Two years ago, we intensified our focus on financial returns and earnings. We entered 2002 with a plan to achieve consistent quarter-by-quarter operating earnings growth. We have successfully executed our plan. The fourth quarter of 2002 represents the seventh consecutive quarter of operating earnings growth. In 2002, both net income and earnings per diluted share increased 41% from 2001. It was an outstanding year for The South Financial Group and our shareholders.

   We achieved this improved performance by focusing on our fundamentals and hiring the best banking professionals available in our markets. We also positioned ourselves strategically to operate in markets with superior market demographics. In 2002, our top-line revenue growth exceeded 20%, driven by earning asset growth and fee income initiatives. We also enhanced our core credit quality trends, making substantial improvement despite a less-than-robust economy.

    Our noninterest income focus is yielding results. In 2002, we introduced an on-going internal sales process called Elevate, with the mission of building an effective sales culture throughout the company. We now have a way to measure, track, and incent sales activity. We established a Sales and Service Center and added mortgage and brokerage producers, which we are managing to “best practice” goals. We are expanding our insurance services and pursuing in-market insurance agency acquisitions. We acquired our first insurance agency in September, which performed ahead of targets in the fourth quarter 2002. Our noninterest income plans are now in place, and the earnings lift should follow
in 2003.

    While the focus in 2002 was clearly on profitability, we also acquired companies meeting our disciplined merger criteria in targeted, fast-growing markets that enhanced our franchise. We acquired Gulf West Banks, Inc. and Central Bank of Tampa in the greater Tampa Bay area of Florida. In addition, the purchase of assets from Rock Hill Bank & Trust increased our presence in Rock Hill, South Carolina. Our geographic footprint was already extremely attractive, and the 2002 mergers enhanced our market demographics.

   We are the largest South Carolina-headquartered bank in the state. We have also achieved a critical mass in Florida with $1.7 billion in assets, operating in three extremely attractive, profitable markets: Orlando, Tampa Bay, and Jacksonville.

   Our commitment to our core values served as the foundation for the positive momentum achieved during 2002. We’ve added the product depth and operating efficiencies of a larger bank, but have remained firmly grounded in our mission to provide highly personalized service. Our customer-focused heritage has allowed us to maintain hometown, common sense values. We practice what we preach, as we strive to respect our customers’ opinions, advise them carefully on the things that impact their hard-earned money, and become a true partner in their financial futures.

    The South Financial Group continues to be a rewarding investment. During 2002, our total return of 19% significantly outperformed bank and stock market indexes. In 2002, we increased cash dividends 17%. The South Financial Group has increased cash dividends every year since the initiation of cash dividends, or each year for nine consecutive years. This represents an annualized compound increase of approximately 16%.

   We made exceptional progress in 2002. And we intend
to carry this forward. Two years ago, we set profitability and return goals as part of our three-year strategic plan. We know them well: a 1.25% return on average assets and a 14.50% return on average equity by the end of 2003. Our team is working diligently to achieve them, and I am confident that we can.

    Finally, the year saw the death of our close friend and founding spirit, Thomas C. “Nap” Vandiver. Nap, our Chairman Emeritus, served our company faithfully and enthusiastically since 1987. Nap’s contributions to banking in South Carolina are countless, as are his friends.

    By building on our strengths, we will continue to deliver results in 2003 and the future. Our profitability is ascending. We are focused on executing our plan. We operate in dynamic markets. And we’ll maintain the unwavering values that have brought us this far. We thank you for your continued support and encouragement. We have the momentum to move forward in the days and months ahead.

Mack I. Whittle, Jr. President and Chief Executive Officer