<PAGE>

                                                                      EXHIBIT 13


                                TWO THOUSAND TWO
                                  ANNUAL REPORT


                                    CAPITAL
                                   DIRECTIONS,
                                  INCORPORATED



                                   [CDI LOGO]



<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


                       THE MISSION OF MASON STATE BANK IS
                           TO OPERATE AS A FINANCIAL
                        SERVICES ORGANIZATION IN A SAFE,
                         SECURE, AND ETHICAL MANNER AND
                          TO PRODUCE SUPERIOR RETURNS
                             FOR OUR SHAREHOLDERS.

                       THIS WILL BE ACCOMPLISHED BY BEING
                         CUSTOMER FOCUSED AND PROVIDING
                         QUALITY SERVICES AND PRODUCTS
                          DELIVERED THROUGH A STAFF OF
                          HIGHLY TRAINED AND MOTIVATED
                                 PROFESSIONALS.


                                   [CDI LOGO]



<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S>                                                                                 <C>
A message to the shareholders.....................................................      2
Shareholder returns 1992-2002.....................................................      3
Stock and shareholder information.................................................      4
Market for common stock and related
  security holder matters.........................................................      4
Financial highlights..............................................................      4
Management. officers and directors ...............................................      5
Selected financial data...........................................................      6
Management's discussion and analysis of
  financial condition and results
  of operations ..................................................................   7-11

CAPITAL DIRECTIONS. INC.
CONSOLIDATED FINANCIAL STATEMENTS:
Report of independent auditors ...................................................     12
Capital Directions. Inc. consolidated balance sheets..............................     13
Capital Directions. Inc. consolidated statements of income........................     14
Capital Directions. Inc. consolidated statements of cash flows ...................     15
Capital Directions. Inc. consolidated statements of changes
  in shareholders' equity.........................................................     16
Notes to consolidated financial statements
  (December 31, 2002, 2001 and 2000) .............................................  17-28
</TABLE>


                                   [CDI LOGO]



<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

TO THE SHAREHOLDERS:

Capital Directions is proud to report another record year in growth and
earnings, making 2002 the 13th consecutive year of increases. Dividends paid
have also grown for eight consecutive years and this year is the highest at
$1.54 per share. Much praise and gratitude goes to our dedicated employees who
have contributed so much time and effort to the company's continued success. My
appreciation also extends to the Board for their dedication to our customers and
shareholders.

NET INCOME for 2002 grew to $1,910,000, which represents a 9.90% increase from
the prior year. Return on shareholders' equity of 13.66% and return on assets of
1.56% mirror this excellent operating performance.

ASSET QUALITY remains high with non-performing loans to total loans decreasing
to .09% or less than 20% of peer bank's levels. Minimal loan charge offs also
reflect the attention to underwriting standards and monitoring of the loan
portfolio. Net charge offs for the year totaled less than $5,000 on an average
portfolio in excess of $99,000,000.

MORTGAGE ACTIVITY reached record levels as the low rate environment encouraged
many homeowners to refinance their current mortgage or purchase a new home.
Mason State enjoys an excellent reputation as a mortgage lender and continues to
build market share in the Greater Lansing area. Customer surveys show high
satisfaction with Mason State and customer referrals continue to be our leading
source of new business. During mid-year the bank established a mortgage company,
Mason State Mortgage Company, LLC, to take advantage of more liberal branching
requirements and favorable tax treatment. Kathy Baker was named President of the
new company.

IMPROVED EFFICIENCY has allowed the corporation to continue to have flexibility
in pricing when needed. An efficiency ratio of 48.90% ranks Capital Directions,
Inc. as a national leader in expense control. New sources of fee income and cost
reduction ideas are regular topics of the bank product development and
operations committees. Shrinking margins require more revenue be generated from
fee income. Financial services such as annuities and insurance will continue to
become more important sources of future revenue.

CAPITAL levels are determined based on many factors including regulatory
requirements, cost of operating, sources of capital, prevailing interest rates,
present credit risks and liquidity needs. Capital Directions maintains a strong
capital position. This strong capital base, along with a consistently high level
of earnings, has earned the recognition of national financial rating agencies.

NATIONAL BANK RATINGS have shown Mason State Bank to be a thriving asset, not
only for the city of Mason, but a mark of success to the state of Michigan.
Specifically, Mason State Bank received the Blue Ribbon Bank Commendation of
Excellence by Veribanc, Inc. Veribanc is the oldest independent rating company
serving the general public for rating safety and soundness of banks. Even more
exciting, the highly regarded Weiss Rating, Inc. gave Mason State Bank an A+
rating. Mason State Bank was one of only four Michigan banks to receive this top
honor. Weiss issues safety ratings on more than 15,000 national financial
institutions. The Weiss Safety Ratings assess the future financial stability of
a bank as a way of helping investors place their money with a financially sound
company.

THE ULTIMATE MEASURE of performance is a company's ability to increase
shareholder value over time. Even with the stock market's poor showing this past
fiscal year, Capital Directions, Inc. proved to be an excellent investment. As a
result of an ongoing improvement in earnings, Capital Directions increased
dividends paid by 10.79% per share over 2001 levels. An investment made on
December 31, 2001 has increased in value from $39.42 to $43.50 per share at
year-end. This increase, along with the dividend yield, provided a total annual
return of over 14%. Even more outstanding is that those taking advantage of the
dividend reinvestment program since December 31, 1992 have received an annually
compounded rate of return of 20.44%. As the following chart illustrates, an
investment in Capital Directions, Inc. has historically proven to be an
outstanding one. The President's new tax proposal, if passed, is expected to
have a favorable impact on corporations, such as Capital Directions, who have a
history of increasing earnings and dividends along with a strong capital base.
We are ideally positioned to benefit should tax-free dividends become law.

THANK YOU for all your support and faith in Capital Directions. We look forward
to visiting with you at the Annual Meeting of Shareholders on April 24, 2003.

Sincerely,


/s/ Timothy Gaylord


Timothy Gaylord President & CEO


[PHOTO]                            [CDI LOGO]


TWO
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

SHAREHOLDER RETURNS 1992-2002

                                  [BAR GRAPH]
<TABLE>
<CAPTION>
NET INCOME
(In thousands)     1992     1993     1994     1995     1996      1997     1998     1999     2000     2001     2002
<S>                <C>      <C>      <C>    <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>
                   $835     $869     $930   $1,050    $1,136   $1,235   $1,334   $1,449   $1,650   $1,738   $1,910
</TABLE>

                                  [BAR GRAPH]
<TABLE>
<CAPTION>
RETURN ON EQUITY
(ROE)              1992     1993     1994     1995     1996      1997     1998     1999     2000     2001     2002
<S>                <C>      <C>      <C>      <C>      <C>       <C>      <C>      <C>      <C>      <C>      <C>
                   13.10%   12.62%   12.48%   12.71%   12.67%    12.47%   12.53%   13.06%   13.28%   12.94%   13.66%
</TABLE>


                                  [BAR GRAPH]
<TABLE>
<CAPTION>
RETURN ON ASSETS
(ROA)              1992     1993     1994     1995     1996      1997     1998     1999     2000     2001     2002
<S>                <C>      <C>      <C>      <C>      <C>       <C>      <C>      <C>      <C>      <C>      <C>
                    1.10%    1.14%    1.24%    1.40%    1.49%     1.56%    1.47%    1.44%    1.54%    1.53%    1.56%
</TABLE>

                                  [BAR GRAPH]
<TABLE>
<CAPTION>
BOOK VALUE
PER SHARE
(Retroactively
adjusted for stock
splits)            1992     1993     1994     1995     1996      1997     1998     1999     2000     2001     2002
<S>               <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
                  $11.14   $12.17   $12.86   $14.45   $15.80   $17.17   $18.48   $19.82   $21.46   $23.09   $24.36
</TABLE>


                                  [BAR GRAPH]
<TABLE>
<CAPTION>
SHAREHOLDERS'
EQUITY TO TOTAL
ASSETS             1992     1993     1994     1995     1996      1997     1998     1999     2000     2001     2002
<S>                <C>      <C>      <C>      <C>      <C>       <C>      <C>      <C>      <C>      <C>      <C>
                    8.47%    9.52%   10.05%   11.04%   11.91%    12.78%   10.97%   11.19%   11.16%   11.74%   11.37%
</TABLE>


STOCK PERFORMANCE

<TABLE>
<S><C>

         THE 5-YEAR                     THE 10-YEAR               Capital Directions, Inc. shareholders taking advantage
     ANNUALIZED RETURN ON           ANNUALIZED RETURN ON          of the dividend reinvestment program experienced an overall annual
   CAPITAL DIRECTIONS, INC.       CAPITAL DIRECTIONS, INC.        compounded rate of return of 12.26% since December of 1997(1).
     STOCK WAS 12.26%(1)               STOCK WAS 20.44%(1)
                                                                        $10,000                                $18,196
                                                                  December 31, 1997                       December 31, 2002
</TABLE>

(1)      Computation assumes quarterly reinvestment of dividends. Capital
         Directions, Inc. stock is not listed on any exchange. Its shares are
         traded through local brokers. Management has not verified the accuracy
         of their bid reporting, nor will the price be reflective if the stock
         was listed on an active exchange. Return is determined by an investment
         accumulation schedule using the beginning value per share and the
         ending value per share including additional shares or fractional shares
         earned through quarterly dividend reinvestment.

                                                                           THREE

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

STOCK AND SHAREHOLDER INFORMATION

STOCK TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company
59 Maiden Lane
New York, New York 10038

AUTOMATIC DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

Participating Capital Directions, Inc. shareholders take the opportunity to
reinvest the cash dividends paid on their shares to purchase additional shares
of Capital Directions, Inc. common stock. Participants may also purchase
additional shares through cash payment with only a minimal fee.

DIRECT DEPOSIT

The Company continues to provide convenient services to meet your needs. For
quick transfer and availability, your cash dividends may be deposited directly
into your Mason State Bank checking, savings, or money market account. To learn
more about the Automatic Dividend Reinvestment and Stock Purchase Plan, or to
initiate direct deposit of your cash dividends, please contact Kimberly A.
Dockter, CPS, Treasury and Administrative Officer, at (517) 676-0500.

ANNUAL MEETING OF SHAREHOLDERS

The annual meeting for the year ended December 31, 2002 will be held at Mason
State Bank's Main Office, 322 S. Jefferson Street, Mason, Michigan on Thursday,
April 24, 2003 at 6:30 p.m.

HOW TO ORDER FORM 10-K

The Company's 2002 Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, can be found on the Internet. It is also available, without
charge, to shareholders upon request. Send requests to Lois A. Toth, Treasurer,
Capital Directions, Inc., P.O. Box 130, Mason, Michigan 48854-0130 or call (517)
676-0500.

MARKET FOR COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

Capital Directions, Inc. stock is not listed on any exchange. Its shares are
traded through the local brokers of Stifel, Nicolaus & Co., Inc., Monroe
Securities, Howe Barnes Investments, Inc., Morgan Stanley Dean Witter and
Raymond James & Assoc., Inc. Management has not verified the accuracy of their
bid reporting, nor will the price be reflective if the stock was listed on an
active exchange. At December 31, 2002, there were 422 holders of the Company's
common stock. Dividends are declared on a quarterly basis with a total of
$923,000 declared in 2002 and $849,000 in 2001.


<TABLE>
<CAPTION>
                             1st       2nd        3rd        4th
                           Quarter   Quarter    Quarter    Quarter
<S>                       <C>        <C>        <C>        <C>
 2002
 High .............       $ 39.50    $ 41.95    $ 43.00    $ 43.50
 Low ..............         38.00      38.25      39.60      40.61

 Dividend per share
   declared .......          0.39       0.39       0.39       0.39
 2001
 High .............       $ 40.00    $ 39.75    $ 40.25    $ 41.00
 Low ..............         36.25      36.37      37.00      37.55
 Dividend per share
   declared .......          0.34       0.35       0.36       0.37
</TABLE>


FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                                                                              Change         Change
                                                                              2002             2001           Amount        Percent
<S>                                                                     <C>               <C>               <C>               <C>
INCOME STATEMENT
Net interest income ................................................    $   4,525,000     $   4,334,000     $  191,000        4.41%
Net income .........................................................        1,910,000         1,738,000        172,000        9.90
Basic earnings per share ...........................................             3.23              2.91           0.32       11.00
Cash dividend declared per share ...................................             1.56              1.42           0.14        9.86

RATIOS
Return on average shareholders' equity .............................            13.66%            12.94%
Return on average assets ...........................................             1.56              1.53
Standard efficiency(l) .............................................            48.90             50.29
Average shareholders' equity as a percentage of average assets .....            11.44             11.83

BALANCE SHEET
Total assets .......................................................    $ 126,214,000     $ 117,277,000     $8,937,000        7.62%
Total earning assets ...............................................      119,287,000       111,330,000      7,957,000        7.15
Total loans, net ...................................................       96,055,000        91,784,000      4,271,000        4.65
Total deposits .....................................................       74,707,000        70,933,000      3,774,000        5.32
</TABLE>


(1) Calculated as noninterest expense divided by the sum of net interest income,
on a fully taxable equivalent basis, plus noninterest income.

FOUR

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

CAPITAL DIRECTIONS, INC.
BOARD OF DIRECTORS AND OFFICERS

BOARD OF DIRECTORS
Gerald W. Ambrose
Chairman, Capital Directions,
Inc., and County Controller,
Ingham County

Marvin B. Oesterle
Vice Chairman, Capital
Directions, Inc., and Partner,
Oesterle Brothers Seed Corn

Timothy P. Gaylord
President and Chief Executive
Officer, Capital Directions, Inc.

Douglas W. Dancer
Secretary, Capital Directions, Inc.,
and Realtor, Vision Real Estate

James W. Leasure
Owner, Showtime, Inc., and
Wash Express

Paula J. Johnson
Co-owner, Vision Real Estate,
and Developer, PAL, LLC (i.e.
Vision Village Condominiums)

OFFICERS

Gerald W. Ambrose
Chairman

Marvin B. Oesterle
Vice Chairman

Timothy P Gaylord
President and Chief Executive
Officer

Douglas W. Dancer
Secretary

Lois A. Toth
Treasurer

MASON STATE BANK MANAGEMENT

Timothy P. Gaylord
President and Chief Executive
Officer

Thomas L. Peterson
Senior Vice President, Retail
Banking and Operations

Thomas W. Schroeder
Vice President, Commercial Loans

Lois A. Toth
Vice President and Controller

Elizabeth J. Luttrell-Wilson
Assistant Vice President, Human
Resources and Security

Robert D. Warnke
Director of Branch
Administration and Marketing

Kimberly A. Dockter
Treasury and Administrative
Officer

Kathy M. Wakefield
Branch Officer

Thelma Hines
Customer Service Officer


MASON STATE MORTGAGE COMPANY, LLC MANAGEMENT

Timothy P. Gaylord
Chairman, Chief Executive
Officer and Manager

Thomas L. Peterson
Vice Chairman and Manager

Kathleen R. Baker
President and Manager

Lois A. Toth
Secretary, Treasurer and
Manager

                             MASON STATE BANK 2002
                                   PROMOTIONS

KATHLEEN R. BAKER
[PHOTO]

During 2002, Mason State Bank promoted Kathleen R. Baker, Vice President of
Mortgage Loans, to President, Mason State Mortgage Company, LLC, a subsidiary of
Mason State Bank.

KIMBERLY A. DOCKTER
[PHOTO]

Kimberly A. Dockter, CPS, who served as Executive Secretary to the President,
was promoted to Treasury and Administrative Officer. A 15-year employee, Kim, in
addition to her duties of heading Shareholder Services is now also responsible
for funding procurement and investment sources.


                                   NEW FACES

PETER D. HOUK
[PHOTO]

Peter D. Houk joined the Capital Directions, Inc. Board of Directors. Houk is a
Partner in the law firm of Fraser, Trebilcock, Davis and Dunlap. Previously he
was an Ingham County Circuit Court Judge and is a member of the Michigan State
and Ingham County Bar Associations and the Michigan Judges Association.

KATHY M. WAKEFIELD
[PHOTO]

In the second quarter 2002, Kathy M. Wakefield was welcomed as Branch Officer of
the Leslie Office. She brings over 15 years of banking experience in branch
management and mortgage lending. Kathy is excited to be returning to the
community where she attended high school.

ROBERT D. WARNKE
[PHOTO]

Robert D. Warnke joined Mason State Bank as Director of Marketing and Branch
Administration. Prior to joining Mason State Bank, Bob was with Financial
Technology, Inc., an East Lansing investment advisory firm and Community First
Bank of Lansing.

FIVE

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
(In thousands, except per share data)                              2002         2001         2000         1999         1998
<S>                                                             <C>          <C>          <C>          <C>          <C>
SUMMARY OF OPERATIONS
Interest and dividend income ................................   $   7,897    $   8,049    $   7,958    $   7,525    $   6,880
Interest expense ............................................       3,372        3,715        3,798        3,440        3,125
Net interest income .........................................       4,525        4,334        4,160        4,085        3,755
Provision for loan losses ...................................        --           --              6           48          (23)
Noninterest income ..........................................       1,005          819          794          592          565
Noninterest expense .........................................       2,752        2,640        2,569        2,471        2,461
Income before income tax expense ............................       2,778        2,513        2,379        2,158        1,882
Income tax expense ..........................................         868          775          729          659          548
Net income..................................................    $   1,910    $   1,738    $   1,650    $   1,499    $   1,334
PER SHARE
Average shares outstanding ..................................     591,830      598,017      597,704      596,200      595,064
Basic earnings ..............................................   $    3.23    $    2.91    $    2.76    $    2.51    $    2.24
Diluted earnings ............................................        3.20         2.88         2.74         2.49         2.22
Dividends declared ..........................................        1.56         1.42         1.27         1.14         0.96
Book value ..................................................       24.36        23.09        21.46        19.82        18.48
RATIOS BASED ON NET INCOME
Net income to average shareholders' equity ..................       13.66%       12.94%       13.28%       13.06%       12.53%
Net income to average assets ................................        1.56         1.53         1.54         1.44         1.47
BALANCE SHEET
Assets ......................................................   $ 126,214    $ 117,277    $ 115,023    $ 105,713    $ 100,229
Net loans ...................................................      96,055       91,784       84,596       88,057       80,904
Short-term investments ......................................       5,246        4,331        5,963           54          626
Securities ..................................................      15,425       14,167       17,637       10,726       12,383
Deposits ....................................................      74,707       70,933       72,423       72,030       72,389
Federal Home Loan Bank
  borrowings ................................................      35,401       31,125       28,339       18,861       15,593
Shareholders' Equity ........................................      14,350       13,763       12,834       11,828       10,997
</TABLE>


SIX

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion and analysis provides additional information concerning
the consolidated financial condition and results of operations for Capital
Directions, Inc. (the "Company") and its wholly owned subsidiaries. It should be
read in conjunction with the consolidated financial statements and supplemental
data contained elsewhere in this report.

Capital Directions, Inc., a one-bank holding company, commenced operations on
July 22, 1988. This was facilitated by the acquisition of 100% of the
outstanding shares of Mason State Bank in an exchange of common stock. Mason
State Mortgage Company, LLC was formed on July 16, 2002 to allow the expansion
of mortgage offerings and to realize certain tax savings. This was facilitated
by a 99% ownership by Mason State Bank and a 1 % ownership by Capital
Directions, Inc.

The Company is not aware of any market or institutional trends, events, or
circumstances that will have or are reasonably likely to have a material effect
on liquidity, capital resources, or operations except as discussed herein. Also,
the Company is not aware of any current recommendations by regulatory
authorities that will have such affect if implemented.

PERFORMANCE SUMMARY

In 2002, Capital Directions, Inc. and its subsidiaries reported record net
earnings of $1,910,000. This is an increase of 9.90% over the previous year.
Basic earnings per share were $3.23 in 2002 compared to $2.91 in 2001. In 2002,
return on average assets increased to 1.56% from 1.53% in 2001. This increase is
attributable to the growth percentage in net income of the Company exceeding the
percentage growth in total average assets during 2002. Return on shareholders'
equity was 13.66%, up from 12.94% in 2001. As of December 31, 2002 the leveraged
capital ratio, which excludes the net unrealized gain or loss on securities
available for sale was 10.65%, down from 11.6% the prior year and well in excess
of the 4.0% minimum required by regulatory authorities.

The following table provides a summary of the factors impacting net income in
2002 compared to the same components in 2001:

<TABLE>
<S>                                                                             <C>
(In thousands)
2001 NET INCOME .......................................................         $    1,738
Increase (decrease) in net income
  Interest income ..........................................................          (152)
  Interest expense .........................................................           343
  Provision for loan losses ...........................................
  Noninterest income....................................................               186
  Noninterest expense...................................................              (112)
  Income taxes..............................................................           (93)
2002 NET INCOME .......................................................         $    1,910
</TABLE>

In 2001, net income for the Company was $1,738,000, which was an increase of
5.33% over net earnings of $1,650,000 for 2000. Basic earnings per share
increased to $2.91 in 2001 compared to $2.76 in 2000. The 2001 return on average
assets decreased slightly to 1.53% from 1.54% in 2000. Return on average
shareholders' equity was 12.94%, down from 13.28% in 2000. The leveraged capital
ratio for the year ending December 31, 2001 was 11.6%, up from 11.4% the prior
year.

The operations of our Holding Company did not materially affect the consolidated
financial results for 2002, 2001 or 2000.

NET INTEREST INCOME

The largest segment of the Company's operating income is net interest income.
Net interest income is determined by adding interest and certain fees from
earning assets, then subtracting the interest paid on deposits and other funding
sources. This may be impacted by changes in volume and mix of earning assets,
funding sources, deposits, interest rates, loan demand, and other market
factors.

Net interest income for 2002, on a fully taxable equivalent basis, was
$4,623,000, an increase of $192,000 over 2001. For 2001, net interest income, on
a fully taxable equivalent basis, increased $173,000 over 2000. Average balances
and rates on major categories of interest earning assets and interest-bearing
liabilities appear in Table 1. The affect on net interest income from changes in
average balances ("volume") and yields, and rates ("rate") are quantified in
Table 2. As shown, net interest income improved in 2002 generally due to the
impact of volume increases on interest earning assets exceeding the impact of
volume increases on interest-bearing liabilities, and in 2001 generally due to
the impact of rate decreases on interest-bearing liabilities exceeding the
impact of rate decreases on interest earning assets.

Yields on assets and funding rates were lower in 2002 compared to 2001,
reflecting a declining rate environment. Average tax equivalent yields on
earning assets decreased to 6.89% in 2002 from 7.55% in 2001. Interest-bearing
liability rates decreased to 3.53% in 2002 from 4.20% in 2001. Despite an
increase in net interest income related primarily to increased volume, the tax
equivalent net interest margin decreased by 13 basis points. This was primarily
related to the change in the structure of earning assets and the Bank's
liability sensitive GAP position. As mortgage loan demand increased throughout
the year, funds were deployed in loans which tend to be at lower yields as
compared to commercial or other consumer loan products. In addition, because of
the Bank's liability sensitive position, as discussed more fully below, and
considering the falling interest rate environment during 2002, the Bank's
interest-bearing liabilities repriced at lower rates at a faster pace than the
Bank's interest-bearing assets.


                                                                           SEVEN

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

TABLE 1
<TABLE>
<CAPTION>
(Dollars in                                      2002                               2001                           2000
thousands)                                     INTEREST     AVERAGE              INTEREST   AVERAGE             INTEREST  AVERAGE
                                  AVERAGE      INCOME/       YIELD/  AVERAGE     INCOME/     YIELD/  AVERAGE     INCOME/   YIELD/
                                  BALANCE      EXPENSE*      RATE*   BALANCE     EXPENSE*    RATE*   BALANCE    EXPENSE*    RATE
<S>                               <C>         <C>            <C>     <C>        <C>          <C>     <C>        <C>         <C>
Loans .........................   $ 99,415    $  7,058       7.10%   $ 86,794   $  6,852     7.89%   $ 87,651   $  7,063    8.06%
Other
  earning
  assets ......................     16,626         932       5.61      21,035      1,294     6.15      14,220        993    6.98
                                  --------    --------               --------   --------             --------   --------
Total
  earning
  assets ......................    116,041       7,990       6.89     107,829      8,146     7.55     101,871      8,056    7.91
Other
  assets ......................      6,214                              5,733                           5,309
                                  --------                           --------                        --------
Total .........................   $122,255                           $113,562                        $107,180
                                  ========                           ========                        ========
Interest-
  bearing
  liabilities .................   $ 95,334    $  3,372       3.54%   $ 88,487   $  3,715     4.20%   $ 83,689   $  3,798    4.54%
Non interest
  bearing
  liabilities
  and
  equity ......................     26,921                             25,075                          23,491
                                  --------                           --------                        --------
Total .........................   $122,255                           $113,562                        $107,180
                                  ========                           ========                        ========
Net interest
  income ......................               $  4,618                          $  4,431                        $  4,258
                                              ========                          ========                        ========
Net interest
  margin on
  earning
  assets ......................                              3.98%                           4.11%                          4.18%
</TABLE>

* Fully taxable equivalent basis.

TABLE 2

<TABLE>
<CAPTION>
(Dollars in thousands)                                        2002 COMPARED TO 2001                  2001 COMPARED TO 2000
                                   CHANGE DUE TO:      VOLUME          RATE         TOTAL         VOLUME         RATE         TOTAL
<S>                                                     <C>           <C>           <C>           <C>           <C>           <C>
Earning assets*:
  Loans ........................................        $ 921         $(729)        $ 192         $ (68)        $(143)        $(211)
  Other earning assets .........................         (188)         (160)         (348)          395           (94)          301
Total interest income ..........................        $ 733         $(889)        $(156)        $ 327         $(237)        $  90
Interest-bearing liabilities:
  Interest-bearing liabilities .................        $ 204         $(547)        $(343)        $ 337         $(420)          (83)
Net interest income* ...........................        $ 529         $(342)        $ 187         $ (10)        $ 183         $ 173
</TABLE>

* Fully taxable equivalent basis.

EIGHT


<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

PROVISION AND ALLOWANCE FOR LOAN LOSSES


Provision for losses on loans is charged to operations based on management's
evaluation of potential losses in the portfolio. Provision is based upon regular
review of the level and trend of non-performing assets; charge-offs and
recoveries; the mix of loans in the portfolio; and anticipated economic
conditions. No provision for loan losses was recognized in 2002 due to excellent
loan portfolio performance. Based on contraction due to diminished demand in the
Bank's loan portfolio in 2001 and 2000, the provision for loan losses was
eliminated in 2001 and was $6,000 in 2000.

Net charge-offs for 2002 totaled $4,000, while 2001 totaled $5,000. Excellent
loan portfolio performance reflects attention to underwriting standards as well
as consistent monitoring of the portfolio. Mason State Bank management rates the
overall quality of the loan portfolio as good and concludes the $1,044,000
allowance or 1.08% allowance to total loans appropriate to cover inherent losses
in the portfolio at year-end 2002.

NONINTEREST INCOME

Noninterest income increased by $186,000 from the previous year. The largest
increases were attributable to gains on sales of loans, including recognition of
servicing rights. Decreases were recognized in merchant processing activity and
ATM fees. Investment commissions decreased due to continued less favorable
economic and stock market conditions throughout 2002. The change in noninterest
income from 2001 to 2000 was an increase of $25,000. This increase was
attributable to gains on sales of loans, including recognition of servicing
rights. In addition, investment commissions decreased due to the impact of less
favorable economic and stock market conditions.

NONINTEREST EXPENSE

Noninterest expense increased $112,000 during 2002. This increase is primarily
attributable to increased building expenses and depreciation, salary and wages,
employee benefits, consulting fees, legal fees, audit services and expenses
related to other real estate. Noninterest expense increased by $71,000 from 2000
to 2001. This increase was a result of increased salary and benefits costs,
expenses for outsourced services and increased building expenses and
depreciation.

INCOME TAX EXPENSE

The 2002 provision for income tax was $868,000, up from $775,000 in 2001. The
2001 provision was up $46,000 from the $729,000 provision in 2000. This figure
reflects a higher taxable income in 2002 and 2001.

LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT

The primary objective of asset/liability management is to assure
adequate liquidity and net interest income by maintaining appropriate maturities
and balances between interest sensitive earning assets and interest-bearing
liabilities. Liquidity management insures sufficient funds are maintained to
meet the cash withdrawal requirements of depositors and the credit demands of
borrowers.

Sources of liquidity include: federal funds sold, investment security maturities
and pay downs. The Bank maintained an average balance of $2,285,000 in federal
funds sold in 2002. The Bank is a member of the Federal Home Loan Bank system
for several reasons: access to an alternative funding source, lower costs for
credit services and an alternative tool to manage interest rate risk. Since 1997
the Bank used this source of funding (see Note 7 to the consolidated financial
statements) to directly offset loans of like terms and conditions.

Other sources of liquidity include: internally generated cash flow from
operations, repayments and maturities of loans, other borrowings and growth in
core deposits.

At December 31, 2002 the securities available for sale were valued at
$12,644,000. It is not anticipated that management will use these funds due to
the optional sources that may be available in 2003.

Interest rate sensitivity management seeks to maximize net interest margins
through periods of changing interest risks. The Bank develops strategies to
assure that desired levels of interest sensitive assets and interest-bearing
liabilities mature or reprice within selected time frames. Strategies include
the use of variable loan products as well as managing deposit accounts and
maturities in the investment portfolio. The chart shown on the following page,
using recommended regulatory standards, reflects "the rate sensitive position"
or the difference between loans and investments, and liabilities that mature or
reprice within the next year and beyond. The financial industry has generally
referred to this difference as the "GAP" and its handling as "GAP Management."
At year-end 2002, the percentage of rate sensitive assets to rate sensitive
liabilities within the one-year time horizon was 51 %.



                                                                            NINE
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


GAP MEASUREMENT

<TABLE>
<CAPTION>
(Dollars in          0-30         31-90       2ND         3RD        4TH       ANNUAL       1-3        3-5        OVER 5
thousands)           DAYS         DAYS      QUARTER      QUARTER    QUARTER     TOTAL       YEARS      YEARS      YEARS      TOTAL
ASSETS
<S>                  <C>        <C>        <C>          <C>         <C>        <C>        <C>        <C>        <C>       <C>
Loans                $  3,024   $  9,679   $  2,416     $  3,063    $  3,299   $ 21,481   $  2,960   $ 12,815   $ 59,843  $ 97,099
Allowance for loan
losses                     --         --         --           --          --         --         --         --         --    (1,044)
Loans Held-For-
Sale                      635         --         --           --          --        635         --         --         --       635
Securities(1)           2,381      1,097      1,897        2,087       1,261      8,723      5,787        602        313    15,425
Short-term
Investments             4,156        991         --           --          --      5,147         --         --         --     5,147
Time deposits with
other financial
institutions               --         --        495          486          --        981         --         --         --       981
Other non earning
assets                     --         --         --           --          --         --         --         --         --     7,971
                     --------   --------   --------     --------    --------   --------   --------   --------   --------  --------
Total                $ 10,196   $ 11,767   $  4,808     $  5,636    $  4,560   $ 36,967   $  8,747   $ 13,417   $ 60,156  $126,214
                     ========   ========   ========     ========    ========   ========   ========   ========   ========  ========
LIABILITIES
Noninterest-
bearing deposits     $     --   $     --   $     --     $     --    $     --   $     --   $     --   $     --   $     --  $ 10,767
Interest-bearing
deposits               42,631      2,627      3,670        2,040       2,822     53,790      7,087      3,063         --    63,940
FHLB
borrowings(2)           3,230      7,000      6,000        2,000       1,024     19,254      5,253     10,062        832    35,401
Other liabilities          --         --         --           --          --         --         --         --         --     1,756
Capital                    --         --         --           --          --         --         --         --         --    14,350
                     --------   --------   --------     --------    --------   --------   --------   --------   --------  --------
Total                $ 45,861   $  9,627   $  9,670     $  4,040    $  3,846   $ 73,044   $ 12,340   $ 13,125   $    832  $126,214
                     ========   ========   ========     ========    ========   ========   ========   ========   ========  ========
GAP                  $(35,665)  $  2,140   $ (4,862)    $  1,596    $    714   $(36,077)  $ (3,593)  $    292   $ 59,324
Cumulative GAP       $(35,665)  $(33,525)  $(38,387)    $(36,791)   $(36,077)  $(36,077)  $(39,670)  $(39,378)  $ 19,946
GAP ratio                  22%       122%        50%         140%        119%        51%        71%       102%     7,230%
</TABLE>
----------------------
(1) Maturities reflect probable prepayments and calls.

(2) FHLB borrowings include putable advances, which may be converted to
    adjustable rates or prepaid without penalty beginning one, two or three
    years after the purchase date. The above schedule reflects maturities at
    prepayment date on the putable advances.

The chart shows the Bank's GAP position as of December 31, 2002. The Bank has a
liability sensitive position within one year of approximately $36,077,000, which
would normally indicate higher net interest income may be earned if rates
decrease during the period and lower net interest income may be earned if rates
increase during the period. Due to the limitations of GAP analysis, modeling is
also used to enhance measurement and control. The GAP model used by the Bank
differs from the chart above, in that actual loan prepayment and deposit
longevity experience are also factored into the calculation. Using this method,
the Bank's GAP position at December 31, 2002 was an asset sensitive position of
8.60% at one year. As rates have fallen over the past two years, the Bank has
experienced compression in its ability to lower deposit rates in a manner
equivalent to the decline in earning asset rates.


TEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


CAPITAL RESOURCES

The adequacy of the Company's capital is reviewed regularly to ensure that
sufficient capital is available to meet current and future funding needs and
comply with regulatory requirements.

Shareholders' equity, excluding the net unrealized gain on securities available
for sale, increased $689,000 or 5.11% to $14,178,000 at year-end 2002, which
represented 11.23% of total assets. At December 31, 2001, the similar ratio of
shareholders' equity to total assets was 11.50% of total assets. Dividends
declared per common share increased by 9.86% to $1.56 compared to $1.42 in 2001.
The Company has a strong capital position that will meet our needs in 2003.

Regulators established "risk-based" capital guidelines that became effective
December 31, 1990. Under the guidelines, minimum capital levels, which may
include all or a portion of the allowance for loan losses, are based on the
perceived risk in asset categories and certain off-balance-sheet items, such as
loan commitments and standby letters of credit. On December 31, 2002, the Bank
has a "risk-based" total capital to asset ratio of 19.12%. The ratio exceeds the
requirements established by regulatory agencies as shown below.

IMPACT OF INFLATION AND CHANGING PRICES

The majority of assets and liabilities of the Company are monetary in nature and
therefore the Company differs greatly from most commercial and industrial
companies that have significant investments in fixed assets and inventories.
However, inflation does have an important impact on the growth of assets in the
banking industry and the resulting need to increase equity capital at higher
than normal rates in order to maintain an appropriate equity to assets ratio.
Inflation significantly affects other expenses, which tend to rise during
periods of general inflation.

Management believes the most significant impact on financial results is the
Company's ability to react to changes in interest rates. Management seeks to
maintain an essentially balanced position between interest sensitive assets and
liabilities and actively manage the amount of securities available for sale in
order to protect against the effects of wide interest rate fluctuations on net
income and shareholders' equity.

<TABLE>
<CAPTION>
(Dollars in thousands)                                                                            MINIMUM REQUIRED
                                                                                                     TO BE WELL
                                                                            MINIMUM REQUIRED     CAPITALIZED UNDER
                                                                              FOR CAPITAL        PROMPT CORRECTIVE
                                                           ACTUAL          ADEQUACY PURPOSES    ACTION REGULATIONS
                                                  --------------------     -----------------    ------------------
                                                  AMOUNT         RATIO     AMOUNT      RATIO    AMOUNT      RATIO
<S>                                               <C>           <C>       <C>           <C>     <C>         <C>
DECEMBER 31, 2002
Total capital (to risk weighted assets)           $14,238       19.12%    $ 5,957       8.0%    $7,447      10.0%
Tier 1 capital (to risk weighted assets)           13,306       17.87       2,979       4.0      4,468       6.0
Tier 1 capital (to average assets)                 13,306       10.65       4,997       4.0      6,246       5.0
</TABLE>



Federal and State banking laws and regulations place certain
restrictions on the amount of dividends and loans that a bank can
pay its parent Company. Of the $14,238,000 in risk-based capital,
$7,170,000 is available for dividends to the parent Company in 2002 (before
considering 2003 net income and any changes in risk-based assets). The remaining
$7,068,000 is restricted based on the minimum risk-based capital requirements
and state bank regulations now in effect.


                                                                          ELEVEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

REPORT OF INDEPENDENT AUDITORS


                              [CROWE CHIZEK LOGO]





Board of Directors and Shareholders
Capital Directions, Inc.
Mason, Michigan

We have audited the accompanying consolidated balance sheets of Capital
Directions, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 2002, 2001 and 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Capital Directions,
Inc. as of December 31, 2002 and 2001, and the results of its operations and its
cash flows for the years ended December 31, 2002, 2001 and 2000 in conformity
with accounting principles generally accepted in the United States of America.





                                       Crowe, Chizek and Company LLP


                                       Crowe, Chizek and Company LLP



Grand Rapids, Michigan
January 29, 2003



TWELVE
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.



CAPITAL DIRECTIONS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
(In thousands, except share and per share data)
                                                                                      DECEMBER 31,       2002          2001
<S>                                                                                                    <C>         <C>
ASSETS
Cash and noninterest-bearing deposits ............................................................     $  3,287    $  2,642
Interest-bearing deposits in other financial institutions ........................................        1,917          38
Federal funds sold ...............................................................................        3,230       4,293
                                                                                                       --------    --------
          Total cash and cash equivalents ........................................................        8,434       6,973
Time deposits with other financial institutions ..................................................          981          --
Securities available for sale ....................................................................       12,644      12,200
Securities held to maturity (fair value: 2002 - $400) ............................................          400          --
Federal Home Loan Bank (FHLB) stock ..............................................................        2,381       1,967
Loans held for sale ..............................................................................          635          --
Gross loans ......................................................................................       97,099      92,832
Less allowance for loan losses ...................................................................       (1,044)     (1,048)
                                                                                                       --------    --------
          Net loans ..............................................................................       96,055      91,784
Premises and equipment, net ......................................................................        1,029       1,107
Accrued interest receivable ......................................................................          463         550
Bank owned life insurance ........................................................................        1,794       1,728
Other assets .....................................................................................        1,398         968
                                                                                                       --------    --------
          TOTAL ASSETS ...........................................................................     $126,214    $117,277
                                                                                                       ========    ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:   Noninterest-bearing ..................................................................     $ 10,767    $ 10,470
            Interest-bearing .....................................................................       63,940      60,463
                                                                                                       --------    --------
              Total deposits .....................................................................       74,707      70,933
Accrued interest payable .........................................................................          277         286
Other liabilities ................................................................................        1,479       1,170
FHLB borrowings ..................................................................................       35,401      31,125
                                                                                                       --------    --------
       Total liabilities .........................................................................      111,864     103,514
Shareholders' equity
Common stock: $5 par value, 1,300,000 shares authorized; 589,043 and 595,956 shares
              outstanding in 2002 and 2001 .......................................................        2,945       2,980
Additional paid-in capital .......................................................................        2,231       2,494
Retained earnings ................................................................................        9,002       8,015
Accumulated other comprehensive income, net of tax of $89 in 2002 and $141 in 2001 ...............          172         274
                                                                                                       --------    --------
       Total shareholders' equity ................................................................       14,350      13,763
                                                                                                       --------    --------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................................     $126,214    $117,277
                                                                                                       ========    ========
</TABLE>


See accompanying notes to consolidated financial statements.

                                                                        THIRTEEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENTS OF INCOME
DECEMBER 31, 2002, 2001 AND 2000


<TABLE>
<CAPTION>

(In thousands, except per share data)
                           FOR THE YEARS ENDED DECEMBER 31,       2002       2001       2000
<S>                                                             <C>        <C>        <C>
INTEREST AND DIVIDEND INCOME
  Loans, including fees ...................................     $7,052     $6,837     $7,051

  Securities: Taxable .....................................        505        726        506
              Tax exempt ..................................        168        159        166
  FHLB stock ..............................................        125        146         94
  Federal funds sold and other ............................         47        181        141
                                                                ------     ------     ------
       TOTAL INTEREST AND DIVIDEND INCOME .................      7,897      8,049      7,958
INTEREST EXPENSE
  Deposits ................................................      1,453      2,032      2,506
  FHLB borrowings and other debt ..........................      1,919      1,683      1,292
                                                                ------     ------     ------
       TOTAL INTEREST EXPENSE .............................      3,372      3,715      3,798
                                                                ------     ------     ------
NET INTEREST INCOME .......................................      4,525      4,334      4,160
Provision for loan losses .................................         --         --          6
                                                                ------     ------     ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES .......      4,525      4,334      4,154
NONINTEREST INCOME
  Service charges on deposits .............................        320        320        335
  Net gain on sales of loans ..............................        350         74         --
  Investment commission fees ..............................         49         54         93
  Other ...................................................        286        371        366
                                                                ------     ------     ------
       TOTAL NONINTEREST INCOME ...........................      1,005        819        794
NONINTEREST EXPENSE
  Salaries and employee benefits ..........................      1,576      1,473      1,467
  Occupancy and equipment .................................        345        326        308
  Other ...................................................        831        841        794
                                                                ------     ------     ------
       TOTAL NONINTEREST EXPENSE ..........................      2,752      2,640      2,569
                                                                ------     ------     ------
INCOME BEFORE INCOME TAX EXPENSE ..........................      2,778      2,513      2,379
Income tax expense ........................................        868        775        729
                                                                ------     ------     ------
NET INCOME ................................................     $1,910     $1,738     $1,650
                                                                ======     ======     ======
Basic earnings per common share ...........................     $ 3.23     $ 2.91     $ 2.76
                                                                ======     ======     ======
Diluted earnings per common share .........................     $ 3.20     $ 2.88     $ 2.74
                                                                ======     ======     ======
</TABLE>

See accompanying notes to consolidated financial statements.


FOURTEEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2002, 2001 AND 2000


<TABLE>
<CAPTION>
(In thousands)
                                                FOR THE YEARS ENDED DECEMBER 31,       2002           2001          2000
<S>                                                                                  <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income ...................................................................     $  1,910      $  1,738      $  1,650
  Adjustments to reconcile net income to net cash from operating activities
    Depreciation ...............................................................          118           129           115
    Provision for loan losses ..................................................           --            --             6
    Net amortization (accretion) on securities .................................           16             5            (1)
    Loans originated for sale ..................................................      (15,463)       (3,815)           --
    Proceeds from sales of loans originated for sale ...........................       15,178         3,889            --
    Net gain on sales of loans .................................................         (350)          (74)           --
    Stock-based compensation expense ...........................................            1            --            --
    Changes in assets and liabilities:  Accrued interest receivable ............           87           113          (148)
                                        Accrued interest payable ...............           (9)          (71)           45
                                        Other assets ...........................         (444)         (157)          (34)
                                        Other liabilities ......................          299            83            64
                                                                                     --------      --------      --------
                                              NET CASH FROM OPERATING ACTIVITIES        1,343         1,840         1,697

CASH FLOWS FROM INVESTING ACTIVITIES
  Net change in time deposits with other financial institutions ................         (981)           --            --
  Securities available for sale:  Purchases ....................................       (4,908)       (1,028)       (8,202)
                                  Maturities, calls, and principal payments ....        4,294         4,714         2,428
  Securities held for sale:       Purchases.....................................         (400)           --            --
  Purchase of FHLB stock .......................................................         (414)           --          (992)
  Net change in loans ..........................................................       (4,271)       (7,188)        3,322
  Premises and equipment expenditures ..........................................          (40)         (289)         (294)
                                                                                     --------      --------      --------
                                              NET CASH FROM INVESTING ACTIVITIES       (6,720)       (3,791)       (3,738)

CASH FLOWS FROM FINANCING ACTIVITIES
  Net change in deposits .......................................................        3,774        (1,490)          393
  Net change in federal funds purchased ........................................           --            --        (1,700)
  Proceeds from FHLB borrowings ................................................       17,500         7,000        12,700
  Repayment of FHLB borrowings .................................................      (13,224)       (4,214)       (3,222)
  Proceeds from shares issued upon exercise of stock options ...................           18            12            21
  Repurchase of common stock ...................................................         (317)         (118)           --
  Cash dividends paid ..........................................................         (913)         (832)         (736)
                                                                                     --------      --------      --------
                                              NET CASH FROM FINANCING ACTIVITIES        6,838           358         7,456
                                                                                     --------      --------      --------

Net change in cash and cash equivalents ........................................        1,461        (1,593)        5,415
Cash and cash equivalents at beginning of year .................................        6,973         8,566         3,151
                                                                                     --------      --------      --------
                                        CASH AND CASH EQUIVALENTS AT END OF YEAR     $  8,434      $  6,973      $  8,566
                                                                                     ========      ========      ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for:  Interest .....................................     $  3,381      $  3,786      $  3,753
                                  Income taxes - federal .......................          805           802           730
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
  Transfer from loans to other real estate owned ...............................           --            --           133
</TABLE>



See accompanying notes to consolidated financial statements.

                                                                         FIFTEEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.



CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
(In thousands, except share and per share data)                                                        ACCUMULATED
                                                                                                          OTHER
                                         FOR THE YEARS ENDED                ADDITIONAL                COMPREHENSIVE      TOTAL
                                          DECEMBER 31, 2002,   COMMON        PAID-IN      RETAINED       INCOME,      SHAREHOLDERS'
                                               2001 AND 2000    STOCK        CAPITAL      EARNINGS      NET OF TAX       EQUITY


<S>                                                           <C>           <C>           <C>         <C>             <C>
BALANCES, JANUARY 1, 2000 ..................................  $  2,983      $  2,576      $  6,236      $     33        $ 11,828
Net income for the year ....................................        --            --         1,650            --           1,650
Other comprehensive income (loss), net:
  Net change in net unrealized gain (loss) on securities
    available for sale, net of tax of $49 ..................        --            --            --            95              95
                                                                                                                        --------
    Comprehensive income ...................................                                                               1,745
Issuance of 1,434 shares of common stock upon exercise
  of stock options .........................................         7            14            --            --              21
Cash dividends ($1.27 per share) ...........................        --            --          (760)           --            (760)
                                                              --------      --------      --------      --------        --------
BALANCES, DECEMBER 31, 2000 ................................  $  2,990      $  2,590      $  7,126      $    128        $ 12,834
Net income for the year ....................................        --            --         1,738            --           1,738
Other comprehensive income (loss), net:
  Net change in net unrealized gain (loss) on securities
  available for sale, net of tax of $75 ....................        --            --            --           146             146
                                                                                                                        --------
    Comprehensive income ...................................                                                               1,884
Issuance of 900 shares of common stock upon exercise of
  stock options ............................................         5             7            --            --              12
Repurchase of 3,000 shares of common stock .................       (15)         (103)           --            --            (118)
Cash dividends ($1.42 per share) ...........................        --            --          (849)           --            (849)
                                                              --------      --------      --------      --------        --------
BALANCES, DECEMBER 31, 2001 ................................  $  2,980      $  2,494      $  8,015      $    274        $ 13,763
Net income for the year ....................................        --            --         1,910            --           1,910
Other comprehensive income (loss), net:
  Net change in net unrealized gain (loss) on securities
  available for sale, net of tax of ($52) ..................        --            --            --          (102)           (102)
                                                                                                                        --------
    Comprehensive income ...................................                                                               1,808
Issuance of 1,000 shares of common stock upon exercise of
  stock options ............................................         5            13            --            --              18
Stock-based compensation expense ...........................        --             1            --            --               1
Repurchase of 7,913 shares of common stock .................       (40)         (277)           --            --            (317)
Cash dividends ($1.56 per share) ...........................        --            --          (923)           --            (923)
                                                              --------      --------      --------      --------        --------
BALANCES, DECEMBER 31, 2002 ................................  $  2,945      $  2,231      $  9,002      $    172        $ 14,350
                                                              ========      ========      ========      ========        ========
</TABLE>



See accompanying notes to consolidated financial statements.



SIXTEEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF REPORTING: Capital Directions, Inc. (the "Company") is a holding
company whose wholly owned subsidiary includes Mason State Bank (the "Bank").
Lakeside Insurance Agency is a wholly owned subsidiary of the Bank. Mason State
Mortgage Co., LLC (the "Mortgage Company") was formed in July of 2002 and is 99%
owned by Mason State Bank. The remaining 1% is owned by Capital Directions, Inc.
The accounting policies of the Company and its subsidiaries conform with
accounting principles generally accepted in the United States of America and
prevailing practices within the banking and securities industry. The accrual
basis of accounting is followed for all major items in the preparation of the
consolidated financial statements. All material intercompany balances and
transactions are eliminated in consolidation.

NATURE OF OPERATIONS AND LINES OF BUSINESS: The Company and its subsidiaries
provide a broad range of banking and financial services. Substantially all
revenues and services are derived from banking products and services. The Bank
operates predominantly in Central Michigan as a commercial bank. The Bank's
primary services include accepting retail deposits and making residential,
consumer and commercial loans. While the Company's chief decision-makers monitor
the revenue streams of the various products and services, operations are managed
and financial performance is evaluated on a Company wide basis. Accordingly, all
of the Company's banking operations are considered by management to be
aggregated in one reportable operating segment.

CONCENTRATION OF CREDIT RISK: The Company grants loans to and accepts deposits
from customers located primarily in its delineated community. The Company also
invests in securities issued by local governmental units.

USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided. Actual results could differ
from those estimates. The allowance for loan losses and fair values of
securities and other financial instruments are particularly susceptible to
change in the near term.

CASH FLOW REPORTING: Cash and cash equivalents are defined to include cash on
hand, noninterest-bearing deposits in other institutions, short-term
interest-bearing deposits in other institutions and federal funds sold. Customer
loan and deposit transactions, cash management funds, long-term interest-bearing
deposits made with other financial institutions, and short-term borrowings with
an original maturity of 90 days or less are reported on a net cash flow basis.

SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold prior to maturity due to changes in interest rates, prepayment risks, yield
and availability of alternative investments, liquidity needs, or other factors.
Securities classified as available for sale are reported at their fair value and
the net unrealized holding gain or loss is reported, net of related income tax
effects, as a separate component of other comprehensive income or loss and
shareholders' equity, until realized. Other securities such as Federal Home Loan
Bank stock are carried at cost. Securities are written down to fair value when a
decline in fair value is not temporary.

Gains and losses resulting from the sale of securities are computed by the
specific identification method. Premium amortization is deducted from, and
discount accretion is added to, interest income from securities using the
level-yield method.

LOANS: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses. Loans held for sale are reported at the lower of
cost or market, on an aggregate basis.

Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income on mortgage
and commercial loans is discontinued at the time the loan is 90 days delinquent
unless the credit is well-secured and in process of collection. Consumer loans
are typically charged off no later than 180 days past due. In all cases, loans
are placed on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed
against interest income. Interest received on such loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.






                                                                       SEVENTEEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Estimating the risk of
the loss and amount of loss on any loan is necessarily subjective. Accordingly,
the allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on its regular review of
nonperforming assets, as well as loans 90 days or more past due but not
considered nonperforming, charge-offs and recoveries, growth and portfolio mix
of loans, general economic conditions, and other factors and estimates which are
subject to change over time. While management may periodically allocate portions
of the allowance for specific problem loan situations, the whole allowance is
available for any loan charge-offs that occur. A loan is charged-off against the
allowance by management as a loss when deemed uncollectible, although collection
efforts may continue and future recoveries may occur.

Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of the collateral if repayment is expected solely from collateral. Loans
totaling $75,000 or more are evaluated for impairment when payments are delayed,
typically 90 days or more, or when it is probable that all principal and
interest will not be collected according to the original terms of the loan.

PREMISES AND EQUIPMENT: Asset cost is reported net of accumulated depreciation.
Depreciation expense is calculated on both accelerated and straight-line methods
over asset useful lives. These assets are reviewed for impairment when events
indicate the carrying amount may not be recoverable.

OTHER REAL ESTATE: Real estate acquired in settlement of loans is reported at
the lower of fair value less cost to sell or cost. Expenses, gains and losses on
disposition, and changes in the valuation allowance are reported in other
operating expense. There was no other real estate at December 31, 2002. There
was one property with a carrying value of approximately $117,000 held as other
real estate at December 31, 2001.

SERVICING ASSETS: Servicing assets represent purchased rights and the allocated
value of retained servicing rights on loans sold. Servicing rights are expensed
in proportion to, and over the period of, estimated net servicing revenues.
Impairment is evaluated regularly based on the fair value of the assets, using
groupings of similar loan types and then, secondarily, as to prepayment
characteristics. Actual prepayment and adjustment of amortization speed is
evaluated on a quarterly basis. Servicing assets had a carrying value of
$310,000 and $71,000 at year-end 2002 and 2001.

BANK OWNED LIFE INSURANCE: The Company has purchased life insurance policies on
certain directors. Bank owned life insurance is recorded at its cash surrender
value, or the amount that can be realized, which was $1,794,000 and $1,728,000
at year-end 2002 and 2001.



EIGHTEEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


STOCK COMPENSATION: The Company's only stock-based compensation plan is a stock
option plan, which is described more fully in Note 9. Prior to 2002, the Company
accounted for this plan under the recognition and measurement provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees. No stock-based
compensation cost is reflected in 2001 or 2000 net income, as all options
granted under this plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. Effective January 1, 2002, the
Company adopted the fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, prospectively to all employee awards
granted, modified, or settled after January 1, 2002. Awards under the Company's
plan vest over a five-year period. Therefore, the cost related to stock-based
compensation included in the determination of net income for 2002 is less than
that which would have been recognized if the fair value based method had been
applied to all awards since the original effective date of SFAS No. 123.

The following table illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all outstanding and unvested
awards in each period.

<TABLE>
<CAPTION>
(In thousands, except
per share data)                           2002           2001            2000

<S>                                     <C>            <C>            <C>
Net income as reported ...........      $ 1,910        $ 1,738        $ 1,650
Add: stock-based compensation
  expense included in reported
  net income .....................            1             --             --
Deduct: stock-based compensation
  expense determined under
  fair value based method ........          (12)           (11)           (13)
                                        -------        -------        -------
PRO FORMA NET INCOME .............      $ 1,899        $ 1,727        $ 1,637
                                        =======        =======        =======
Basic earnings per share
  as reported ....................      $  3.23        $  2.91        $  2.76
Pro forma basic earnings
  per share ......................         3.21           2.89           2.74
Diluted earnings per share
  as reported ....................      $  3.20        $  2.88        $  2.74
Pro forma diluted earnings
  per share ......................         3.19           2.86           2.71
</TABLE>

Stock-based compensation expense was computed using option
pricing models, using the following weighted average assumptions
as of the grant date:

<TABLE>
<CAPTION>
                                         2002        2001        2000
<S>                                    <C>        <C>          <C>
Risk-free interest rate                  4.27%      4.95%        6.57%
Expected option life                    5 years    5 years      5 years
Expected stock price volatility          3.65%      3.90%        4.64%
Expected dividend yield                  4.15%      3.44%        3.16%
</TABLE>

INCOME TAXES: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are computed based on the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities, using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.

FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.

EARNINGS AND DIVIDENDS PER COMMON SHARE: Basic earnings per common share is
based on net income divided by the weighted average number of common shares
outstanding during the period. Diluted earnings per common share shows the
dilutive effect of any additional potential common shares. Earnings and
dividends per common share are restated for stock splits and stock dividends.

COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
comprehensive income or loss. Other comprehensive income or loss includes net
unrealized gains and losses on securities available for sale, net of tax, which
are also recognized as a separate component of shareholders' equity.

RESTRICTIONS ON CASH: Cash on hand or on deposit with the Federal Reserve Bank
of $592,000 and $401,000 was required to meet regulatory reserve and clearing
requirements at year-end 2002 and 2001. These balances do not earn interest.

NEWLY ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS: New accounting
standards on asset retirement obligations, restructuring activities and exit
costs, operating leases, and early extinguishment of debt were issued in 2002.
Management determined that when the new accounting standards are adopted in 2003
they will not have a material impact on the Company's financial condition or
results of operations.

RECLASSIFICATIONS: Some items in the prior year financial statements were
reclassified to conform to the current presentation.

                                               NINETEEN
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.



NOTE 2 - SECURITIES

The fair value of available for sale securities and the related gross unrealized
gains and losses recognized in accumulated other comprehensive income were as
follows:

<TABLE>
<CAPTION>
(In thousands)                                                 GROSS          GROSS
                                                FAIR         UNREALIZED     UNREALIZED
                                                VALUE          GAINS          LOSSES
<S>                                            <C>            <C>            <C>
2002
Obligations of U.S. Government
treasuries and agencies ................       $ 5,535        $   105        $    --
Obligations of states and
political subdivisions .................         5,581            133             (1)
Corporate securities ...................         1,528             24             --
                                               -------        -------        -------
  TOTALS ...............................       $12,644        $   262        $    (1)
                                               =======        =======        =======
2001
Obligations of U.S. Government
treasuries and agencies ................       $ 5,903        $   202        $    --
Obligations of states and
political subdivisions .................         3,182             99             --
Corporate securities ...................         3,115            114             --
                                               -------        -------        -------
  TOTALS ...............................       $12,200        $   415        $    --
                                               =======        =======        =======
</TABLE>

The carrying amount, unrecognized gains and losses, and fair value
of securities held to maturity were as follows:

<TABLE>
<CAPTION>
(In thousands)                  GROSS         GROSS
                   CARRYING  UNRECOGNIZED  UNRECOGNIZED   FAIR
                   AMOUNT       GAINS         LOSSES      VALUE

<S>                <C>       <C>           <C>           <C>
2002
Corporate
securities         $    400     $     --   $     --      $ 400
</TABLE>

There were no securities held to maturity at year-end 2001.

The fair value of debt securities and carrying amount, if
different, at year-end 2002 by contractual maturity were as
follows. Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately.

<TABLE>
<CAPTION>
(In thousands)                                        AVAILABLE
                                HELD-TO-MATURITY       FOR SALE
                             ----------------------   ---------
                             CARRYING      FAIR          FAIR
                              AMOUNT       VALUE         VALUE

<S>                          <C>          <C>          <C>
Due in one year or less      $     --     $   --       $ 4,831
Due from one to five years         --         --         5,787
Due from five to ten years         --         --         1,419
Due after ten years               400        400           206
Mortgage-backed                    --         --           401
                             --------     ------       -------
   TOTALS                    $    400     $  400       $12,644
                             ========     ======       =======
</TABLE>

Securities pledged at year-end 2002 and 2001 had a carrying amount
of $3,472,000 and $3,145,000, and were pledged to secure public
deposits and repurchase agreements.

At year-end 2002 and 2001, there were no holdings of securities of any one
issuer, other than the U.S. Government and its agencies, in an amount greater
than 10% of shareholders' equity.


TWENTY
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.



NOTE 3 - LOANS

Year-end loans were as follows:

<TABLE>
<CAPTION>
(In thousands) ....................          2002           2001
<S>                                       <C>            <C>
Commercial and agricultural .......       $ 5,990        $ 5,188
Real estate mortgage ..............        89,383         85,378
Installment .......................         1,726          2,266
                                          -------        -------
    TOTALS ........................       $97,099        $92,832
                                          =======        =======
</TABLE>

Certain directors, executive officers and principal shareholders of the Company,
including associates of such persons, were loan customers of the Company. A
summary of activity related to these loans follows:

<TABLE>
<CAPTION>
(In thousands) .........................           2002            2001
<S>                                             <C>             <C>
Balance, January 1 .....................        $ 2,048         $ 2,200
New loans ..............................            754             546
Repayments .............................         (1,276)           (698)
                                                -------         -------
BALANCE, DECEMBER 31 ...................        $ 1,526         $ 2,048
                                                =======         =======
</TABLE>

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses was as follows:

<TABLE>
<CAPTION>
(In thousands) .......................           2002            2001            2000
<S>                                           <C>             <C>             <C>
Balance, beginning of period .........        $ 1,048         $ 1,053         $ 1,055
Loans charged-off ....................            (14)            (36)            (27)
Recoveries ...........................             10              31              19
Provision for loan losses ............             --              --               6
                                              -------         -------         -------
BALANCE, END OF PERIOD ...............        $ 1,044         $ 1,048         $ 1,053
                                              =======         =======         =======
</TABLE>

During 2002, 2001 and 2000, the Company had no loans which were considered
impaired.

Nonperforming loans were as follows:

<TABLE>
<CAPTION>
(In thousands) ...............................        2002        2001
<S>                                                   <C>         <C>
Loans past due over 90 days still on accrual..        $  5        $255
Nonaccrual loans .............................          59          20
Renegotiated loans ...........................          24          28
</TABLE>

Nonperforming loans and impaired loans are defined differently. Some loans may
be included in both categories, whereas other loans may only be included in one
category.

NOTE 5 - PREMISES AND EQUIPMENT, NET

Year-end premises and equipment were as follows:

<TABLE>
<CAPTION>
(In thousands) .................................           2002            2001
<S>                                                     <C>             <C>
Land ...........................................        $    86         $    86
Buildings and improvements .....................          1,465           1,471
Furniture and equipment ........................          2,567           2,623
                                                        -------         -------
   Total cost ..................................          4,118           4,180
Less accumulated depreciation ..................         (3,089)         (3,073)
                                                        -------         -------
PREMISES AND EQUIPMENT, NET ....................        $ 1,029         $ 1,107
                                                        =======         =======
</TABLE>


                                                                      TWENTY-ONE
<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


NOTE 6 - INTEREST-BEARING DEPOSITS

Year-end interest-bearing deposits were as follows:

<TABLE>
<CAPTION>
(In thousands)                                             2002      2001
<S>                                                      <C>       <C>
Interest-bearing demand ..............................   $11,391   $10,177
Savings...............................................    25,374    20,003
Time: In denominations less than $100,000.............    20,482    18,505
      In denominations of $100,000 or more ...........     6,693    11,778
                                                         -------   -------
TOTAL INTEREST-BEARING DEPOSITS.......................   $63,940   $60,463
                                                         =======   =======
</TABLE>

At year-end 2002, stated maturities of time deposits were as follows:

<TABLE>
<CAPTION>
(In thousands)
<S>                <C>
2003............   $13,981
2004............     5,527
2005............     2,178
2006............     1,519
2007............     3,970
Thereafter......        --
                   -------
TOTAL ..........   $27,175
                   =======
</TABLE>

Related party deposits totaled approximately $1,072,000 and $1,049,000 at
year-end 2002 and 2001.


NOTE 7 - FHLB BORROWINGS

At year-end 2002, the Company had $35,401,000 in advances from the Federal Home
Loan Bank with maturities ranging from January 2003 to April 2012 and rates,
which were primarily fixed, ranging from 3.83% to 7.61% and averaging 5.44%. At
year-end 2001, the Company had $31,125,000 in advances from the Federal Home
Loan Bank with maturities ranging from January 2003 to December 2010 and rates,
which were primarily fixed, ranging from 4.98% to 7.61% and averaging 5.63%.

At year-end 2002, $11,000,000 of the Company's outstanding advances were
putable, for which the FHLB has the option to convert the advance to an
adjustable rate beginning one, two or three years after the purchase date,
depending on the advance, and quarterly thereafter.

Each advance has a prepayment penalty which is determined based upon the lost
cash flow to the FHLB. In addition to FHLB stock, the advances were
collateralized by approximately $72,643,000 and $63,741,000 of first mortgage
and small business association loans under a blanket lien arrangement at
year-end 2002 and 2001.

At year-end 2002, scheduled principal reductions on these advances were:


<TABLE>
<CAPTION>
(In thousands)
<S>                <C>
2003............   $ 9,254
2004............     1,025
2005............     3,228
2006............     8,030
2007............     3,032
Thereafter......    10,832
                   -------
TOTAL ..........   $35,401
                   =======
</TABLE>


TWENTY-TWO

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

NOTE 8 - BENEFIT PLANS

A retirement and savings plan has been established for all full-time employees.
Annual matching contributions are made based on a percentage of participants'
compensation plus a discretionary amount determined by the Board of Directors.
The expense for the plan was approximately $51,000 in 2002, $44,000 in 2001 and
$42,000 in 2000.

An incentive compensation plan is also maintained for certain employees and is
based upon key performance factors. The expense for the plan was approximately
$87,000 in 2002, $71,000 in 2001 and $67,000 in 2000.

A stock option plan was approved in 1994 to provide officers and other key
employees an opportunity to acquire a proprietary interest in the Company with
an incentive to their continued employment and efforts to promote the Company's
success. Under the plan, up to 40,000 unauthorized and newly issued shares of
common stock may be issued upon exercise of stock options granted under the
plan. The plan provides for stock options to be granted at prices that
approximate the fair value of the stock at the respective dates of grant. The
vesting of stock options does not start until two years from the date of grant.
After two years, the options will vest evenly over a three-year period. The plan
terminates on May 20, 2003. All shares and per share amounts have been restated
for stock splits.

A summary of activity in the plan is as follows:

<TABLE>
<CAPTION>
                                                  WEIGHTED   WEIGHTED
                                                  AVERAGE    AVERAGE
                            AVAILABLE   OPTIONS   EXERCISE  GRANT DATE
                            FOR GRANT OUTSTANDING   PRICE   FAIR VALUE
<S>                         <C>       <C>         <C>       <C>
Balance
  January 1, 2000 ........    20,462     17,772    $25.85
Granted ..................    (5,000)     5,000     40.90     $ 5.56
Exercised ................        --     (1,434)    14.34
Forfeited ................     1,131     (1,131)    29.44
                              ------     ------
Balance
  December 31, 2000 ......    16,593     20,207     30.19
Granted ..................    (4,000)     4,000     40.00       2.75
Exercised ................        --       (900)    12.75
Forfeited ................     1,300     (1,300)    39.65
                              ------     ------
Balance
  December 31, 2001.......    13,893     22,007     32.12
Granted ..................    (4,000)     4,000     38.00       1.10
Exercised ................        --     (1,000)    18.00
Forfeited ................        --         --        --
                              ------     ------
BALANCE
  DECEMBER 31, 2002 ......     9,893     25,007    $33.63
                              ======     ======    ======
</TABLE>

Options outstanding at year-end 2002 were as follows:

<TABLE>
<CAPTION>
                                         OUTSTANDING                 EXERCISABLE
                                 ------------------------------   ------------------
                                           WEIGHTED
                                           AVERAGE     WEIGHTED             WEIGHTED
                                           REMAINING   AVERAGE              AVERAGE
                                          CONTRACTUAL  EXERCISE             EXERCISE
                                 NUMBER      LIFE       PRICE      NUMBER    PRICE
<S>                              <C>      <C>          <C>        <C>       <C>
RANGE OF EXERCISE PRICES
$12.75 - $21.875.............     5,467      3.62       $19.76     5,467     $19.76
$32.00 - $35.75..............     7,240      5.65        33.82     5,996      33.47
$38.00 - $41.50..............    12,300      7.73        39.68     1,565      40.86
                                 ------                           ------
Outstanding at year end......    25,007      6.42       $33.63    13,028     $28.61

</TABLE>

A deferred compensation plan has been adopted to provide retirement benefits to
the directors, at their option, in lieu of annual directors' fees. The present
value of future benefits are accrued annually over the period of active service
of each participant. The expense for the plan was $91,000 in 2002, $96,000 in
2001 and $93,000 in 2000.

                                                                    TWENTY-THREE

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


NOTE 9 - INCOME TAX

Income tax expense consists of:

<TABLE>
<CAPTION>
(In thousands)                              2002        2001        2000
<S>                                        <C>         <C>         <C>
Taxes currently payable ...............    $ 818       $ 746       $ 742
Deferred expense (benefit).............       50          29         (13)
                                           -----       -----       -----
TOTAL..................................    $ 868       $ 775       $ 729
                                           =====       =====       =====
</TABLE>

Year-end deferred tax assets and liabilities consist of:

<TABLE>
<CAPTION>
(In thousands)                        2002     2001     2000
<S>                                  <C>      <C>      <C>
Deferred tax assets
   Allowance for loan losses ....... $ 240    $ 240    $ 240
   Deferred compensation ...........   349      333      326
   Other ...........................     8        3        1
                                     -----    -----    -----
                                       597      576      567
Deferred tax liabilities
   Fixed assets ....................   (59)     (54)     (48)
   Net unrealized gain on
     securities available for sale..   (89)    (141)     (66)
   Mortgage servicing rights .......  (105)     (24)      --
   Other ...........................    (7)     (22)     (14)
                                     -----    -----    -----
                                      (260)    (241)    (128)
                                     -----    -----    -----
TOTAL .............................. $ 337    $ 335    $ 439
                                     =====    =====    =====
</TABLE>

An allowance against deferred tax assets has not been recorded for 2002, 2001 or
2000.

The difference between the financial statement income tax expense and the
amounts computed by applying the federal income tax rate to pretax income is
reconciled as follows:


<TABLE>
<CAPTION>
(In thousands)                         2002      2001      2000
<S>                                   <C>       <C>       <C>
Statutory rate ....................      34%       34%       34%
Income tax computed at
  statutory rate ..................   $ 944     $ 854     $ 809
Tax effect of: Nontaxable income ..     (53)      (56)      (56)
               Other ..............     (23)      (23)      (24)
                                      -----     -----     -----
TOTAL .............................   $ 868     $ 775     $ 729
                                      =====     =====     =====
</TABLE>

NOTE 10 - EARNINGS PER COMMON SHARE

A reconciliation of the numerators and denominators of the basic earnings per
common share and diluted earnings per common share computations for the years
ended is presented below:


<TABLE>
<CAPTION>
(In thousands, except per share data)     2002     2001     2000
<S>                                      <C>      <C>      <C>
Basic earnings per common share:
   Net income available to common
   shareholders ......................   $1,910   $1,738   $1,650
                                         ======   ======   ======
   Weighted average common
   shares outstanding ................      592      598      598
                                         ======   ======   ======
   BASIC EARNINGS PER
   COMMON SHARE ......................   $ 3.23   $ 2.91   $ 2.76
                                         ======   ======   ======
Diluted earnings per common share:
   Net income available to common
   shareholders ......................   $1,910   $1,738   $1,650
                                         ======   ======   ======
   Weighted average common
   shares outstanding for basic
   earnings per common share .........      592      598      598
   Add: dilutive effect of assumed
   exercise of stock options .........        4        5        5
                                         ------   ------   ------
   Weighted average common
   shares outstanding for diluted
   earnings per common share .........      596      603      603
                                         ======   ======   ======
   DILUTED EARNINGS PER
   COMMON SHARE ......................   $ 3.20   $ 2.88   $ 2.74
                                         ======   ======   ======
</TABLE>


Stock options for 3,700, 8,000 and 4,000 shares of common stock were not
considered in computing diluted earnings per common share in 2002, 2001 and 2000
because they were not dilutive.


TWENTY-FOUR

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.



NOTE 11 - COMMITMENTS AND CONTINGENCIES

Periodically, in the normal course of business, there are various outstanding
commitments and contingent liabilities, such as commitments to extend credit and
guarantees, which are not reflected in the accompanying consolidated financial
statements. The exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for unused lines of credit, commitments
to make loans and standby letters of credit is represented by the contractual
amount of those instruments. The same credit policy to make commitments is
followed for those loans recorded in the consolidated financial statements.

The contract amounts of these financial instruments are as follows at year-end:

<TABLE>
<CAPTION>
(In thousands)                   2002     2001
<S>                             <C>      <C>
Unused lines of credit ......   $7,093   $6,505
Commitments to make loans ...      757    1,542
Standby letters of credit ...       65       10
</TABLE>

Commitments are generally made at variable rates, primarily tied to the Wall
Street Journal prime rate, with maximum commitment periods generally around 365
days. Since many of the commitments to make loans expire without being used, the
amount does not necessarily represent future cash commitments. Collateral
obtained upon the exercise of the commitments is determined using management's
credit evaluation of the borrower and may include real estate, vehicles,
business assets, deposits and other items. In management's opinion, these
commitments represent normal banking transactions and no material losses are
expected to result.


NOTE 12 - REGULATORY MATTERS

The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings, and other factors, and the
regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the consolidated financial statements.

The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If only adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:

<TABLE>
<CAPTION>
                                    CAPITAL TO          TIER 1
                               RISK-WEIGHTED ASSETS  CAPITAL TO
                               --------------------   AVERAGE
                                 TOTAL     TIER 1      ASSETS
<S>                            <C>       <C>         <C>
Well capitalized ...............   10%       6%          5%
Adequately capitalized .........    8        4           4
Undercapitalized ...............    6        3           3
</TABLE>

At year-end, the Bank's actual capital levels and minimum required levels were:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                                 MINIMUM REQUIRED TO
                                                                    MINIMUM REQUIRED   BE WELL CAPITALIZED
                                                                       FOR CAPITAL    UNDER PROMPT CORRECTIVE
                                                     ACTUAL         ADEQUACY PURPOSES   ACTION REGULATIONS
                                                -------------------------------------------------------------
                                                AMOUNT    RATIO     AMOUNT     RATIO    AMOUNT      RATIO
<S>                                            <C>        <C>      <C>       <C>        <C>         <C>
2002
Total Capital (to risk weighted assets) ....   $14,238     19.1%   $ 5,957   $   8.0%   $ 7,447     10.0%
Tier 1 capital (to risk weighted assets) ...    13,306     17.9      2,979       4.0      4,468      6.0
Tier 1 capital (to average assets) .........    13,306     10.7      4,997       4.0      6,246      5.0
2001
Total Capital (to risk weighted assets) ....   $14,358     19.6%   $ 5,877       8.0%   $ 7,346     10.0%
Tier 1 capital (to risk weighted assets) ...    13,438     18.3      2,938       4.0      4,407      6.0
Tier 1 capital (to average assets) .........    13,438     11.6      4,627       4.0      5,783      5.0
</TABLE>

The Bank was considered well capitalized at year-end 2002 and 2001.

Federal and state banking laws and regulations place certain restrictions on the
amount of dividends and loans a bank can pay to its parent company. Under the
most restrictive of these regulations, as of year-end 2002, the Bank could pay
approximately $7,170,000 in dividends to the parent company without prior
regulatory approval.


                                                                     TWENTY-FIVE

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amount is considered to estimate fair values
for cash and cash equivalents, demand and savings deposits, short-term
borrowings, accrued interest, FHLB stock and variable rate loans or deposits
that reprice frequently and fully. Securities fair values are based on quoted
market prices or, if no quotes are available, on the rate and term of the
security and on information about the issuer. For fixed rate loans or time
deposits and for variable rate loans or time deposits with infrequent repricing
or repricing limits, the fair value is estimated by discounted cash flow
analysis using current market rates for the estimated life and credit risk. Fair
values for impaired loans are estimated using discounted cash flow analysis or
underlying collateral values, where applicable. Fair value of loans held for
sale is based on market estimates. The allowance for loan losses is considered
to be a reasonable estimate of discount for credit quality concerns. The fair
value of debt is based on currently available rates for similar financing. The
fair value of off-balance-sheet items is based on the fees or costs that would
currently be charged to enter into or terminate such arrangements and are not
material to this presentation.

The estimated year-end fair values of financial instruments were as follows:

<TABLE>
<CAPTION>
(In thousands)                       2002                     2001
                           ----------------------    ----------------------
                            CARRYING   ESTIMATED      CARRYING   ESTIMATED
                             VALUE     FAIR VALUE      VALUE     FAIR VALUE
<S>                        <C>         <C>           <C>         <C>
FINANCIAL ASSETS
Cash and cash
   equivalents .........   $   8,434    $   8,434    $   6,973    $   6,973
Time deposits with
   other financial
   institutions ........         981          981           --           --
Securities available
   for sale ............      12,644       12,644       12,200       12,200
Securities held to
   maturity ............         400          400           --           --
FHLB stock .............       2,381        2,381        1,967        1,967
Loans held for sale ....         635          635           --           --
Loans, net of
   allowance for
   loan losses .........      96,055      101,532       91,784       92,155
Accrued interest
   receivable ..........         463          463          550          550
FINANCIAL
LIABILITIES
Deposits ...............     (74,707)     (75,392)     (70,933)     (71,607)
FHLB
   borrowings ..........     (35,401)     (38,113)     (31,125)     (31,298)
Accrued interest
   payable .............        (277)        (277)        (286)        (286)
</TABLE>


While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at year-end 2002 or 2001, the estimated fair values would
necessarily have been achieved at that date, since the market values may differ
depending on various circumstances. Also, the use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The estimated fair values at year-end 2002 and
2001 should not necessarily be considered to apply at subsequent dates.

In addition, other assets and other liabilities of the Company that are not
defined as financial instruments are not included in the above disclosures, such
as premises and equipment. Also, non-financial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the trained workforce,
customer goodwill and similar items.

TWENTY-SIX

<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


NOTE 14 - CAPITAL DIRECTIONS, INC. (PARENT COMPANY
ONLY) - CONDENSED FINANCIAL INFORMATION

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
(In thousands)        DECEMBER 31,                2002       2001
<S>                                              <C>       <C>
ASSETS
Cash, due from banks, and other
cash equivalents .............................   $    33   $    25
Investment in Mason State Bank ...............    13,509    13,719
Investment in Mason State Mortgage Co., LLC ..       796        --
Other assets .................................       242       239
                                                 -------   -------
   TOTAL ASSETS ..............................   $14,580   $13,983
                                                 =======   =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable ............................   $   230   $   220
Shareholders' equity .........................    14,350    13,763
                                                 -------   -------
   TOTAL LIABILITIES AND
   SHAREHOLDERS' EQUITY ......................   $14,580   $13,983
                                                 =======   =======
</TABLE>


CONDENSED STATEMENTS OF INCOME (YEARS ENDED DECEMBER 31,)

<TABLE>
<CAPTION>
(In thousands)                           2002      2001    2000
<S>                                     <C>      <C>      <C>
OPERATING INCOME
Dividends from Mason State Bank .....   $1,723   $  848   $  760

OPERATING EXPENSES
Wages and benefits ..................       25       19        6
Other expenses and income tax
benefit .............................       21       14       14
                                        ------   ------   ------
                                            46       33       20
                                        ------   ------   ------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED NET INCOME OF
SUBSIDIARIES ........................    1,677      815      740
Equity in undistributed net income
of Mason State Bank .................      208      923      910
Equity in undistributed income
of Mason State Mortgage
Company, LLC ........................       25       --       --
                                        ------   ------   ------
                                           233      923      910
                                        ------   ------   ------
NET INCOME ..........................   $1,910   $1,738   $1,650
                                        ======   ======   ======
</TABLE>

Other comprehensive income and comprehensive income for the Parent Company are
equal to the amounts reported for the Consolidated Company for 2002, 2001 and
2000 as disclosed in the Consolidated Statements of Changes in Shareholders'
Equity.

CONDENSED STATEMENTS OF CASH FLOWS (YEARS ENDED DECEMBER 31,)

<TABLE>
<CAPTION>
(In thousands)                             2002       2001      2000
<S>                                      <C>        <C>        <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income ...........................   $ 1,910    $ 1,738    $ 1,650
Adjustments to reconcile
net income to net cash
from operating activities
   Equity in undistributed net
   income of subsidiaries ............      (233)      (923)      (910)
   Change in other assets ............        (3)       (27)       (20)
                                         -------    -------    -------
Net cash from operating activities ...     1,674        788        720
CASH FLOWS FROM INVESTING
ACTIVITIES
Investment in Mason State
Mortgage Co., LLC ....................      (771)        --         --
Return of capital from Mason
State Bank ...........................       317        117         --
                                         -------    -------    -------
Net cash from investing activities ...      (454)       117         --
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shares issued
upon exercise of stock options .......        18         12         21
Repurchase of common stock ...........      (317)      (118)        --
Dividends paid .......................      (913)      (832)      (736)
                                         -------    -------    -------
Net cash from financing activities ...    (1,212)      (938)      (715)
                                         -------    -------    -------
Net change in cash and cash
equivalents ..........................         8        (33)         5
Cash and cash equivalents at
beginning of year ....................        25         58         53
                                         -------    -------    -------
CASH AND CASH EQUIVALENTS AT
END OF YEAR ..........................   $    33    $    25    $    58
                                         =======    =======    =======
</TABLE>

                                                                    TWENTY-SEVEN

<PAGE>

                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.


NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
(In thousands, except per share data)                                EARNINGS PER SHARE
                                                     NET             ------------------
                                       INTEREST   INTEREST   NET                 FULLY
                                        INCOME     INCOME   INCOME    BASIC     DILUTED
<S>                                    <C>        <C>       <C>      <C>        <C>
2002
First quarter ..................        $2,007     $1,173   $  451   $ 0.76      $0.75
Second quarter .................         1,959      1,112      443     0.75       0.74
Third quarter ..................         1,976      1,122      497     0.84       0.84
Fourth quarter .................         1,955      1,118      519     0.88       0.87
2001
First quarter ..................        $2,054     $1,060   $  406   $ 0.68      $0.67
Second quarter .................         2,019      1,078      443     0.74       0.74
Third quarter ..................         1,993      1,070      437     0.73       0.73
Fourth quarter .................         1,983      1,126      452     0.76       0.74
</TABLE>


                                      CDI


TWENTY-EIGHT



<PAGE>
                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.



                                       THE
                         ANNUAL MEETING OF SHAREHOLDERS
                                WILL BE HELD AT
                                     6:30 PM
                           ON THURSDAY, APRIL 24, 2003
                                     AT THE
                                MASON STATE BANK
                                  MAIN OFFICE
                           322 SOUTH JEFFERSON STREET
                                MASON, MICHIGAN
                                      WITH
                               HORS D'OEUVRES AT
                                    6:00 PM

                        PLEASE R.S.V.P. BY APRIL 10, 2003


                                      CDI

<PAGE>







                                TWO THOUSAND TWO
                                  ANNUAL REPORT
                            CAPITAL DIRECTIONS, INC.

                                      CDI