolidated subsidiary                                     |                              | 
|Trading account assets, net                                                      |                              | 
|Origination of loans held for sale                                               |                              | 
|Sale of loans held for sale and principal repayments                             |                              | 
|Other assets, net                                                                |                              | 
|Other liabilities, net                                                           |                              | 
|                                                                                 |                              | 
|Net cash provided by operating activities                                        |                              | 
|                                                                                 |                              | 
|                                                                                 |                              | 
|Cash flows from investing activities                                             |                              | 
|Sale of securities available for sale                                            |                              | 
|Maturity, redemption, call, or principal repayments of securities                |                              | 
|available for sale                                                               |                              | 
|Maturity, redemption, call, or principal repayments of securities                |                              | 
|held to maturity                                                                 |                              | 
|Purchase of securities available for sale                                        |                              | 
|Purchase of securities held to maturity                                          |                              | 
|Origination of loans held for investment, net of principal repayments            |                              | 
|Sale of other real estate owned                                                  |                              | 
|Sale of premises and equipment                                                   |                              | 
|Purchase of premises and equipment                                               |                              | 
|Cash equivalents acquired, net of payment for purchase acquisitions              |                              | 
|                                                                                 |                              | 
|Net cash used for investing activities                                           |                              | 
|                                                                                 |                              | 

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

---

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

|                                                                           | Three Months Ended March 31, | 
|-------------------------------------------------------------------------- | ---------------------------- | 
|
|Cash flows from financing activities                                       |                              | 
|Deposits, net                                                              |                              | 
|Federal funds purchased and repurchase agreements, net                     |                              | 
|Short-term borrowings, net                                                 |                              | 
|Issuance of long-term debt                                                 |                              | 
|Payment of long-term debt                                                  |                              | 
|Prepayment penalty on early extinguishment of debt                         |                              | 
|Cash dividends paid on common stock                                        |                              | 
|Cash dividends paid on minority interest                                   |                              | 
|Repurchase of common stock                                                 |                              | 
|Other common stock activity                                                |                              | 
|                                                                           |                              | 
|Net cash provided by financing activities                                  |                              | 
|                                                                           |                              | 
|Net change in cash and cash equivalents                                    |                              | 
|Cash and cash equivalents at beginning of year                             |                              | 
|                                                                           |                              | 
|Cash and cash equivalents at end of period                                 |                              | 
|                                                                           |                              | 
|                                                                           |                              | 
|Supplemental cash flow data                                                |                              | 
|Interest paid                                                              |                              | 
|Income taxes paid                                                          |                              | 
|Significant non-cash investing and financing transactions:                 |                              | 
|Security sales settled subsequent to quarter-end                           |                              | 
|Security purchases settled subsequent to quarter-end                       |                              | 
|Change in unrealized gain (loss) on available for sale securities          |                              | 
|Loans transferred to other real estate owned                               |                              | 
|Premises and equipment, net transferred to long-lived assets held for sale |                              | 

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

---

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

(1)    General

The
foregoing unaudited consolidated financial statements and notes are presented in
accordance with the instructions for the Securities and Exchange Commission Quarterly
Report on Form 10-Q. TSFG refers to The South Financial Group, Inc. and
subsidiaries, except where the context requires otherwise. The information contained in
the footnotes included in TSFGs Annual Report on Form 10-K for the year ended
December 31, 2003 should be referred to in connection with the reading of these unaudited
interim consolidated financial statements. Certain prior year amounts have been
reclassified to conform to the 2004 presentations.

Nature of Operations

TSFG
is a financial holding company headquartered in Greenville, South Carolina that offers a
broad range of financial products and services, including mortgage, trust, investment, and
insurance, to consumers and commercial customers. TSFG primarily operates through 76
branch offices in South Carolina, 24 in North Carolina, 34 in northern and central
Florida.

Principles of
Consolidation

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

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

Accounting Estimates and
Assumptions

The
preparation of the consolidated financial statements and accompanying notes requires
management of TSFG to make a number of estimates and assumptions relating to reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ significantly from these
estimates and assumptions. Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for loan losses, income
tax assets or liabilities, and accounting for acquisitions. To a lesser extent,
significant estimates are also associated with the determination of securities,
intangibles, valuation of derivative instruments, and environmental remediation costs.

---

(2)    Supplemental Financial Information To
Consolidated Statements of Income

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

|                                              | Three Months EndedMarch 31, |          
|--------------------------------------------- | --------------------------- | ---------
|
|Noninterest income                            |                             |          
|Service charges on deposit accounts           |                             | $   8,113
|Bank-owned life insurance                     |                             | 2,290    
|Merchant processing income                    |                             | 2,013    
|Mortgage banking income                       |                             | 1,555    
|Brokerage income                              |                             | 1,196    
|Insurance income                              |                             | 1,022    
|Trust income                                  |                             | 927      
|Gain on sale of available for sale securities |                             | 5,214    
|Gain on equity investments                    |                             | 2,810    
|Loss on trading and derivative activities     |                             | (1,369   
|Gain on disposition of assets and liabilities |                             | 2,350    
|Other                                         |                             | 3,167    
|                                              |                             |          
|Total noninterest income                      |                             | $ 29,288 
|                                              |                             |          
|                                              |                            
|Noninterest expenses                          |                            
|Salaries and wages                            |                             | $ 18,859 
|Employee benefits                             |                             | 6,915    
|Occupancy                                     |                             | 5,072    
|Furniture and equipment                       |                             | 4,615    
|Professional fees                             |                             | 1,648    
|Merchant processing expense                   |                             | 1,559    
|Telecommunications                            |                             | 1,145    
|Amortization of intangibles                   |                             | 1,195    
|Merger-related costs                          |                             | 177      
|Conservation grant of land                    |                             | 3,350    
|Loss on early extinguishment of debt          |                             | 1,429    
|Other                                         |                             | 11,307   
|                                              |                             |          
|Total noninterest expenses                    |                             | $ 57,271 
|                                              |                             |          

---

(3)    Accumulated Other
Comprehensive Income

The
following summarizes accumulated other comprehensive income, net of tax (in thousands) at
and for the three months ended March 31:

|                                                                   | 2004 | 2003
|------------------------------------------------------------------ | ---- | ----
|Unrealized gains (losses) on available for sale securities         |      |     
|Balance at beginning of year                                       |      |     
|Other comprehensive income (loss):                                 |      |     
|Unrealized holding gains (losses) arising during the year          |      |     
|Income tax expense                                                 |      |     
|Less: Reclassification adjustment for gains included in net income |      |     
|Income tax expense                                                 |      |     
|                                                                   |      |     
|                                                                   |      |     
|                                                                   |      |     
|Balance at end of period                                           |      |     
|                                                                   |      |     
|                                                                   |      |     
|Unrealized gains (losses) on cash flow hedges                      |      |     
|Balance at beginning of year                                       |      |     
|Other comprehensive income (loss):                                 |      |     
|Unrealized gain (loss) on change in fair values                    |      |     
|Income tax (expense) benefit                                       |      |     
|                                                                   |      |     
|                                                                   |      |     
|                                                                   |      |     
|Balance at end of period                                           |      |     
|                                                                   |      |     
|                                                                   |      |     
|                                                                   |      |     

During the first quarter 2003, TSFG
adjusted its income tax rate used (on a cumulative basis) on the net unrealized gain
recorded for available for sale securities, which is included in accumulated other
comprehensive income, to the blended statutory federal and state income tax rate of
36.94%. However, in certain cases where TSFG has capital loss carryforwards for state
income tax purposes, an income tax rate of 35% is used. At December 31, 2002, TSFG used a
32.5% income tax rate on the net unrealized gain recorded for available for sale
securities.

(4)    Business Combinations

Amortization of Premiums
and Discounts

Premiums
and discounts that resulted from recording the assets and liabilities acquired through
acquisitions at their respective fair values are being amortized and accreted using
methods that approximate a constant effective yield over the life of the assets and
liabilities. This net amortization decreased net income before income taxes by $792,000
and $330,000 for the three months ended March 31, 2004 and 2003, respectively.

(5)    Disposition of Assets and Liabilities

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

---

(6)    Intangible Assets

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

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

The
following summarizes the changes in the carrying amount of goodwill related to each of
TSFGs business segments (in thousands) at and for the three months ended March 31,
2004:

|                                | Carolina       First Bank | Mercantile       Bank | Other | Total  
|------------------------------- | ------------------------- | --------------------- | ----- | -------
|Balance, December 31, 2003      |                           |                       | $     | 206,780
|Purchase accounting adjustments |                           |                       |       | 123    
|                                |                           |                       |       |        
|Balance, March 31, 2004         |                           |                       | $     | 206,903
|                                |                           |                       |       |        

Amortization
of intangibles totaled $1.1 million for core deposit premiums, $93,000 for non-compete
agreement intangibles, and $39,000 for customer list intangibles for the three months
ended March 31, 2004. Amortization of intangibles totaled $654,000 for core deposit
premiums, $30,000 for non-compete agreement intangibles, and $21,000 for customer list
intangibles for the three months ended March 31, 2003.

The
estimates provided below exclude amortization expense for intangible assets related to
TSFGs acquisitions of CNB Florida Bancshares, Inc. and Florida Banks, Inc., which
are expected to close in July 2004. The estimated amortization expense for core deposit
premiums for the years ended December 31 is as follows: $4.1 million for 2004, $3.6
million for 2005, $3.3 million for 2006, $2.7 million for 2007, $2.4 million for 2008, and
an aggregate of $9.2 million for all the years thereafter. The estimated amortization
expense for non-compete agreement intangibles is $370,000 for the years ended December 31,
2004 to 2006, $342,000 for 2007, $250,000 for 2008 and $217,000 for all the years
thereafter. The estimated amortization expense for customer list intangibles is $156,000
for the years ended December 31, 2004 to 2008 and an aggregate of $622,000 for all the
years thereafter.

(7)    Mortgage Servicing Rights

The
following summarizes the changes in the carrying amount of capitalized mortgage servicing
rights (MSRs) (in thousands), which are included in other assets, at and for
the three months ended March 31.

|                                                 | 2004 | 2003
|------------------------------------------------ | ---- | ----
|Balance at beginning of year                     |      |     
|MSRs amortized                                   |      |     
|MSR impairment losses from the valuation of MSRs |      |     
|                                                 |      |     
|                                                 |      |     
|                                                 |      |     

The
aggregate fair value of capitalized MSRs at March 31, 2004, December 31, 2003, and March
31, 2003 was $1.7 million, $1.9 million, and $3.4 million, respectively. At March 31,
2004, December 31, 2003, and March 31, 2003, the valuation allowance for capitalized MSRs
totaled $1.8 million, $1.8 million, and $2.0 million, respectively.

---

The
estimated amortization expense for MSRs for the years ended December 31 is as follows:
$1.0 million for 2004, $749,000 for 2005, and none for all the years thereafter. The
estimated amortization expense is based on current information regarding loan payments and
prepayments. Amortization expense could change in future periods based on changes in the
volume of prepayments and economic factors.

(8)    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 materially affect TSFGs consolidated financial position or results of
operations.

Environmental Remediation
Costs

TSFG
acquired the former Beacon Manufacturing Company facility (Beacon property) in
Swannanoa, North Carolina on October 3, 2003 as part of its acquisition of MountainBank
Financial Corporation (MBFC). MBFC had acquired this facility through a
foreclosure proceeding in June 2003. In September 2003, a fire and apparent vandalism
resulted in a release of fuel oil and other materials. Clean-up of the oil spill,
including releases to the adjacent Swannanoa River, has been substantially completed. TSFG
intends to investigate, and if necessary remediate, any additional related environmental
impacts and soil and groundwater contamination attributable to the facility, as well as to
stabilize the site and remove waste materials. The environmental remediation liability,
included in other liabilities, totaled $4.5 million at March 31, 2004 and is based on
available information. TSFG continues to evaluate the reserve level and may make purchase
accounting adjustments, which would be treated as goodwill adjustments in the MBFC
transaction, as more information becomes known. There can be no guarantee that any
liability or costs arising out of this matter will not exceed any established reserves.
The related estimated net realizable value of the other real estate owned, included in
other assets, totaled $300,000 at March 31, 2004. On April 23, 2004, TSFG entered into a
contract to sell the Beacon property to an independent third party that is not expected to
result in a gain or loss. This sales contract is subject to normal and customary due
diligence and environmental review.

(9)    Share Information

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

|                                                 | Three Months Ended March 31, |                 
|------------------------------------------------ | ---------------------------- | ----------------
|
|Net income (in thousands) (numerator)            |                              | $       32,293  
|                                                 |                              |                 
|Basic                                            |                             
|Average common shares outstanding (denominator)  |                              | 59,214,344      
|                                                 |                              |                 
|Earnings per share                               |                              | $           0.55
|                                                 |                              |                 
|Diluted                                          |                             
|Average common shares outstanding                |                              | 59,214,344      
|Average dilutive potential common shares         |                              | 1,595,126       
|                                                 |                              |                 
|Average diluted shares outstanding (denominator) |                              | 60,809,470      
|                                                 |                              |                 
|Earnings per share                               |                              | $           0.53
|                                                 |                              |                 

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

|                           | Numberof Shares | Range ofExercise Prices
|-------------------------- | --------------- | -----------------------
|For the three months ended |                 |                        
|March 31, 2004             | 58,989          | $30.35 to $31.26       
|March 31, 2003             | 1,539,803       | $21.00 to $31.26       

(10)    Stock-Based
Compensation

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

|                                                    | Three Months EndedMarch 31, | 
|--------------------------------------------------- | --------------------------- | 
|
|Net income                                          |                             | 
|Net income, as reported                             |                             | 
|Deduct:                                             |                             | 
|Total stock-based employee compensation expense     |                             | 
|determined under fair value based method for        |                             | 
|all option awards, net of related income tax effect |                             | 
|                                                    |                             | 
|Pro forma net income                                |                             | 
|                                                    |                             | 
|                                                    |                             | 
|Basic earnings per share                            |                             | 
|As reported                                         |                             | 
|Pro forma                                           |                             | 
|                                                    |                             | 
|Diluted earnings per share                          |                             | 
|As reported                                         |                             | 
|Pro forma                                           |                             | 

(11)    Merger-Related and Direct
Acquisition Costs

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

|                                          | Three Months EndedMarch 31, | 
|----------------------------------------- | --------------------------- | 
|
|Merger-related costs                      |                             | 
|Compensation-related expenses             |                             | 
|System conversion costs                   |                             | 
|Impairment loss from write-down of assets |                             | 
|Travel                                    |                             | 
|Advertising                               |                             | 
|Other                                     |                             | 
|                                          |                             | 
|                                          |                             | 
|                                          |                             | 
|                                          |                             | 
|Direct acquisition costs                  |                             | 
|Investment banking and professional fees  |                             | 
|Contract and lease terminations           |                             | 
|Severance                                 |                             | 
|                                          |                             | 
|                                          |                             | 
|                                          |                             | 

---

At March 31, 2004, the accrual of
merger-related costs totaled $661,000, and the accrual of direct acquisition costs totaled
$310,000.

(12)    Business Segments

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

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

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

|                                                         | CarolinaFirst Bank | MercantileBank | Other | EliminatingEntries | Total
|-------------------------------------------------------- | ------------------ | -------------- | ----- | ------------------ | -----
|Three Months Ended March 31, 2004                        |                    |                |       |                    |      
|Net interest income                                      |                    |                | $     | 64,410             |      
|Provision for loan losses                                |                    |                |       | 6,127              |      
|Noninterest income                                       |                    |                |       | 22,002             |      
|Noninterest expenses                                     |                    |                |       | 41,638             |      
|Amortization of intangibles (a)                          |                    |                |       | 803                |      
|Merger-related costs (a)                                 |                    |                |       | 190                |      
|Income tax expense                                       |                    |                |       | 11,675             |      
|Net income                                               |                    |                |       | 26,972             |      
|March 31, 2004                                           |                    |               
|Total assets                                             |                    |                | $     | 8,638,079          |      
|Loans                                                    |                    |                |       | 4,519,252          |      
|Deposits                                                 |                    |                |       | 4,500,637          |      
|Three Months Ended March 30, 2003                        |                    |               
|Net interest income                                      |                    |                | $     | 52,024             |      
|Provision for loan losses                                |                    |                |       | 3,498              |      
|Noninterest income                                       |                    |                |       | 15,045             |      
|Noninterest expenses                                     |                    |                |       | 32,620             |      
|Amortization of intangibles (a)                          |                    |                |       | 315                |      
|Merger-related costs (a)                                 |                    |                |       | 323                |      
|Income tax expense                                       |                    |                |       | 10,135             |      
|Minority interest in consolidated subsidiary, net of tax |                    |                |       | (1,012             | )    
|Net income                                               |                    |                |       | 19,804             |      
|March 31, 2003                                           |                    |               
|Total assets                                             |                    |                | $     | 6,875,479          |      
|Loans                                                    |                    |                |       | 3,426,218          |      
|Deposits                                                 |                    |                |       | 3,475,736          |      

(a)    
          Included in noninterest expenses.

---

(13)    Managements
Opinion

The
financial statements in this report are unaudited, and the consolidated balance sheet at
December 31, 2003 is derived from TSFGs consolidated audited financial statements.
In the opinion of management, all adjustments necessary to present a fair statement of the
results for the interim periods have been made. All such adjustments are of a normal,
recurring nature.

---

|Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|------- | ------------------------------------------------------------------------------------

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

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

Website Availability of Reports Filed with the Securities and Exchange Commission

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

Forward-Looking Statements

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

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

---

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

Non-GAAP Financial
Information

This
report also contains financial information determined by methods other than in accordance
with Generally Accepted Accounting Principles (GAAP). TSFGs management
uses these non-GAAP measures to analyze TSFGs performance. In particular, a number
of credit quality measures presented adjust GAAP information to exclude the effects of
certain identified problem loans purchased from Rock Hill Bank & Trust (the Rock
Hill Workout Loans). Management believes presentations of credit quality measures
excluding the Rock Hill Workout Loans assist in identifying core credit quality measures
and trends. In addition, certain designated net interest income amounts are presented on a
tax-equivalent basis. Management believes that the presentation of net interest income on
a tax-equivalent basis aids in the comparability of net interest income arising from both
taxable and tax-exempt sources. These disclosures should not be viewed as a substitute for
GAAP measures, and furthermore, TSFGs non-GAAP measures may not necessarily be
comparable to non-GAAP performance measures of other companies.

Overview

TSFG
operates primarily in fast-growing banking markets in the Southeast. Founded in 1986, TSFG
had $10.9 billion in total assets and 134 branch offices in South Carolina, North
Carolina, and Florida at March 31, 2004. TSFG operates primarily through two subsidiary
banks:

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

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

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

For
the first three months of 2004, TSFG achieved net income of $32.3 million, an increase of
61.1% from $20.0 million for the three months ended March 31, 2003. Double-digit growth in
total revenues, expense control, and effective merger integration drove the increase. For
the first three months of 2004, net income per diluted share totaled $0.53, a 26.2%
increase from $0.42 per diluted share for the first three months of 2003. For the same
period, average diluted shares outstanding increased 26.0%, principally as a result of the
acquisition of MountainBank Financial Corporation (MBFC or
MountainBank) and a common equity offering, both of which occurred in the
fourth quarter of 2003.

For
the first quarter of 2004, net interest income, TSFGs primary source of revenue,
accounted for 73.7% of total revenues. Net interest income is the difference between the
interest earned on assets, primarily loans and securities, and the interest paid for
liabilities to support such assets, primarily deposits and borrowed funds. Net interest
income for the three months ended March 31, 2004 increased 25.3% over the corresponding
period in 2003, principally due to strong loan growth, higher investment securities, and
the acquisition of MountainBank.

TSFG
believes that noninterest income, particularly fee income from providing other products
and services, represents one of its best opportunities for revenue growth. TSFG expanded
and diversified its noninterest income sources by adding mortgage originators and
investment brokers, acquiring in-market insurance agencies, developing a Sales and Service
Center, and expanding cash management. In addition, using its customer-focused sales
process (Elevate), TSFG is developing an effective sales culture, through
increased understanding of customers needs, targeted referrals, and incentive-based
sales goals.

---

Noninterest
income increased to $29.3 million for the first quarter 2004, up 47.3% from $19.9 million
for the first quarter 2003. For the first quarter 2004, noninterest income included $8.0
million in gains on sales of available for sale securities and equity investments and a
$2.4 million gain on disposition of land associated with a conservation grant, compared
with $2.9 million in gains on sales of available for sale securities and equity
investments in the first quarter 2003. Excluding these gains on asset sales, the seven
largest sources of noninterest income (service charges on deposits, bank-owned life
insurance, merchant processing income, mortgage banking income, brokerage income,
insurance income, and trust income) accounted for 90.5% of noninterest income for the
three months ended March 31, 2004.

For
the first quarter of 2004, noninterest expenses totaled $57.3 million, which included $4.9
million from non-operating expenses (principally conservation grant of land, loss on early
extinguishment of debt, and merger-related costs). Excluding the non-operating items,
noninterest expenses increased by 10.5% for the first three months of 2004, compared with
the first three months of 2003. Personnel expense, the largest component, accounts for
close to half of total noninterest expenses, excluding non-operating items.

Approximately
40% of TSFGs growth since inception has come through acquisitions. TSFG may continue
to consider acquisitions that meet its acquisition criteria of strategic franchise
enhancement, accretion to cash earnings per share within 12 months, and consistency with
three-year performance goals. In January 2004, TSFG announced a definitive agreement to
acquire CNB Florida Bancshares (CNB Florida), headquartered in Jacksonville,
Florida. In March 2004, TSFG announced a definitive agreement to acquire Florida Banks,
Inc., headquartered in Jacksonville, Florida (Florida Banks). Once both
mergers are complete, TSFGs Florida operations are expected to have approximately 55
branches and approximately $4 billion in assets. In addition, post merger, TSFGs
Florida deposits will represent approximately 40% of TSFGs total deposits. Following
completion of these mergers, approximately half of TSFGs growth since inception will
have come from acquisitions.

During
the first quarter 2004, TSFG reduced the level of its securities portfolio as a percentage
of total assets and expects to continue to reduce this level to approach peer levels. At
March 31, 2004, the securities portfolio declined to 35.6% of total assets from 38.2% at
March 31, 2003.

TSFGs
strong loan growth continued during the first three months of 2004. Loans held for
investment at March 31, 2004 increased 32.6% over March 31, 2003. Adjusting for $772.8
million in loans held for investment acquired in the MountainBank merger, the organic loan
growth for this period reached 15.5%. TSFGs loan growth is well-diversified
throughout its markets.

At
March 31, 2004, nonperforming assets as a percentage of loans held for investment and
other real estate owned remained stable at 1.05%, including the Rock Hill Workout Loans,
and 0.71%, excluding the Rock Hill Workout Loans. This follows an improving trend that
began eight quarters ago. Net loan charge-offs for the first quarter 2004 totaled 0.42%,
including the Rock Hill Workout Loans, and 0.38%, excluding the Rock Hill Workout Loans.
Loan portfolio credit quality can have a dramatic impact on earnings. TSFG manages its
credit risk through an early warning credit risk management system, designed to lower
credit costs. TSFGs provision for loan losses increased to $7.7 million for the
three months ended March 31, 2004 from $5.5 million for the three months ended March 31,
2003, primarily as a result of the increased provision associated with strong loan growth.

TSFG
gained core deposits and enhanced its deposit mix, reflecting successful sales and
promotional campaigns. Average deposits for the first quarter of 2004 increased 29.4% over
the corresponding period in 2003. Average deposit transaction account balances increased
48.5% during the same period, driven by growth in money market and noninterest-bearing
deposits. Adjusting for fourth quarter 2003 average transaction deposits of approximately
$365 million acquired in the MBFC merger, organic average transaction deposit growth was
34.6%. Average deposit transaction account balances as a percentage of average total
deposits increased to 65.9% from 57.4% for the three months ended March 31, 2003.

With
the $161.1 million in new capital raised in November 2003 and retention of earnings,
TSFGs tangible equity to tangible asset ratio increased to 6.40% at March 31, 2004
from 4.50% at March 31, 2003.

Critical Accounting
Policies and Estimates

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

---

Allowance
for loan losses

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

Assessing
the adequacy of the Allowance is a process that requires considerable judgment. Management
considers the period-end Allowance appropriate and adequate to cover probable losses in
the loan portfolio. However, managements judgment is based upon a number of
assumptions about current events, which are believed to be reasonable, but 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
Allowance is also subject to examination and adequacy testing by regulatory agencies,
which may consider such factors as the methodology used to determine adequacy and the size
of the Allowance relative to that of peer institutions, and other adequacy tests. In
addition, such regulatory agencies could require us to adjust our Allowance based on
information available to them at the time of their examination.

Income
Taxes

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

No
assurance can be given that either the tax returns submitted by management or the income
tax reported on the consolidated financial statements will not be adjusted by either
adverse rulings by the U.S. Tax Court, changes in the tax code, or assessments made
by the Internal Revenue Service. TSFG is subject to potential adverse adjustments,
including but not limited to: an increase in the statutory federal or state income tax
rates, the permanent nondeductibility of amounts currently considered deductible either
now or in future periods, and the dependency on the generation of future taxable income,
including capital gains, in order to ultimately realize deferred income tax assets.
Historically, TSFGs estimated income taxes reported on its consolidated financial
statements have been materially correct, and management is not aware of any reason that a
material change will occur in the future. The Internal Revenue Service is currently
examining TSFGs 2000 and 1999 federal income tax returns.

Accounting
for Acquisitions

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

---

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

The
valuations as of June 30, 2003 indicated that no impairment charge was required as of that
test date. Historically, TSFGs acquisition intangibles reported on its consolidated
financial statements have been materially correct, and management is not aware of any
reason that a material change will occur in the future.

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

Acquisitions

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

Table 1
SUMMARY OF COMPLETED ACQUISITIONS
(dollars in thousands)

|                                    | AcquisitionDate | TotalAssets | SharesIssued | PurchasePrice Paidin Cash | IdentifiableIntangibleAssets | Goodwill
|----------------------------------- | --------------- | ----------- | ------------ | ------------------------- | ---------------------------- | --------
|Bank acquisitions                   |                 |             |              |                           |                              |         
|MBFC                                |                 |            
|Hendersonville, North Carolina      |                 |             | 10/03/03     |                           |                              | $       
|                                    |                 |            
|Insurance agency/other acquisitions |                 |            
|Allied Assurance                    |                 |            
|Columbia, South Carolina            |                 |             | 09/22/03     |                           |                              |         
|                                    |                 |            
|American Pensions, Inc.             |                 |            
|Mount Pleasant, South Carolina      |                 |             | 04/30/03     |                           |                              |         

|(1) |  | Book value at the acquisition date.                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | TSFG agreed to issue annual earnout shares, valued at approximately $45,000, for
               each of August 31, 2004, 2005, 2006, and 2007, based on revenue retention.                                                                             
|(3) |  | Former shareholders of American Pensions, Inc. (API) have the right
               to receive common stock with a maximum value of approximately $2.2 million under
               earnout provisions based on APIs five-year financial performance.

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

---

Table 2
SUMMARY OF BANK ACQUISITIONS - GEOGRAPHIC FOCUS

|              | AcquisitionDate | NumberofBranches | GeorgraphicFocus
|------------- | --------------- | ---------------- | ----------------
|MBFC          |                 | 10/03/03         |                 
|CNB Florida   |                 | (1)              |                 
|Florida Banks |                 | (1)              |                 

(1)    
          These acquisitions are expected to close in July 2004.

Acquisition
Completed Subsequent to Quarter End

On
April 12, 2004, TSFG acquired Summit Title, LLC (Summit), an independent title
insurance company based in Hendersonville, North Carolina. TSFG issued 8,371 shares of
common stock valued at $245,000 and recorded a non-compete agreement intangible of
approximately $19,000, goodwill of approximately $130,000, and a customer list intangible
asset of approximately $37,000. In addition, TSFG agreed to issue annual earnout shares,
valued at the time of issuance at $66,906, for each of April 12, 2005, 2006, 2007, and
2008, based on revenue retention and earnings achievement. If issued, the earnout shares
would increase goodwill. TSFG intends to use Summit as an alternative source of
noninterest income.

Pending
Acquisitions and Sale

On
January 20, 2004, TSFG signed a definitive agreement to acquire CNB Florida, headquartered
in Jacksonville, Florida. At March 31, 2004, CNB Florida operated primarily through 16
branch offices in Northeast Florida and had total assets of $833.3 million. At closing,
TSFG will issue .84 shares of common stock in exchange for each share of CNB Florida
common stock. This transaction, which is expected to close in July 2004, will be accounted
for using the purchase method of accounting and is subject to regulatory and CNB Florida
shareholder approvals.

On
March 17, 2004, TSFG signed a definitive agreement to acquire Florida Banks, headquartered
in Jacksonville, Florida. At March 31, 2004, Florida Banks operated primarily through
seven branch offices in Florida and had total assets of $989.8 million. At closing, TSFG
will issue .77 shares of common stock in exchange for each share of common stock of
Florida Banks. This transaction, which is expected to close in July 2004, will be
accounted for using the purchase method of accounting and is subject to regulatory and
Florida Banks shareholder approvals.

On
February 3, 2004, TSFG entered into a definitive asset sale agreement to sell
substantially all of the assets and all liabilities of Community National Bank.
Headquartered in Pulaski, Virginia, Community National Bank is outside TSFGs
geographic market focus. TSFG acquired Community National Bank in connection with its
October 2003 acquisition of MBFC. At March 31, 2004, Community National Bank was a
wholly-owned subsidiary of TSFG with $69.5 million in total assets. Since Community
National Bank is immaterial to TSFGs financial statements, presentation as a
discontinued operation was not warranted. For the first quarter 2004, Community National
Banks net income totaled $57,000. This transaction is expected to close in the
second quarter 2004.

Balance Sheet Review

Loans

TSFG
focuses its lending activities on small and middle market businesses and individuals in
its geographic markets. At March 31, 2004, outstanding loans totaled $6.0 billion, which
equaled 99.3% of total deposits and 55.2% of total assets. The major components of the
loan portfolio were commercial loans, commercial real estate loans, consumer loans
(including both direct and indirect loans), and one-to-four family residential mortgage
loans. Substantially all loans were to borrowers located in TSFGs market areas in
South Carolina, North Carolina, and Florida market areas. Less than 5% of the portfolio is
unsecured. The portfolio contains no highly leveraged transactions, as defined
by regulatory authorities.

---

Loans
held for investment increased $1.5 billion, or 32.6%, to $6.0 billion at March 31, 2004
from $4.5 billion at March 31, 2003. In the fourth quarter of 2003, TSFG acquired $772.8
million in loans held for investment from its acquisition of MountainBank, which accounted
for 52.5% of the increase. During the first three months of 2004, loans held for
investment increased $254.5 million, or 17.9% annualized. The majority of this organic
loan growth was in commercial, indirect consumer and home equity loans. While originations
of residential mortgage loans increased, most of these loans were sold at origination in
the secondary market. Loans held for sale decreased $44.4 million to $15.9 million at
March 31, 2004 from $60.2 million at March 31, 2003, primarily related to lower mortgage
originations and selling or transferring the loans held for sale that were acquired in
connection with TSFGs acquisition of Gulf West Banks, Inc. in 2002.

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

Table 3
LOAN PORTFOLIO COMPOSITION
(dollars in thousands)

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

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

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

---

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

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

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

Commercial
and industrial loans are loans to finance short-term and intermediate-term cash needs of
businesses. Typical needs include the need to finance seasonal or other temporary cash
flow imbalances, growth in working assets created by sales growth, and purchases of
equipment and vehicles. Credit is extended in the form of short-term single payment loans,
lines of credit for periods up to a year, revolving credit facilities for periods up to
five years, and amortizing term loans for periods up to ten years.

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

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

Indirect
 sales finance loans are loans to individuals to finance the purchase of motor
vehicles. They are closed at the auto dealership but approved in advance by TSFG for
immediate purchase. Loans are extended on new and used motor vehicles with terms varying
from two years up to five years.

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

---

Home
equity loansare loans to home-owners, secured by junior mortgages on their primary
residences, to finance personal, family, or household needs. These loans may be in the
form of amortizing loans or lines of credit with terms up to 15 years.

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

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

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

Table 5
COMMERCIAL REAL ESTATE LOANS
(dollars in thousands)

|                                                           | March 31, 2004 | 
|---------------------------------------------------------- | -------------- | 
|
|Commercial Real Estate Loans by Geographic Diversification |                | 
|Western North Carolina (Hendersonville/Asheville)          |                | 
|North Coastal South Carolina (Myrtle Beach)                |                | 
|Upstate South Carolina (Greenville)                        |                | 
|Midlands South Carolina (Columbia)                         |                | 
|Tampa Bay Florida                                          |                | 
|South Coastal South Carolina (Charleston)                  |                | 
|Central Florida (Orlando)                                  |                | 
|Other (1)                                                  |                | 
|                                                           |                | 
|Total commercial real estate loans                         |                | 
|                                                           |                | 
|                                                           |                | 
|Commercial Real Estate Loans by Product Type               |                | 
|Commercial construction/development                        |                | 
|Hotel/motel                                                |                | 
|Mixed use                                                  |                | 
|Residential construction                                   |                | 
|Undeveloped land                                           |                | 
|1-4 family residential                                     |                | 
|Retail                                                     |                | 
|Multi-family residential                                   |                | 
|Other (1)                                                  |                | 
|                                                           |                | 
|Total commercial real estate loans                         |                | 
|                                                           |                | 

(1)    
          Other includes all loans in categories smaller than the lowest percentages shown
          above. Note:    At March 31, 2004, average loan size for commercial real estate
          loans totaled $352,000.

---

TSFG
has set a house-lending limit of $25 million, well below the legal lending limit of $141.5
million at March 31, 2004. The 20 largest relationships, which range from $25 million in
total commitments to $20 million for the 20th largest relationship, have an aggregate
outstanding principal balance of $261.6 million, or 4.4% of total loans held for
investment, at March 31, 2004.

At
March 31, 2004, the loan portfolio included commitments totaling $243.4 million in
shared national credits (multi-bank credit facilities of $20 million or more).
Outstandings under these commitments totaled $98.0 million. By policy, we participate in
shared national credits only if the borrower is headquartered or conducts business in our
market, the borrower is in an industry familiar to us, we meet directly with the borrower
to conduct our analysis, and the opportunity exists to establish an ongoing banking
relationship with us. None of these credits were classified in the most recent report on
shared national credits prepared by the regulatory agencies.

Credit
Quality

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

To
facilitate comparisons, Table 6 presents credit quality indicators two ways: one that
includes all loans and one that excludes the Rock Hill Workout Loans. On October 31, 2002,
loans totaling $191.3 million were acquired from Rock Hill Bank. Prior to the closing and
in connection with identified problem loans, Rock Hill Bank had charged off a significant
portion of its loan portfolio and established additional reserves. At closing, TSFG
segregated certain identified problem loans into a separately-managed portfolio, referred
to as the Rock Hill Workout Loans. At March 31, 2004, this portfolio totaled
$26.9 million, down from $63.6 million at March 31, 2003. Nonperforming assets for the
Rock Hill Workout Loans at March 31, 2004 totaled $20.5 million, and the allowance for
loan losses was $3.2 million. Net loan charge-offs for the first three months of 2004
totaled $648,000. TSFG expects nonperforming assets and the allowance for loan losses to
decline as the Rock Hill Workout Loans continue to be liquidated, moved to performing
status, or otherwise resolved. TSFG believes that the Rock Hill Workout Loans will largely
be resolved during the next few quarters with minimal impact to 2004 net income. Where
appropriate, TSFG has provided credit quality measures excluding the Rock Hill Workout
Loans to identify core credit quality measures and trends.

---

Table 6
NONPERFORMING ASSETS
(dollars in thousands)

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

|(1)   |  | TSFGs accrued interest reserve associated with these loans totaled
          $439,000, 480,000, and 474,000 at March 31, 2004, March 31, 2003, and December
          31, 2003, respectively.                                                                                                     
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)   |  | At March 31, 2004, $9.0 million of the $18.4 million in nonperforming loans had
          a specific allowance of zero, due primarily to charge-offs of specific
          allowances previously allocated thereto that have occurred since acquisition of
          these Rock Hill Workout Loans.
|Note: |  | Nonperforming assets exclude personal property repossessions, which totaled $722,000, $1.0
million, and $1.0 million, at March 31, 2004, March 31, 2003, and December 31, 2003,
respectively.                                                                                                      

Credit
Quality Including Rock Hill Workout Loans. Nonperforming assets declined to 1.05% of loans
held for investment and other real estate owned at March 31, 2004 from 1.59% at March 31,
2003. Net loan charge-offs decreased to 0.42% of average loans held for investment for the
first three months of 2004 from 0.88% for the first three months of 2003, primarily due to
the disposition of fully-reserved Rock Hill Workout Loans and the liquidation of
fully-reserved nonperforming loans. The allowance for loan losses declined to 1.25% of
period-end loans held for investment at March 31, 2004 from 1.46% at March 31, 2003.

---

Credit
Quality Excluding Rock Hill Workout Loans. Core nonperforming assets (which exclude the
Rock Hill Workout Loans) declined to 0.71% of loans held for investment and other real
estate owned at March 31, 2004 from 0.87% at March 31, 2003. Net loan charge-offs totaled
$5.5 million, or 0.38% of average loans held for investment for the first three months of
2004, down from 0.51% of average loans held for investment for the first three months of
2003. The allowance for loan losses as a percent of loans held for investment remained
stable at 1.20% at March 31, 2004 compared with 1.22% at March 31, 2003. However, the
allowance coverage increased to 2.09 times nonperforming loans at March 31, 2004 from 1.93
times at March 31, 2003.

During
the first quarter 2004, a $7.5 million standby letter of credit (formerly an $8.6 million
exposure) funded when a Chapter 11 bankruptcy settlement was reached. TSFG received $4.0
million in the bankruptcy settlement and charged-off $750,000. The remaining $2.7 million
loan was placed in nonaccrual status. Collection of this loan depends on payment
performance and, if necessary, the timing of the liquidation of collateral. However, the
$2.7 million is fully reserved, and future write-downs, if any, will not adversely impact
earnings.

Management
believes that loss exposure in its loan portfolio is identified, adequately reserved for
in a timely manner, and closely monitored to ensure that changes are promptly addressed in
its analysis of allowance for loan loss adequacy. Future credit quality trends depend
primarily on the direction of the economy. The economic outlook appears to be improving,
but economic forecasts are not always reliable. If the economy continues to improve, TSFG
expects the core nonperforming asset ratio to remain stable or improve slightly, and the
core charge-offs as a percentage of average loans to remain between 0.35% and 0.40%
(excluding the Rock Hill Workout Loans) during the remainder of 2004. Given the economic
uncertainty, 2004 charge-off levels may fluctuate above or below that average from quarter
to quarter.

Certain
of the Rock Hill Workout Loans are defined as designated loans under the Rock
Hill Bank purchase agreement (Designated Loans) and are subject to earnout
provisions. As defined in the purchase agreement, the total principal amount owed by the
borrowers for Designated Loans was $45.2 million, of which $19.5 million had either been
charged off or reserved prior to acquisition by TSFG. To the extent that principal
collections on these Designated Loans exceed $25.7 million through the termination date of
the earnout agreement, TSFG will pay the RHBT shareholders 30% of such excess. The net
effect is to pay RHBT shareholders 30% of the net recoveries on these loans from
charge-off collections and reserve reductions. Through March 31, 2004, total net
charge-offs and allowance levels on the Designated Loans exceeded the amount that would
require a payment under the earnout agreement by approximately $4.8 million.

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

Table 7
IMPAIRED LOANS
(dollars in thousands)

|                                                         | At and ForThe Three MonthsEnded March 31, | At and ForThe Year EndedDecember 31, | 
|-------------------------------------------------------- | ----------------------------------------- | ------------------------------------ | 
|
|Impaired loans                                           |                                           | $50,282                              | 
|Impaired loans, excluding the Rock Hill Workout Loans    |                                           | 31,842                               | 
|Average investment in impaired loans                     |                                           | 50,753                               | 
|Related allowance                                        |                                           | 12,739                               | 
|Related allowance, excluding the Rock Hill Workout Loans |                                           | 9,864                                | 
|Foregone interest                                        |                                           | 617                                  | 

Allowance
for Loan Losses

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

---

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

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

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

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

The
Allowance is also subject to examination and adequacy testing by regulatory agencies,
which may consider such factors as the methodology used to determine adequacy and the size
of the Allowance relative to that of peer institutions, and other adequacy tests. In
addition, such regulatory agencies could require us to adjust our Allowance based on
information available to them at the time of their examination. Historically, TSFGs
Allowance reported on its consolidated financial statements has been materially correct
and management is not aware of any reason that a material change will occur in the future.

The
Allowance declined as a percentage of loans held for investment to 1.25% at March 31, 2004
from 1.46% at March 31, 2003. This decline was primarily due to charge-offs of losses on
Rock Hill Workout Loans, which were reserved at the time of acquisition. Excluding the
Rock Hill Workout Loans, the Allowance totaled 1.20% of loans held for investment at March
31, 2004, compared with 1.22% at March 31, 2003. See Credit Quality.

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

---

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

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

Securities

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

---

Table 9
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
(dollars in thousands)

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

At March 31, 2004, TSFGs
investment securities portfolio declined to 35.6% of total assets from 37.4% and 38.2% at
December 31, 2003 and March 31, 2003, respectively. This decline is consistent with
TSFGs plan to reduce the level of its securities portfolio as a percentage of total
assets, as loan growth replaced some securities balances. During the first three months of
2004, loan growth outpaced deposit growth, and the resulting shortfall was funded with
cash flows from the securities portfolio and increases in short-term borrowings.

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

The
duration of the debt securities portfolio declined to approximately 2.8 years at March 31,
2004 from approximately 3.5 years at December 31, 2003 and approximately 4.9 years at
March 31, 2003.

---

Securities
(i.e., trading securities, securities available for sale, and securities held to maturity)
excluding the unrealized loss on available for sale securities averaged $4.0 billion in
the first three months of 2004, 32.5% above the average for the corresponding period in
2003, of $3.0 billion. The majority of the increase was attributable to securities
purchased to leverage available capital. The average portfolio yield decreased for the
three months ended March 31, 2004 to 4.03% from 4.34% in the first three months of 2003.
The securities yield decreased due to a lower level of general interest rates, sales of
higher-yielding securities, and the addition of lower-yielding, shorter duration
securities.

Nearly
all of these securities are rated AAA so the credit risk is minimal. Approximately
one-fourth of MBS are collateralized mortgage obligations (CMOs), the majority
of which are short-term with a duration of 2.2 years. TSFG manages the MBS portfolio to
maintain a short duration and repricing horizon. At March 31, 2004, approximately 45% of
the MBS portfolio is variable rate.

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

The
available for sale portfolio constituted 97.8% of total securities at March 31, 2004.
Management believes that the high concentration of available for sale securities provides
greater flexibility in the management of the overall investment portfolio.

The
net unrealized gain on available for sale securities (pre-tax) totaled $17.1 million at
March 31, 2004, up from an $11.5 million loss at December 31, 2003. This increase was
primarily due to the decrease in long-term interest rates in the first three months of
2004 and was spread throughout the portfolio with the most significant being MBS, which
increased $13.7 million.

During
April 2004, intermediate and longer-term interest rates increased. The securities
portfolio, though extending in duration and declining in market value, is performing as
well or better than TSFG projected. Furthermore, under both the current level of interest
rates and under expected future rate scenarios, TSFG remains comfortable that the portion
of its liquidity needs that is projected to be provided by the securities portfolio will
be met without difficulty.

Other
Investments

Investments
in Community Banks. At March 31, 2004, TSFG had equity investments in sixteen community
banks located in the Southeast with a $17.1 million basis. In each case, TSFG owns less
than 5% of the community banks outstanding common stock. TSFG has made these
investments to develop correspondent banking relationships and to promote community
banking in the Southeast. These investments in community banks, which are included in
securities available for sale, were recorded at their pre-tax market value at March 31,
2004 of $26.5 million. At March 31, 2004, these community bank investments include
125,000 common shares of CNB Florida, with a pre-tax market value of $3.0 million and
basis of $1.3 million; 291,500 common shares of Florida Banks, with a pre-tax market value
of $6.4 million and basis of $2.7 million; and 50,000 preferred shares of Florida Banks,
with a pre-tax market value and basis of $5.0 million. During first quarter 2004, TSFG
signed definitive agreements to acquire CNB Florida and Florida Banks. See
Acquisitions. Under these agreements, TSFG will cancel its CNB Florida and
Florida Banks stock effective with the acquisition closing date.

Investment
in NetBank, Inc. At March 31, 2004, TSFG owned 111,904 shares of NetBank common stock with
a $31,000 basis. NetBank operates NetBank, F.S.B., an FDIC-insured federal savings bank
that provides banking services to consumers utilizing the Internet, and has mortgage
banking operations. TSFGs investment in NetBank, which is included in securities
available for sale, was recorded at its pre-tax market value of approximately
$1.4 million at March 31, 2004. During the first quarter 2004, TSFG sold 246,000
shares of NetBank for a pre-tax gain of $2.8 million.

Other
Investments Not Specified Above. In addition to the investments described in the preceding
paragraphs, other investments in available for sale securities at March 31, 2004, which
are carried at market value, included corporate bonds of $148.7 million, FNMA preferred
stock of $69.8 million, FHLB common and preferred stock of $53.6 million, and other equity
securities of $4.1 million. Other equity securities include TSFGs investment in
Affinity Technology Group, Inc. (Affinity) as well as several other
investments. At March 31, 2004, TSFG owned 4,876,340 shares of common stock of Affinity,
or approximately 12% of the outstanding shares. TSFGs investment in Affinity has a
basis of $433,000 and was recorded at its March 31, 2004 pre-tax market value of
approximately $585,000. At March 31, 2004, the aggregate market value for these other
investments, which are not specified in the preceding paragraphs, totaled $276.1 million
with a cost basis of $276.7 million.

---

Intangible
Assets

Intangible
assets totaled $352.0 million at March 31, 2004, up from $242.4 million at March 31, 2003,
principally from the MountainBank acquisition. See Note 6 to the consolidated financial
statements for the types and balances of intangible assets. In July 2004, TSFG expects to
record approximately $260 million of intangible assets, including goodwill, in connection
with the CNB Florida and Florida Banks acquisitions.

Deposits

Deposits
remain TSFGs primary source of funds for loans and investments. Average deposits
provided funding for 60.3% of average earning assets in the first three months of 2004 and
60.7% in the first three months of 2003. Carolina First Bank and Mercantile Bank face
stiff competition from other banking and financial services companies in gathering
deposits. The percentage of funding provided by deposits has declined, and accordingly,
TSFG has developed other sources, such as FHLB advances, short-term borrowings, and
long-term structured repurchase agreements, to fund a portion of loan demand and increases
in investment securities. In addition, TSFG has increased the use of brokered certificates
of deposit, which are included in deposits.

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

Table 10
TYPE OF DEPOSITS
(dollars in thousands)

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

At March 31, 2004, deposits totaled
$6.0 billion, up $1.3 billion from March 31, 2003 and relatively constant from December
31, 2003. In October 2003, TSFG acquired $778.3 million in deposits from its acquisition
of MountainBank, which accounted for 59.4% of the increase since March 31, 2003. In
addition, TSFG increased deposits, particularly transaction accounts, through increased
sales referrals and targeted deposit promotions. The increase in deposits since March 31,
2003 also includes a $200.7 million increase in brokered certificates of deposit. TSFG
considers these funds to be an attractive alternative funding source available to use
while continuing its efforts to maintain and grow its local deposit base. During the first
quarter 2004, TSFGs noninterest-bearing deposits grew at a 19.4% annualized rate.
For the first quarter 2004, total deposits increased at a 1.1% annualized growth rate.

---

Table
13 in Results of Operations  Net Interest Income details average
balances for the deposit portfolio for both the three months ended March 31, 2004 and
2003. Average money market accounts increased $1.1 billion, or 102.4%, and average
noninterest demand deposits increased $137.8 million, or 19.5%. On average, time deposits
increased $72.0 million, or 3.7%, which includes a $191.3 million increase in average
brokered certificates of deposit.

As
part of its overall funding strategy, TSFG focuses on the mix of deposits and, in
particular, increasing the level of transaction accounts (i.e., noninterest-bearing,
interest-bearing checking, money market, and savings accounts). For the three months ended
March 31, 2004, transaction accounts made up 65.9% of average deposits, compared with
57.4% for the three months ended March 31, 2003. These trends reflect TSFGs efforts
to enhance its deposit mix by working to attract lower-cost transaction accounts.
TSFGs customer-centered sales process, Elevate, and deposit campaigns are expected
to play an integral part of achieving this goal.

At
March 31, 2004, total deposits for Bank CaroLine, an Internet banking division of Carolina
First Bank, totaled $43.7 million, up from $27.3 million as of March 31, 2003. Deposits
generated through Bank CaroLine generally receive higher rates than those offered by
TSFGs branch locations as a result of the less expensive Internet delivery channel.
Deposits for Bank CaroLine principally increased due to the acquisition of MountainBank.
MountainBank offered Internet-only time deposits that were advertised exclusively on the
Internet.

Time
deposits of $100,000 or more represented 8.8% of total deposits at March 31, 2004 and
13.3% at March 31, 2003. This decline was part of TSFGs plan to discourage
out-of-market deposits in higher cost products. As such, TSFGs larger denomination
time deposits have a greater degree of stability (since they are generally from customers
within the local markets of its banks) than is typically associated with this source of
funds at other institutions.

Borrowed
Funds

Table
11 shows the breakdown of total borrowings by type.

Table 11
TYPE OF BORROWINGS
(dollars in thousands)

|                                                         | March 31, | December 31, | 
|-------------------------------------------------------- | --------- | ------------ | 
|
|Short-Term Borrowings                                    |           |              | 
|Federal funds purchased and repurchase agreements        |           | $1,115,432   | 
|FHLB advances                                            |           | --           | 
|Commercial paper                                         |           | 38,904       | 
|Treasury, tax and loan note                              |           | 4,985        | 
|Line of credit to unaffiliated bank and other            |           | 97           | 
|                                                         |           |              | 
|                                                         |           | 1,159,418    | 
|                                                         |           |              | 
|                                                         |          
|Long-Term Borrowings                                     |          
|Repurchase agreements                                    |           | 1,309,800    | 
|FHLB advances                                            |           | 985,045      | 
|Subordinated notes (1)                                   |           | 135,075      | 
|Debt associated with trust preferred securities (1)      |           | --           | 
|Mandatorily redeemable preferred stock of subsidiary (2) |           | 89,800       | 
|Employee stock ownership plan note payable               |           | 1,025        | 
|Note payable                                             |           | 920          | 
|Purchase accounting premiums and deferred charges, net   |           | 3,301        | 
|                                                         |           |              | 
|                                                         |           | 2,524,966    | 
|                                                         |           |              | 
|Total borrowings                                         |           | $3,684,384   | 
|                                                         |           |              | 

|(1) | In accordance with the revised Financial Accounting Standards Board
                    Interpretation No. 46, (FIN 46), Consolidation of Variable
                    Interest Entities, which addresses consolidation by business enterprises
                    of variable interest entities, TSFG deconsolidated five trust subsidiaries at
                    December 31, 2003, which had been formed to raise capital by issuing preferred
                    securities to institutional investors. The deconsolidation of these wholly-owned
                    subsidiaries, increased TSFGs other assets by $3.6 million, increased
                    long-term debt (specifically subordinated notes) $119.1 million and decreased
                    debt associated with trust preferred securities by $115.5 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|(2) | In accordance with SFAS No. 150, (SFAS 150), Accounting for
                    Certain Financial Instruments with Characteristics of both Liabilities and
                    Equity, which established standards for how an issuer classifies and
                    measures certain financial instruments with characteristics of both liabilities
                    and equity, TSFG reclassified its minority interest in consolidated subsidiary
                    (representing mandatorily redeemable preferred stock of its real estate
                    investment trust subsidiary) to long-term debt effective July 1, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

TSFG
uses both short-term and long-term borrowings to fund growth of earning assets in excess
of deposit growth. In the first three months of 2004, average borrowings totaled $3.8
billion, compared with $3.0 billion for the same period in 2003. This increase was
primarily attributable to an increased reliance on borrowings to support earning asset
growth and the reclassification of minority interest in consolidated subsidiary to
long-term debt. TSFG may enter into interest rate swap agreements to hedge interest rate
risk related to borrowings.

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

FHLB
advances are a source of funding which TSFG uses depending on the current level of
deposits, managements willingness to raise deposits through market promotions, the
Subsidiary Banks unused FHLB borrowing capacity, and the availability of collateral
to secure FHLB borrowings. TSFG continues to evaluate the relative cost and benefit of
incurring prepayment penalties from the early extinguishment of debt.

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

Environmental
Remediation Costs

TSFG
acquired the former Beacon Manufacturing Company facility (Beacon property) in
Swannanoa, North Carolina on October 3, 2003 as part of its acquisition of MBFC. MBFC had
acquired this facility through a foreclosure proceeding in June 2003. In September 2003, a
fire and apparent vandalism resulted in a release of fuel oil and other materials.
Clean-up of the oil spill, including releases to the adjacent Swannanoa River, has been
substantially completed. TSFG intends to investigate, and if necessary remediate, any
additional related environmental impacts and soil and groundwater contamination
attributable to the facility, as well as to stabilize the site and remove waste materials.
The environmental remediation liability, included in other liabilities, totaled $4.5
million at March 31, 2004 and is based on available information. TSFG continues to
evaluate the reserve level and may make purchase accounting adjustments, which would be
treated as goodwill adjustments in the MBFC transaction, as more information becomes
known. There can be no guarantee that any liability or costs arising out of this matter
will not exceed any established reserves. The related estimated net realizable value of
the other real estate owned, included in other assets, totaled $300,000 at March 31, 2004.
On April 23, 2004, TSFG entered into a contract to sell the Beacon property to an
independent third party that is not expected to result in a gain or loss. This sales
contract is subject to normal and customary due diligence and environmental review.

Capital
Resources and Dividends

Total
shareholders equity amounted to $1.0 billion, or 9.4% of total assets, at March 31,
2004, compared with $635.0 million, or 7.1% of total assets, at March 31, 2003. At
December 31, 2003, total shareholders equity was $979.9 million, or 9.1% of total
assets. The increase in shareholders equity since March 31, 2003 was primarily from
the issuance of common stock from a fourth quarter 2003 equity offering and the MBFC
acquisition, as well as the retention of earnings. TSFGs stock repurchase program,
cash dividends paid, and the decrease in unrealized gains in the available for sale
investment portfolio partially offset these increases.

TSFG
has approximately 1.3 million shares remaining under its stock repurchase authorization.
TSFG may continue to repurchase shares depending upon current market conditions, available
cash, and capital levels.

---

TSFGs
unrealized gain on securities, net of tax, which is included in accumulated other
comprehensive income, was $11.0 million as of March 31, 2004 as compared to $20.4 million
as of March 31, 2003 and a net unrealized loss of $7.0 million as of December 31, 2003.
This decrease in unrealized gain (net of deferred income tax) from March 31, 2003 to March
31, 2004 was comprised primarily of a decrease in MBS of $9.6 million and was due to rises
in long-term interest rates.

Book
value per share at March 31, 2004 and 2003 was $17.21 and $13.68, respectively. Tangible
book value per share at March 31, 2004 and 2003 was $11.31 and $8.46, respectively.
Tangible book value was below book value as a result of the purchase premiums associated
with acquisitions of entities and assets accounted for as purchases.

TSFG
is subject to the risk based capital guidelines administered by bank regulatory agencies.
The guidelines are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies, to account for
off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under
these guidelines, assets and certain off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios represent capital
as a percentage of total risk weighted assets and certain off-balance sheet items. TSFG
and its Subsidiary Banks exceeded the well-capitalized regulatory requirements at March
31, 2004. Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators, that, if undertaken, could have a
direct material effect on our consolidated financial statements.

Table
12 sets fourth various capital ratios for TSFG and its Subsidiary Banks. Due to the
adoption of FIN 46, TSFG no longer reflects debt associated with trust preferred
securities on its consolidated balance sheets. Under current regulatory guidelines, these
securities qualify for tier 1 capital treatment; however, this treatment is currently
being reviewed by the Federal Reserve. At March 31, 2004, trust preferred securities
included in tier 1 capital totaled $115.5 million.

Table 12
CAPITAL RATIOS

|                          | March 31, 2004 | WellCapitalizedRequirement
|------------------------- | -------------- | --------------------------
|TSFG                      |                |                           
|Total risk-based capital  |                | 12                        
|Tier 1 risk-based capital |                | 10                        
|Leverage ratio            |                | 7                         
|                          |               
|Carolina First Bank       |               
|Total risk-based capital  |                | 12                        
|Tier 1 risk-based capital |                | 9                         
|Leverage ratio            |                | 6                         
|                          |               
|Mercantile Bank           |               
|Total risk-based capital  |                | 11                        
|Tier 1 risk-based capital |                | 8                         
|Leverage ratio            |                | 7                         
|                          |               
|Community National Bank   |               
|Total risk-based capital  |                | 15                        
|Tier 1 risk-based capital |                | 14                        
|Leverage ratio            |                | 8                         

On June 27, 2003, TSFG filed a
universal shelf registration statement registering up to $200.0 million of
securities to provide additional flexibility in managing capital levels, both in terms of
debt and equity. Under the universal shelf, in July 2003, TSFG issued 91,250 shares of
common stock to settle a share repurchase agreement. Under the universal shelf, on
November 12, 2003, TSFG completed a common stock offering, selling 6,325,000 shares at a
gross offering price of $27.00 per share. The offering generated

---

proceeds to TSFG of $161.1 million, net of issuance costs for underwriting and expenses. TSFG used some of the
net proceeds to increase the capital at TSFGs subsidiary banks and for general
corporate purposes. These funds may also be used to pursue growth opportunities. Following
the common stock offering, TSFGs tangible equity to tangible asset ratio exceeded
6%. As part of its capital management, TSFG plans to keep this ratio above 6%.

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

TSFG,
through a real estate investment trust subsidiary, had 898 mandatorily redeemable
preferred shares outstanding at March 31, 2004 with a stated value of $100,000 per share.
At March 31, 2004, these preferred shares, which are reported as long-term debt on the
consolidated balance sheet, totaled $89.8 million. Under Federal Reserve Board guidelines,
$25.2 million, net of issuance costs, qualified as tier 1 capital, and $61.6 million, net
of issuance costs, qualified as tier 2 capital. The terms for the preferred shares include
certain asset coverage and cash flow tests, which if triggered, may prohibit TSFGs
real estate trust subsidiary from paying dividends to Carolina First Bank, which in turn
may limit its ability to pay dividends to TSFG.

Earnings Review

Net
Interest Income

Net interest income is TSFGs
primary source of revenue. Net interest income is the difference between the interest
earned on assets, including loan fees and security dividends, and the interest incurred
for the liabilities to support such assets. The net interest margin measures how
effectively a company manages the difference between the yield on earning assets and the
rate paid on funds used to support those assets. Fully tax-equivalent net interest income
adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable
basis. Table 13 presents average balance sheets and a net interest income analysis on a
tax equivalent basis for the three months ended March 31, 2004 and 2003.

---

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

|                                                     | Three Months Ended March 31, |  |   |            |  |  
|---------------------------------------------------- | ---------------------------- |  | - | ---------- |  | -
|
|Assets                                               |                              |  |   |            |  |  
|Earning assets                                       |                              | 
|Loans (1)                                            |                              |  | $ | 5,855,050  |  | $
|Investment securities, taxable (2)                   |                              |  |   | 3,756,359  |  |  
|Investment securities, nontaxable (3)                |                              |  |   | 229,992    |  |  
|Federal funds sold                                   |                              |  |   | 1,759      |  |  
|Interest-bearing bank balances                       |                              |  |   | 3,391      |  |  
|                                                     |                              |  |   |            |  |  
|Total earning assets                                 |                              |  |   | 9,846,551  |  | $
|                                                     |                              |  |   |            |  |  
|Non-earning assets                                   |                              |  |   | 979,166    |  |  
|                                                     |                              |  |   |            |  |  
|Total assets                                         |                              |  | $ | 10,825,717 |  |  
|                                                     |                              |  |   |            |  |  
|                                                     |                              | 
|Liabilities and shareholders' equity                 |                              | 
|Liabilities                                          |                              | 
|Interest-bearing liabilities                         |                              | 
|Interest-bearing deposits                            |                              | 
|Interest-bearing checking                            |                              |  | $ | 662,099    |  | $
|Savings                                              |                              |  |   | 158,969    |  |  
|Money market                                         |                              |  |   | 2,246,730  |  |  
|Time deposits                                        |                              |  |   | 2,027,874  |  |  
|                                                     |                              |  |   |            |  |  
|Total interest-bearing deposits                      |                              |  |   | 5,095,672  |  |  
|Borrowings                                           |                              |  |   | 3,768,101  |  |  
|                                                     |                              |  |   |            |  |  
|Total interest-bearing liabilities                   |                              |  |   | 8,863,773  |  | $
|                                                     |                              |  |   |            |  |  
|Noninterest-bearing liabilities                      |                              | 
|Noninterest-bearing deposits                         |                              |  |   | 844,620    |  |  
|Other noninterest-bearing liabilities                |                              |  |   | 120,830    |  |  
|                                                     |                              |  |   |            |  |  
|Total liabilities                                    |                              |  |   | 9,829,223  |  |  
|Minority interest in consolidated     subsidiary (4) |                              |  |   | --         |  |  
|Shareholders' equity                                 |                              |  |   | 996,494    |  |  
|                                                     |                              |  |   |            |  |  
|Total liabilities and shareholders'      equity      |                              |  | $ | 10,825,717 |  | $
|                                                     |                              |  |   |            |  |  
|Net interest margin (tax-equivalent)                 |                              |  |   |            |  | $
|Less: tax-equivalent adjustment (3)                  |                              |  |   |            |  |  
|                                                     |                              |  |   |            |  |  
|Net interest income                                  |                              |  |   |            |  | $
|                                                     |                              |  |   |            |  |  

|(1)   | Nonaccrual loans are included in average balances for yield computations.                                                                                                                                                                                                                                                       
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)   | The average balances for investment securities exclude the unrealized gain
          recorded for available for sale securities.                                                                                                                                                                                                
|(3)   | The tax-equivalent adjustment to
          net interest income adjusts the yield for assets earning tax-exempt income to a
comparable yield on a taxable basis.                                                                                                                                                                 
|(4)   | The minority interest in consolidated subsidiary pertains to the REIT preferred
               stock, which qualifies as regulatory capital and pays cumulative dividends.
               Effective July 1, 2003, in accordance with the adoption of SFAS 150, TSFG
               reclassified these amounts to long-term debt.
|Note: | Average balances are derived from daily balances.                                                                                                                                                                                                                                                                               

---

Fully
tax-equivalent net interest income for the first three months of 2004 increased $16.8
million, or 25.4%, to $83.0 million from $66.1 million in the first three months of 2003.
This increase was attributable to a 30.1% increase in average earning assets, principally
from strong loan growth, higher investment securities, and the acquisition of
MountainBank. The MountainBank acquisition, which closed October 3, 2003, added
approximately $877.7 million in earning assets. TSFG increased its investment portfolio to
leverage available capital and take advantage of the opportunity to increase net interest
income.

The
lower net interest margin, which declined to 3.39% in the first three months of 2004 from
3.54% in the first three months of 2003, partially offset the net interest income increase
from higher earning assets. This decline was largely attributable to continued downward
repricing of fixed rate commercial loans, deposit rates approaching lower limits due to
historically low interest rates, and the July 2003 reclassification of minority interest
in consolidated subsidiary as long-term debt. In addition, TSFG has experienced solid
growth in money market accounts, principally from a product priced at a percentage of the
prime interest rate with a March 31, 2004 balance of approximately $1.9 billion. If
interest rates rise, TSFG may benefit from the relatively slower increase for these
accounts.

The
net interest margin for the first quarter 2004 increased 16 basis points from fourth
quarter 2003. This follows a 22 basis point increase for the fourth quarter 2003. During
the first quarter of 2004, the net interest margin was driven upward by robust loan
growth, slower mortgage-backed security prepayment speeds, effective management of deposit
rates, and the reversal of an interest expense accrual in connection with a change in
estimate on step-up and callable repurchase agreements (including retired debt). During
2004, TSFG expects the net interest margin to continue improving slightly.

Interest
rates remain at historically low levels. During 2003, the Federal Reserve lowered the
federal funds target rate 25 basis points at the end of June, which followed a 50 basis
point reduction in November 2002 and eleven downward adjustments in 2001. A large portion
of TSFGs adjustable rate loans, which constitute 59.2% of the loan portfolio,
reprice immediately following an interest rate change by the Federal Reserve. The funding
source changes take more time to filter into the net interest margin, primarily because of
the timed maturities of certificates of deposit and borrowings.

In
connection with its adoption of SFAS 150, effective July 1, 2003, TSFG reported dividends
earned by institutional holders on preferred shares of its real estate investment trust
subsidiary as interest expense and the related preferred shares were included in
borrowings. For periods prior to July 1, 2003, these dividends earned were reported as
minority interest in consolidated subsidiary, net of tax. This reclassification lowered
the first quarter 2004 net interest margin by 6 basis points.

Average
total deposits increased by $1.3 billion, or 29.4%, to $5.9 billion during the first three
months of 2004 from $4.6 billion in the first three months of 2003. The growth in deposits
since first quarter 2003 was driven by growth in money market and noninterest-bearing
deposits generated through sales referrals and targeted deposit promotions. In addition,
TSFG acquired $778.3 million in deposits from MountainBank in the fourth quarter of 2003.

Average
borrowings increased to $3.8 billion during the three months ended March 31, 2004 from
$3.0 billion during the three months ended March 31, 2003, due to increases in repurchase
agreements and federal funds purchased. These borrowings were used to fund the growth in
earning assets.

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

Provision
for Loan Losses

The
provision for loan losses is recorded in amounts sufficient to bring the allowance for
loan losses to a level deemed appropriate by management. Management determines this amount
based upon many factors, including its assessment of loan portfolio quality, loan growth,
changes in loan portfolio composition, net loan charge-off levels, and expected economic
conditions. The provision for loan losses was $7.7 million and $5.5 million in the
first three months of 2004 and 2003, respectively. The higher provision for loan losses
was primarily attributable to increased loan growth and the 2003 liquidation of
nonperforming loans on which allocated reserves exceeded net losses incurred.

Net
loan charge-offs were $6.1 million, or 0.42% of average loans held for investment, for the
first three months of 2004, compared with $9.6 million, or 0.88% of average loans held for
investment, for the first three months of 2003. The allowance for loan losses equaled
1.25%, 1.28%, and 1.46% of loans held for investment as of March 31, 2004, December 31,
2003, and March 31, 2003, respectively. The decrease was attributable to the Rock Hill
Workout Loans. See Loans. Excluding the Rock Hill Workout Loans, the allowance
for loan losses was 1.20%, 1.23%, and 1.22% of loans held for investment as of March 31,
2004, December 31, 2003, and March 31, 2003, respectively.

Noninterest
Income

Noninterest
income increased during the first three months of 2004 compared with the corresponding
period for 2003, both including and excluding gains on certain asset sales. These
increases reflect expansion in noninterest income sources and continuing benefits from
TSFGs Elevate sales process. In addition, TSFG realized higher gains on
available for sale securities, equity investments, and gains on disposition of assets and
liabilities in the first quarter 2004.

Service
charges on deposits and merchant processing income drove the increases in noninterest
income excluding gains on certain asset sales. These increases were partially offset by
losses on trading and derivative activities and declines in mortgage banking income.

Table
14 shows the components of noninterest income.

Table 14
COMPONENTS OF NONINTEREST INCOME
(dollars in thousands)

|                                                                                                   | Three Months EndedMarch 31, | 
|-------------------------------------------------------------------------------------------------- | --------------------------- | 
|
|Service charges on deposit accounts                                                                |                             | 
|Bank-owned life insurance                                                                          |                             | 
|Merchant processing income                                                                         |                             | 
|Mortgage banking income                                                                            |                             | 
|Brokerage income                                                                                   |                             | 
|Insurance income                                                                                   |                             | 
|Trust income                                                                                       |                             | 
|Loss on trading and derivative activities                                                          |                             | 
|Other                                                                                              |                             | 
|                                                                                                   |                             | 
|Noninterest income, excluding gains on certain asset sales                                         |                             | 
|                                                                                                   |                             | 
|Gain on sale of available for sale securities                                                      |                             | 
|Gain on equity investments, net                                                                    |                             | 
|Gain on disposition of assets and liabilities                                                      |                             | 
|                                                                                                   |                             | 
|Gain on certain asset sales, net                                                                   |                             | 
|                                                                                                   |                             | 
|Total noninterest income                                                                           |                             | 
|                                                                                                   |                             | 
|                                                                                                   |                             | 
|Total noninterest income as a percentage of total revenue (1)                                      |                             | 
|Noninterest income, excluding gains on certain asset sales, as   a percentage of total revenue (1) |                             | 

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

Service
charges on deposit accounts, the largest contributor to noninterest income, rose 16.6% in
the first three months of 2004 compared to the same period in 2003. The increase was
primarily attributable to increasing transaction accounts, including cash management and
improving collection of fees. Average balances for deposit transaction accounts, which
impact service charges, increased 48.5% for the same period.

Bank-owned
life insurance increased $342,000, or 17.6%, for the first three months of 2004 versus the
corresponding period in 2003, due to additional life insurance and increases in the cash
values. TSFG purchased an additional $25.0 million of life insurance on certain officers
in October 2003 and added $13.8 million from the acquisition of MountainBank. The cash
surrender value totaled $194.3 million at March 31, 2004, up from $146.1 million at March
31, 2003.

---

Merchant
processing fees increased $677,000, or 50.7%, for the three months ended March 31, 2004
compared with the same period in 2003, primarily from increased sales efforts.

Table
15 shows the components of mortgage banking income.

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

|                                                                               | Three Months EndedMarch 31, | 
|------------------------------------------------------------------------------ | --------------------------- | 
|
|Origination income and secondary marketing operations                          |                             | 
|Mortgage servicing loss, net of related amortization and subservicing payments |                             | 
|Impairment on mortgage servicing rights                                        |                             | 
|                                                                               |                             | 
|Total mortgage banking income                                                  |                             | 
|                                                                               |                             | 

For the first quarter of 2004,
origination income and secondary marketing declined 43.6% compared with the same period in
2003. Mortgage loans originated by TSFG originators totaled $119.3 million and $161.5
million in the first three months of 2004 and 2003, respectively. The decrease in mortgage
banking income was principally the result of lower origination volumes due to higher
mortgage loan rates, which TSFG expects to continue.

TSFGs
mortgage banking strategy is to sell most of the loans it originates in the secondary
market with servicing rights released. At March 31, 2004, TSFGs servicing portfolio
included 3,132 loans having an aggregate principal balance of $207.5 million, down from
$399.2 million at March 31, 2003. The servicing portfolio decline accelerated in the
second and third quarters of 2003 due to prepayments of loans from increased refinancings
because of lower rates.

Fees
related to servicing other loans, for which Carolina First Bank owns the rights to
service, are offset by the related amortization of mortgage servicing rights. In 2004,
TSFG expects its net mortgage servicing loss to improve due to lower amortization of
mortgage servicing rights as prepayments slow. Mortgage servicing rights, net of the
valuation allowance, totaled $1.5 million and $3.2 million at March 31, 2004 and 2003,
respectively. At March 31, 2004 and 2003, the valuation allowance for capitalized mortgage
servicing rights totaled $1.8 million and $2.0 million, respectively.

In
the first quarter 2004 compared with the corresponding period in 2003, brokerage income
decreased $424,000, or 26.2%, due to higher than normal levels in first quarter 2003.
Insurance income increased $241,000, or 30.9%, during this same period, principally from
acquiring an agency and leveraging TSFGs customer base. Trust income increased
$56,000, or 6.4%, in the first three months of 2004 compared to the first three months of
2003. At March 31, 2004 and 2003, the market value of assets administered by the trust
department totaled $754.7 million and $711.0 million, respectively.

TSFG
uses derivatives as economic hedges of on-balance sheet assets and liabilities or
forecasted transactions, which result in realized gains and losses included in earnings.
Such activities may result in volatility in realized gains and losses on trading and
derivative activities, as demonstrated by a $1.4 million net loss in the first three
months of 2004 and a $120,000 loss in the first three months of 2003. See Market
Risk and Asset/Liability Management  Derivatives and Hedging Activities.

For
the first three months of 2004, the gain on sale of available for sale securities included
gains on the sales of MBS totaling $3.7 million, U.S. Treasury totaling $1.3 million,
corporate bonds totaling $144,000, and U.S. Government agencies totaling $63,000. In the
first quarter 2004, the gain on equity investments was realized from the sale of 246,000
shares of NetBank common stock. For the three months ended March 31, 2003, the gain on
equity investments was realized from the sale of 207,096 shares of NetBank common stock.

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

---

Other
noninterest income includes income related to debit cards, customer service fees,
international banking services, and other fee-based services. Total income from these fee
income sources increased over the prior year due in part to TSFGs continued emphasis
on its customer-centered sales process, Elevate. The increase in other noninterest income
in the first quarter 2004 compared with the same period in 2003 was largely due to
increases in benefits administration fees (due to the American Pensions, Inc.
acquisition), which increased $627,000, business referral fees, which increased $440,000,
and debit card income, which increased $290,000.

Noninterest
Expenses

TSFG
is expanding in new and existing markets within its targeted geographic footprint in the
Southeast, both through organic growth and acquisitions. TSFG also makes strategic
investments in its products and services, technology systems, and incentive programs.
These factors contributed to TSFGs increases in noninterest expense, which increased
17.1%, or 10.5% excluding non-operating items, for the first quarter 2004 over the first
quarter 2003. TSFGs market expansion included the October 2003 acquisition of
MountainBank. TSFG also purchased an insurance agency and benefit plan administrator in
2003.

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

Table 16
COMPONENTS OF NONINTEREST EXPENSES
(dollars in thousands)

|                                                    | Three Months EndedMarch 31, | 
|--------------------------------------------------- | --------------------------- | 
|
|Salaries and wages                                  |                             | 
|Employee benefits                                   |                             | 
|Occupancy                                           |                             | 
|Furniture and equipment                             |                             | 
|Professional fees                                   |                             | 
|Merchant processing expense                         |                             | 
|Telecommunications                                  |                             | 
|Amortization of intangibles                         |                             | 
|Other                                               |                             | 
|                                                    |                             | 
|Noninterest expenses, excluding non-operating items |                             | 
|                                                    |                             | 
|Conservation grant of land                          |                             | 
|Loss on early extinguishment of debt                |                             | 
|Merger-related costs                                |                             | 
|Employment contract reversals                       |                             | 
|                                                    |                             | 
|Non-operating noninterest expenses                  |                             | 
|                                                    |                             | 
|Total noninterest expenses                          |                             | 
|                                                    |                             | 
|                                                    |                             | 
|Efficiency ratio (1)                                |                             | 
|Efficiency ratio, operating basis (2)               |                             | 

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

Salaries,
wages, and employee benefits rose $1.2 million, or 5.0%, in the first quarter 2004
compared with the same period in 2003. Full-time equivalent employees as of March 31, 2004
increased to 1,910 from 1,647 at March 31, 2003. The increase in personnel expense was
primarily attributable to the MountainBank acquisition, higher health insurance costs, and
higher Supplemental Executive Retirement Plan Benefits, partially offset by lower
short-term and long-term incentive accruals. TSFG expects salaries, wages, and employee
benefits to increase from first quarter levels for the remainder of 2004 related to
additional incentive compensation accruals based on anticipated performance levels.

Occupancy
and furniture and equipment expense increased 5.2% for the first three months of 2004
compared to the corresponding period in 2003 primarily from the addition of branch offices
from TSFGs acquisition of MountainBank.

---

The
increase in professional fees was partially related to deposit pricing and fee
initiatives. The increase in merchant processing expense was offset by related revenue
increases.

Amortization
of intangibles increased $490,000 for the three months ended March 31, 2004, primarily
attributable to the addition of core deposit premiums from the acquisition of
MountainBank. In addition, TSFG added customer list intangibles and non-compete
intangibles in connection with its acquisitions.

During
the first quarter 2004, TSFG executed a conservation grant of land in North Carolina and
deducted the property fair value of $3.4 million.

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

During
both the three months ended March 31, 2004 and 2003, TSFG incurred pre-tax merger-related
costs, in connection with TSFGs acquisitions in 2003 and 2002. See Note 11 to
the consolidated financial statements for the types and balances of pre-tax merger-related
costs.

Other
noninterest expenses rose 22.5% in the first three months of 2004 compared with the same
period in 2003. The overall increase in other noninterest expenses was principally
attributable to increases in insurance, business development, postage, travel, deposit
account charge-offs, and other real estate owned.

Income
Taxes

The
effective income tax rate as a percentage of pretax income was 30.3% for the first three
months of 2004 and 32.0% for the first three months of 2003. The effective income tax rate
declined in connection with decreases in TSFGs valuation allowance associated with
its deferred income tax assets, primarily associated with TSFGs ability to utilize a
capital loss carry forward to offset gains realized on available for sale securities. TSFG
expects the effective income tax rate for the remainder of 2004 to increase to between
approximately 32% and 33%. The blended statutory federal and state income tax rate was
approximately 37% for both of these periods.

Market Risk and
Asset/Liability Management

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

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

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

---

Table 17
EARNINGS AT RISK ANALYSIS

|Interest Rate Scenario | Annualized Hypothetical Percentage Change inNet Interest Income
|---------------------- | ---------------------------------------------------------------
|                       | 2                                                              
|                       | 1                                                              
|                       |                                                                
|                       | (1                                                             

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

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

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

The impact of rising rates on TSFGs money market accounts demonstrates why TSFG
believes the earnings at risk analysis to be superior to the static gap analysis. At March
31, 2004, the static gap analysis reflects $2.0 billion in money market accounts in the
0-3 month column, the majority of which are money market accounts that reprice with the
prime interest rate. However, these accounts increase only 40% of the total increase in
prime, not the full amount. By contrast, TSFGs assets that reprice will reflect
most, if not all, of the full rate increase. Contrary to the static gap analysis, this
relative impact of rising rates is taken into account in the earnings at risk analysis.

Table 18
shows TSFGs static GAP position at March 31, 2004 based on its most
likely rate scenario, which assumes a 100 basis point rate increase over the next
twelve months. The carrying amounts of rate-sensitive assets and liabilities are presented
in the periods in which they next reprice to market rates or mature, ignoring the
magnitude of the repricing. For assets, projected repayments, anticipated principal
prepayments, and potential calls are taken into account. To reflect anticipated
prepayments, certain asset categories are shown using estimated cash flows rather than
contractual cash flows. For core deposits without contractual maturities (i.e., interest
checking, savings, money market, and noninterest-bearing deposit accounts), Table 18
presents principal cash flows based on managements judgment concerning their most
likely runoff. The actual maturities and runoff could vary substantially if future
prepayments, runoff, and call options exercised differ from TSFGs historical
experience or managements estimates.

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

---

Table 18
INTEREST SENSITIVITY GAP ANALYSIS
(dollars in thousands)

|                                               | 0-3Months | 4-12Months | One toThree Years | AfterThree Years | Total
|---------------------------------------------- | --------- | ---------- | ----------------- | ---------------- | -----
|Interest-sensitive assets                      |           |            |                   |                  |      
|Earning assets                                 |           |           
|Loans                                          |           |            | $                 | 3,715,849        |      
|Investment securities (1)                      |           |            |                   | 200,885          |      
|Federal funds sold                             |           |            |                   | 4,477            |      
|Interest bearing balances with other banks     |           |            |                   | 798              |      
|                                               |           |            |                   |                  |      
|Total earning assets                           |           |            | $                 | 3,922,009        |      
|                                               |           |            |                   |                  |      
|                                               |           |           
|                                               |           |           
|Interest-sensitive liabilities                 |           |           
|Interest-bearing deposits                      |           |           
|Interest checking                              |           |            | $                 | --               |      
|Savings                                        |           |            |                   | --               |      
|Money market                                   |           |            |                   | 1,957,809        |      
|Certificates of deposit                        |           |            |                   | 701,822          |      
|                                               |           |            |                   |                  |      
|Total interest-bearing deposits                |           |            |                   | 2,659,631        |      
|Other deposits (2)                             |           |            |                   | --               |      
|Borrowings                                     |           |            |                   | 1,789,447        |      
|                                               |           |            |                   |                  |      
|Total interest-sensitive liabilities           |           |            |                   | 4,449,078        |      
|                                               |           |            |                   |                  |      
|                                               |           |           
|Periodic interest-sensitive gap                |           |            |                   | (527,069         | )    
|                                               |           |           
|Notional amount of interest rate swaps         |           |            |                   | (595,500         | )    
|                                               |           |            |                   |                  |      
|                                               |           |           
|Periodic interest-sensitive gap after interest |           |           
|rate swaps                                     |           |            | $                 | (1,122,569       | )    
|                                               |           |            |                   |                  |      
|                                               |           |           
|Cumulative interest -sensitive gap             |           |            | $                 | (1,122,569)      |      
|                                               |           |            |                   |                  |      

(1)    
          Investment securities exclude the unrealized gain on the available for sale of securities of
          $17.1 million (pre-tax). (2)    Other deposits consist of noninterest-bearing
          deposits, which respond in part to changes in interest rates.

As indicated in Table 18, at March
31, 2004, on a cumulative basis through twelve months, rate-sensitive liabilities exceeded
rate-sensitive assets, resulting in a liability-sensitive position of $1.3 billion, or
12.3% of total assets. The position indicated by the static gap has no direct reflection
on net interest income. Although the static gap reflects a liability-sensitive position,
the earnings at risk analysis shows TSFG with an asset-sensitive position, and one in
which TSFG will benefit from an increase in interest rate.

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

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

---

In
connection with its interest rate management activities, TSFG uses futures, options, and
other derivatives as economic hedges of on-balance sheet assets and liabilities or
forecasted transactions, which do not qualify for hedge accounting under Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133) as amended by
SFAS No. 137, 138, and 149. Accordingly, these derivatives are reported at fair value on
the consolidated balance sheet with realized gains and losses included in earnings. Such
activities may result in increased volatility in realized gains and losses on trading
activities. In 2003, TSFG increased its use of derivatives. For the first quarter 2004,
loss on trading and derivative activities totaled $1.4 million, compared with a $120,000
loss for the same period in 2003.

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

In
accordance with SFAS 133, TSFG records derivatives at fair value, as either assets or
liabilities, on the consolidated balance sheets. At March 31, 2004, the fair value of
derivative assets totaled $3.8 million and was related to fair value hedges. At March 31,
2004, the fair value of derivative liabilities totaled $5.4 million for fair value hedges
and cash flow hedges and $460,000 for future contracts.

Off-Balance Sheet
Arrangements

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

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

Lending
Commitments. Lending commitments include loan commitments, standby letters of credit,
unused business credit card lines, and documentary letters of credit. These instruments
are not recorded in the consolidated balance sheet until funds are advanced under the
commitments. TSFG provides these lending commitments to customers in the normal course of
business.

For
commercial customers, loan commitments generally take the form of revolving credit
arrangements to finance customers working capital requirements. For retail
customers, loan commitments are generally lines of credit secured by residential property.
At March 31, 2004, commercial and retail loan commitments totaled $1.3 billion.
Documentary letters of credit are typically issued in connection with customers
trade financing requirements and totaled $1.5 million at March 31, 2004. Unused business
credit card lines, which totaled $18.1 million at March 31, 2004, are generally for
short-term borrowings.

Standby
letters of credit represent an obligation of TSFG to a third party contingent upon the
failure of TSFGs customer to perform under the terms of an underlying contract with
the third party. The underlying contract may entail either financial or nonfinancial
obligations and may involve such things as the customers delivery of merchandise,
completion of a construction contract, release of a lien, or repayment of an obligation.
Under the terms of a standby letter, drafts will be generally drawn only when the
underlying event fails to occur as intended. TSFG has legal recourse to its customers for
amounts paid, and these obligations are secured or unsecured, depending on the
customers creditworthiness. Commitments under standby letters of credit are usually
for one year or less. TSFG evaluates its obligation to perform as a guarantor and records
reserves as deemed necessary. The maximum potential amount of undiscounted future payments
related to standby letters of credit at March 31, 2004 was $94.7 million.

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

---

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

At
March 31, 2004, the fair value of derivative assets totaled $3.8 million and was related
to fair value hedges. At March 31, 2004, the fair value of derivative liabilities totaled
$5.4 million for fair value hedges and cash flow hedges and $460,000 for future contracts.
The related notional amounts, which are not recorded on the consolidated balance sheets,
totaled $642.9 million for the derivative assets and $418.8 million for the derivative
liabilities.

Credit
Life & Disability Insurance.Carolina First Guaranty Reinsurance, Ltd.
(CFGRL), a wholly-owned subsidiary of TSFG, offers credit life and disability
insurance up to a single policy limit of $100,000 to customers of the Subsidiary Banks. As
of March 31, 2004, CFGRL had in force insurance not recorded on the consolidated balance
sheets of $27.9 million. A loss reserve, determined based on reported and past loss
experience of in force policies totaled $167,000 at March 31, 2004.

Liquidity

Liquidity
management ensures that adequate funds are available to meet deposit withdrawals, fund
loan and capital expenditure commitments, maintain reserve requirements, pay operating
expenses, provide funds for dividends and debt service, manage operations on an ongoing
basis, and capitalize on new business opportunities. Funds are primarily provided by the
Subsidiary Banks through customers deposits, principal and interest payments on
loans, loan sales or securitizations, securities available for sale, maturities and
paydowns of securities, temporary investments, and earnings. Securities classified as
available for sale, which are not pledged, may be sold in response to changes in interest
rates or liquidity needs. A substantial majority of TSFGs securities are pledged.

Proper
liquidity management is crucial to ensure that TSFG is able to take advantage of new
business opportunities as well as meet the demands of its customers. In this process, TSFG
focuses on assets and liabilities and on the manner in which they combine to provide
adequate liquidity to meet our needs.

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

The
Subsidiary Banks have access to borrowing from the FHLB and maintain short-term lines of
credit from unrelated banks. FHLB advances, outstanding as of March 31, 2004, totaled
$985.0 million. At March 31, 2004, the Subsidiary Banks had approximately $1.1 billion of
unused borrowing capacity from the FHLB. This capacity may be used when the Subsidiary
Banks have available collateral to pledge. Until the Subsidiary Banks make collateral
available (other than cash) to secure additional FHLB advances, TSFG will fund its
short-term needs principally with deposits, including brokered certificates of deposit,
federal funds purchased, repurchase agreements, and the sale of securities available for
sale. In addition, the Subsidiary Banks may purchase securities or may repay repurchase
agreements to provide additional FHLB-qualifying collateral. At March 31, 2004, the
Subsidiary Banks had unused, unsecured short-term lines of credit from unrelated banks totaling
$369.3 million (which are withdrawable at the lenders option).

The
Federal Reserve Bank provides back-up funding for commercial banks. Collateralized
borrowing relationships with the Federal Reserve Banks of Richmond and Atlanta are in
place for the Subsidiary Banks to meet emergency funding needs. At March 31, 2004, the
Subsidiary Banks had qualifying collateral to secure advances up to $717.0 million, of
which none was outstanding.

At
March 31, 2004, the parent company had unused short-term lines of credit totaling $20.0
million. These lines of credit, which are withdrawable at the lenders option, mature
June 30, 2004 for $10.0 million and September 1, 2004 for $10.0 million.

---

In
the normal course of business, to meet the financial needs of its customers, TSFG,
principally through the Subsidiary Banks, enters into agreements to extend credit. For
amounts and types of such agreements at March 31, 2004, see Off-Balance Sheet
Arrangements. Increased demand for funds under these agreements would reduce
TSFGs liquidity and could require additional sources of liquidity.

Item 3.   Quantitative and
Qualitative Disclosures about Market Risk

See
Market Risk and Asset/Liability Management in Item 2, Management Discussion
and Analysis of Financial Condition and Results of Operations for quantitative and
qualitative disclosures about market risk, which information is incorporated herein by
reference.

Item 4.  Disclosure
Controls and Procedures

Evaluation
of Disclosure Controls and Procedures

TSFGs
Chief Executive Officer and Chief Financial Officer have evaluated TSFGs disclosure
controls and procedures as of March 31, 2004, and they concluded that these controls and
procedures are effective.

Changes
in Internal Controls

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

---

PART II.   OTHER
INFORMATION

Item 1   Legal Proceedings

See
Note 8 to the Consolidated Financial Statements for a discussion of legal proceedings.

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

On
April 12, 2004, TSFG acquired 100% of the capital stock of Summit Title, LLC, an
independent title insurance company based in Hendersonville, North Carolina. In connection
with the acquisition, TSFG issued 8,371 shares of common stock. This issuance was exempt
under Section 4(2) of the Securities Act of 1933 insofar as Summit Title had only one
shareholder.

On
April 27, 2004, TSFGs shareholders approved an increase in TSFGs authorized
common stock from 100 million shares to 200 million shares.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities

|Period                                | Total     Number     of Shares     Purchased | AveragePricePaid perShare | TotalNumber ofShares as Partof PubliclyAnnouncedPlans orPrograms | MaximumNumber ofShares thatMay Yet BePurchasedUnder Plansor Programs
|------------------------------------- | -------------------------------------------- | ------------------------- | ---------------------------------------------------------------- | --------------------------------------------------------------------
|January 1, 2004 to January 31, 2004   |                                              |                           |                                                                  | --                                                                  
|February 1, 2004 to February 29, 2004 |                                              |                           |                                                                  | 26,578                                                              
|March 1, 2004 to March 31, 2004       |                                              |                           |                                                                  | --                                                                  
|                                      |                                              |                           |                                                                  |                                                                     
|Total                                 |                                              |                           |                                                                  | 26,578                                                              
|                                      |                                              |                           |                                                                  |                                                                     

(1)    
          These shares were canceled in connection with option exercises.

Item 3    Defaults Upon
Senior Securities

None.

Item 4    Submission of Matters to a Vote of Securities Holders

On April 27, 2004, TSFG held its 2004 Annual Meeting of Shareholders.  At that meeting, the shareholders voted to approve all proposals presented in accordance with management's recommendations.

Item 5    Other Information

None.

Item 6    Exhibits and
Reports on Form 8-K

(a) Exhibits

| | 3.1  | Amended and Restated Articles of Incorporation, restated as of March 17, 2003.                                                                                                                           
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.2  | Articles of Amendment dated April 28, 2004.                                                                                                                                                              
| | 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.                                                        

(b)               
          Reports on Form 8-K

| | Form
8-K dated January 20, 2004 announcing under Item 5 that TSFG had entered into a merger
agreement with CNB Florida Bancshares, Inc. and under Item 7 attaching the merger
agreement as an exhibit.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Form
8-K dated January 27, 2004 furnishing under Item 12 TSFGs fourth quarter earnings
release for 2003.                                                                                             
|
| | Form 8-K dated March 17, 2004 announcing under Item 5 that TSFG had entered into a merger
agreement with Florida Banks, Inc. and under Item 7 attaching the merger agreement as an
exhibit.           
|
| | Form 8-K dated April 14, 2004 furnishing under Item 12 TSFGs first quarter earnings
release for 2004.                                                                                                

---

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: May 7, 2004 | /s/ William S. Hummers III
William S. Hummers IIIVice Chairman and Executive Vice President(Principal Accounting and Chief Financial Officer)

---

INDEX TO EXHIBITS

| | Exhibit No. | Description                                                                                                                                                                                              
| | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1         | Amended and Restated Articles of Incorporation, restated as of March 17, 2003.                                                                                                                           
| | 3.2         | Articles of Amendment dated April 28, 2004.                                                                                                                                                              
| | 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.