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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities

For the transition period from                          to                         

Commission File Number: 1-10646

RBC CENTURA BANKS, INC.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (252) 454-4400

Securities registered pursuant to Section 12(b) of the Act:

Guarantee of RBC Centura Banks Inc. with respect to the Cumulative Trust Preferred Securities of EBI Capital Trust I, registered on the American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value

Indicate by check mark whether RBC Centura (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 RBC Centura 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of RBC Centura’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

As of February 28, 2003, there were 2,405,463,097 shares outstanding of RBC Centura’s common stock, no par value. Royal Bank of Canada owns one hundred percent of RBC Centura’s common stock.

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Report with the reduced disclosure format.

CROSS REFERENCE

Information contained in or otherwise accessible through the websites mentioned in this report does not form a part of this report. All references in this report to web sites are inactive textual references and are for your information reference only.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

A number of statements in this Form 10-K concerning RBC Centura Banks, Inc. (“RBC Centura” or the “Company”) and its principal wholly-owned subsidiary, RBC Centura Bank (named Centura Bank prior to October 31, 2001, the “Bank”) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the financial condition, results of operations and businesses of RBC Centura, RBC Centura’s plans, goals, objectives, expectations, projections, estimates, and intentions. One can identify these forward-looking statements by the use of words such as “expects,” “plans,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. RBC Centura cautions readers not to place undue reliance on these statements as a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. Factors that might cause such a change include, but are not limited to (i) customer and deposit attrition or loss of revenue following completed mergers or acquisitions may be greater than expected; (ii) competitive pressure in the banking industry may increase significantly; (iii) changes in the interest rate, currency exchange rate and inflation rate may reduce margins; (iv) general economic conditions, globally, nationally or regionally, may be less favorable than expected, resulting in, among other things, credit quality deterioration and the possible impairment of collectibility of loans; (v) the impact of changes in monetary and fiscal policies, laws, rules and regulations; (vi) the impact of the Gramm-Leach-Bliley Act of 1999; (vii) changes in business conditions and inflation; (viii) the impact to revenue and expenses in the event that announced mergers are not consummated as anticipated; (ix) the failure to realize expected benefits from the acquisition of Centura Banks, Inc. (“Predecessor”) by Royal Bank of Canada (“Royal Bank”) or the acquisitions of Eagle Bancshares, Inc. (“Eagle”) or Admiralty Bancorp, Inc. (“Admiralty”) by RBC Centura; (x) the impact on RBC Centura’s business, as well as on the risks set forth above, of various international military or terrorists activities or conflicts; and (xi) other risks and factors identified in Predecessor’s and RBC Centura’s other past and future filings with the Securities and Exchange Commission and other regulatory bodies.

RBC Centura cautions that the foregoing list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to RBC Centura, investors and others should carefully consider the foregoing factors and other uncertainties and events. Additional information with respect to factors that may cause actual results to differ materially from those contemplated by such forward-looking statements is included in Predecessor and RBC Centura’s current and subsequent filings with the Securities and Exchange Commission. RBC Centura does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of RBC Centura.

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PART I

Item 1.    Business.

The information below in response to Item 1 is provided pursuant to General Instruction I. (2) (d) of Form 10-K, which permits the omission of the information required by such item so long as a brief description of the business such as that set forth below is provided.

Registrant

RBC Centura Banks, Inc. (“RBC Centura”) is a bank holding company and a financial holding company registered with the Board of Governors of the Federal Reserve System (“Federal Reserve”) and operating under the Bank Holding Company Act of 1956, as amended (“BHC Act”). RBC Centura operates primarily through its principal wholly-owned subsidiary, RBC Centura Bank (named Centura Bank prior to October 31, 2001, the “Bank”). RBC Centura provides services and assistance to its other wholly-owned subsidiaries and the Bank’s subsidiaries in the areas of strategic planning, administration, and general corporate activities. In return, RBC Centura receives income and dividends from the Bank, where most of RBC Centura’s operations take place. The majority of RBC Centura’s executive officers, who are also officers of the Bank, receive their entire salaries from RBC Centura. At December 31, 2002, RBC Centura had total consolidated assets of $15.9 billion.

The Bank is a North Carolina banking corporation and Federal Reserve member bank with deposits insured by the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) of the Federal Deposit Insurance Corporation (“FDIC”). As of December 31, 2002, the Bank had 3,076 full-time and 364 part-time employees. The Bank is not a party to any collective bargaining agreements, and, in the opinion of management, the Bank enjoys good relations with its employees. The Bank, either directly or through its wholly-owned subsidiaries, provides a wide range of financial services through a variety of delivery channels.

RBC Centura serves as the United States focal point of the personal, small business and commercial banking businesses of Royal Bank of Canada (“Royal Bank”), a Canadian chartered bank. In doing so, RBC Centura’s mission is to be the primary provider of financial services to each of its customers. These products and services are delivered through various channels. At December 31, 2002, RBC Centura served its customers through 236 retail locations, and through 272 automated teller machines (“ATMs”) located in North Carolina, and within certain regions of South Carolina, Virginia, Florida and Georgia. RBC Centura also serves its customers through RBC Centura Highway, its multifaceted customer access system that includes telephone banking, PC banking, online bill payment and a suite of Internet products and services that can be found at rbccentura.com.

To support its efforts to achieve its mission, RBC Centura concentrates on expanding its customer knowledge through the use of a customer database that combines financial, demographic, and behavioral data, while preserving client privacy. This information supports decision making about services offered, delivery channels, locations, staffing, and marketing. Management anticipates it will continue to use this information along with other tools to improve sales effectiveness, encourage cross-sell opportunities, and to refine product and service offerings and related delivery systems.

As previously disclosed, at the close of business on June 5, 2001, Rock Merger Subsidiary, Inc., a wholly-owned subsidiary of Royal Bank, merged with and into Centura Banks, Inc. (“Predecessor”) and the surviving corporation was Predecessor, which was renamed RBC Centura Banks, Inc. As a result of the transaction, Predecessor became a wholly-owned subsidiary of Royal Bank. Each share of Predecessor’s outstanding common stock was converted into the right to receive 1.684 common shares of Royal Bank. Each share of Rock Merger Subsidiary, Inc. common stock issued and outstanding immediately prior to the effective time of the merger was converted into one share of common stock of RBC Centura. There are 2,405,463,097 shares of common stock currently outstanding, all of which are owned by Royal Bank. The common stock is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended. The business combination was accounted for as a purchase with Royal Bank’s basis being “pushed down” to RBC Centura, meaning that the equity basis for RBC Centura became the transaction value of approximately $2.2 billion. See Note 3 of the Notes to Consolidated Financial Statements for additional information regarding this business combination.

On June 1, 2002, the Bank completed a merger with Security First Network Bank (“SFNB”), herein referred to as the SFNB Merger. SFNB was a financial institution wholly-owned by Royal Bank. RBC Centura issued approximately

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53.1 million shares to an indirect wholly-owned subsidiary of Royal Bank to effect the combination. SFNB offered traditional banking services over the Internet and was acquired by Royal Bank on September 30, 1998 for a purchase price of approximately $13.0 million, which resulted in goodwill of $2.3 million being recorded and pushed down to SFNB. Due to the fact that RBC Centura and SFNB were under common control at the time of the SFNB Merger, the transfer of the assets and liabilities of SFNB has been accounted for at historical cost in a manner similar to a pooling of interests. For financial accounting purposes, the SFNB Merger resulted in a change in reporting entity and the restatement of the financial statements for all periods prior to June 1, 2002. This restatement reflects SFNB as being the historical accounting entity, as Royal Bank owned SFNB prior to acquiring Predecessor and only includes the assets and results of operations of RBC Centura from the date of its acquisition by Royal Bank on June 5, 2001, the date at which common control was established. The merger of SFNB with the Bank was the second phase of the consolidation of Royal Bank’s U.S. retail banking operations with the first phase involving the sale of certain banking assets and the assumption of certain deposits by the Bank from SFNB on August 17, 2001. That transaction involved the acquisition of approximately $184.0 million in deposits and $95.0 million in loans which were sold at SFNB’s book values.

On July 22, 2002, RBC Centura acquired 100% of the common shares of Eagle Bancshares, Inc. (“Eagle”). The cash consideration paid with respect to the acquisition amounted to approximately $148.7 million. As of the acquisition date, Eagle had $1.2 billion in assets ($697.1 million in loans), $829.7 million in deposits, and $70.8 million in stockholders’ equity. The excess of the purchase price over the estimated fair value of the net tangible assets acquired was first allocated to core deposit intangibles of approximately $14.2 million and other intangibles of $1.5 million, with the residual of approximately $86.4 million allocated to goodwill. The goodwill is not tax-deductible. The core deposit intangible is being amortized on a straight-line basis, which approximates the pattern of the expected runoff of the related deposits, over the estimated useful life of ten years. EBI Capital Trust I (“EBI Capital”), a wholly-owned subsidiary of Eagle, had $28.8 million outstanding in Trust Preferred Securities as of December 31, 2002. As part of the Eagle acquisition, the Bank assumed the guarantee by Eagle and RBC Centura provided an additional guarantee of the Trust Preferred Securities. Management of RBC Centura expects to redeem these Trust Preferred Securities during the fourth quarter of 2003.

During the fourth quarter of 2001 and the first quarter of 2002, RBC Centura filed applications to the Federal Reserve and other applicable regulatory authorities to acquire RBC Mortgage Company (named Prism Mortgage Company prior to April 8, 2002, “RBC Mortgage”), an indirect, wholly-owned subsidiary of Royal Bank. RBC Mortgage is primarily engaged in the business of originating, selling and brokering the sale of residential mortgage loans while its Builder Finance Group is involved in originating and servicing residential construction real estate loans. Management received approval of all applications associated with this acquisition during the second quarter of 2002 and completed the acquisition of RBC Mortgage at the close of business on January 31, 2003.

On January 29, 2003, RBC Centura acquired all the outstanding shares of Admiralty Bancorp, Inc. The cash consideration paid with respect to the acquisition amounted to approximately $152.6 million. The excess of the purchase price over the fair value of the net tangible assets acquired was first allocated to core deposit intangibles of $14.9 million, with the residual of approximately $95.3 million allocated to goodwill. The goodwill is not tax deductible. The core deposit intangible will be amortized on a straight-line basis over 10 years.

Segment Information

Statement of Financial Accounting Standards (“SFAS”) 131 “Disclosures about Segments of an Enterprise and Related Information”, requires public companies to report certain financial information about operating segments for which such information is available and utilized by the chief operating decision maker in determining the allocation of resources and also in assessing performance. Historically, RBC Centura presented financial information for Retail, Treasury, and Other in accordance with SFAS 131. As a result of the acquisition of Predecessor by Royal Bank and as part of the continued integration, management has re-evaluated its reportable operating segments and determined that it no longer has any distinct operating segments based on the requirements of SFAS 131. The chief operating decision maker includes certain members of Royal Bank’s management and committees and no significant, discrete financial information, other than the results of RBC Centura consolidated, is being reviewed by the chief operating decision maker.

Competition

The financial services industry is highly competitive. RBC Centura, through the Bank and its subsidiaries, competes for all types of loans, deposits, and financial services with other bank and non-bank institutions. Since the amount of money a

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state bank such as the Bank may lend to a single borrower, or to a group of related borrowers, is limited to a percentage of a Bank’s shareholder’s equity, competitors larger than RBC Centura will have higher lending limits than does the Bank.

RBC Centura also competes with out-of-state banks and bank holding companies serving North Carolina, South Carolina, Virginia, Georgia, Florida, various savings and loan associations, money market and other mutual funds, brokerage houses, and various other financial institutions. Additionally, RBC Centura competes with insurance companies, regulated small loan companies, credit unions, governmental agencies and commercial entities offering financial services products.

Supervision and Regulation

The following discussion is a brief description of certain laws that relate to the regulation and supervision of RBC Centura and its banking and non-banking subsidiaries. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

General

RBC Centura is a bank holding company and, in June 2002, became a financial holding company. As such, RBC Centura and its non-bank subsidiaries are subject to the supervision, examination, and reporting requirements of the Bank Holding Company Act of 1956 (“BHC Act”) and various regulations promulgated by the Federal Reserve. The Bank is a North Carolina state chartered banking corporation and a Federal Reserve System member bank, with deposits insured by the FDIC’s insurance funds: the BIF and SAIF. The Bank is subject to extensive state and federal regulation and examination by the office of the North Carolina Commissioner of Banks (the “NC Commissioner”) under the direction and supervision of the North Carolina State Banking Commission (the “NC Banking Commission”), by the Federal Reserve, as its primary federal regulator, and by the FDIC, which insures its deposits to the maximum extent permitted by law.

As a general rule the federal and state laws and regulations applicable to banks regulate, among other things, the scope of their business, their investments, the reserves required to be kept against deposits, dealings with officers, directors and affiliates, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. The laws and regulations governing the Bank generally have been promulgated to protect depositors and not for the purpose of protecting shareholders. This regulatory structure also gives the federal and state banking agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate capital and loan loss reserves for regulatory purposes. Any change in such regulation, whether by the NC Banking Commission, the Federal Reserve, the FDIC or the United States Congress, could have a material impact on RBC Centura, the Bank and their operations.

The following discussion summarizes part of the regulatory framework applicable to banks and bank holding companies and provides certain specific information related to RBC Centura.

Regulation of Bank Holding Companies

Bank holding companies are required to obtain the prior approval of the Federal Reserve before they may:

The Federal Reserve is required to consider the effect on competition of an acquisition and the financial and managerial resources and future prospects of the bank holding companies and banks concerned, as well as the convenience and needs of the community to be served.

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In addition, the BHC Act prohibits a bank holding company that has not declared its intent to become a “financial holding company” or does not qualify as a “financial holding company” under the Gramm-Leach-Bliley Act (“GLBA”), as more fully discussed below, from:

Despite prior approval, the Federal Reserve has the power to order a holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that bank holding company may result from such activity.

As a bank holding company, RBC Centura is subject to these regulations of the Federal Reserve. Under the Federal Deposit Insurance Act (“FDIA”), depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default.

Interstate Banking

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits bank holding companies, with Federal Reserve approval, to acquire banks located in states other than the holding company’s home state, generally without regard to whether the transaction is prohibited under state law. In addition, national and state banks with different home states are permitted to merge across state lines, with approval of the appropriate federal banking agency, unless the home state of a participating bank passed legislation that expressly prohibits interstate bank mergers. Also, a bank may establish and operate a de novo branch in a state in which the bank does not maintain a branch if that state expressly permits de novo branching. The Bank maintains branches throughout North Carolina and within certain regions of South Carolina, Virginia, Georgia and Florida.

Capital Adequacy

RBC Centura is required to comply with the minimum capital adequacy standards established by the Federal Reserve Board. There are two basic measures of capital adequacy for bank and financial holding companies and the depository institutions that they own: a risk-based measure and a leverage measure. All applicable capital standards must be satisfied for a bank holding company to be considered in compliance.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profile among depository institutions and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights based on relative risks. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The minimum guideline for the ratio of total capital to risk-weighted assets, including certain off-balance sheet items such as standby letters of credit (“total capital ratio”) is 8.0 percent. At least half of total capital must be composed of common equity, undivided profits, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets. This portion of total capital is known as “Tier 1 capital”. The minimum guideline for the ratio of Tier 1 capital to total risk-weighted assets is 4.0 percent. The remainder, “Tier 2 capital,” may consist of subordinated debt, other preferred stock, and a limited amount of loan loss reserves, and unrealized gains on equity securities subject to limitations. At December 31, 2002, RBC Centura was in compliance with the minimum total capital ratio and Tier 1 capital ratio requirements. Note 20 of the Notes to Consolidated Financial Statements presents RBC Centura’s capital ratios.

The leverage ratio guidelines provide for a 3.0 percent minimum ratio of Tier 1 capital to average assets, less goodwill and certain other intangible assets (“Tier 1 leverage ratio”) for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a minimum Tier 1 leverage ratio of 4.0 percent. RBC Centura was in compliance with the minimum Tier 1 leverage ratio requirement as of December 31, 2002.

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The Bank is also subject to risk-based and leverage capital requirements adopted by the Federal Reserve. These requirements are similar to those adopted by the Federal Reserve for bank holding companies as discussed above. The Bank was in compliance with these minimum capital requirements as of December 31, 2002, and the Bank’s capital ratios are also presented in Note 20 of the Notes to Consolidated Financial Statements.

A bank that fails to meet its capital guidelines may be subject to a variety of enforcement remedies and certain other restrictions on its business. Remedies could include the issuance of a capital directive, the termination of deposit insurance by the FDIC, and a prohibition on the taking of brokered deposits.

In January 2002, the federal bank regulators adopted rules, effective April 1, 2002, governing the regulatory capital treatment of equity investments in nonfinancial companies. The federal rules require a series of marginal capital charges on covered equity investments that increase with the level of those investments as a percentage of RBC Centura’s Tier 1 capital. RBC Centura does not expect the rule will have a material effect on the capital requirements or strategic plans of RBC Centura or the Bank.

The U.S. federal bank regulatory agencies’ risk-capital guidelines are based upon the 1988 Capital Accord of the Basel Committee on Banking Supervision (the “BIS”). The BIS is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines that each country’s supervisors can use to determine the supervisory policies they apply. In January 2001, the BIS released a proposal to replace the 1988 Capital Accord with a new capital accord that would set capital requirements for operational risk and refine the existing capital requirements for credit risk and market risk exposures. The 1988 Capital Accord does not include separate capital requirements for operational risk. The BIS has stated that its objective is to finalize a new capital accord in the fourth quarter of 2003 and for member countries to implement the new accord at year-end 2006. The ultimate timing for a new accord, and the specifics of capital assessments for addressing operational risk, are uncertain. However, RBC Centura expects that a new capital accord addressing operational risk will eventually be adopted by the BIS and implemented by the U.S. federal bank regulatory agencies. RBC Centura cannot determine whether new capital requirements that may arise out of a new BIS capital accord will increase or decrease minimum capital requirements applicable to RBC Centura and the Bank, as well as Royal Bank.

Well Capitalized

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) established a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, the federal banking regulators have established five capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.”

The relevant capital measures are the total capital ratio, the Tier 1 capital ratio and the leverage ratio, each as described above. Under the regulations, a bank will be:

An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.

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“Undercapitalized” depository institutions are subject to growth limitations and restrictions on borrowing from the Federal Reserve System and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5% of the depository institution’s total assets at the time it became “undercapitalized” and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized”.

“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized”, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks.

“Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.

At December 31, 2002, RBC Centura and the Bank were deemed to be “well capitalized.”

FDIC Insurance Assessments

Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The risk-based system assigns an institution to one of three capital categories: (i) well-capitalized, (ii) adequately capitalized, or (iii) undercapitalized. These three categories are substantially similar to the prompt corrective action categories, with the “undercapitalized” category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes.

Under the final risk-based assessment system there are nine assessment risk classifications (i.e., 3 supervisory subgroups within each capital group) to which different assessment rates are applied. Assessment rates for deposit insurance currently range from zero basis points to 27 basis points per $100 of deposits. The capital and supervisory subgroup to which an institution is assigned by the FDIC is confidential and may not be disclosed. A bank’s rate of deposit insurance assessments will depend upon the category and subcategory to which the bank is assigned by the FDIC. Any increase in insurance assessments could have an adverse effect on the earnings of insured institutions, including the Bank. The assessment rates may be different for deposits insured under the BIF and deposits insured under the SAIF. At December 31, 2002, the Bank had a BIF deposit assessment base of approximately $4.8 billion and a SAIF deposit assessment base of approximately $2.9 billion.

Because of favorable loss experience and a healthy reserve ratio in the BIF and the SAIF, well capitalized and well managed banks, including the Bank, have in recent years paid no premiums for FDIC insurance. In the future, even well capitalized and well managed banks may be required to pay premiums on deposit insurance. The amount of any such premiums will depend on the outcome of legislative and regulatory initiatives as well as BIF and SAIF loss experience and other factors.

The Deposit Insurance Funds Act of 1996 also separated the Financing Corporation (“FICO”) assessment to service the interest on its bond obligations from the BIF and SAIF assessments. The amount assessed on individual institutions by the FICO is in addition to the amount, if any, paid for deposit insurance. The current FICO annual assessment rate is 1.68 cents per $100 of deposits.

Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. Management of RBC Centura and the Bank do not know of any practice, condition, or violation that might lead to termination of deposit insurance.

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Regulation of Financial Holding Companies

The GLBA, effective on March 11, 2000:

For RBC Centura to qualify as a financial holding company, the Bank must be deemed to be “well capitalized” and “well managed.” In addition, the Bank must have at least a “satisfactory” rating under the Community Reinvestment Act (the “CRA”).

As noted above, at December 31, 2002, the Bank was deemed to be “well capitalized.” For the Bank to be deemed to be “well managed” for regulatory purposes, it must receive at least a “satisfactory” composite regulatory rating and a satisfactory rating on the “management” component in its last examination.

Under the CRA, during examinations of the Bank, the Federal Reserve or the NC Commissioner is required to assess the Bank’s record in meeting the credit needs of the communities serviced by the Bank, including low- and moderate-income communities. Banks are given one of four ratings under the CRA: “outstanding”, “satisfactory”, “needs to improve” or “substantial noncompliance”. The Bank received a rating of “satisfactory” on the most recent exam completed in March of 2002.

In addition, for RBC Centura to qualify as a financial holding company, Royal Bank itself must qualify as a financial holding company. To qualify as a financial holding company, a non-U.S. bank with a branch or agency in the U.S. such as Royal Bank must meet certain capital requirements and must be deemed to be “well managed” for U.S. bank regulatory purposes. The capital requirements are set forth in Federal Reserve regulations, and provide that for a non-U.S. bank from a country that has adopted the capital standards issued by the BIS to qualify to be a financial holding company, the general requirements are a minimum Tier 1 risk-based capital ratio of 6% and a Total risk-based capital ratio of 10%, all calculated according to home country rules. Royal Bank’s home country capital strength rules are based on standards issued by the BIS. In addition, the non-U.S. bank’s capital must be “comparable” to that required of a U.S. depository institution subsidiary of a financial holding company. The Federal Reserve regulations also provide that a non-U.S. bank that does not meet the above numerical requirements at the non-U.S. bank level may seek a determination that its capital is comparable to that required of a U.S. depository institution subsidiary of a financial holding company. In addition, each U.S. depository institution subsidiary of the non-U.S. bank, such as the Bank, must meet the capital ratios noted above, and no U.S. depository institution subsidiary may be subject to a regulatory order to maintain a specified level of capital. Both Royal Bank and the Bank were deemed to be “well capitalized” as of December 31, 2002.

For a non-U.S. bank to be deemed to be “well managed” for U.S. bank regulatory purposes, each of its U.S. branches and agencies must have received a “satisfactory” composite regulatory rating in its last examination, the bank’s home country supervisor must consider its overall operations to be satisfactory and the bank’s management must meet standards comparable to those required of a U.S. bank subsidiary of a financial holding company. In addition, each U.S. depository institution subsidiary of the non-U.S. bank must be deemed to be “well managed”, which requires both a “satisfactory” composite regulatory rating and a satisfactory rating on the “management” component, both in its last examination. Finally, in addition, each U.S. depository institution subsidiary must have at least a “satisfactory” rating under the CRA.

Royal Bank’s declaration to become a financial holding company became effective on March 13, 2000 and remains effective. RBC Centura’s declaration to become a financial holding company became effective on June 10, 2002 and remains effective.

As a financial holding company, RBC Centura may conduct, or acquire a company (other than a U.S. depository institution or foreign bank) engaged in, activities that are “financial in nature,” as well as additional activities that the Federal Reserve determines (in the case of incidental activities, in conjunction with the Department of the Treasury) are incidental or

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complementary to financial activities, without the prior approval of the Federal Reserve. Under the GLBA, activities that are financial in nature include insurance, securities underwriting and dealing, merchant banking, and sponsoring mutual funds and investment companies. Under the new merchant banking authority added by the GLBA, financial holding companies may invest in companies that engage in activities that are not otherwise permissible “financial” companies, subject to certain limitations, including that the financial holding company makes the investment with the intention of limiting the investment duration and does not manage the company on a day-to-day basis.

Financial holding companies that do not continue to meet all the requirements for financial holding company status will, depending on which requirement they fail to meet, lose the ability to undertake new activities or acquisitions that are financial in nature and may also lose the ability to continue those activities that are not generally permissible for bank holding companies. If RBC Centura ceases to so qualify it would be required to obtain the prior approval of the Federal Reserve to engage in non-banking activities or to acquire more than 5% of the voting stock of any company that is engaged in non-banking activities. With certain exceptions, the Federal Reserve can only provide prior approval to applications involving activities that it had previously determined, by regulation or order, are so closely related to banking as to be properly incident thereto. Such activities are more limited than the range of activities that are deemed “financial in nature”.

Support of Subsidiary Bank

Under Federal Reserve policy, RBC Centura and Royal Bank, as both financial holding companies and bank holding companies, are expected to act as sources of financial strength for, and commit their resources to support, the Bank. This support may be required at times when RBC Centura or Royal Bank may not be inclined to provide it. In addition, any capital loans by a bank holding company to any of its bank subsidiaries are subordinate to the payment of deposits and to certain other indebtedness. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Payment of Dividends

RBC Centura is a legal entity separate and distinct from its banking and other subsidiaries. The principal sources of cash flow for RBC Centura are dividends from its subsidiary depository institution, the Bank and its wholly-owned subsidiaries. There are statutory and regulatory limitations on the payment of dividends by the Bank to RBC Centura.

As to the payment of dividends, the Bank is subject to the laws and regulations of the State of North Carolina, and to the regulations of the Federal Reserve as the Bank’s primary federal regulator. If the Federal Reserve Board determines that a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, the regulator may require, after notice and hearing, that the institution cease and desist from such practice. Depending on the financial condition of the depository institution, an unsafe or unsound practice could include the payment of dividends. Under FDICIA, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. The Federal Reserve has also issued a policy statement that provides that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. The Bank, as a member of the Federal Reserve System, must obtain the approval of the Federal Reserve for any dividend if the total of all dividends declared by the member bank in any calendar year would exceed the total of its net profits, as defined by the Federal Reserve , for that year, combined with its retained net profits for the preceding two years.

The banking law of North Carolina (the “NC Banking Law”) further provides that, for a state chartered bank having a capital stock of $15,000 or more, when its surplus is less than 50% of its paid-in capital stock, the bank shall not declare any dividend until it has transferred from undivided profits to surplus 25% of the undivided profits, or any lesser percentage that may be required to restore the surplus to an amount equal to 50% of the paid-in capital stock. Under the North Carolina Business Corporation Act, state chartered banks are prohibited from making dividends if after the distribution the bank would not be able to pay its debts as they become due in the usual course of business, or the bank’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

At December 31, 2002, under dividend restrictions imposed by federal and state laws, the Bank, without obtaining governmental approvals, could declare aggregate dividends to RBC Centura of approximately $27.1 million.

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The payment of dividends by RBC Centura and its bank subsidiary may also be affected or limited by other factors, such as the requirement to maintain adequate capital.

Transactions with Related Parties

Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates, including their bank holding companies. For the Bank, this applies to transactions with both RBC Centura and Royal Bank and each of their respective direct or indirect subsidiaries. Transactions covered by the federal laws between a subsidiary bank and its parent company or the nonbank subsidiaries of the bank holding company are each limited to 10 percent of a bank subsidiary’s capital and surplus and, with respect to such parent company and all such nonbank subsidiaries, to an aggregate of 20 percent of the bank subsidiary’s capital and surplus. Further, loans and extensions of credit by the subsidiary bank generally are required to be secured by eligible collateral in specified amounts. Federal law also requires that all transactions between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.

Federal law also limits a bank’s authority to extend credit to its directors, executive officers and 10 percent shareholders, as well as to entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the bank’s capital.

Prohibitions Against Tying Arrangements

Banks are subject to the prohibitions on certain tying arrangements. A depository institution is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

North Carolina Banking Law

In addition to provisions previously discussed herein, the NC Banking Law also contains detailed provisions governing various aspects of the Bank’s business and operations, including among others, its organization, establishment and location of branches, deposit insurance requirements, power and duties of the Bank, limitations on loans, investment operations, officers and directors and transactions therewith, business combinations and change of control. The NC Banking Law delegates extensive rule-making power and administrative discretion to the NC Banking Commissioner and the NC Banking Commission so that the supervision and regulation of state chartered banks may be flexible and readily responsive to changes in economic conditions and in deposit and lending practices.

The NC Banking Law provides state chartered banks with liberal powers and authorizes such banks to invest in subsidiary entities that conduct all of the activities conducted by federal banking entities, subject in each case to the further requirements of law and regulation by the NC Banking Commissioner. The FDIA, however, prohibits state chartered banks from making new investments, loans, or becoming involved in activities as principal and equity investments which are not permitted for national banks unless (i) the FDIC determines the activity or investment does not pose a significant risk of loss to the deposit insurance funds and (ii) the bank meets all applicable capital requirements. Accordingly, the operating authority provided to the Bank by the NC Banking Law is restricted by the FDIA.

The NC Banking Law also provides that a bank may invest, in the aggregate, subject to the approval of the NC Banking Commissioner, up to 75% of its unimpaired capital fund in the stock or assets of other corporations, firms, partnerships, or companies.

Other State and Federal Regulations

RBC Centura is subject to extensive federal consumer privacy legislation and regulations. The applicable legislative and regulatory requirements include, among other things, full disclosure of RBC Centura’s privacy policy to consumers, and

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mandate offering the consumer the ability to “opt out” of having non-public customer information disclosed to unaffiliated third parties. In addition, the applicable federal statute and regulations permit the states to adopt more extensive privacy protections through legislation or regulation. Numerous other federal and state laws also affect RBC Centura’s earnings and activities including federal and state insurance, securities and consumer protection laws. Legislation may be enacted or regulation imposed to further regulate banking and financial services or to limit finance charges or other fees or charges earned in such activities. There can be no assurance whether any such legislation or regulation will place additional limitations on RBC Centura’s operations or adversely affect its earnings.

On October 26, 2001, the President signed into law comprehensive anti-terrorism legislation known as the USA PATRIOT Act of 2001 (the “USA Patriot Act”). Title III of the USA Patriot Act substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.

The U.S. Treasury Department (“Treasury”) has issued a number of regulations implementing the USA Patriot Act that apply certain of its requirements to financial institutions, including the Bank. The regulations impose new obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. Treasury is expected to issue a number of additional regulations that will further clarify the USA Patriot Act’s requirements.

Failure of a financial institution to comply with the USA Patriot Act’s requirements could have serious legal and reputational consequences for the institution. RBC Centura has adopted appropriate policies, procedures and controls to address compliance with the requirements of the USA Patriot Act under the existing regulations. It will continue to revise and update its policies, procedures and controls to reflect changes required by the USA Patriot Act and Treasury’s regulations.

As of January 31, 2003, the Bank owns RBC Mortgage, a mortgage banking subsidiary operating in 27 states. RBC Mortgage is subject to regulation and supervision applicable to mortgage companies in those states. On January 31, 2003, the Bank also acquired Prism Financial Reinsurance Corporation (“Prism Reinsurance”) from an affiliate. Prism Reinsurance is a Hawaii-chartered captive insurance company that provides reinsurance for RBC Mortgage’s third-party private mortgage insurers and is subject to regulation and supervision by the Hawaii Insurance Division.

Canadian Supervision and Regulation of Royal Bank

Royal Bank is a federally regulated financial institution governed by the Bank Act (Canada). The Superintendent of Financial Institutions (Canada) is responsible to the Minister of Finance (Canada) for the supervision of Royal Bank and its Canadian loan and trust company and insurance subsidiaries. Activities in which RBC Centura, the Bank and their subsidiaries engage and investments by RBC Centura, the Bank and their subsidiaries can affect compliance by Royal Bank with requirements of the Bank Act (Canada).

Item 2.    Properties.

The information below in response to Item 2 of Form 10-K is provided pursuant to General Instruction I. (2) (d) of Form 10-K, which permits the omission of the information required by such item so long as a brief description of the material properties such as that set forth below is provided.

The main executive offices of RBC Centura and the Bank are located at 1417 Centura Highway, Rocky Mount, Nash County, North Carolina. The Bank operates 236 banking centers, of which 197 are located in North Carolina. The Bank also operates 9 banking centers in South Carolina, 14 in Virginia, 15 in Georgia and one in Florida.

The Bank acquired RBC Mortgage on January 31, 2003, adding 215 locations in 27 states.

Item 3.    Legal Proceedings.

Various legal proceedings against RBC Centura and its subsidiaries have arisen from time to time in the normal course of business. RBC Centura believes liabilities arising from these proceedings, if any, will have no material adverse effect on the financial position or results of operations of RBC Centura or its subsidiaries, taken as a whole.

Item 4.    Submission of Matters To a Vote of Shareholders.

The information called for by Item 4 has been omitted pursuant to General Instruction I. (2) (c) of Form 10-K.

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PART II

ITEM 5.    Market for RBC Centura’s Common Equity and Related Shareholder Matters.

There is no established or public trading market for the common stock of RBC Centura. All of the outstanding common stock of RBC Centura is owned by Royal Bank. Prior to being acquired, Predecessor paid quarterly dividends. Although RBC Centura has not paid any dividends to Royal Bank during 2002, under certain conditions, RBC Centura may pay dividends to Royal Bank in future periods. For a discussion of restrictions on RBC Centura’s ability to pay dividends, please see “Item 1—Business—Supervision and Regulation—Payment of Dividends”, beginning on page 4 .

ITEM 6.    Selected Financial Data.

The information called for by Item 6 has been omitted pursuant to General Instruction I. (2) (a) of Form 10-K.

The information below in response to Item 7 of Form 10-K is provided pursuant to General Instruction I. (2) (a) of Form 10-K, which permits the omission of the information required by such item so long as a narrative analysis such as that set forth below is provided.

The following discussion and analysis is presented to assist in the understanding and evaluation of the financial condition and results of operations of RBC Centura. It should be read in conjunction with the audited consolidated financial statements and footnotes presented on pages 40-72 and the supplemental financial data appearing throughout this report. RBC Centura is a bank holding company operating primarily in North Carolina and in certain regions of South Carolina, Virginia, Florida and Georgia. Note 1 of the Notes to Consolidated Financial Statements discusses its principal wholly-owned subsidiary, the Bank.

The only significant change in accounting policy that occurred during 2002 was the discontinuation of goodwill amortization on January 1, 2002 as a result of the application of Statement of Financial Accounting Standards (“SFAS”) 142 “Goodwill and Other Intangible Assets”. See the Noninterest Income and Expense section of this Item 7 for further discussion. There have been no other changes in accounting principles, practices or methods of application during 2002 that would have a material impact on RBC Centura’s results of operations. See Note 1 of the Notes to Consolidated Financial Statements for a description of RBC Centura’s significant accounting policies and the Summary of Critical Accounting Policies section within this Item 7.

Percentage and variance calculations contained herein have been calculated based upon actual, not rounded, results.

SEGMENT INFORMATION

SFAS 131 “Disclosures about Segments of an Enterprise and Related Information” requires public companies to report certain financial information about operating segments for which such information is available and utilized by the chief operating decision maker in determining the allocation of resources and also in assessing performance. Historically, RBC Centura presented financial information for Retail, Treasury, and Other in accordance with SFAS 131. As a result of the acquisition of Predecessor by Royal Bank and as part of the continued integration, management has re-evaluated its reportable operating segments and determined that it no longer has any distinct operating segments based on the requirements of SFAS 131. The chief operating decision maker includes certain members of Royal Bank’s management and committees and no significant, discrete financial information, other than the results of RBC Centura consolidated, is being reviewed by the chief operating decision maker.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

RBC Centura adheres to generally accepted accounting principles and general practices within the banking industry in designing, implementing and applying its accounting policies. These accounting policies, described in Note 1 of the Notes to

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Consolidated Financial Statements, are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. Many of RBC Centura’s accounting policies require significant management judgment regarding valuation of assets and liabilities and/or significant interpretation of specific accounting guidance. These judgments about critical accounting estimates are based on information available as of the date of the financial statements. The following is a summary of RBC Centura’s more important accounting policies that require management’s most difficult, subjective or complex judgments.

The allowance for loan losses (“AFLL”) represents management’s estimate of the amount necessary to absorb probable incurred losses in the loan portfolio and is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the AFLL, and subsequent recoveries, if any, are credited to the AFLL. Management’s ongoing evaluation of the adequacy of the AFLL is based on periodic and systematic loan reviews, loan loss experience of prior years, economic conditions in the Bank’s market areas, the fair value and adequacy of underlying collateral and the growth and risk composition of the loan portfolio. Specific allowance is made and maintained to absorb losses for individually identified borrowers. These losses are assessed on an account-by-account basis based on management’s current evaluation of RBC Centura’s loss exposure for each credit, given the payment status, financial condition of the borrower, and value of any underlying collateral. For the homogeneous pools of loans that have not been specifically identified, estimates of losses are largely based on charge-off trends, expected default rates, general economic conditions, and overall portfolio quality. RBC Centura also has an unallocated allowance, which explicitly reflects the subjective and judgmental elements involved in determining the AFLL. The use of different estimates or assumptions in determining the AFLL may produce significantly different provisions for credit losses and financial results.

Estimations of fair value are critical for many of RBC Centura’s assets and liabilities including loans held for sale, available for sale investment securities (“AFS securities”), assets and liabilities associated with RBC Centura’s derivative financial instruments, capitalized mortgage servicing rights (“MSRs”) and goodwill. Because these assets and liabilities are recorded at either fair value or at the lower of cost or fair value they are subject to various valuation techniques used by RBC Centura. The fair values of loans held for sale are based upon anticipated liquidation values, while the fair values of AFS securities and derivative financial instruments are determined based upon dealer quotes for similar instruments. RBC Centura uses a discounted cash flow model, in conjunction with prepayment speed and expected credit loss assumptions, to determine the fair value of MSRs. The discount rate applied to the expected cash flows varies according to the expected timing of those cash flows and the perceived risk associated with the loans serviced. A discounted cash flow model is also used annually, beginning with the first quarter of 2002, to determine the fair value of RBC Centura’s reporting units in assessing whether or not RBC Centura’s goodwill is impaired under SFAS 142.

The remainder of management’s discussion and analysis of RBC Centura’s results of operations and financial condition should be read in conjunction with the consolidated financial statements and related notes.

SUMMARY OF HISTORICAL GAAP RESULTS OF OPERATIONS

As previously disclosed, at the close of business on June 5, 2001, Rock Merger Subsidiary, Inc., a wholly-owned subsidiary of Royal Bank, merged with and into Predecessor and the surviving corporation was Predecessor, which was renamed RBC Centura Banks, Inc. As a result of the transaction, Predecessor became a wholly-owned subsidiary of Royal Bank. Each share of Predecessor’s outstanding common stock was converted into the right to receive 1.684 common shares of Royal Bank. Each share of Rock Merger Subsidiary, Inc. common stock issued and outstanding immediately prior to the effective time of the merger was converted into one share of common stock of RBC Centura. There are 2,405,463,097 shares of common stock currently outstanding, all of which are owned by Royal Bank. The common stock is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended. The value of the transaction was approximately $2.2 billion. The business combination was accounted for as a purchase with Royal Bank’s basis being “pushed down” to RBC Centura. The purchase price was allocated to the estimated fair values of RBC Centura’s tangible and intangible assets and liabilities with the remainder allocated to goodwill. As a result of the application of purchase accounting, RBC Centura recorded premiums of $11.6 million and $70.8 million on the investment and loan portfolios, respectively, and discounts of $32.3 million and $5.5 million on deposits and long-term debt, respectively, which are appropriately being amortized over the average life of the respective instruments.

In connection with the acquisition, RBC Centura recorded $1.2 billion and $259.1 million in goodwill and core deposit

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intangibles, respectively. Goodwill was assigned a life of 20 years while the core deposit intangible is being amortized over a 10 year life. Under new accounting guidance discussed in Note 1 of the Notes to Consolidated Financial Statements, goodwill is considered to have an indefinite life and is no longer being amortized beginning in January of 2002, but rather will be subject to impairment evaluation at least annually.

In order to consolidate the U.S. retail banking operations of Royal Bank, RBC Centura acquired SFNB from an indirect wholly-owned subsidiary of Royal Bank on June 1, 2002. As further discussed in Note 1 of the Notes to Consolidated Financial Statements, the SFNB merger resulted in a change in reporting entity for financial statement purposes and restatement of certain historical financial information giving consideration as to when RBC Centura and SFNB were under common control of Royal Bank.

For the year ended December 31, 2002 net income amounted to $100.3 million compared with a net loss of $5.7 million for the year ended December 31, 2001. The most significant factor generating the large increase in income from year-to-year was the fact that Predecessor came under the common control of Royal Bank on June 5, 2001. The results of operations for 2001 therefore do not reflect the results of operations for Predecessor during the period from January 1, 2001 through June 5, 2001 but only the operations of SFNB. Another significant factor in the large increase was $38.6 million in merger-related and other significant charges recognized during 2001 as a result of Royal Bank’s decision to consolidate its U.S. retail banking operations by consolidating the operations of SFNB into RBC Centura and sell SFNB’s credit card portfolio.

Net interest income increased substantially from $259.2 million during the year ended December 31, 2001 to $438.1 million during the year ended December 31, 2002. Interest income in 2002 increased by $230.5 million from the $455.1 million recognized during 2001 in spite of the decreasing rate environment that prevailed over this two year period. This was the result of the acquisition of Predecessor’s $11.1 billion in interest-earning assets on June 5, 2001, which impacted the results of operations for the entire year ended December 31, 2002 while only impacting approximately seven months of the year ended December 31, 2001. Similarly, interest expense in 2002 increased by $51.6 million from the $195.9 million recognized during 2001 due to the fact that interest-bearing liabilities acquired on June 5, 2001 of $9.9 billion impacted interest expense for all of 2002 but only a portion of 2001.

The provision for loan losses increased from $25.6 million during 2001 to $43.0 million during 2002. This increase was primarily the result of the acquisition of $7.7 billion in loans as a result of the acquisition of Predecessor and the fact that provisioning for this portfolio occurred during the entire year of 2002 while only occurring for approximately seven months during 2001.

Noninterest income increased by $60.6 million from 2001 to 2002 mainly as a result of the fact that the noninterest income producing activities of Predecessor affected the entire year’s results for 2002 while only impacting seven months of 2001. The most substantial component of the overall increase in noninterest income was service charges on deposit accounts which, grew by $27.0 million as a result of the addition of $7.3 billion in deposits acquired in the acquisition of Predecessor. The addition of these deposits generated additional service charges for only a portion of 2001 compared with all of the year 2002. An additional factor impacting the increase was the gains of $4.9 million realized during the fourth quarter of 2002 for the sales of seven banking offices (see Note 3 of the Notes to Consolidated Financial Statements for further description of the sale). Securities gains also increased by $2.8 million from 2001 to 2002.

Another component of noninterest income, mortgage income, increased by $7.1 million from 2001 to 2002. Mortgage income is primarily comprised of mortgage loan sale income, origination fees, and servicing income. Mortgage loan sale income and origination fees increased by $3.0 million and $2.3 million, respectively, from 2001 to 2002 as a result of the underlying mortgage banking activities taking place during the entire year of 2002 and only subsequent to June 5, 2001 during 2001. During 2002, RBC Centura began increasing the amount of loans serviced generating an increase in the amount of MSRs. This increase, along with the fact that RBC Centura only serviced loans for seven months during 2001, resulted in an increase in the related servicing income of $5.4 million. The increasing MSR balance also resulted in increased amortization from year to year of $2.9 million. In addition, RBC Centura also recorded a $2.0 million valuation reserve against MSRs as a result of higher prepayment speeds, relative to initial projections, on loans serviced due to the decreasing interest rate environment.

Noninterest expense increased by $83.3 million from 2001 to 2002 primarily as the result of the increased noninterest expense activity amounts generated by the addition of Predecessor. The growth would have been much more pronounced if

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not for the following factors which worked to narrow the change from period to period. One significant factor was the discontinuation of goodwill amortization at the beginning of 2002 under SFAS 142. Goodwill amortization amounted to $35.9 million during 2001. Merger related and other significant charges also declined by $34.9 million as there were significant charges during 2001 relating to Royal Bank’s decision to consolidate the operations of SFNB into RBC Centura resulting in $38.6 million in asset impairment charges and severance and employee related costs.

Income tax expense for 2002 and 2001 was $44.2 million and $11.2 million, respectively. The 2002 and 2001 effective tax rates were 30.6 percent, and 202.3 percent, respectively. The effective tax rate for 2002 was positively impacted by non-taxable income while the 2001 effective tax rate was impacted by certain non-deductible merger expenses. See Note 16 of the Notes to Consolidated Financial Statements for a reconciliation of the GAAP effective tax rate to the statutory tax rate for 2002 and 2001.

ADDITIONAL PRO FORMA INFORMATION

It is generally not appropriate to combine pre- and post- “push down” periods when analyzing results of operations. In addition, due to the restatement as noted above, the historical results of RBC Centura have been restated to only include SFNB prior to June 5, 2001, the date that RBC Centura was acquired by Royal Bank. However, for purposes of comparison only and to facilitate discussion and analysis of results of operations, the following pro forma income statement combines RBC Centura’s results of operations from January 1, 2001 through December 31, 2001(which actually represents the historical results for SFNB for the year ended December 31, 2001 and the results of RBC Centura for the period June 6, 2001 through December 31, 2001) with those of the Predecessor for the period January 1, 2001 through June 5, 2001. All discussion of the year ending December 31, 2001 refers to pro forma results including Predecessor activity during the period from January 1, 2001 through June 5, 2001. This discussion is considered more meaningful than the historical results given the complexities of the mergers and change in reporting entity as noted above.

For the year ended December 31, 2002, RBC Centura reported net income of $100.3 million. A pro forma net loss of $56.9 million was recorded for the year ended December 31, 2001, largely as a result of $130.1 million in merger-related and other significant charges associated with the SFNB restructuring and the acquisition of Predecessor by Royal Bank. See Table 1 for a combining schedule comparing the pro forma results of operations for the year ended December 31, 2001 with of those of the year ended December 31, 2002.

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Table 1

Combining Schedule for Results of Operations

Other items of significance occurring as of and for the year ended December 31, 2002 are highlighted below:

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INTEREST-EARNING ASSETS

Interest-earning assets consist primarily of loans and investment securities. These assets are subject to credit risk and interest rate risk, which are discussed in detail in the “Asset Quality and Allowance for Loan Losses,” “Market Risk,” and “Asset/Liability and Interest Rate Risk Management” sections. During 2002, average interest-earning assets were $12.4 billion compared with $11.5 billion on average during 2001 (pro forma), an increase of $913.4 million or 8.0 percent. Period-end interest earning assets were $13.5 billion at December 31, 2002, an increase of $1.7 billion from the balance of $11.8 billion at December 31, 2001. As discussed below, most of the growth occurred within the investment portfolio.

Loans

Loans, excluding loans held for sale, represent the largest component of interest-earning assets for RBC Centura and ended the year at $8.0 billion, an increase of $223.2 million from the balance at December 31, 2001. This change was counterbalanced by a $34.7 million decrease in unamortized purchase price premiums recorded in both the acquisition of Predecessor by Royal Bank and the acquisition of Eagle by RBC Centura. The key reason for the increase in the loan balance was the loans acquired in the Eagle acquisition, which totaled $697.1 million, including a purchase price premium of $10.1 million. During the fourth quarter of 2002, RBC Centura also sold approximately $17.1 million in loans in connection with the divestiture of seven branches. See Note 3 of the Notes to Consolidated Financial Statements for further description of these transactions. Excluding the premium recorded and loans acquired and sold, loans ended the period at $7.3 billion, a decrease of $422.1 million when compared to the balance as of December 31, 2001.

Exclusive of the premium recorded in connection with the acquisition of Predecessor by Royal Bank and the acquisition of Eagle by RBC Centura, commercial loans (commercial mortgage, commercial, industrial and agricultural and real estate construction), which represent the largest component of the loan portfolio, decreased by $31.6 million from the December 31, 2001 balance of $4.9 billion. The acquisition of approximately $318.8 million in commercial loans from Eagle offset declines due to the continued economic slowdown. Consumer loans, consisting of equity lines, residential mortgages, installment loans and other credit line loans, increased by $258.2 million, or 13.0 percent, to total $2.2 billion at December 31, 2002 exclusive of the remaining purchase price premium. The acquisition of Eagle accounted for only a portion of this increase as $131.9 million in consumer loans were acquired in conjunction with this combination. The remaining increase in consumer loans was the result of new and developing strategic and sales initiatives. Mortgage loans increased by $68.6 million exclusive of the remaining purchase price premium, as the result of the $246.4 million of these loans acquired in the Eagle acquisition. Upon excluding Eagle loans, mortgage loans decreased overall due to expected payoffs in the SFNB portfolio. The leasing portfolio (excluding the premium recorded) declined $37.1 million driven by the exit strategy with regards to the product line in addition to normal amortization. See Note 5 of the Notes to Consolidated Financial Statements for a detail of loan portfolio composition. Table 2 also details the breakdown of construction/development and other loans among fixed and floating rate pricing arrangements.

On average, loans increased slightly, $30.7 million or 0.39% over 2001 (pro forma), averaging $7.9 billion for 2002. The year-to-year growth was predominantly driven by the $207.2 million increase in variable consumer and installment loans. These increases were counterbalanced by modest decreases in the remaining components of the loan portfolio. Excluding the loans acquired in the Eagle acquisition, average loans during 2002 would have decreased by approximately $259.7 million.

Taxable equivalent interest earned on the loan portfolio, including fee income, for year ended December 31, 2002 and 2001 (pro forma) totaled $450.3 million and $607.4 million, respectively. The declining rate environment resulted in a $159.4 million decrease in interest income while increasing loan volume generated a $2.4 million increase in interest income. Overall, the loan portfolio yielded 5.67 percent for the year 2002 compared with 7.68 percent during 2001 (pro forma). The large decrease was mainly due to the declining rate environment that prevailed during 2001 and 2002. Also contributing 57 basis points (or $44.9 million) to the decline was the amortization of loan premiums recorded as a result of the acquisition of Predecessor by Royal Bank and the acquisition of Eagle by RBC Centura. In the year 2003 a decreased level of purchase price premium amortization will impact the yield as only $10.8 million in amortization is expected.

Inherent in lending is the risk of loss due to the failure of a borrower to repay amounts due. To minimize this risk, approximately 91.2 percent of the commercial loan portfolio outstanding at December 31, 2002 was secured versus unsecured. RBC Centura, by preference, is a secured lender. Unsecured commercial loans are generally seasonal in nature (to be repaid in one year or less) and, like secured loans, are supported by current financial statements and cash flow analyses. Commercial loans secured by commercial real estate are supported by appraisals prepared by independent appraisers

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approved by the Bank in accordance with regulatory guidelines and by current financial statements, cash flow analyses, and such other information deemed necessary by the Bank to evaluate each proposed advance. All loans of $500,000 or more require complete and thorough financial and nonfinancial analyses. This may include in-depth credit memos, ratio analysis or other tools used to evaluate and manage risk. In some cases, borrowers are visited at their places of business and most collateral is inspected by a lending officer. Systematic independent credit reviews ensure proper monitoring of post-closing compliance. Weaknesses in credit and non-compliance with terms, conditions, and loan agreements are promptly reported to the credit review area and investigated.

In connection with commercial lending activities, RBC Centura had $188.2 million of standby letters of credit outstanding at December 31, 2002 compared to $147.1 million at December 31, 2001. These letters of credit are subject to the same credit approval and monitoring process as commercial loans.

The Bank extends credit principally to customers in its market areas of North Carolina, South Carolina, Virginia, Georgia and Florida. RBC Centura utilizes a standard credit scoring system to assess borrower risk when extending credit on consumer loans and loans less than $500,000. Although not a significant part of RBC Centura’s lending activities, credit is extended to foreign borrowers on a case-by-case basis and is subject to the same credit and approval process as other commercial loans, except that an assessment of country risk is also made. The loan portfolio is reviewed on an on-going basis to maintain diversification by industry, geography, type of loan, collateral, and borrower.

Loans and other assets which were not performing in accordance with their original terms and past due loans are discussed under the section “Asset Quality and Allowance for Loan Losses.”

See Note 5 of the Notes to Consolidated Financial Statements for a breakdown of loans by based on underlying collateral.

Table 2

Maturity Schedule of Selected Loans

Investment Securities

The investment portfolio, comprised primarily of mortgage-backed securities, agencies and treasuries, ended 2002 at $4.8 billion, an increase of $1.0 billion as compared with the 2001 year-end balance of $3.8 billion. For 2002, the investment portfolio, gross, averaged $4.1 billion compared with an average of $3.3 billion during 2001 (pro forma). The investment portfolio growth provided an additional means of leveraging capital while experiencing slow net growth within the loan portfolio as described earlier.

The investment portfolio consists primarily of securities for which an active market exists. RBC Centura’s policy is to invest primarily in securities of the U.S. Government and its agencies and in other high grade, fixed income securities. At the end of 2002, substantially all securities in RBC Centura’s investment portfolio consisted of these types of securities. Refer to Note 4 of the Notes to Consolidated Financial Statements for a summary of investment securities. The effective duration of the investment portfolio was 2.3 years at December 31, 2002 and 2.8 years at December 31, 2001. Table 3 summarizes the investment portfolio by contractual maturity date with original contractual lives that range from one day to 32 years. Mortgage-backed and asset-backed securities, by nature, typically have lives that are shorter than their contractual life due to volatility in the monthly returns of principal as a result of prepayment sensitivity to changes in market interest rates.

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Table 3

INVESTMENT SECURITIES—MATURITY/YIELD SCHEDULE

Yields are based on amortized cost, and yields related to securities exempt from federal and/or state income taxes are stated on a taxable equivalent basis assuming statutory tax rates of 35.0% and 6.9% for federal and state purposes, respectively.

The classification of securities as held to maturity (“HTM”) or available for sale (“AFS”) is determined at the time of purchase. RBC Centura currently classifies substantially all of its investment purchases as available for sale. This is consistent with RBC Centura’s investment philosophy of maintaining flexibility to manage the securities portfolio. In connection with the acquisition of Predecessor by Royal Bank approximately $44.0 million of investment securities were transferred from the held to maturity portfolio to available for sale in order to align RBC Centura’s interest rate risk position and credit risk policy with those of Royal Bank.

The AFS portfolio is used as a part of RBC Centura’s liquidity and asset/liability management strategy and securities in it may be sold in response to changes in interest rates, changes in prepayment risk, the need to manage regulatory capital and also to provide bank liquidity. This portfolio is carried at fair value with unrealized gains or losses recorded, net of tax, in accumulated other comprehensive income. At December 31, 2002, AFS investments had a market value of $4.8 billion, up $1.0 billion compared to December 31, 2001. Included in the market value of the AFS portfolio as of December 31, 2002 were net unrealized gains of $130.2 million, $79.3 million net of tax, compared with net unrealized gains of $48.9 million, $30.0 million net of tax as of December 31, 2001. The change in unrealized gains/losses was due to growth in the investment portfolio and an overall decrease in interest rates subsequent to December 31, 2001 that served to increase the market value of fixed income securities.

RBC Centura acquired $16.6 million in HTM securities in the acquisition of Eagle on July 22, 2002.

Taxable equivalent interest income on investment securities was $227.6 million for 2002, up $13.5 million from the $214.1 million earned in 2001 (pro forma). Changes in interest rates, product mix, and credit spreads decreased interest income by $34.7 million (pro forma) while volume variances caused an increase of $48.2 million (pro forma). The average yield on investments was 5.58 percent in 2002 versus 6.56 percent in 2001 (pro forma). The combination of declining interest rates and the portfolio restructurings mentioned above contributed to the 98 basis point decrease in the investment yield. For additional information see Table 4, “Net Interest Income Analysis—Taxable Equivalent Basis” and Table 5, “Net Interest Income and Volume/Rate Variance—Taxable Equivalent Basis.”

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FUNDING SOURCES

Total funding includes deposits, short-term borrowings, and long-term debt and averaged $12.1 billion during 2002, up $907.5 million or 8.1 percent from the $11.1 billion average during 2001 (pro forma). The cost of interest bearing liabilities for 2002 was 2.28 percent compared with 3.85 percent during 2001 (pro forma). The 157 basis point drop was predominantly due to the decreasing interest rate environment, but also reflects a 15 basis point decrease resulting from the accretion of discounts recorded as a result of the acquisition of Predecessor by Royal Bank and the acquisition of Eagle by RBC Centura.

Deposits

Total deposits, whose major categories include money market accounts, savings accounts, individual retirement accounts, certificates of deposit (“CDs”) and transaction accounts, ended the period at $8.0 billion, up $592.8 million from the December 31, 2001 balance of $7.4 billion. Deposits increased during 2002 as a result of the acquisition of  $829.7 million in deposits in association with the Eagle acquisition. The most significant decline in the deposit portfolio occurred within CDs less than $100,000 which decreased by $118.7 million in spite of the acquisition of $306.3 million of this account type in the Eagle acquisition. This decline in CDs was principally attributable to the attrition of single-serviced CD accounts, acquired in a previously completed merger, with which RBC Centura was unable to establish multiple service relationships. The remaining components increased by $711.5 million, $523.3 million of which related to deposits acquired in the Eagle acquisition.

Total deposits averaged $7.5 billion during 2002, which was a $15.9 million decrease from the 2001 average balance of $7.6 billion (pro forma). Interest expense on deposits decreased $104.6 million to total $128.1 million for 2002 when compared with the $232.8 million in interest expense recognized during 2001 (pro forma). As shown in Table 4, “Net Interest Income Analysis—Taxable Equivalent Basis,” the cost of interest-bearing deposits decreased 158 basis points from 2001 (pro forma) to yield 2.02 percent during 2002. The decrease in deposit interest expense was driven primarily by changes in the portfolio mix and the interest rate environment, decreasing interest expense from 2001 by $94.1 million. Volume changes also served to decrease interest expense, contributing $10.6 million to the overall reduction. In addition to volume and rate effects, an additional factor generating the decreasing yield was the accretion of the deposit discounts recorded in the acquisition of Predecessor by Royal Bank and the acquisition of Eagle by RBC Centura. The accretion of these purchase accounting discounts resulted in a 19 basis point ($12.4 million) decrease in the cost of interest bearing deposits from 2001 to 2002. Management anticipates that the discount accretion will have a diminished effect during 2003 as only $5.3 million in deposit discounts remains to be amortized.

Other Funding Sources

Management utilizes short-term borrowed funds, consisting principally of federal funds purchased, securities sold under agreements to repurchase, and master notes. Short-term borrowed funds were $2.2 billion at December 31, 2002 and averaged $2.0 billion for the year. For comparison, short-term borrowed funds at December 31, 2001 were $1.8 billion and averaged $1.9 billion during the year (pro forma). Short-term borrowed funds represented 16.7 percent of RBC Centura’s total average funding sources for 2002 compared with 17.2 percent during 2001 (pro forma). The decline in average  short-term borrowings principally stemmed from the significant growth in long-term debt. The average interest rate paid on short-term borrowed funds decreased by 230 basis points from the 3.85 percent paid in 2001 (pro forma). The decline was mainly the result of the decreasing interest rate environment that prevailed during 2002. Interest expense on short-term borrowed funds decreased by $42.6 million between periods, as the effect of lower interest rates decreased expense by  $46.0 million, counterbalancing the increase of $3.5 million caused by increasing volume.

Long-term debt consists predominantly of Federal Home Loan Bank (“FHLB”) advances, subordinated notes and capital securities and ended the period at $3.0 billion compared to $2.2 billion as of December 31, 2001. The increase was a result of additional FHLB borrowings and the issuance by RBC Centura to an affiliate of $150.0 million of LIBOR based  10-year subordinated debt. Long-term debt averaged $2.5 billion during 2002 compared with $1.7 billion during the year earlier period (pro forma). In addition to the new funding received from an affiliate, a substantial contributor to the increasing average long-term debt balance was FHLB borrowings, which grew on average $410.3 million from 2001 (pro forma). The cost of funds for long-term debt during 2001 (pro forma) decreased by 128 basis points to 3.53 percent for the year ended December 31, 2002. Interest expense generated by long-term debt increased from $80.1 million in 2001 (pro forma) to $88.2 million in 2002 as the $33.0 million impact of a substantial increase in the average balance outweighed the

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$24.9 million effect of decreasing rates upon expense recognition. As part of the application of purchase accounting, discounts of $5.5 million and $16.9 million were recorded during the second quarter of 2001 and the third quarter of 2002, respectively, as fair value adjustments to long-term debt. These discounts are being accreted on a straight line basis over the average life of the debt. Accretion of these discounts during 2002 amounted to $3.7 million and reduced the funding cost of long-term debt by 15 basis points. Accretion of these discounts during 2001 amounted to $1.2 million and reduced the funding cost of long-term debt by 8 basis points. The anticipated decrease in funding cost for 2003 will continue to grow to $7.3 million.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income for 2002 and 2001 (pro forma) was $438.1 million and $440.9 million, respectively. On a taxable equivalent basis, net interest income decreased $2.2 million to $448.5 million from the $450.7 million reported in 2001 (pro forma). As shown in Table 5, rate variances were the primary contributors of the decline in taxable equivalent net interest income, decreasing income by $33.0 million while volume variances offset most of this reduction in income by producing an increase in taxable equivalent net interest income of $30.8 million over the prior year (pro forma).

Net interest margin measures the difference between the yield on earning assets and the rate paid on funds used to support those assets. The net interest margin, defined as taxable equivalent net interest income divided by average interest-earning assets, declined 30 basis points (pro forma) to 3.65 percent for 2002 predominantly due to the amortization of purchase price premiums recorded in association with the acquisition of Predecessor by Royal Bank and the acquisition of Eagle by RBC Centura, as well as the investment portfolio restructuring performed in the second quarter of 2001 to align RBC Centura’s interest rate risk position and credit risk policy with those of Royal Bank. In addition, the decrease in net interest margin resulted from Federal Reserve actions to reduce short-term interest rates in response to a weakening economy. The amortization of loan premiums reduced interest income and therefore reduced the margin, while the accretion of the discount on deposits and other funding sources lowered interest expense and therefore increased the margin. During 2002, the negative impact of the loan portfolio premium amortization on the net interest margin was greater than the benefit from the accretion of the discounts associated with the deposit base. By the third quarter of 2006 it is expected that the accretion of the funding source discounts and the amortization of the loan premium will terminate, ending any associated effect on the margin.

Table 4 and Table 5 provides additional information related to net interest income on a taxable equivalent basis and the net interest margin.

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Table 4

Net Interest Income Analysis—Taxable Equivalent Basis ^{(1) (2)}

Table 5

Net Interest Income and Volume/Rate Variance—Taxable Equivalent Basis