RBC Centura Banks 10-Q 2003 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2003

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the transition period from            to            

Commission File Number: 1-10646

RBC CENTURA BANKS, INC.

(Exact name of registrant as specified in its charter)

North Carolina	56-1688522
(State of Incorporation)	(IRS Employer Identification No.)
1417 Centura Highway, Rocky Mount, North Carolina	27804
(Address of principal executive office)	(Zip Code)

(252) 454-4400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

COMMON STOCK, NO PAR VALUE	2,406,759,439 (1)
(Class of Stock)	(Shares outstanding as of July 31, 2003)

(1) One hundred percent owned directly or indirectly by Royal Bank of Canada.

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

RBC CENTURA BANKS, INC.

FORM 10-Q

INDEX

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	RBC Centura Banks, Inc. Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets—June 30, 2003, and December 31, 2002	4
	Consolidated Statements of Operations—Three and Six months ended June 30, 2003 and 2002	5
	Consolidated Statement of Shareholder’s Equity—Six months ended June 30, 2003	6
	Consolidated Statements of Cash Flows—Six months ended June 30, 2003 and 2002	7
	Notes to Consolidated Financial Statements	8-18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-29
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	30
Item 4.	Controls and Procedures	30
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 2.	Change in Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	30
Item 6.	Exhibits and Reports on Form 8-K	30
SIGNATURES		32

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RBC CENTURA BANKS, INC.

PART I. FINANCIAL INFORMATION

Item 1.	RBC Centura Banks, Inc. Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets
	Consolidated Statements of Operations
	Consolidated Statement of Shareholder’s Equity
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements

3

RBC CENTURA BANKS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2003		December 31, 2002
	(thousands, except share data)
ASSETS
Cash and due from banks	$	709,472	$	435,809
Due from banks, interest-bearing		37,631		38,491
Federal funds sold		61,099		53,497
Investment securities:
Available for sale (cost of $4,628,201 and $4,667,938, respectively)		4,723,627		4,798,130
Held to maturity (fair value of $10,948 and $16,947, respectively)		10,776		16,632
Loans, net of unearned income		9,256,321		8,603,816
Less allowance for loan losses		139,388		125,422
Net loans		9,116,933		8,478,394
Mortgage loans held for sale		2,015,625		2,140,691
Premises and equipment		179,656		186,908
Goodwill and intangibles		1,747,147		1,655,158
Other assets		631,099		628,244
Total assets	$	19,233,065	$	18,431,954
LIABILITIES
Deposits:
Demand, noninterest-bearing	$	1,663,817	$	1,380,627
Interest-bearing		6,268,263		5,812,427
Time deposits over $100		613,514		829,416
Total deposits		8,545,594		8,022,470
Borrowed funds		3,751,584		4,153,557
Long-term debt		3,932,602		3,233,966
Other liabilities		355,255		412,686
Total liabilities		16,585,035		15,822,679
SHAREHOLDER’S EQUITY
Common stock, no par value, 3,500,000,000 shares authorized; shares issued and outstanding of 2,406,759,439 and 2,406,559,654, respectively		2,477,775		2,476,938
Accumulated other comprehensive income		25,663		56,928
Retained earnings		144,592		75,409
Total shareholder’s equity		2,648,030		2,609,275
Total liabilities and shareholder’s equity	$	19,233,065	$	18,431,954

See accompanying notes to consolidated financial statements.

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RBC CENTURA BANKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2003			2002		2003		2002
	(thousands)
INTEREST INCOME
Loans, including fees	$	130,175		$	122,561	$	256,374	$	243,319
Investment securities:
Taxable		48,678			54,045		104,948		107,532
Tax-exempt		—			268		2		531
Short-term investments		125			276		430		570
Mortgage loans held for sale		30,238			18,601		55,922		35,380
Total interest income		209,216			195,751		417,676		387,332
INTEREST EXPENSE
Deposits		27,559			34,234		56,047		63,121
Borrowed funds		12,580			12,803		25,001		25,806
Long-term debt		26,604			22,518		54,287		43,078
Total interest expense		66,743			69,555		135,335		132,005
NET INTEREST INCOME		142,473			126,196		282,341		255,327
Provision for loan losses		13,010			11,435		23,291		23,473
Net interest income after provision for loan losses		129,463			114,761		259,050		231,854
NONINTEREST INCOME
Service charges on deposit accounts		16,808			16,525		33,087		33,014
Credit card and related fees		2,189			2,028		4,268		4,349
Other service charges, commissions, and fees		5,307			6,815		11,015		13,680
Fees for trust services		963			2,320		2,341		4,670
Mortgage income		44,121			30,796		104,912		64,631
Cash surrender value of executive life insurance		3,356			3,224		6,857		6,550
Other noninterest income (loss),net		(1,442	)		4,376		587		6,702
Securities gains, net		12,236			1,568		16,802		2,424
Total noninterest income		83,538			67,652		179,869		136,020
NONINTEREST EXPENSE
Personnel		88,072			69,703		174,889		140,993
Occupancy		15,175			9,670		25,990		19,171
Equipment		8,170			8,515		16,909		17,209
Foreclosed real estate losses and related operating expense, net		907			730		1,785		1,639
Merger-related and other significant charges		1,654			—		3,232		—
Intangible amortization		7,457			6,743		15,368		13,466
Intercompany charges from related parties		1,736			1,170		3,245		2,252
Other operating expense		42,472			37,993		88,070		72,888
Total noninterest expense		165,643			134,524		329,488		267,618
Income before income taxes		47,358			47,889		109,431		100,256
Income tax expense		16,079			16,738		40,248		34,901
NET INCOME	$	31,279		$	31,151	$	69,183	$	65,355

See accompanying notes to consolidated financial statements.

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RBC CENTURA BANKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY

(Unaudited)

	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholder’s Equity
(thousands, except share data)	Shares	Amount
Balance, December 31, 2002	2,406,559,654	$	2,476,938	$	75,409	$	56,928		$	2,609,275
Common stock issuance to acquire related party	199,785		837		—		—			837
Comprehensive income:
Net income	—		—		69,183		—			69,183
Unrealized losses on available for sale securities, net of tax	—		—		—		(21,302	)		(21,302	)
Losses on derivatives designated as cash flow hedges	—		—		—		(9,963	)		(9,963	)
Comprehensive income	—		—		—		—			37,918
Balance, June 30, 2003	2,406,759,439	$	2,477,775	$	144,592	$	25,663		$	2,648,030

See accompanying notes to consolidated financial statements.

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RBC CENTURA BANKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended
	June 30, 2003			June 30, 2002
	(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	69,183		$	65,355
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		23,291			23,473
Depreciation on assets under operating lease		619			1,310
Depreciation and amortization, excluding depreciation on assets under operating lease		32,117			30,425
Amortization of purchase accounting adjustments		12,617			31,236
Deferred income taxes		(15,363	)		(3,959	)
Loan fees deferred, net		2,839			(92	)
Bond premium amortization and (discount accretion), net		16,462			4,870
Gains on sales of investment securities		(16,802	)		(2,424	)
Loss on sales of foreclosed real estate		1,147			807
Proceeds from sales of mortgage loans held for sale		12,021,376			9,171,590
Originations, net of principal repayments, of mortgage loans held for sale		(12,106,321	)		(8,831,999	)
Decrease (increase) in accrued interest receivable		6,517			(1,450	)
Decrease in accrued interest payable		(2,096	)		(4,111	)
Increase in loan fees relating to mortgage loans held for sale		(37,646	)		(23,097	)
Net change in other assets and other liabilities		(1,187	)		(20,552	)
Net cash provided by operating activities		6,753			441,382
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in loans		13,779			(175,186	)
Purchases of:
Securities available for sale		(2,234,658	)		(905,856	)
Premises and equipment		(3,136	)		(11,993	)
Mortgage loans held for sale from related party		—			(120,880	)
Proceeds from:
Sales of securities available for sale		796,902			278,223
Maturities and issuer calls of securities available for sale		1,521,583			429,894
Maturities and issuer calls of securities held to maturity		5,702			—
Sales of foreclosed real estate		6,512			6,493
Dispositions of premises and equipment		529			3,517
Mortgage servicing rights capitalized		(15,249	)		(8,951	)
Cash paid, net of cash acquired, in purchase acquisitions		(77,042	)		(224	)
Net cash provided (used) by investing activities		14,922			(504,963	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits		(40,495	)		(134,857	)
Net (decrease) increase in borrowed funds		(401,973	)		4,031
Proceeds from issuance of long-term debt		712,000			460,250
Repayment of long-term debt		(10,802	)		(298,046	)
Capital contribution from Royal Bank		—			759
Net cash provided by financing activities		258,730			32,137
Increase (decrease) in cash and cash equivalents		280,405			(31,444	)
Cash and cash equivalents, beginning of period		527,797			401,483
Cash and cash equivalents, end of period	$	808,202		$	370,039
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	137,431		$	139,895
Income taxes		54,865			46,328
Noncash transactions:
Unrealized securities gains, net		(34,764	)		(43,729	)
Loans transferred to foreclosed property		6,689			3,204

See accompanying notes to consolidated financial statements.

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RBC CENTURA BANKS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2003

(Unaudited)

Note 1: Summary of Significant Accounting Policies

Basis of Presentation

RBC Centura Banks, Inc. (“RBC Centura”) is a wholly-owned subsidiary of Royal Bank of Canada (“Royal Bank”). There are 2,406,759,439 shares of common stock currently outstanding, all of which are owned directly or indirectly by Royal Bank. The common stock is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended.

The accompanying unaudited consolidated financial statements include the accounts of RBC Centura and its wholly-owned subsidiaries. The interim financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) for interim financial statements and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Because the accompanying consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the audited financial statements and accompanying footnotes in RBC Centura’s Annual Report on Form 10-K for the year ended December 31, 2002 and the financial statements and supplemental information of RBC Mortgage Company (named Prism Mortgage Company prior to April 8, 2002, “RBC Mortgage”) included in RBC Centura’s Form 8-K/A filed on April 15, 2003 in association with the RBC Mortgage merger described below. Operating results for the six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year.

On June 1, 2002, RBC Centura Bank (“the Bank”), a wholly-owned subsidiary of RBC Centura 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 that offered traditional banking services over the Internet. 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 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.

To further consolidate the U.S. operations of Royal Bank, RBC Centura also completed a merger with RBC Mortgage at the close of business on January 31, 2003, herein referred to as the RBC Mortgage merger. RBC Mortgage was a company wholly-owned by Royal Bank since April 2000 engaged in the business of originating, selling and brokering residential mortgage loans. When it acquired RBC Mortgage, RBC Centura also acquired the Builder Finance Group (“RBC Builder”), a division of RBC Mortgage, which originates and services residential construction real estate loans. RBC Centura issued 185.8 million shares of its common stock to an indirect wholly-owned subsidiary of Royal Bank to effect the combination of RBC Mortgage and acquired $2.2 billion in assets (primarily composed of $1.4 billion in loans held for sale and $600.0 million in loans). RBC Centura simultaneously contributed the shares of RBC Mortgage to the Bank in exchange for additional common shares of the Bank such that RBC Mortgage became a wholly-owned subsidiary of the Bank. Further, the assets that comprise RBC Builder were transferred to the Bank from RBC Mortgage through a dividend, and RBC Builder became a division of the Bank. Prior to the merger with RBC Centura, RBC Mortgage issued 199,785 shares to Prism Financial Corporation, an indirect wholly-owned subsidiary of Royal Bank, to acquire the assets of Prism Financial Reinsurance Corporation. Due to the fact that RBC Centura and RBC Mortgage were under common control at the time of the RBC Mortgage merger, the transfer of the assets and liabilities of RBC Mortgage was accounted for at historical cost in a manner

8

similar to a pooling of interests, as was the case with the SFNB merger. For financial accounting purposes, the RBC Mortgage merger resulted in a further change in reporting entity and the restatement of the financial statements for all periods prior to February 1, 2003. This restatement reflects SFNB as being the historical accounting entity and only includes the assets and results of operations of RBC Mortgage from the date of its acquisition by Royal Bank on April 19, 2000, the date at which common control was established.

Reference herein to RBC Centura relates to the financial condition and the results of operations for the restated periods as discussed above. As previously discussed, Royal Bank’s basis in RBC Centura, RBC Mortgage and SFNB was “pushed down” to each respective entity and is therefore reflected in the combined balance sheet and results of operations.

All significant intercompany transactions are eliminated in consolidation. In the opinion of RBC Centura, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included (such adjustments are normal and recurring in nature). Accounting policies followed in the presentation of interim financial results are presented on pages 40 to 46 of RBC Centura’s Annual Report on Form 10-K for the year ended December 31, 2002 in addition to pages 6 to 10 of RBC Centura’s Current Report on Form 8-K/A filed April 15, 2003. See discussion below for updates to existing accounting policy subsequent to December 31, 2002 for financial information by segment and loans held for sale.

Certain items reported in prior periods have been reclassified to conform to current period presentation. Such reclassifications had no impact on net income or shareholder’s equity.

Loans Held for Sale

Loans held for sale consist primarily of mortgage loans made to individuals that are collateralized by residential real estate. These loans are generally sold within 60 days after closing. As of January 1, 2003, the Bank qualified for hedge accounting under Statement of Financial Accounting Standards (“SFAS”) No. 133 “Accounting for Derivative Instruments and Hedging Activities”. In accordance with SFAS 133, loans that are determined to be hedge effective are carried at market value. Loans that are determined to be hedge ineffective are carried at the lower of cost or market. Market value is determined based on the contractually established prices at which the loans will be sold, or if the loans are not committed for sale, current market prices for loans with similar characteristics.

Guarantees

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). FIN 45 clarifies disclosure requirements applicable to a guarantor’s financial statements with respect to certain of its guarantees. The recognition requirements of FIN 45 were effective beginning January 1, 2003. The initial adoption of FIN 45 did not materially affect RBC Centura, and management does not anticipate that the recognition requirements of FIN 45 will have a materially adverse impact on RBC Centura’s consolidated financial position or consolidated results of operations in the future.

In the normal course of business, RBC Centura enters into numerous agreements that may contain features that meet the FIN 45 definition of a guarantee. FIN 45 defines a guarantee to be a contract (including an indemnity) that contingently requires payments (either in cash, financial instruments, other assets, shares of our stock or provision of services) to a third party based on (1) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (2) failure of another party to perform under an obligating agreement or (3) failure of another third party to pay its indebtedness when due. The maximum potential amount of future payments represents the amounts that could be lost under guarantees if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions, insurance policies or from collateral held or pledged.

The table below summarizes significant guarantees RBC Centura provided to third parties at June 30, 2003.

9

	Maximum Potential Amount of Future Payments
	(thousands)
Financial standby letters of credit	$	74,905
Performance standby letters of credit		140,483
Mortgage loans sold with recourse		561,576

Standby letters of credit are conditional commitments issued by RBC Centura to guarantee the performance of a customer to a third party. The risks and credit approval process involved in issuing standby letters of credit are essentially the same as that involved in commitments to extend credit.

Mortgage loans sold with recourse represent the commitment by RBC Centura to repurchase originated mortgage loans sold to an investor if the loans are uninsured for greater than one year, or to refund any premium received where mortgage loans are prepaid or in default within 120 days. The mortgage loans are fully collateralized by residential properties. At June 30, 2003, the reserve for mortgage loans sold with recourse was $9.8 million.

Also, in the ordinary course of business, RBC Centura enters into indemnifications for legal proceedings against its directors and officers. In addition, RBC Centura issues standard representations in merger and acquisition agreements. No payments under these indemnifications and representations have been required and management does not believe that any such payments would materially change the results of operations.

Note 2: Mergers, Acquisitions and Divestitures

On January 29, 2003, RBC Centura acquired all the outstanding shares of Admiralty Bancorp, Inc. (“Admiralty”) to expand RBC Centura’s presence in the state of Florida. 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 $87.8 million allocated to goodwill. The goodwill is not tax deductible. The core deposit intangible is being amortized on a straight-line basis over 10 years.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the Admiralty acquisition, subject to final changes in estimates.

	January 29, 2003
	(thousands)
Cash	$	19,985
Investment securities		99,199
Loans		486,614
Goodwill		87,829
Intangible assets		14,894
Other assets		8,386
Total assets acquired		716,907
Deposits		558,815
Other liabilities		5,460
Total liabilities assumed		564,275
Net assets acquired	$	152,632

During the second quarter of 2003, RBC Centura sold the majority of its net branches of its RBC Mortgage subsidiary. Net branches represent an arrangement whereby the branch manager is compensated entirely based on the profits that each branch generates and therefore maintains a greater level of autonomy with respect to the activities of that branch as compared to the traditional branch arrangement.

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During the second quarter of 2003, RBC Centura and Bank One Corporation (“Bank One”) announced an agreement for RBC Mortgage, a subsidiary of RBC Centura, to acquire Bank One’s brokered real estate lending business. As a result, approximately 200 Bank One employees will join RBC Mortgage’s wholesale team. The first phase of the acquisition was completed on June 16, 2003. The final phase of the acquisition is scheduled to be completed during third quarter 2003. Bank One’s brokered real estate lending business consists of residential real estate mortgages and home equity loans originated by third-party brokers.

Note 3: Loans

As a result of the application of purchase accounting, a premium of $12.7 million was recorded on January 29, 2003 as a fair value adjustment to the loan portfolio acquired as a result of RBC Centura’s acquisition of all the outstanding shares of Admiralty Bancorp, Inc. on January 29, 2003. This premium is being amortized on a straight line basis over the average life of the loans acquired. A summary of loans based on underlying collateral follows:

	June 30, 2003		December 31, 2002
	(thousands)
Commercial, financial, and agricultural	$	2,202,211	$	2,313,895
Consumer		458,064		504,917
Real estate—mortgage		4,638,307		3,957,249
Real estate—construction and land development		1,657,311		1,537,696
Leases		143,255		154,980
Other		157,173		135,079
Total loans, net of unearned income	$	9,256,321	$	8,603,816
Included in the loan balances above:
Nonaccrual loans	$	104,777	$	85,892
Accruing loans past due ninety days or more		15,840		10,005

Note 4: Allowance for Loan Losses

A summary of changes in the allowance for loan losses (“AFLL”) follows:

	Six Months Ended June 30, 2003			Six Months Ended June 30, 2002
	(thousands)
AFLL at beginning of year	$	125,422		$	106,220
AFLL for acquired loans		5,470			—
Provision for loan losses		23,291			23,473
Charge-offs		(19,116	)		(21,873	)
Recoveries on loans previously charged-off		4,321			3,029
Net Charge-offs		(14,795	)		(18,844	)
AFLL at end of period	$	139,388		$	110,849

The following tables summarize individually impaired loan information:

	June 30, 2003		December 31, 2002
	(thousands)
Individually impaired loans with related allowance	$	42,752	$	19,526
Individually impaired loans with no related allowance		23,396		24,734
Total individually impaired loans	$	66,148	$	44,260
Allowance on individually impaired loans	$	14,750	$	6,416

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Note 5: Goodwill and Other Intangibles

The changes in the carrying amounts of goodwill for the six months ended June 30, 2003 are as follows:

	(thousands)
Balance, December 31, 2002	$	1,386,864
Goodwill generated in Admiralty acquisition		87,829
Goodwill adjustments		2,826
Balance, June 30, 2003	$	1,477,519

Goodwill adjustments predominantly relate to acquisitions previously completed by RBC Mortgage and represent contingent consideration payments currently paid that were not determinable at the time the acquisitions were completed.

At June 30, 2003, the gross carrying value and accumulated amortization related to core deposits and other intangibles (exclusive of mortgage servicing rights) was $290.0 million and $55.6 million, respectively. At December 31, 2002, the gross carrying value and accumulated amortization related to core deposits and other intangibles was $278.4 million and $43.8 million, respectively. Amortization expense on core deposits and other intangibles was $15.4 million for the six months ended June 30, 2003 and $13.5 million for the six months ended June 30, 2002.

Note 6: Mortgage Servicing Rights

A summary of capitalized mortgage servicing rights (“MSRs”) follows:

	Six Months Ended June 30, 2003			Six Months Ended June 30, 2002
	(thousands)
Balance at beginning of period	$	33,725		$	12,971
MSRs capitalized		15,249			8,951
MSRs amortized		(6,818	)		(2,166	)
Valuation allowance recorded		(6,663	)		(150	)
Balance at end of period	$	35,493		$	19,606

A valuation allowance of $11.3 million was required for capitalized MSRs at June 30, 2003, primarily due to increased prepayment speeds resulting from the low interest rate environment. A valuation allowance of $4.6 million was required at December 31, 2002.

RBC Centura uses a discounted cash flow model, in conjunction with certain assumptions and estimates, to determine the fair value of capitalized MSRs. The key economic assumptions are as follows:

Weighted average life	4.5	years
Prepayment speed	29.0	% annual
Discount rate	8.7	%
Expected credit losses	1.5	%

At June 30, 2003, the sensitivity of the current fair value of the capitalized MSRs to immediate 10% and 20% adverse changes in key economic assumptions are presented below.

	(Dollars in millions)
Fair value of capitalized MSRs	$	35.5
Discount rate (annual rate)		8.7	%
Decline in fair value of 10% adverse change	$	1.3
Decline in fair value of 20% adverse change	$	2.6

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Prepayment speed (annual rate)		29.0	%
Decline in fair value of 10% adverse change	$	4.2
Decline in fair value of 20% adverse change	$	8.9
Expected credit losses (annual rate)		1.5	%
Decline in fair value of 10% adverse change	$	0.4
Decline in fair value of 20% adverse change	$	0.8

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the capitalized MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in change in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the effect of the change.

Note 7: Borrowed Funds

Borrowed funds consisted of the following:

	June 30, 2003		December 31, 2002
	(thousands)
Federal funds purchased and securities sold under agreements to repurchase	$	891,946	$	1,592,231
Warehouse lines of credit with affiliates		2,103,502		1,565,856
Master notes		632,208		445,768
Federal Home Loan Bank (“FHLB”) Advances		75,000		75,000
Unsecured lines of credit		34,964		429,902
U.S. Treasury demand note		13,964		39,800
Other		—		5,000
Total borrowed funds	$	3,751,584	$	4,153,557

RBC Centura recorded $14.3 and $13.7 million in interest expense on the warehouse lines of credit with affiliates for the six month periods ended June 30, 2003 and June 30, 2002, respectively.

Note 8: Long-term Debt

Long-term debt consisted of the following:

	June 30, 2003		December 31, 2002
	(thousands)
FHLB advances	$	2,052,379	$	2,057,894
Affiliate borrowings		1,605,000		893,000
Capital securities		151,434		151,405
Bank notes		120,919		120,574
Other		2,870		11,093
Total long-term debt	$	3,932,602	$	3,233,966

In February of 2003, RBC Centura issued $550.0 million in debentures to an indirect subsidiary of Royal Bank. The note is LIBOR based debt and is due to mature in February of 2008. The interest rate on these debentures was 1.68 percent as of June 30, 2003. RBC Centura recorded $3.2 million in interest expense related to these debentures during the first six months of 2003.

RBC Centura has $243.0 million of borrowings pursuant to a line of credit with an indirect subsidiary of Royal Bank. The line of credit is LIBOR based and borrowings thereunder are due in April of 2006. The interest rate

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on this indebtedness was 1.43 percent as of June 30, 2003. RBC Centura recorded $1.7 million and $3.0 million in interest expense during the six months ended June 30, 2003 and June 30, 2002, respectively, related to this line of credit.

In January of 2003, RBC Centura entered into a $162.0 million term loan with an indirect subsidiary of Royal Bank. The term loan is LIBOR based and is due to mature in January of 2008. The interest rate on this loan was 1.43 percent as of June 30, 2003. RBC Centura recorded $1.2 million in interest expense during the six months ended June 30, 2003 in respect of this term loan.

In total, RBC Centura recorded $11.8 million and $8.7 million of interest expense for affiliated borrowings for the six months ended June 30, 2003 and June 30, 2002, respectively.

Note 9: Income Taxes

The components of income tax expense were:

	Six Months Ended June 30,
	2003			2002
	(thousands)
Current expense:
Federal	$	51,188		$	37,151
State		4,423			1,709
		55,611			38,860
Deferred expense (benefit):
Federal		(13,214	)		(4,583	)
State		(2,149	)		624
		(15,363	)		(3,959	)
Total income tax expense	$	40,248		$	34,901

Income tax expense is reconciled to the amount computed by applying the federal statutory rate to income before income taxes as follows:

	Six Months Ended
	June 30, 2003					June 30, 2002
	(Dollars in thousands)
Income taxes at Federal statutory tax rate	$	38,301		35.00	%	$	35,090		35.00	%
Non-taxable income		(3,215	)	(2.94	)		(3,359	)	(3.35	)
Acquisition adjustments, net		—		—			85		.08
State income tax, net of federal benefit		1,473		1.35			1,563		1.56
Other, net		3,689		3.37			1,522		1.52
Effective tax rate	$	40,248		36.78	%	$	34,901		34.81	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are summarized as follows:

	June 30, 2003			December 31, 2002
	(thousands)
Deferred tax assets:
Loan loss reserve	$	57,968		$	51,232
Other reserves		19,681			16,084
Deferred compensation		45,563			43,680
Other assets		22,132			22,651
		145,344			133,647
Deferred tax asset valuation allowance		(6,359	)		(6,359	)
Gross deferred tax asset		138,985			127,288

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Deferred tax liabilities:
Premises and equipment		9,614			10,113
Deposits		67,899			65,047
Investment securities		14,522			13,663
Leasing activities		89,749			87,639
Lending activities		18,053			20,092
Other liabilities		8,983			11,945
Net unrealized securities gains		37,446			50,911
Gross deferred tax liabilities		246,266			259,410
Net deferred tax liability	$	(107,281	)	$	(132,122	)

A valuation allowance for deferred tax assets related to state net operating losses has been recorded in the amount of $6.4 million at June 30, 2003 and December 31, 2002. Management has determined that it is more likely than not that the deferred tax assets related to the state net operating losses will not be fully realized. During the six months ended June 30, 2003, the deferred tax liability was decreased by the amount of $13.5 million due to fair value adjustments required under SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities”, for securities available for sale and increased by $4.0 million due to acquisition related adjustments.

Note 10: Other Operating Expense

Other operating expense consisted of the following:

	Three Months Ended June 30,				Six Months Ended June 30,
	2003		2002		2003		2002
	(thousands)
Marketing, advertising, and public relations	$	5,932	$	3,568	$	10,994	$	6,786
Stationary, printing, and supplies		2,742		2,788		5,789		5,602
Postage		1,221		1,125		2,550		2,344
Telephone		3,917		3,641		7,640		7,283
FDIC insurance		326		327		679		657
Fees for outsourced services		8,314		6,100		16,728		11,592
Legal and professional fees		6,901		5,581		13,620		11,012
Employee education and travel		3,656		2,935		7,061		5,241
Other administrative		1,043		1,117		2,135		2,315
Other		8,420		10,811		20,874		20,056
Total other operating expense	$	42,472	$	37,993	$	88,070	$	72,888

Note 11: Derivatives

RBC Centura regularly enters into commitments to fund mortgage loans at a future date, subject to compliance with stated conditions. The commitments, if funded, are collateralized primarily by residential real estate. The obligation to lend may be voided if the customer’s financial condition deteriorates or if the customer fails to meet certain conditions. Commitments to originate mortgage loans do not necessarily reflect future cash requirements since some of the commitments will not be drawn upon before expiration. The total contract amount for commitments to fund mortgage loans as of June 30, 2003 and December 31, 2002 was $3.2 billion and $1.6 billion, respectively. In accordance with SFAS 133, interest rate lock commitments (“IRLCs”) for mortgage loans held for sale are derivatives. IRLCs are recorded in the balance sheet at the fair value with the offsetting entries being recorded to mortgage income. Upon the closing of the mortgage loan, the cost basis of that mortgage loan is adjusted by the amount of the derivative recorded in the Consolidated Balance Sheets. The estimated fair value of these commitments as of June 30, 2003 and December 31, 2002 was approximately $17.8 million and $23.8 million, respectively, and was recorded in other assets.

RBC Centura evaluates each customer’s credit-worthiness and obtains appraisals to support the value of the underlying collateral. Commitments to originate mortgage loans have off-balance-sheet risk to the extent that RBC

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Centura does not have matching commitments to sell loans. In a changing interest rate environment, RBC Centura is exposed to market valuation adjustments. Interest rate exposure is reduced by limiting these commitments to varying periods of 60 days or less.

In order to offset the risk that a change in interest rates will result in a decrease in the value of RBC Centura’s current mortgage loan inventory or its loan commitments, the Company enters into either forward contracts or whole-loan sale commitments with third parties. RBC Centura’s hedging policies generally require that the maximum portion of its committed pipeline that may close be hedged with forward contracts for the delivery of loans or options on treasury securities. The mortgage loans that are to be delivered under these contracts are fixed or adjustable-rate, corresponding with the composition of RBC Centura’s inventory and committed pipeline. At June 30, 2003 and December 31, 2002, RBC Centura had open forward commitments with a total notional amount of approximately $2.9 billion and $2.3 billion, respectively, to sell mortgage loans with varying settlement dates not extending beyond 60 days. The estimated fair value of these forward contracts as of June 30, 2003 and December 31, 2002 was $3.4 million and $30.1 million, respectively, and was recorded in other liabilities. At June 30, 2003 and December 31, 2002, respectively, RBC Centura had investments in options with a fair value totaling $1.4 million and $133,000, respectively.

For the six months ended June 30, 2003, RBC Centura recognized a pretax loss of $7.3 million related to the ineffective portion of its fair value hedges. During the first half of 2003, RBC Centura also terminated $550 million notional value of interest rate swaps for an aggregate loss of $22.7 million. The loss is being amortized over the remaining life of the hedged item or approximately 28 months.

Note 12: Segment Information

Upon completing the merger with RBC Mortgage, RBC Centura management performed an evaluation to determine whether the acquisition resulted in the creation of distinct operating segments based on the requirements of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”). SFAS 131 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. As a result of the RBC Mortgage merger, certain members of Royal Bank’s management and committees (RBC Centura’s chief operating decision maker), now review discrete financial information for RBC Centura’s mortgage banking business line separate and apart from its retail banking activities. The mortgage banking business consists of the origination, sale and brokerage of residential mortgage loans. Retail banking activities represent a wide range of financial services, which include deposit accounts, credit and debit cards, commercial mortgages and business and personal loans.

Financial information by segment for the three and six months ended June 30 follows:

	Three months ended June 30, 2003
	Mortgage Banking		Retail Banking		Total		Eliminations			Consolidated
	(thousands)
Interest income	$	27,827	$	181,854	$	209,681	$	(465	)	$	209,216
Interest expense		8,191		59,017		67,208		(465	)		66,743
Net interest income		19,636		122,837		142,473		—			142,473
Provision for loan losses		—		13,010		13,010		—			13,010
Net interest income after provision for loan losses		19,636		109,827		129,463		—			129,463
Noninterest income		37,811		45,727		83,538		—			83,538
Noninterest expense		45,278		120,365		165,643		—			165,643
Income before income taxes		12,169		35,189		47,358		—			47,358
Income tax expense		4,779		11,300		16,079		—			16,079
Net income	$	7,390	$	23,889	$	31,279	$	—		$	31,279
Period-end assets at June 30, 2003	$	2,452,408	$	17,006,031	$	19,458,439	$	(225,374	)	$	19,233,065

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	Three months ended June 30, 2002
	Mortgage Banking		Retail Banking		Total		Eliminations			Consolidated
	(thousands)
Interest income	$	16,357	$	179,394	$	195,751	$	—		$	195,751
Interest expense		3,377		66,178		69,555		—			69,555
Net interest income		12,980		113,216		126,196		—			126,196
Provision for loan losses		—		11,435		11,435		—			11,435
Net interest income after provision for loan losses		12,980		101,781		114,761		—			114,761
Noninterest income		29,335		39,649		68,984		(1,332	)		67,652
Noninterest expense		32,405		102,119		134,524		—			134,524
Income before income taxes		9,910		39,311		49,221		(1,332	)		47,889
Income tax expense		3,867		13,397		17,264		(526	)		16,738
Net income	$	6,043	$	25,914	$	31,957	$	(806	)	$	31,151
Period-end assets at December 31, 2002	$	1,918,415	$	16,521,227	$	18,439,642	$	(7,688	)	$	18,431,954

	Six months ended June 30, 2003
	Mortgage Banking		Retail Banking		Total		Eliminations			Consolidated
	(thousands)
Interest income	$	50,777	$	367,548	$	418,325	$	(649	)	$	417,676
Interest expense		14,426		121,558		135,984		(649	)		135,335
Net interest income		36,351		245,990		282,341		—			282,341
Provision for loan losses		—		23,291		23,291		—			23,291
Net interest income after provision for loan losses		36,351		222,699		259,050		—			259,050
Noninterest income		88,650		91,219		179,869		—			179,869
Noninterest expense		90,639		238,849		329,488		—			329,488
Income before income taxes		34,362		75,069		109,431		—			109,431
Income tax expense		13,434		26,814		40,248		—			40,248
Net income	$	20,928	$	48,255	$	69,183	$	—		$	69,183
Period-end assets at June 30, 2003	$	2,452,408	$	17,006,031	$	19,458,439	$	(225,374	)	$	19,233,065

	Six months ended June 30, 2002
	Mortgage Banking		Retail Banking		Total		Eliminations			Consolidated
	(thousands)
Interest income	$	31,849	$	355,483	$	387,332	$	—		$	387,332
Interest expense		8,142		123,863		132,005		—			132,005
Net interest income		23,707		231,620		255,327		—			255,327
Provision for loan losses		—		23,473		23,473		—			23,473
Net interest income after provision for loan losses		23,707		208,147		231,854		—			231,854
Noninterest income		60,811		77,226		138,037		(2,017	)		136,020
Noninterest expense		65,898		201,720		267,618		—			267,618
Income before income taxes		18,620		83,653		102,273		(2,017	)		100,256
Income tax expense		7,264		28,434		35,698		(797	)		34,901
Net income	$	11,356	$	55,219	$	66,575	$	(1,220	)	$	65,355
Period-end assets at December 31, 2002	$	1,918,415	$	16,521,227	$	18,439,642	$	(7,688	)	$	18,431,954

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Note 13: Current Accounting Matters

On January 17, 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 clarifies the application of Accounting Research Bulletin 51—Consolidated Financial Statements to those entities (defined as “Variable Interest Entities” or “VIEs”) in which equity investors do not have the characteristics of a “controlling financial interest” or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires consolidation of VIEs by the Primary Beneficiary. The Primary Beneficiary is defined as the party who has exposure to the majority of the expected losses and/or expected residual returns of the VIE. This interpretation applies immediately to all VIEs created after January 31, 2003, and no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003 for VIEs created prior to February 1, 2003. RBC Centura’s preliminary assessment under FIN 46 reflects that the statutory business trusts (Centura Capital Trust I, Triangle Capital Trust and EBI Capital Trust I) created to issue trust preferred securities will no longer be consolidated entities. This should have an insignificant impact on the financial statements and the Federal Reserve Board has indicated that these instruments will continue to be eligible for inclusion in Tier I capital under the capital adequacy standards. The evaluation process is continuing but no material impact on the consolidated results of operation or consolidated financial condition of RBC Centura is expected.

In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The changes that the statement requires are designed to give a more complete depiction of liabilities and equity and, thereby, to assist investors and creditors in assessing the amount, timing, and likelihood of potential future cash outflows and equity share issuances. This statement is effective for instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Management does not believe that the implementation of the statement will have a material impact on RBC Centura’s consolidated financial position or consolidated results of operations.

Note 14: Commitments and Contingencies

Exposure Relating to Mortgage Loans Procured by Fraud

In May 2003 an entity that had purchased a number of mortgage loans from RBC Mortgage, a subsidiary of RBC Centura, issued a repurchase request in respect of loans having an unpaid principal balance of approximately $60 million, alleging that management breached various representations and warranties in respect of such loans. Management believes that the loans in question were procured fraudulently and understands that the appropriate authorities are investigating. Based on appraisals of the value of the underlying real estate, management estimates the maximum pre-tax exposure, net of reserves and before anticipated insurance and other recoveries, is less than $15 million in respect of this matter. While the ultimate resolution of this matter is not possible to predict at this time, management does not believe that such resolution will be material to our financial condition, although it may be material to our results of operations in a particular period.

Note 15: Subsequent Events

On July 10, 2003, RBC Centura and Provident Financial Group, Inc. announced the signing of an agreement pursuant to which the Bank will acquire Provident’s Florida operations, including 13 branches in three western Florida counties. As of April 30, 2003, Provident’s Florida branches had a deposit balance of approximately $750 million, loans of approximately $350 million and assets under administration of approximately $500 million. The acquisition is subject to customary closing conditions, including approval of U.S. regulators. The transaction is expected to close in the fall of 2003.

On July 17, 2003, RBC Centura announced the signing of an agreement in which its RBC Mortgage subsidiary will acquire 100 percent of the outstanding common shares of Sterling Capital Mortgage Company, a mortgage company that specializes in residential mortgage origination. Sterling Capital Mortgage is a wholly-owned subsidiary of Sterling Bancshares, Inc., a bank holding company based in Houston, Texas. The transaction includes Sterling Capital Mortgage’s 110 branch locations in sixteen states and sixteen affiliated business arrangements. Under the terms of the agreement, Sterling Bancshares will receive approximately $100 million cash. The acquisition is subject to customary closing conditions, including approval by Canadian and U.S. regulators. The transaction is expected to close in the fall of 2003.

In addition, RBC Centura signed agreements with various institutions to divest eight branches. These divestitures are expected to close by year-end 2003.

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RBC CENTURA BANKS, INC.

PART I. FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the Six Months Ended June 30, 2003

The information below in response to Item 2 of Form 10-Q, Part 1, is provided pursuant to General Instruction H. (2)(a) of Form 10-Q, 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.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

A number of statements in this Form 10-Q 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 30, 2001, the “Bank”) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the financial conditions, 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 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”), the acquisition of Eagle Bancshares, Inc. (“Eagle”) by RBC Centura, the acquisition of Admiralty Bancorp, Inc. (“Admiralty”) by RBC Centura, the merger of RBC Centura with RBC Mortgage Company (named Prism Mortgage Company prior to April 8, 2002, “RBC Mortgage”), the announced acquisition of Provident’s Florida operations or the announced acquisition of Sterling Capital Mortgage; (x) the impact on RBC Centura’s business, as well as on the risks set forth above, of various international military or terrorist 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’s 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.

GENERAL

The following narrative analysis is presented to assist in the understanding and evaluation of the financial condition and results of operations of RBC Centura. RBC Centura is a financial holding company that serves as the United States focal point of the personal, small business and commercial banking businesses of Royal Bank, a

19

Canadian chartered bank. In doing so, RBC Centura’s goal is to be the primary provider of financial services to each of its customers. These services are delivered through various channels. At June 30, 2003, RBC Centura served its customers through 246 banking centers located throughout North Carolina, in certain regions of South Carolina, Georgia, Florida and Virginia and also through 219 RBC Mortgage locations in 29 states. RBC Centura also serves its customers through RBC Centura Highway, its multifaceted customer access system that includes telephone banking, personal computer banking, online bill payment and a suite of Internet products and services that can be found at rbccentura.com. The contents of RBC Centura’s website are not part of this Form 10-Q and such contents are not incorporated by reference herein.

On July 22, 2002, RBC Centura acquired 100% of the common shares of Eagle. The cash consideration paid with respect to the acquisition amounted to approximately $149 million. As of the acquisition date, Eagle had $1.2 billion in assets ($684.7 million of which were loans), $821.7 million in deposits, and $70.8 million in stockholder’s equity.

On January 29, 2003, RBC Centura acquired 100% of the common shares of Admiralty. The cash consideration paid with respect to the acquisition amounted to approximately $152.6 million. As of the acquisition date, Admiralty had $600.5 million in assets ($486.6 million of which were loans), $558.8 million in deposits, and $38.2 million in stockholder’s 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 $14.9 million, with the residual of approximately $87.8 million allocated to goodwill. The goodwill is not tax-deductible. The core deposit intangible is being amortized on a straight-line basis over the estimated useful life of 10 years.

As a result of the acquisition by Royal Bank, Predecessor became a wholly-owned subsidiary of Royal Bank, and was renamed RBC Centura Banks, Inc in October 2001. The business combination was accounted for as a purchase with Royal Bank’s accounting basis being ��pushed down” to RBC Centura. In order to consolidate the U.S. retail banking operations of Royal Bank, RBC Centura acquired Security First Network Bank (“SFNB”) from an indirect wholly-owned subsidiary of Royal Bank on June 1, 2002. To further consolidate the U.S. operations of Royal Bank, the Bank also completed a merger with RBC Mortgage at the close of business on January 31, 2003. RBC Mortgage was a company wholly-owned by Royal Bank since April of 2000 engaged in the business of originating, selling and brokering residential mortgage loans. As discussed in Note 1 of the Notes to Consolidated Financial Statements, these mergers 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, RBC Mortgage and SFNB were under common control of Royal Bank.

Throughout management’s narrative analysis, net interest income and related yields and ratios are calculated on a taxable-equivalent basis, which are required regulatory disclosures that are not calculated in accordance with generally accepted accounting principles (“GAAP”). Management reviews net interest income on a taxable-equivalent basis and believes that this measure provides users of this financial information a more accurate presentation of the net interest margin for comparative purposes. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This presentation provides comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a taxable-equivalent basis is also used in the calculation of the net interest yield.

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

SUMMARY OF CRITICAL ACCOUNTING POLICIES

RBC Centura adheres to GAAP 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 Consolidated Financial Statements on pages 40 to 46 of RBC Centura’s Annual Report on Form 10-K for the year ended December 31, 2002, are fundamental to understanding management’s narrative analysis of results of operations and financial condition. Many of RBC Centura’s accounting policies require significant management judgement regarding valuation of assets and liabilities and/or significant interpretation of specific accounting guidance. These judgements about critical accounting estimates are based on information available as of the date of the financial statements. The

20

following is a summary of RBC Centura’s more important accounting policies that require management’s most difficult, subjective or complex judgements.

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.

RBC Centura regularly enters into commitments to fund mortgage loans at a future date. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, these interest rate lock commitments (“IRLCs”) for loans that will be classified as mortgage loans held for sale are derivatives and therefore must be recorded at fair value. In measuring the fair value of IRLCs, the amount of the expected mortgage servicing rights (“MSRs”) is included in the valuation. This value is calculated by determining the estimated market price for each underlying loan less the price to acquire the loan, with an adjustment for the anticipated fallout rate for IRLCs that will not be drawn upon before expiration. Recognition of this derivative value results in gain recognition prior to the sale of the underlying mortgage loans. The Financial Accounting Standards Board (“ FASB”) staff or the Emerging Issues Task Force of FASB may issue additional guidance on this matter. Depending on what, if any, additional guidance is issued, the timing of the gain recognition inherent within RBC Centura’s IRLCs could be delayed, possibly until the date that the anticipated loans are sold.

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 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 in 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 “Goodwill and Other Intangible Assets”.

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

EARNINGS SUMMARY

Net income for the six months ended June 30, 2003 totaled $69.2 million, an increase of 5.86 percent compared with the $65.4 million earned for the comparable period in 2002. Key factors responsible for RBC Centura’s results of operations are discussed throughout management’s narrative analysis below.

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INTEREST-EARNING ASSETS

Interest-earning assets, net, consisting primarily of loans and investment securities, averaged $15.9 billion for the six months ended June 30, 2003, an increase of $2.7 billion or 20.43 percent over the average balance for the six months ended June 30, 2002 As discussed below, a portion of the average balance growth resulted from the addition of $697.1 million in loans as part of the Eagle acquisition and $486.6 million as part of the Admiralty acquisition with the remaining growth occurring within the investment portfolio and mortgage loans held for sale (“MLHFS”). At period-end, interest-earning assets were $16.1 billion at June 30, 2003, a modest increase of $453.8 million or 2.90 percent over December 31, 2002’s balance of $15.7 billion.

For additional information on average interest-earning assets, refer to the discussion below, Table 1, “Net Interest Income Analysis-Taxable Equivalent Basis” and Table 5, “Net Interest Income and Volume/Rate Analysis, Taxable Equivalent Basis.”

Loans

Loans represent the largest component of interest-earning assets. Loans ended the period at $9.3 billion, increasing by $652.5 million from the balance as of December 31, 2002. A portion of this increase related to a transfer of $400.2 million in loans from mortgage loans held for sale to the held for investment portfolio as the result of a change of management’s intention with respect to these loans. Excluding this transfer and the $486.6 million acquired in loans in the Admiralty acquisition, the loan balance exhibited a decrease of $234.3 million from the balance as of December 31, 2002.

Loans averaged $9.3 billion during the six months ended June 30, 2003, an average increase of $1.1 billion over the prior year period. Excluding the average balance effect of loans acquired in the Eagle and Admiralty acquisitions and the loans transferred from mortgage loans held for sale to the held for investment portfolio, the loan balance declined by $236.3 million. Expected payoffs in the SFNB mortgage portfolio were the driving factor in the decline of $442.1 million experienced in mortgage loans. Upon excluding Admiralty and Eagle loans, commercial and consumer loans (equity lines, installment loans, and other credit line loans) increased by $238.0 million from the average balance in the year-earlier period due to new and developing strategic and sales initiatives. The leasing portfolio decreased by $32.1 million as the result of a continued decreased emphasis on the leasing product in conjunction with normal amortization of existing leases.

Taxable equivalent interest earned on the loan portfolio for the six months ended June 30, 2003 and 2002 totaled $257.0 million and $243.7 million, respectively. The declining rate environment resulted in an $18.9 million decrease in interest income while growth in loan volume and portfolio mix generated a $32.2 million interest income increase. Overall, the loan portfolio yielded 5.52 percent for the first six months of 2003 compared with 5.96 percent during the first six months of 2002. The amortization of loan premiums recorded as a result of the acquisition by Royal Bank along with the acquisitions of Eagle and Admiralty by RBC Centura negatively impacted the yields for the first six months of 2003 and 2002 by 25 basis points and 55 basis points, respectively. The overall remaining decrease was a direct result of the declining rate environment that prevailed during 2002 and 2003.

Investment Securities

The investment portfolio provides RBC Centura with a source of earnings and liquidity. The investment portfolio consists predominantly of securities of the U.S. Government and its agencies and other high grade, fixed income securities. The investment portfolio ended the first six months of 2003 at $4.7 billion, a decrease of $123.0 million from the December 31, 2002 balance, upon excluding investments acquired in the Admiralty acquisition of $42.7 million. For the six month period ended June 30, 2003, the investment portfolio, gross, averaged $4.6 billion compared with an average of $3.8 billion during the six month period ended June 30, 2002. The investment portfolio growth provided means of leveraging capital during a weak economy with slow loan growth .

The available for sale (“AFS”) investment portfolio is used as a part of RBC Centura’s asset/liability management strategy and may be sold in response to changes in interest rates, changes in prepayment risk and the

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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 June 30, 2003, AFS investments had a market value of $4.7 billion, down slightly by $74.5 million or 1.55 percent compared to December 31, 2002. Included in the market value of the AFS portfolio as of June 30, 2003 are net unrealized gains of $95.4 million, $58.0 million net of tax, compared with net unrealized gains of $130.2 million, $79.3 million net of tax as of December 31, 2002.

FUNDING SOURCES

Total funding includes deposits, short-term borrowings and long-term debt and averaged $15.8 billion for the six month period ended June 30, 2003, increasing $3.1 billion or 24.21 percent over the $12.7 billion average during the six months ended June 30, 2002. The Eagle and Admiralty acquisitions resulted in $829.7 million and $460.1 million, respectively, of the increase. The balance of the increase resulted from additional borrowings in short-term and long-term debt discussed below. The cost of interest bearing liabilities during the first six months of 2003 was 1.89 percent compared with 2.29 percent during the comparable period in 2002. The accretion of discounts recorded as a result of the acquisition of Predecessor by Royal Bank along with the acquisitions of Eagle and Admiralty by RBC Centura decreased the rate paid for the first six months of 2003 and 2002 by 12 basis points and 19 basis points, respectively. The remaining decline in interest rates, excluding discount amortization, was a direct result of the decreasing interest rate environment.

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 $8.5 billion, up $523.1 million or 6.52 percent from the December 31, 2002 balance of $8.0 billion. Excluding the effect of the assumption of $558.8 million in deposits as part of the Admiralty acquisition, deposits would have decreased slightly by $35.7 million from period to period. Total deposits averaged $8.3 billion for the first six months of 2003, increasing by $1.1 billion or 14.83 percent from the $7.2 billion averaged for the first six months of 2002. Excluding the average balance effect of deposits acquired as part of the Eagle and Admiralty acquisitions, average total deposits would have actually declined by $217.3 million. Money market accounts and CDs less than $100,000 are the deposit portfolio components that have driven the decrease in deposits, decreasing $130.7 million and $410.4 million, respectively, from period to period as customers have moved funds into accounts with easier access and flexibility.

Interest expense on deposits for the six months ended June 30, 2003 and 2002 totaled $56.0 million and $63.1 million, respectively. The declining rate environment resulted in a $14.0 million decrease in interest expense that was in part offset by $7.0 million of additional interest expense incurred due to increased deposit volumes. The annualized average cost of total interest-bearing deposits for the first six months of 2003 was 1.64 percent compared with 2.08 percent during the comparable period in 2002. The accretion of discounts recorded as a result of the acquisition of Predecessor by Royal Bank along with the acquisitions of Eagle and Admiralty by RBC Centura decreased the rate paid for the first three months of 2003 and 2002 by 14 basis points and 32 basis points, respectively. The remaining decrease in rates paid from period to period was the result of the rate environment and a change in product mix.

Other Funding Sources

Management utilizes alternative funding sources in addition to traditional deposits to fund balance sheet growth. In the absence of deposit growth during the first six months, short-term and long-term borrowings were relied upon to support earning asset growth. Alternative short-term borrowed funds principally include federal funds purchased, securities sold under repurchase agreements, warehouse lines of credit and master notes. On average, short-term borrowed funds increased by $687.8 million from the six months ended June 30, 2002 to average $3.6 billion for the six months ended June 30, 2003. The cost of funds incurred during the six months ended June 30, 2003 for short-term borrowings declined 37 basis points from the year-earlier period to a rate of 1.37 percent. The decline was predominantly the result of the decreasing interest rate environment that prevailed during 2002 and 2003. As depicted in Table 5, “Net Interest Income and Volume/Rate Analysis, Taxable Equivalent Basis” interest expense on

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short-term borrowed funds decreased by $805,000 between periods, as the effect of lower interest rates generated a $6.1 million decline that was diminished by a $5.3 million increase associated with increasing volume.

Long-term debt consists predominantly of Federal Home Loan Bank (“FHLB”) advances, notes and lines of credit with affiliates, capital securities and subordinated bank notes, and ended the period at $3.9 billion compared to $3.2 billion as of December 31, 2002 an increase of $698.6 million or 21.60 percent. On average, long-term debt increased $1.3 billion or 52.40 percent from the six months ended June 30, 2002 to an average of $3.8 billion for the comparable 2003 period. Additional FHLB borrowings accounted for $566.0 million of the increase. The remaining increase was due to the issuance of $550.0 million of LIBOR based 5-year debentures to an indirect subsidiary of Royal Bank and a $162.0 million LIBOR based 5-year term loan with an indirect subsidiary of Royal Bank during the first quarter of 2003. When compared with the year-earlier period, the cost of funds for long-term debt decreased by 59 basis points to 2.83 percent during the six months ended June 30, 2003. The decline was mainly the result of the decreasing interest rate environment that prevailed during 2002 and 2003. As shown in Table 5, “Net Interest Income and Volume/Rate Analysis, Taxable Equivalent Basis” interest expense on long-term debt increased by $11.2 million or 26.02 percent as the $19.6 million increase generated by increasing volume exceeded the $8.4 million decrease resulting from declining interest rates.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income for the first two quarters of 2003 was $282.3 million compared to net interest income of $255.3 million for same period in 2002, an increase of $27.0 million or 10.58 percent. On a taxable equivalent basis, net interest income for the same periods, respectively, increased $25.9 million over the 2002 period to total $286.7 million. As shown in Table 5, “Net Interest Income and Volume/Rate Analysis, Taxable Equivalent Basis” the increase in net interest income, on a taxable equivalent basis, was driven by volume variances, which contributed $43.0 million to the increase, offset by a decrease of $17.0 million due to rate variances.

The net interest margin for the first six months of 2003 was 3.64 percent, a 33 basis point decrease from the net interest margin experienced during the first six months of 2002. The decline was predominantly due to spread compression resulting from the decreased interest rate environment.

ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES (AFLL)

As of June 30, 2003 and December 31, 2002, the AFLL was $139.4 million and $125.4 million, respectively, or 1.51 percent and 1.46 percent, respectively, of total loans outstanding. The Admiralty acquisition resulted in $5.5 million of the AFLL increase while the remaining growth was a response to an increasing trend in non-performing assets resulting from a weak economy. Refer to Table 3 “Nonperforming Assets and Past Due Loans” and Table 2 “Analysis of Allowance for Loan Losses” for additional asset quality information.

Total nonperforming assets (“NPAs”) were $121.3 million at June 30, 2003, an increase of $19.4 million or 19.06 percent over the December 31, 2002 balance of $101.9 million. The increase was driven by an increase of $17.6 million in commercial nonaccruals, $14.1 million of which was associated with three specific relationships. NPA’s as a percentage of total assets were 0.63 percent and 0.55 percent at June 30, 2003 and December 31, 2002, respectively. The AFLL provides coverage at 1.33 times and 1.46 times the nonperforming loan balance at June 30, 2003 and December 31, 2002, respectively. See Table 3, “Nonperforming Assets and Past Due Loans”, for further information.

Net charge-offs for the first two quarters of 2003 were $14.8 million compared to $18.8 million for the prior year period. As a percentage of average loans, net charge-offs were 0.32 percent and 0.47 percent for the first six months of 2003 and 2002, respectively (annualized). Charge-offs in 2003 principally occurred in the commercial loan portfolio and in consumer lending. The provision for loan losses remained substantially unchanged, decreasing slightly by $182,000 from the first six months of 2002 to $23.3 million during the first six months of 2003.

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As required by the Federal Reserve guidelines governing related party transactions, assets acquired in the RBC Mortgage merger that subsequently become low quality within two years following the merger are to be transferred out of RBC Centura Bank or its subsidiaries on a quarterly basis. During the second quarter of 2003, $11.1 million of low quality assets (“LQAs”) acquired in the RBC Mortgage merger were sold to comply with these guidelines of which $4.0 million were classified as loans held for sale. LQAs are defined as assets classified as “substandard”, “doubtful”, or “loss” or treated as “special mention” or “other transfer risk problems”, an asset in a nonaccrual status, an asset on which principal or interest payments are more than thirty days past due, an asset whose terms have been renegotiated or compromised due to the deteriorating financial condition of the obligor or an asset acquired through foreclosure, repossession, or otherwise in satisfaction of a debt previously contracted, if the asset has not yet been reviewed in an examination or inspection. A loss on MLHFS of $676,000 was recognized in noninterest income while a loan charge-off of $104,000 was recorded for the disposition of loans from the portfolio.

Management believes the AFLL to be adequate based upon its current judgment, evaluation, and analysis of the loan portfolio. The AFLL is comprised of three components: specific reserves, general reserves, and unallocated reserves. Generally, all loans with outstanding balances of $100,000 or greater that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific allowance is required. A loan is considered impaired when, based on current information, it is probable that RBC Centura will not receive all amounts due in accordance with the contractual terms of the loan agreement. Once a loan has been identified as impaired, management measures impairment in accordance with SFAS 114 “Accounting By Creditors for Impairment of a Loan”. When the measure of the impaired loan is less than the recorded investment in the loan, the amount of the impairment is recorded as a specific reserve. These specific reserves are determined on an individual loan 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. Loans for which specific reserves are provided are excluded from the general allowance calculations as described below.

The general allowance reflects the best estimate of probable losses that exist within the portfolios of loans that have not been specifically identified. The general allowance for the commercial loan portfolio is established considering several factors including: current loan grades, historical loss rates, expected future cash flows, and the results of individual loan reviews and analyses. Commercial loans are assigned a loan grade and the loss percentages assigned for each loan grade are determined based on periodic evaluation of actual loss experience over a period of time and management’s estimate of probable incurred losses as well as other factors that are known at the time when the appropriate level for the AFLL is assessed, including the average term of the portfolio. The AFLL for consumer loans, mortgage loans, and leases is determined based on past due levels and historical and projected loss rates relative to each portfolio.

The unallocated allowance is determined through management’s assessment of probable losses that are in the portfolio but are not adequately captured by the other two components of the allowance, including consideration of current economic and business conditions and regulatory requirements. The unallocated allowance also reflects management’s acknowledgement of the imprecision and subjectivity that underlie the modeling of credit risk.

NONINTEREST INCOME AND EXPENSE

Noninterest income for the first six months of 2003 totaled $179.9 million, up $43.8 million or 32.24 percent from the $136.0 million amount for the comparable period in 2002. As a percentage of total revenues (defined as the sum of net interest income, plus noninterest income), noninterest income was 38.91 percent and 34.76 percent for the six months ended June 30, 2003 and 2002, respectively.

Mortgage income, the largest component of noninterest income, comprised 58.33 percent of total noninterest income and increased by $40.3 million or 62.32 percent when compared with the year earlier period to total $104.9 million during the first six months of 2003. Mortgage income is primarily comprised of mortgage loan sale income, origination fees and servicing income. Increases were generated primarily by increasing loan sale volume as the amount of loans sold increased from $4.4 billion during the first six months of 2002 to $8.1 billion during the first six months of 2003. Gains realized on sales of investment securities increased by $14.4 million from the six month period ended June 30, 2002 to $16.8 million during the six months ended June 30, 2003. Other service charges,

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commissions and fees declined $2.7 million to $11.0 million compared to the prior year quarter primarily due to decreased brokerage commissions resulting from the transfer of full service investment brokers and their associated accounts to RBC Dain Rauscher, an entity under the common control of Royal Bank. Fees for trust services also declined $2.3 million from period to period to amount to $2.3 million during the first six months of 2003 as a result of the decision to transfer this line of business to other entities under the common control of Royal Bank. Also contributing to the decrease in other noninterest income, were amortized losses of $3.2 million resulting from the termination of interest rate swaps as described in Note 11 of the Notes to Consolidated Financial Statements. The remaining components of noninterest income remained relatively consistent during the first six months of 2003 when compared with the year earlier period.

Noninterest expense totaled $329.5 million during the six months ended June 30, 2003, an increase of $61.9 million over the year earlier period. The largest factor contributing to the increase was personnel expense, increasing $33.9 million or 24.04 percent to $174.9 million during the six months ended June 30, 2003. RBC Centura’s Mortgage Banking Segment experienced an increase in personnel expense of $20.8 million as the result of increased overtime, incentive pay and temporary assistance generated by the large increase in loan sale volume from period to period. Personnel expense in our Retail Banking Segment increased by $13.1 million primarily driven by ordinary increases in personnel costs and the number of employees added from acquisition activity.

Occupancy expenses increased $6.8 million due to additional branches from acquisitions and the accrual of lease obligations resulting from the relocation of a regional support center. Intangible amortization increased $1.9 million, a direct result of the core deposit intangibles recorded in the Eagle and Admiralty acquisitions. As compared to the first half of 2002, professional fees, outsourced services, and data processing and software costs exhibited an increase of $8.8 million and were incurred to support product and systems development and franchise expansion into new markets. Also, merger related charges $3.2 million were recorded due to the Admiralty acquisition. Increased marketing activities, along with expenses related to the acquisition of the naming rights to the sports and entertainment facility (now known as the “RBC Center”), generated growth in marketing expense of approximately $4.2 million. The remaining increase in noninterest expense was spread across the various other operating and administrative expense categories.

EQUITY AND CAPITAL RESOURCES

Shareholder’s equity amounted to $2.6 billion as of June 30, 2003 and December 31, 2002. The slight growth realized of $38.8 million was the result of an increase in retained earnings due to income realized during the first six months of 2003, which was diminished by a decline in Accumulated Other Comprehensive Income (“AOCI”). Unrealized gains on available for sale securities, net of tax, were $58.0 million as of June 30, 2003 compared with unrealized gains of $79.3 million as of December 31, 2002. Losses recognized within AOCI related to derivatives designated as cash flow hedges under SFAS 133 generated a reduction in shareholder’s equity of $10.0 million.

RBC Centura’s capital ratios are greater than minimums required by regulatory guidelines. It is RBC Centura’s intent to maintain an optimal capital and leverage mix within the regulatory framework while providing a basis for future growth. At June 30, 2003, RBC Centura had the required capital levels to qualify as well capitalized. See Table 4, “Capital Ratios” for a summary of capital ratios.

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Table 1

NET INTEREST INCOME ANALYSIS-TAXABLE EQUIVALENT BASIS

	Six months Ended June 30, 2003						Six months Ended June 30, 2002
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Yield/ Rate		Average Balance		Interest Income/ Expense		Average Yield/ Rate
ASSETS
Loans, including fees	$	9,303,982	$	257,001	5.52	%	$	8,166,326	$	243,703	5.96	%
Taxable securities		4,635,925		108,722	4.69			3,792,658		112,294	5.92
Tax-exempt securities		86		4	9.30			34,413		836	4.86
Short-term investments		45,481		430	1.88			30,869		570	3.67
Mortgage loans held for sale		1,750,954		55,922	6.39			1,079,510		35,418	6.56
Interest-earning assets, gross		15,736,428		422,079	5.36			13,103,776		392,821	5.99
Net unrealized gains on available for sale securities		117,585						60,938
Other assets, net		2,987,671						2,529,528
Total assets	$	18,841,684					$	15,694,242
LIABILITIESAND SHAREHOLDER’S EQUITY
Interest checking	$	1,304,860	$	3,051	.47	%	$	1,097,320	$	2,607	.48	%
Money market		2,105,356		11,948	1.14			1,940,594		14,032	1.46
Savings deposits		274,412		677	.50			228,097		849	.75
Time deposits		3,194,655		40,371	2.55			2,843,029		45,633	3.24
Total interest-bearing deposits		6,879,283		56,047	1.64			6,109,040		63,121	2.08
Borrowed funds		3,640,118		25,001	1.37			2,952,357		25,806	1.74
Long-term debt		3,815,195		54,287	2.83			2,503,355		43,078	3.42
Interest-bearing liabilities		14,334,596		135,335	1.89			11,564,752		132,005	2.29
Demand, noninterest-bearing		1,425,849						1,123,590
Other liabilities		444,197						488,478
Shareholder’s equity		2,637,042						2,517,422
Total liabilities and shareholder’s equity	$	18,841,684					$	15,694,242
Interest rate spread					3.47	%					3.70	%
Net yield on interest-earning assets, gross	$	15,736,428	$	286,744	3.64	%	$	13,103,776	$	260,816	3.97	%
Taxable equivalent adjustment			$	4,403					$	5,489

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Table 2

ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

	At and for the
	Six months ended						Year ended December, 31, 2002
	June 30, 2003			June 30, 2002
	(dollars in thousands)
Allowance for loan losses at beginning of period	$	125,422		$	106,220		$	106,220
Allowance related to loans transferred or sold		—			—			(202	)
Allowance for acquired loans		5,470			— ��			12,053
Provision for loan losses		23,291			23,473			45,439
Loans charged off		(19,116	)		(21,873	)		(45,102	)
Recoveries on loans previously charged off		4,321			3,029			7,014
Net charge-offs		(14,795	)		(18,844	)		(38,088	)
Allowance for loan losses at end of period	$	139,388		$	110,849		$	125,422
Loans at period end	$	9,256,321		$	8,297,024		$	8,603,816
Average loans		9,303,982			8,166,326			8,456,699
Nonperforming loans		104,777			92,494			85,892
Allowance for loan losses to total loans		1.51	%		1.34	%		1.46	%
Net charge-offs to average loans		.32			.47			.45
Allowance for loan losses to nonperforming loans		1.33	x		1.20	x		1.46	x

Table 3

NONPERFORMING ASSETS AND PAST DUE LOANS

	June 30, 2003			December 31, 2002
	(dollars in thousands)
Nonaccrual loans	$	104,777		$	85,892
Foreclosed property		16,501			15,967
Total nonperforming assets	$	121,278		$	101,859
Accruing loans past due ninety days or more	$	15,840		$	10,005
Nonperforming Assets To:
Loans and foreclosed property		1.31	%		1.18	%
Total assets		0.63			0.55

Table 4

CAPITAL RATIOS

	Tier 1 Capital	Total Capital	Tier 1 Leverage
June 30, 2003	8.9	13.6	6.3
December 31, 2002	10.6	16.3	7.2
Minimum requirement	4.0	8.0	4.0

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Table 5

NET INTEREST INCOME AND VOLUME/RATE ANALYSIS

TAXABLE EQUIVALENT BASIS

	Six months ended June 30, 2003 and 2002
				Variance attributable to:
	Income/ Expense Variance			Volume			Rate
	(thousands)
INTEREST INCOME
Loans, including fees	$	13,298		$	32,171		$	(18,873	)
Taxable securities		(3,572	)		22,285			(25,857	)
Tax-exempt securities		(832	)		(1,232	)		400
Short-term investments		(140	)		205			(345	)
Mortgage loans held for sale		20,504			21,469			(965	)
Total interest income		29,258			74,898			(45,640	)
INTEREST EXPENSE
Interest checking		444			486			(42	)
Money market		(2,084	)		1,119			(3,203	)
Savings deposits		(172	)		151			(323	)
Time deposits		(5,262	)		5,203			(10,465	)
Total interest-bearing deposits		(7,074	)		6,959			(14,033	)
Borrowed funds		(805	)		5,341			(6,146	)
Long-term debt		11,209			19,637			(8,428	)
Total interest expense		3,330			31,937			(28,607	)
Net interest income	$	25,928		$	42,961		$	(17,033	)

The change in interest due to both rate and volume has been allocated proportionately to volume variance and rate variance based on the relationship of the absolute dollar change in each.

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Item 3. Quantitative and Qualitative Disclosure About Market Risk

Omitted Pursuant to General Instruction H. (2)(c) of Form 10-Q.

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report of Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

RBC CENTURA BANKS, INC.

PART II. OTHER INFORMATION

Item 1. 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 2. Changes in Securities and Use of Proceeds

Omitted Pursuant to General Instruction H. (2)(b) of Form 10-Q.

Item 3. Defaults Upon Senior Securities

Omitted Pursuant to General Instruction H. (2)(b) of Form 10-Q.

Item 4. Submission of Matters to a Vote of Security Holders

Omitted Pursuant to General Instruction H. (2)(b) of Form 10-Q.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Rule 13a-14(a)/15d-14(a) Certifications

(a) Certification of the Company’s Chief Executive Officer

(b) Certification of the Company’s Chief Financial Officer

Section 1350 Certifications

(a) Certification of the Company’s Chief Executive Officer

(b) Certification of the Company’s Chief Financial Officer

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(b) Reports on Form 8-K:

On April 15, 2003, RBC Centura filed a current report on Form 8-K/A to provide financial statements of RBC Mortgage Company, acquired on January 31, 2003, and pro forma financial statements.

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SIGNATURES

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

		RBC CENTURA BANKS, INC.
		Registrant
Date: August 14, 2003	By:	/s/ Paul S. Musgrove
		Paul S. Musgrove Chief Financial Officer

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RBC CENTURA BANKS, INC.

EXHIBIT LIST

Exhibit Number.	Description of Exhibit
31	Rule 13a-14(a)/15d-14(a) Certifications
	(a) Certification of the Company’s Chief Executive Officer
	(b) Certification of the Company’s Chief Financial Officer
32	Section 1350 Certifications
	(a) Certification of the Company’s Chief Executive Officer
	(b) Certification of the Company’s Chief Financial Officer

33