##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
Of The Securities Exchange Act of 1934 (Fee Required)

|                                            |                                 | 
|------------------------------------------- | ------------------------------- | 
|For the fiscal year ended December 31, 2002 | Commission file number 33-20417 | 

Capital Directions, Inc.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Michigan                                                       |  | 38-2781737                             
|                                                               |  |                                        
|(State of other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification Number)

|                                                                                  |  |                                        
|--------------------------------------------------------------------------------- |  | ---------------------------------------
|322 South
Jefferson St., Mason, Michigan
(Address of principal executive offices) |  | 48854-0130
(Zip Code)                  
|                                                                                  |  |                                        
|Registrants telephone number, including area code:                               |  | (517) 676-0500                         
|                                                                                  |  |                                        
|Securities registered pursuant to Section 12 (b) of the act:                      |  | NONE                                   
|                                                                                  |  |                                        
|Securities registered pursuant to Section 12 (g) of the act:                      |  | Common Stock, par
value $5.00 per share

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

Indicate by check mark if disclosure of delinquent filer pursuant to item 405
of Registration S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

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

The registrant estimates that as of June 28,
2002, the last business day of the registrants most recently
completed second quarter the aggregate market value
of the voting stock held by non-affiliates of the registrant was approximately
$19,108,196. This is based on a market price of $41.95 per share for the
Registrants stock as of that date.

As of January 31, 2003 the registrant had outstanding 588,043 shares of common
stock having a par value of $5 per share.

1



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TABLE OF CONTENTS



|                                                                                  |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                                           
|Analysis of the Allowance For Loan Losses                                        
|PART II                                                                          
|PART III                                                                         
|OPTION GRANTS IN LAST FISCAL YEAR                                                
|AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
|EMPLOYMENT AGREEMENT                                                             
|PRINCIPAL SHAREHOLDERS                                                           
|SIGNATURES                                                                       
|Certifications                                                                   
|Certifications                                                                   
|Index to Exhibits                                                                
|Employment Agreement with Timothy Gaylord                                        
|Annual Report to Shareholders                                                    
|Consents of Experts                                                              
|Certification                                                                    
|Certification                                                                    



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##### Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for
the Year Ended December 31, 2002 (Part I, Part II, and Part III)

Portions of the Proxy Statement for the 2003 Annual
Meeting of Shareholders are incorporated by reference into Part III
of this Form 10-K.




PART I

Item 1. Business

Capital Directions, Inc. (the Registrant) is a one-bank holding company
registered under the Bank Holding Company Act of 1956, as amended. The
Registrant was incorporated on August 11, 1987 and formed for the purpose of
banking and to engage in any other related activity allowed. Mason State Bank
(the Bank) was consolidated with Mason Bank on July 22, 1988, thereby causing
Mason State Bank to become a wholly-owned subsidiary of the Registrant.

Mason State Bank purchased Lakeside Insurance Services, Inc. in 1994 to take
advantage of the expanded insurance powers granted to banks in 1994. Lakeside
is licensed in Michigan to sell life, accident and health, multiple line
property and casualty insurance and variable annuity contracts.

Mason State Mortgage Company, LLC was formed on July 16, 2002 to allow for
expansion of mortgage product offerings as well as certain tax savings. This
was facilitated by a 99% ownership by Mason State Bank and a 1% ownership by
Capital Directions, Inc.

The Registrant has no substantial assets except the investments in Mason State
Bank. The Registrant and its primary subsidiary, Mason State Bank, operate in
the banking industry, which accounts for substantially all of their assets,
revenues and operating income. Further discussion of the operations of the
Registrant and its subsidiaries is discussed under Managements Discussion and
Analysis of Financial Condition and Results of Operations in the 2002 Annual
Report to the Shareholders, incorporated herein by reference. The Registrants
primary competition is substantially the same as Mason State Banks as
discussed below.

The Bank was organized in 1886 under the laws of Michigan and is subject to the
Michigan Banking Code of 1969. It is insured by the Bank Insurance Fund
through the Federal Deposit Insurance Corporation. The Bank is regulated by
the Michigan Office of Financial and Insurance Services and the Federal Deposit
Insurance Corporation. The Federal Reserve Board regulates the Registrant.
The Banks Principal office is located at 322 South Jefferson Street, Mason,
Michigan. It operates branches at 661 North Cedar Street, Mason, Michigan and
at 810 W. Bellevue, Leslie, Michigan.

Banking services are provided to individuals, businesses, local, state and
federal governmental units and institutional customers located in Mason, Leslie
and the surrounding areas. Services include demand deposits, savings and time
deposits, collections, cash management, night depositories and personal,
installment, commercial and real estate loans. The Bank offers a credit card
program affiliated with the Visa and MasterCharge Inter-Bank charge card
system.

The Bank maintains a correspondent relationship with several of the major banks
in the Detroit area and elsewhere, in order to provide for the clearance of
checks, the transfer of funds, the periodic purchase and sale of Federal funds,
and participation in large loans which would be beyond the Banks legal lending
limit if made by the Bank alone.

The Bank has full and part-time employees (38 full-time equivalents) and owns
its main office and Cedar Street office. The facility in Leslie is operated
under a lease agreement. The Bank operates primarily within Ingham County.
Competing with the Bank in Ingham County are several other commercial banks and
financial institutions, some of which have significantly greater total
resources than the Bank.

2



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##### Table of Contents



Item 1. Business-Statistical Disclosures



| | I. |  | Distribution of Assets, Liabilities and Shareholders Equity;
Interest Rates and Interest Differential
| | -- |  | ------------------------------------------------------------------------------------------------------

| |          |                                                                                                                                                                                                                                                                        
| | -------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (A), (B) | The following table sets forth average balances for major
categories of interest earning assets and interest bearing liabilities,
the interest earned (on a fully taxable equivalent basis) or paid on such
amounts, and average interest rates earned or paid thereon.

3



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##### Table of Contents



|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  |  |  |      |  
|------------------------------------------------- |  | ------- | ------- |  | -------- | - | ----- | ---- | ------ |  | ------- | ------- |  | -------- | ------- |  | ---- | - | ------ | ------- |  | ------- | -------- | - |  | ---- | ------- |  | ------ | - | ----- |  |  |  | ---- | -
|                                                  |  | 2002    |         |  | 2001     |   |       | 2000 |       
|                                                  |  |         |         |  |          |   |       |      |       
|                                                  |  | Average |         |  |          |   |       |      | Yield/ |  |         | Average |  |          |         |  |      |   | Yield/ |         |  | Average |          |   |  |      |         |  | Yield/ |  
|                                                  |  | Balance |         |  | Interest |   |       | Rate |        |  | Balance |         |  | Interest |         |  | Rate |   |        | Balance |  |         | Interest |   |  | Rate |        
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |        
|ASSETS                                            |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  |  |  |      |  
|Loans, including fees(1)                          |  | $       | 98,933  |  |          | $ | 7,028 |      |        |  | 7.10    | %       |  | $        | 86,284  |  |      | $ | 6,808  |         |  |         | 7.89     | % |  | $    | 87,270  |  |        | $ | 7,029 |  |  |  | 8.05 | %
|Loans, non-taxable(2)                             |  |         | 260     |  |          |   | 16    |      |        |  | 6.15    |         |  |          | 510     |  |      |   | 44     |         |  |         | 8.63     |   |  |      | 381     |  |        |   | 34    |  |  |  | 8.92 |  
|Taxable securities                                |  |         | 10,326  |  |          |   | 630   |      |        |  | 6.10    |         |  |          | 13,143  |  |      |   | 872    |         |  |         | 6.63     |   |  |      | 8,854   |  |        |   | 600   |  |  |  | 6.78 |  
|Non-taxable securities(2)                         |  |         | 3,503   |  |          |   | 255   |      |        |  | 7.28    |         |  |          | 3,077   |  |      |   | 241    |         |  |         | 7.83     |   |  |      | 3,109   |  |        |   | 252   |  |  |  | 8.11 |  
|Loans held for sale                               |  |         | 222     |  |          |   | 14    |      |        |  | 6.31    |         |  |          |        |  |      |   |       |         |  |         |         |   |  |      |        |  |        |   |      |  |  |  |     |  
|Federal funds sold and
other                      |  |         | 2,797   |  |          |   | 47    |      |        |  | 1.68    |         |  |          | 4,815   |  |      |   | 181    |         |  |         | 3.76     |   |  |      | 2,257   |  |        |   | 141   |  |  |  | 6.25 |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |  
|Total earning assets(2)                           |  |         | 116,041 |  |          |   | 7,990 |      |        |  | 6.89    | %       |  |          | 107,829 |  |      |   | 8,146  |         |  |         | 7.55     | % |  |      | 101,871 |  |        |   | 8,056 |  |  |  | 7.91 | %
|Cash and due from
banks                           |  |         | 2,760   |  |          |   |       |      |        |  |         |         |  |          | 2,490   |  |      |   |        |         |  |         |          |   |  |      | 2,570   |  |        |   |       |  |  |  |      |  
|Other assets, net                                 |  |         | 3,454   |  |          |   |       |      |        |  |         |         |  |          | 3,243   |  |      |   |        |         |  |         |          |   |  |      | 2,739   |  |        |   |       |  |  |  |      |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 
|Total non-interest
earning assets                 |  |         | 6,214   |  |          |   |       |      |        |  |         |         |  |          | 5,733   |  |      |   |        |         |  |         |          |   |  |      | 5,309   |  |        |   |       |  |  |  |      |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 
|Total assets                                      |  | $       | 122,255 |  |          |   |       |      |        |  |         |         |  | $        | 113,562 |  |      |   |        |         |  |         |          |   |  | $    | 107,180 |  |        |   |       |  |  |  |      |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 
|LIABILITIES                                       |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  |  |  |      |  
|Interest bearing
demand deposits                  |  | $       | 10,374  |  |          | $ | 59    |      |        |  | 0.57    | %       |  | $        | 9,305   |  |      | $ | 56     |         |  |         | 0.60     | % |  | $    | 10,426  |  |        | $ | 83    |  |  |  | 0.80 | %
|Savings deposits                                  |  |         | 23,733  |  |          |   | 348   |      |        |  | 1.47    |         |  |          | 18,911  |  |      |   | 393    |         |  |         | 2.08     |   |  |      | 18,963  |  |        |   | 553   |  |  |  | 2.92 |  
|Time deposits under
$100,000                      |  |         | 19,504  |  |          |   | 792   |      |        |  | 4.07    |         |  |          | 19,631  |  |      |   | 1,040  |         |  |         | 5.30     |   |  |      | 20,559  |  |        |   | 1,148 |  |  |  | 5.58 |  
|Time deposits of
$100,000 or more                 |  |         | 7,305   |  |          |   | 254   |      |        |  | 3.48    |         |  |          | 11,443  |  |      |   | 543    |         |  |         | 4.75     |   |  |      | 12,088  |  |        |   | 722   |  |  |  | 5.97 |  
|Federal funds purchased                           |  |         | 311     |  |          |   | 6     |      |        |  | 1.93    |         |  |          | 7       |  |      |   | 1      |         |  |         | 6.73     |   |  |      | 206     |  |        |   | 13    |  |  |  | 6.31 |  
|Other borrowings                                  |  |         | 34,107  |  |          |   | 1,913 |      |        |  | 5.61    |         |  |          | 29,190  |  |      |   | 1,682  |         |  |         | 5.76     |   |  |      | 21,447  |  |        |   | 1,279 |  |  |  | 5.96 |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |  
|Total interest bearing
Liabilities                |  |         | 95,334  |  |          |   | 3,372 |      |        |  | 3.54    | %       |  |          | 88,487  |  |      |   | 3,715  |         |  |         | 4.20     | % |  |      | 83,689  |  |        |   | 3,798 |  |  |  | 4.54 | %
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 
|Demand deposits                                   |  |         | 11,195  |  |          |   |       |      |        |  |         |         |  |          | 10,171  |  |      |   |        |         |  |         |          |   |  |      | 9,842   |  |        |   |       |  |  |  |      |  
|Other liabilities                                 |  |         | 1,744   |  |          |   |       |      |        |  |         |         |  |          | 1,468   |  |      |   |        |         |  |         |          |   |  |      | 1,227   |  |        |   |       |  |  |  |      |  
|Shareholders equity                              |  |         | 13,982  |  |          |   |       |      |        |  |         |         |  |          | 13,436  |  |      |   |        |         |  |         |          |   |  |      | 12,422  |  |        |   |       |  |  |  |      |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 
|Total non-interest
bearing liabilities and
equity |  |         | 26,921  |  |          |   |       |      |        |  |         |         |  |          | 25,075  |  |      |   |        |         |  |         |          |   |  |      | 23,491  |  |        |   |       |  |  |  |      |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 
|Total liabilities and
equity                      |  | $       | 122,255 |  |          |   |       |      |        |  |         |         |  | $        | 113,562 |  |      |   |        |         |  |         |          |   |  | $    | 107,180 |  |        |   |       |  |  |  |      |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 
|Net interest income                               |  |         |         |  |          | $ | 4,618 |      |        |  |         |         |  |          |         |  |      | $ | 4,431  |         |  |         |          |   |  |      |         |  |        | $ | 4,258 |  |  |  |      |  
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 
|Interest spread                                   |  |         |         |  |          |   |       |      |        |  | 3.35    | %       |  |          |         |  |      |   |        |         |  |         | 3.35     | % |  |      |         |  |        |   |       |  |  |  | 3.37 | %
|Net yield on interest
earning assets(2)           |  |         |         |  |          |   |       |      |        |  | 3.98    | %       |  |          |         |  |      |   |        |         |  |         | 4.11     | % |  |      |         |  |        |   |       |  |  |  | 4.18 | %
|                                                  |  |         |         |  |          |   |       |      |        |  |         |         |  |          |         |  |      |   |        |         |  |         |          |   |  |      |         |  |        |   |       |  | 



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Average balances for loans include non-accrual loans. The inclusion
of non-accrual loans and fees does not have a material effect on either
the average balance or the average interest rate.
|
| | (2) Interest on non-taxable investment securities and non-taxable loans
is reflected on a fully tax
equivalent basis using an
effective tax rate of 34%.                                         

4



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##### Table of Contents





|I. |  | Distribution of Assets,
Liabilities and Shareholders Equity; Interest Rates and Differential (continued)
|-- |  | ---------------------------------------------------------------------------------------------------------



| | (C) |  | The following table summarizes the changes in interest income
(on a fully taxable equivalent basis) and interest expense resulting
from changes in volume and changes in rates:
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |                                  |                       |     |      |                       |   |      |       |   |   |           |      |   |         |     |     |       |   |      |      |   |   |     |      |   | 
|----------------------------- | -------------------------------- | --------------------- | --- | ---- | --------------------- | - | ---- | ----- | - | - | --------- | ---- | - | ------- | --- | --- | ----- | - | ---- | ---- | - | - | --- | ---- | - | 
|(Dollars in
thousands)        |                                  |                       |     |      |                       |   |      |       |   |   |           |      |   |         |     |     |       |   |      |      |   |   |     |     
|                              |                                  | 2002 Compared to 2001 |     |      | 2001 Compared to 2000 |  
|                              |                                  |                       |     |      |                       |  
|Change due to:                |                                  | Volume(1)             |     |      | Rate(1)               |   |      | Total |   |   | Volume(1) |      |   | Rate(1) |     |     | Total |  
|Earnings assets               |                                  |                       |     |      |                       |   |      |       |   |   |           |      |   |         |     |     |       |   |      |      |   |   |     |     
|                              | Loans                            |                       | $   | 939  |                       |   | $    | (719  | ) |   | $         | 220  |   |         | $   | (79 | )     |   | $    | (142 | ) |   | $   | (221 | )
|                              | Loans, non-taxable(2)            |                       |     | (18  | )                     |   |      | (10   | ) |   |           | (28  | ) |         |     | 11  |       |   |      | (1   | ) |   |     | 10   |  
|                              | Taxable securities               |                       |     | (176 | )                     |   |      | (66   | ) |   |           | (242 | ) |         |     | 285 |       |   |      | (13  | ) |   |     | 272  |  
|                              | Non-taxable securities(2)        |                       |     | 32   |                       |   |      | (18   | ) |   |           | 14   |   |         |     | (3  | )     |   |      | (8   | ) |   |     | (11  | )
|                              | Loan held for sale               |                       |     | 14   |                       |   |      |      |   |   |           | 14   |   |         |     |    |       |   |      |     |   |   |     |     |  
|                              | Federal funds sold and other     |                       |     | (58  | )                     |   |      | (76   | ) |   |           | (134 | ) |         |     | 113 |       |   |      | (73  | ) |   |     | 40   |  
|                              |                                  |                       |     |      |                       |   |      |       |   |   |           |      |   |         |     |     |       |   |      |     
|Total interest income(2)      |                                  | $                     | 733 |      |                       | $ | (889 | )     |   | $ | (156      | )    |   | $       | 327 |     |       | $ | (237 | )    |   | $ | 90  |     
|Interest bearing liabilities: |                                  |                       |     |      |                       |   |      |       |   |   |           |      |   |         |     |     |       |   |      |      |   |   |     |     
|                              | Interest bearing demand deposits |                       | $   | 6    |                       |   | $    | (3    | ) |   | $         | 3    |   |         | $   | (8  | )     |   | $    | (19  | ) |   | $   | (27  | )
|                              | Savings deposits                 |                       |     | 87   |                       |   |      | (132  | ) |   |           | (45  | ) |         |     | (2  | )     |   |      | (158 | ) |   |     | (160 | )
|                              | Time deposits under 100,000      |                       |     | (7   | )                     |   |      | (241  | ) |   |           | (248 | ) |         |     | (51 | )     |   |      | (57  | ) |   |     | (108 | )
|                              | Time deposits $100,000 or more   |                       |     | (166 | )                     |   |      | (123  | ) |   |           | (289 | ) |         |     | (37 | )     |   |      | (142 | ) |   |     | (179 | )
|                              | Federal funds purchased          |                       |     | 5    |                       |   |      |      |   |   |           | 5    |   |         |     | (13 | )     |   |      |     |   |   |     | (13  | )
|                              | Other borrowings                 |                       |     | 279  |                       |   |      | (48   | ) |   |           | 231  |   |         |     | 448 |       |   |      | (44  | ) |   |     | 404  |  
|                              |                                  |                       |     |      |                       |   |      |       |   |   |           |      |   |         |     |     |       |   |      |     
|Total interest expense        |                                  | $                     | 204 |      |                       | $ | (547 | )     |   | $ | (343      | )    |   | $       | 337 |     |       | $ | (420 | )    |   | $ | (83 | )   
|Net interest income(2)        |                                  | $                     | 529 |      |                       | $ | (342 | )     |   | $ | 187       |      |   | $       | (10 | )   |       | $ | 183  |      |   | $ | 173 |     



| |  |  | (1) | The change in interest due to both volume and
rate has been allocated to volume and rate in proportion to
the relationship of the absolute dollar amounts of the change
in each.
| |  |  | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (2) | Interest on tax-exempt investment securities
and loans is based on a fully taxable equivalent basis using
an effective tax rate of 34%.                                         



|II. |  | Investment Portfolio
|--- |  | --------------------



| |  | (A) | A table of carrying values of the investment portfolio as of
December 31, 2002 and 2001 is set forth in Note 2 on page 20 of the
2002 Annual Report to Shareholders. Such information is
incorporated herein by reference.
| |  | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (B) | The following table shows the relative maturities and
weighted yields of investment securities at December 31, 2002:
(dollars in thousands)                                                                               

|                                     |       |   |                    |       |  |                  |      |      |                  |   |       |                |  |  |        |      |   |       |       |       |        |  |      |       |   |   |     |     |  |  |      |      |  
|------------------------------------ | ----- | - | ------------------ | ----- |  | ---------------- | ---- | ---- | ---------------- | - | ----- | -------------- |  |  | ------ | ---- | - | ----- | ----- | ----- | ------ |  | ---- | ----- | - | - | --- | --- |  |  | ---- | ---- | -
|                                     |       |   | Available-For Sale |      
|                                     |       |   |                    |      
|                                     |       |   | 1 Year or less     |       |  | 1 Year - 5 Years |      |      | 5 Years-10 Years |   |       | After 10 Years | 
|                                     |       |   |                    |       |  |                  |      |      |                  |   |       |                | 
|                                     |       |   | Amount             |       |  | Yield            |      |      | Amount           |   |       | Yield          |  |  | Amount |      |   | Yield |       |       | Amount |  |      | Yield |  
|                                     |       |   |                    |       |  |                  |      |      |                  |   |       |                |  |  |        |      |   |       |       |       |        |  |      |       |  
|U.S. Government agencies(1)          |       | $ | 2,325              |       |  |                  | 6.47 | %    |                  | $ | 2,849 |                |  |  | 4.06   | %    |   | $     | 123   |       |        |  | 9.00 | %     |   | $ | 238 |     |  |  | 6.90 | %   
|State and political
subdivisions (2) |       |   | 1,016              |       |  |                  | 6.07 |      |                  |   | 2,939 |                |  |  | 5.00   |      |   |       | 1,420 |       |        |  | 5.90 |       |   |   | 206 |     |  |  | 4.55 |     
|Corporate securities (1)             |       |   | 1,528              |       |  |                  | 7.24 |      |                  |   |      |                |  |  | 0.00   |      |   |       |      |       |        |  | 0.00 |       |   |   |    |     |  |  | 0.00 |     
|                                     |       |   |                    |       |  |                  |      |      |                  |   |       |                |  |  |        |      |   |       |       |       |        |  |      |       |   |   |     |    
|                                     | Total |   | $                  | 4,869 |  |                  |      | 6.63 | %                |   | $     | 5,788          |  |  |        | 4.54 | % |       | $     | 1,543 |        |  |      | 6.15  | % |   | $   | 444 |  |  |      | 5.81 | %
|                                     |       |   |                    |       |  |                  |      |      |                  |   |       |                |  |  |        |      |   |       |       |       |        |  |      |       |   |   |     |    

|                           |       |   |                  |   |  |                  |      |      |                  |   |   |                |  |  |        |      |   |       |   |   |        |  |      |       |   |   |     |     |  |  |      |      | 
|-------------------------- | ----- | - | ---------------- | - |  | ---------------- | ---- | ---- | ---------------- | - | - | -------------- |  |  | ------ | ---- | - | ----- | - | - | ------ |  | ---- | ----- | - | - | --- | --- |  |  | ---- | ---- | 
|                           |       |   | Held-To-Maturity |  
|                           |       |   |                  |  
|                           |       |   | 1 Year or less   |   |  | 1 Year - 5 Years |      |      | 5 Years-10 Years |   |   | After 10 Years | 
|                           |       |   |                  |   |  |                  |      |      |                  |   |   |                | 
|                           |       |   | Amount           |   |  | Yield            |      |      | Amount           |   |   | Yield          |  |  | Amount |      |   | Yield |   |   | Amount |  |      | Yield |  
|                           |       |   |                  |   |  |                  |      |      |                  |   |   |                |  |  |        |      |   |       |   |   |        |  |      |       |  
|Trust Preferred securities |       | $ |                 |   |  |                  | 0.00 | %    |                  | $ |  |                |  |  | 0.00   | %    |   | $     |  |   |        |  | 0.00 | %     |   | $ | 400 |     |  |  | 5.41 | %   
|                           |       |   |                  |   |  |                  |      |      |                  |   |   |                |  |  |        |      |   |       |   |   |        |  |      |       |   |   |     |    
|                           | Total |   | $                |  |  |                  |      | 0.00 | %                |   | $ |               |  |  |        | 0.00 | % |       | $ |  |        |  |      | 0.00  | % |   | $   | 400 |  |  |      | 5.41 | 
|                           |       |   |                  |   |  |                  |      |      |                  |   |   |                |  |  |        |      |   |       |   |   |        |  |      |       |   |   |     |    

5



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##### Table of Contents





|II. |  | Investment Portfolio (continued)
|--- |  | --------------------------------

| |     |  |                                                                                                                                                                                                   |  |                                                                                                                                     
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
| |     |  | (1)                                                                                                                                                                                               |  | Mortgage Backed securities and Corporate securities,
as reflected in the above schedules consider anticipated
prepayments and calls.
| |     |  | (2)                                                                                                                                                                                               |  | Weighted average yield is adjusted to a taxable
equivalent basis using a federal income tax rate of 34 percent.                     
| |     |  |                                                                                                                                                                                                   |  |                                                                                                                                     
| | (C) |  | The Registrant held no investment securities of a single issuer,
except U.S. Government Agency securities, in an amount greater than ten percent
of shareholders equity as of December 31, 2002.



|III. |  | Loan Portfolio
|---- |  | --------------



| | (A) |  | A table of loans outstanding as of December 31, 2002 and 2001
is set forth in Note 3 on page 21 of the 2002 Annual Report to
Shareholders. Such information is incorporated herein by reference.                                                                                                                                         
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The loan portfolio is systematically reviewed and the results
reported to the Board of Directors of the Registrant. The purpose of
these reviews is to assist in assuring proper loan documentation, to
provide for the early identification of potential problem loans and
to help ensure the adequacy of the allowance for loan losses.
|
| | (B) |  | The following table sets forth the remaining maturity of
loans outstanding (excluding real
estate mortgages, installment and lease financing) at December 31,
2002, according to scheduled payments of principal (in thousands) and
considering the banks rollover policy.(1)                                                          
|
| |     |  | (In thousands)                                                                                                                                                                                                                                                                                                                           

|                            |  |         |       |  |          |   |       |         |  |   |       |  |  |   |       | 
|--------------------------- |  | ------- | ----- |  | -------- | - | ----- | ------- |  | - | ----- |  |  | - | ----- | 
|                            |  | 1 Year  |       |  | 1 Year - |   |       | After   |  |   |       |  | 
|                            |  | or less |       |  | 5 Years  |   |       | 5 Years |  |   | Total | 
|                            |  |         |       |  |          |   |       |         |  |   |       | 
|Commercial and
agricultural |  | $       | 2,267 |  |          | $ | 3,586 |         |  | $ | 137   |  |  | $ | 5,990 | 
|                            |  |         |       |  |          |   |       |         |  |   |       | 



| |  |  | The following table sets forth commercial and agricultural loans due
after one year, which have predetermined interest rates and/or
adjustable interest rates at December 31, 2002.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (In thousands)                                                                                                                                                                     

|                                    |       |   |       |       |  |            |       |       |       |   |       |       | 
|----------------------------------- | ----- | - | ----- | ----- |  | ---------- | ----- | ----- | ----- | - | ----- | ----- | 
|                                    |       |   | Fixed |       |  | Adjustable |       |       |       |   |      
|                                    |       |   | Rate  |       |  | Rate       |       |       | Total |  
|                                    |       |   |       |       |  |            |       |       |       |  
|Due after one but within five
years |       | $ | 2,141 |       |  | $          | 1,445 |       |       | $ | 3,586 |      
|Due after five years                |       |   | 116   |       |  |            | 21    |       |       |   | 137   |      
|                                    |       |   |       |       |  |            |       |       |      
|                                    | Total |   | $     | 2,257 |  |            | $     | 1,466 |       |   | $     | 3,723 | 
|                                    |       |   |       |       |  |            |       |       |      

| |     |  |               |  |                                                                                                                                                                                                                                                                                                                        
| | --- |  | ------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  | (1)           |  | The rollover policy is to generally write
terms of these loans for a shorter time than
the expected payments. The purpose of this is
to re-evaluate the term and credit of the respective
borrower. We estimate that this happens on approximately 80%
of these borrowings and is reflected as such in this
schedule.
| |     |  |               |  |                                                                                                                                                                                                                                                                                                                        
| | (C) |  | Risk Elements
| |     |  |               |  |                                                                                                                                                                                                                                                                                                                        
| |     |  | (1)           |  | Nonaccrual, Past
Due, Impaired and Restructured Loans.A table and discussion of nonaccrual, past due, impaired and
restructured loans for the years ended December 31, 2002 and
2001 is in Note 1 under Loans and Allowance for Loan Losses
on pages 17 and 18 and in Note 4 Allowance For Loan Losses on        

6



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|III. |  | Loan Portfolio (continued)
|---- |  | --------------------------

| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| | --- |  | ----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  |                               |  | page 21 in the 2002 Annual Report to Shareholders. Such
information is incorporated herein by reference                                                                                                                                                                                                                     
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| |     |  |                               |  | Gross interest income that would have been recorded in 2002 on
nonaccrual loans if the loans had been current in accordance
with their original terms and outstanding throughout the period
or since origination was $6,265. No interest income was
recognized on these loans during 2002.                                  
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| |     |  | (2)                           |  | Potential Problem Loans                                                                                                                                                                                                                                                                                                     
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| |     |  |                               |  | There are no material loans that are current as to which
management has serious doubts as to the ability of the borrower to
comply with the loan repayment terms, or which are expected to need
adjustments in their repayment terms, or which are believed to
require additional reserves in the allowance for loan losses.
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| |     |  | (3)                           |  | Foreign Outstandings                                                                                                                                                                                                                                                                                                        
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| |     |  |                               |  | There were no foreign outstandings as of December 31, 2002.                                                                                                                                                                                                                                                                 
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| |     |  | (4)                           |  | Loan Concentrations                                                                                                                                                                                                                                                                                                         
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| |     |  |                               |  | There were no concentrations of loans exceeding 10% of total
loans that have not been already disclosed as a category at December
31, 2002.                                                                                                                                                                                 
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| | (D) |  | Other Interest Bearing Assets
| |     |  |                               |  |                                                                                                                                                                                                                                                                                                                             
| |     |  |                               |  | As of December 31, 2002, there were no other interest bearing
assets that would be required to be disclosed under
Item III, Parts (C) (1) or (C) (2) of the loan portfolio listing
if such assets were loans.                                                                                                               

7



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##### Table of Contents





|IV. |  | Summary of Loan Loss Experience
|--- |  | -------------------------------



| | (A) |  | The following table sets forth loan allowance balances and
summarizes changes in the allowance for loan losses for each of the
three years ended December 31.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------




Analysis of the Allowance For Loan Losses

|                                                                                                |                             |       |        |    |      |   |        |      |     |   |        |     |     |  
|----------------------------------------------------------------------------------------------- | --------------------------- | ----- | ------ | -- | ---- | - | ------ | ---- | --- | - | ------ | --- | --- | -
|(Dollars in thousands)                                                                          |                             | 2002  |        |    | 2001 |   |        | 2000 |    
|                                                                                                |                             |       |        |    |      |   |        |      |    
|Balance, beginning of period                                                                    |                             | $     | 1,048  |    |      | $ | 1,053  |      |     | $ | 1,055  |    
|                                                                                               
|Loans charged-off                                                                               |                             |       |        |    |      |   |        |      |     |   |        |    
|                                                                                                | Commercial and agricultural |       |        | (3 | )    |   |        | (3   | )   |   |        | (15 | )  
|                                                                                                | Real estate-construction    |       |        |   |      |   |        |     |     |   |        |    |    
|                                                                                                | Real estate-mortgages       |       |        | (2 | )    |   |        | (16  | )   |   |        |    |    
|                                                                                                | Lease financing             |       |        |   |      |   |        |     |     |   |        |    |    
|                                                                                                | Installment and others      |       |        | (9 | )    |   |        | (17  | )   |   |        | (12 | )  
|                                                                                                |                             |       |        |    |      |   |        |      |    
|                                                                                                |                             | Total |        |    | (14  | ) |        |      | (36 | ) |        |     | (27 | )
|                                                                                               
|Recoveries of loans charged-off                                                                 |                            
|                                                                                                | Commercial and agricultural |       |        | 2  |      |   |        | 15   |     |   |        |    |    
|                                                                                                | Real estate-construction    |       |        |   |      |   |        |     |     |   |        |    |    
|                                                                                                | Real estate-mortgages       |       |        |   |      |   |        |     |     |   |        |    |    
|                                                                                                | Lease financing             |       |        |   |      |   |        |     |     |   |        |    |    
|                                                                                                | Installment and others      |       |        | 8  |      |   |        | 16   |     |   |        | 19  |    
|                                                                                                |                             |       |        |    |      |   |        |      |    
|                                                                                                |                             | Total |        |    | 10   |   |        |      | 31  |   |        |     | 19  |  
|                                                                                                |                             |       |        |    |      |   |        |      |    
|Net charge-offs                                                                                 |                             |       | (4     | )  |      |   | (5     | )    |     |   | (8     | )  
|Additions charged
to operations                                                                 |                             |       |       |    |      |   |       |      |     |   | 6      |    
|                                                                                                |                             |       |        |    |      |   |        |      |    
|Balance at end of period                                                                        |                             | $     | 1,044  |    |      | $ | 1,048  |      |     | $ | 1,053  |    
|                                                                                                |                             |       |        |    |      |   |        |      |    
|Average gross loans outstanding                                                                 |                             | $     | 99,193 |    |      | $ | 86,794 |      |     | $ | 87,651 |    
|                                                                                                |                             |       |        |    |      |   |        |      |    
|Ratio of net charge-offs
during the period to average gross
loans outstanding during the
period |                             |       | 0.00   | %  |      |   | 0.01   | %    |     |   | 0.01   | %  
|                                                                                                |                             |       |        |    |      |   |        |      |    

Further discussion of the provision and allowance for loan losses as well
as non-performing and impaired loans is presented in Managements
Discussion and Analysis of Financial Condition and Results of Operations
on page 9, Note 1 on pages 17 and 18 and Note 4 on page 21 in the 2002
Annual Report to the Shareholders, incorporated herein by reference.

8



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|IV. |  | Summary of Loan Loss Experience (continued)
|--- |  | -------------------------------------------



| | (B) |  | The following table presents an allocation for loan
losses to the various loan categories at December 31:
| | --- |  | ---------------------------------------------------------------------------------------------------------

|                            |       |           |      |       |             |      |       |           |   |   |             |       |  |      |       |        |  
|--------------------------- | ----- | --------- | ---- | ----- | ----------- | ---- | ----- | --------- | - | - | ----------- | ----- |  | ---- | ----- | ------ | -
|                            |       |           | 2002 |       |             | 2001
|                            |       |           |      |       |             |      | % of  |           |   |   |             |       |  | % of |      
|(Dollars in thousands)      |       | Allowance |      |       | Loans to    |      |       | Allowance |   |   | Loans to    |      
|                            |       | Amount    |      |       | Total Loans |      |       | Amount    |   |   | Total Loans |      
|                            |       |           |      |       |             |      |       |           |   |   |             |      
|Commercial and agricultural |       | $         | 203  |       |             |      | 6.17  | %         |   | $ | 242         |       |  |      | 5.59  | %     
|Real estate-mortgages       |       |           | 420  |       |             |      | 92.05 |           |   |   | 546         |       |  |      | 91.97 |       
|Installment and other       |       |           | 20   |       |             |      | 1.78  |           |   |   | 41          |       |  |      | 2.44  |       
|Unallocated                 |       |           | 401  |       |             |      | N/A   |           |   |   | 219         |       |  |      | N/A   |       
|                            |       |           |      |       |             |      |       |           |   |   |             |      
|                            | Total |           | $    | 1,044 |             |      |       | 100.00    | % |   | $           | 1,048 |  |      |       | 100.00 | %
|                            |       |           |      |       |             |      |       |           |   |   |             |      



| |  | Mason State Bank is committed to the maintenance of an allowance for
loan losses in amounts sufficient to absorb loan and lease losses
inherent in the loan portfolio. To assure the adequacy of balances
and the resulting provision allocations, measurements against
historical performance and current analyses of asset quality are
undertaken on a periodic basis with consideration for qualitative
factors. These evaluations support the allowance provisions and the
traditional philosophy of accounting for losses as they are
recognized.    
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On a predetermined basis, a Loan Loss Allowance Model (LLAM) is
completed quarterly for the Bank. The results of the LLAM provide a
consistent management tool for quantifying the amount of risk in the
loan portfolio. This LLAM computes a suggested allowance balance to
be compared to the actual allowance for loan losses. The difference
between the suggested and actual allowance is monitored and
maintained at an amount considered reasonable to provide for
potential losses inherent in the portfolio.                                     
|
| |  | To determine the suggested allowance balance, two tests are applied
to the various loan categories. The test with the most conservative
(greatest) allowance allocation is selected for each category. The
two tests are then combined with a separate qualitative factor spread
against all loan categories.                                                                                                                                                                                                                                             
|
| |  | The first test includes establishment of a minimum allocation
percentage for each loan (primarily commercial) based upon its loan
grade. The second test involves computing the actual loss experience
over the last five years for each of the loan categories (primarily
consumer and residential real estate loans). The factor applied to
the current outstanding loan balances of these loan categories is
equal to at least the five-year average of net charge-offs to average
loans for the appropriate loan portfolio.                           
|
| |  | Economic conditions or other factors may warrant a qualitative factor
be applied to all loan categories. Management declared that such a
factor be instituted for 2002 and 2001. A review of the regional
trends show insured financial institutions experienced increasing
levels of past due and non-accrual loans relative to the prior five
year average. The factor applied to current loan outstandings
reflects the net percentage change in the past due and non-accruing
financial institution experience applied to the Mason State Bank
factor.
|
| |  | Mason State Bank has not added additional funds to the allowance for
loan losses during the years 2002 and 2001 due to our excellent loan
quality and low net charge-offs. Due to these factors, the
unallocated portion of the allowance has increased even though the
total allowance for loan losses has decreased during the same period.                                                                                                                                                                                                             
|
| |  | The allowance allocations above were deemed by management to be
amounts reasonably necessary to provide for the inherent losses in
the various loan categories as of December 31, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                          

9



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|V. |  | Deposits                                                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following table sets forth average deposit balances and the weighted
average rate paid for each of the three years ended December 31:

|                                     |       |         |        |        |         |      |      |         |      |   |        |        |  |         |      |      |      |   |        |        |  |  |      |      |  
|------------------------------------ | ----- | ------- | ------ | ------ | ------- | ---- | ---- | ------- | ---- | - | ------ | ------ |  | ------- | ---- | ---- | ---- | - | ------ | ------ |  |  | ---- | ---- | -
|                                     |       |         | 2002   |        |         | 2001 |      |         | 2000 |  
|(Dollars in thousands)               |       | Average |        |        | Average |      |      | Average |     
|                                     |       | Balance |        |        | Rate    |      |      | Balance |      |   | Rate   |        |  | Balance |      |      | Rate |  
|                                     |       |         |        |        |         |      |      |         |      |   |        |        |  |         |      |      |      |  
|Non interest-bearing demand deposits |       | $       | 11,195 |        |         |      |      |         |      | $ | 10,171 |        |  |         |      |      |      | $ | 9,842  |        |  |  |      |     
|Interest-bearing demand deposits     |       |         | 10,374 |        |         |      | 0.57 | %       |      |   | 9,305  |        |  |         | 0.60 | %    |      |   | 10,426 |        |  |  | 0.80 | %   
|Savings deposits                     |       |         | 23,733 |        |         |      | 1.47 |         |      |   | 18,911 |        |  |         | 2.08 |      |      |   | 18,963 |        |  |  | 2.92 |     
|Time deposits under $100,000         |       |         | 19,504 |        |         |      | 4.04 |         |      |   | 19,631 |        |  |         | 5.30 |      |      |   | 20,559 |        |  |  | 5.58 |     
|Time deposits of $100,000 or more    |       |         | 7,305  |        |         |      | 3.48 |         |      |   | 11,443 |        |  |         | 4.75 |      |      |   | 12,088 |        |  |  | 5.97 |     
|                                     |       |         |        |        |         |      |      |         |      |   |        |        |  |         |      |      |      |   |        |        | 
|                                     | Total |         | $      | 72,111 |         |      |      | 2.01    | %    |   | $      | 69,461 |  |         |      | 2.93 | %    |   | $      | 71,878 |  |  |      | 3.49 | %
|                                     |       |         |        |        |         |      |      |         |      |   |        |        |  |         |      |      |      |   |        |        | 



| |  | The following table summarizes time deposits in amounts of $100,000 or
more by time remaining until maturity as of December 31, 2002:
| |  | -------------------------------------------------------------------------------------------------------------------------------------

|                                     |       |   |       |       | 
|------------------------------------ | ----- | - | ----- | ----- | 
|(In thousands)                       |       |   |       |      
|Three months or less                 |       | $ | 1,770 |      
|Over three months through six months |       |   | 1,726 |      
|Over six months through one year     |       |   | 748   |      
|Over one year                        |       |   | 2,449 |      
|                                     |       |   |      
|                                     | Total |   | $     | 6,693 | 
|                                     |       |   |      



|    |  | As of December 31, 2002 the registrant had no foreign deposits.         
|--- |  | ------------------------------------------------------------------------
|   
|VI. |  | Return on Equity and Assets                                             
|   
|    |  | The following table presents the ratios for the years ended December 31:

|                                                     |  |      |       |   |      |  |       |      |  |  |       |  
|---------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                     |  | 2002 |       |   | 2001 |  |       | 2000 | 
|                                                     |  |      |       |   |      |  |       |      | 
|Net income to average total assets                   |  |      | 1.56  | % |      |  | 1.53  | %    |  |  | 1.54  | %
|Net income to average shareholders equity           |  |      | 13.66 |   |      |  | 12.94 |      |  |  | 13.28 |  
|Cash dividend payout ratio per share                 |  |      | 48.32 |   |      |  | 48.80 |      |  |  | 46.01 |  
|Average shareholders equity to average total assets |  |      | 11.44 |   |      |  | 11.83 |      |  |  | 11.59 |  



|VII. |  | Short Term Borrowings  Not applicable
|---- |  | --------------------------------------

Item 2. Properties



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Bank owns the land on which the Main Office is located. The parcel
measures 85 by 170 and bears the municipal address of 322 South
Jefferson Street, Mason, Michigan. The permanent building, also owned by
Mason State Bank, has approximately 6,800 square feet and includes
banking facilities, storage and personnel lounge areas. This brick
structure was built in the mid 1800s and has undergone several
remodelings, the most recent of which was completed in 2001. The
building is in generally good condition. A parking area with spaces to
accommodate 20 vehicles occupies part of the property; also on site are
three drive-in banking stations which operate via remote monitors located
within the banking facility.
|
| | The Bank also owns the land used as a Branch office. The land measures
368 by 297 and bears the municipal address of 661 North Cedar Street, Mason, Michigan. The
permanent building, built in the 1960s, also owned by Mason State Bank, measures
approximately 2,400 square feet, including banking facilities, storage and
personnel lounge areas. This building is also in good                                                                                                                                                                                                                                                                                                                                                        

10



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##### Table of Contents



Item 2. Properties (continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | condition. A parking area with spaces to accommodate 24 vehicles occupies
part of the property; part is occupied by 4 drive-in banking stations.                                                                                                                                                                                                                                                                                     
|
| | In October 1998, the Bank established an in-store branch located within
the Felpausch Food Center, 810 W. Bellevue Street, Leslie, Michigan. The Bank
entered into a lease arrangement and occupies 709 square feet of the southeast
corner of the store. Prior to occupancy, this space was renovated to provide
full service banking accommodations. Customer parking is readily available and
maintained by Felpausch Food Center.
|
| | The Registrant operates its business at the same address as Mason State
Banks main office. As of January 31, 2003, the Registrant owned no
properties.                                                                                                                                                                                                                                                                              

Item 3. Legal Proceedings



| |                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There are no material pending legal proceedings to which the Registrant or
its subsidiaries is a party or to which any of its property is subject, except
for proceedings which arise in the ordinary course of business. In the opinion
of management, pending legal proceedings will not have a material effect on the
consolidated financial statements of the Registrant or its subsidiaries.

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



| |                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Not applicable                                                                                                                                                                                                                                                                                                                                                                   
|
| | Additional Item  Executive Officers                                                                                                                                                                                                                                                                                                                                             
|
| | Executive officers of the Registrant are appointed annually by the Board
of Directors at the meeting of Directors following the Annual Meeting of
Shareholders. There are no family relationships among these officers and/or
Directors of the Registrant or any arrangement or understanding between any
officer and any other person pursuant to which the officer was elected.
|
| | The following sets forth certain information with respect to the
Registrants Executive Officers and Directors as of December 31, 2002.                                                                                                                                                                                                                                          

|                        |  |                     |  |                           | 
|----------------------- |  | ------------------- |  | ------------------------- | 
|                        |  | Position With       |  | First Elected as an      
|Name (Age)              |  | Registrant          |  | Officer of the Registrant
|                        |  |                     |  |                          
|Gerald W. Ambrose (53)  |  | Chairman            |  | 1994                     
|Marvin B. Oesterle (51) |  | Vice Chairman       |  | 1981                     
|Timothy P. Gaylord (48) |  | President and C.E.O |  | 1995                     
|Douglas W. Dancer (62)  |  | Secretary           |  | 1990                     
|Lois A. Toth (52)       |  | Treasurer           |  | 1998                     



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Mr. Ambrose is a Director of the Registrant and Chairman of the Board of
Directors of Mason State Bank.      
| | Mr. Oesterle is a Director of the Registrant and Vice Chairman of the
Board of Directors of Mason State Bank.
| | Mr. Gaylord is a Director of the Registrant and President and Chief
Executive Officer of Mason State Bank.   
| | Mr. Dancer is a Director of the Registrant and Secretary of the Board of
Directors of Mason State Bank.      
| | Ms. Toth is Vice President, Controller and Cashier of Mason State Bank.                                      

11



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##### Table of Contents






PART II



|I. |  | The information required by this item appears in the Capital
Directions, Inc. Annual Report to Shareholders for the year ended December 31,
2002, and is incorporated herein by reference, as follows:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |                                                  |  |                        | 
|------- |  | ------------------------------------------------ |  | ---------------------- | 
|        |  |                                                  |  | Pages in 2002         
|        |  |                                                  |  | Annual Report         
|        |  |                                                  |  |                        | 
|Item 5  |  | Market for Registrant's Common Equity and        |  |                       
|        |  | Related Stockholder Matters                      |  | 4                     
|        |  |                                                  |  |                       
|Item 6  |  | Selected Financial Data                          |  | 6                     
|        |  |                                                  |  |                       
|Item 7  |  | Management's Discussion and Analysis of          |  |                       
|        |  | Financial Condition and Results of Operation     |  | 7 - 11                
|        |  |                                                  |  |                       
|Item 7a |  | Quantitative and Qualitative Disclosures About   |  |                       
|        |  | Market Risk                                      |  | Not required as        | 
|        |  |                                                  |  | Registrant meets       | 
|        |  |                                                  |  | requirements to be     | 
|        |  |                                                  |  | a small business filer | 
|        |  |                                                  |  |                       
|Item 8  |  | Financial Statements and Supplementary Data      |  | 12 - 28               
|        |  |                                                  |  |                       
|Item 9  |  | Changes in and Disagreements With Accountants on |  |                       
|        |  | Accounting and Financial Disclosure              |  | None                   | 

12



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##### Table of Contents






PART III

Certain information required by Part III is omitted
from this Report in that the Registrant will file a definitive Proxy
Statement pursuant to Regulation 14A (the proxy
Statement) not later than 120 days after the end of the fiscal
year covered by this report and certain information included therein
is incorporated herein by reference. Only those sections of the Proxy
Statement that specifically address the items set forth herein are
incorporated by reference.

Item 10.     Directors and Executive Officers of the Registrant as of December 31, 2002

|                         |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   |          |         |  |  |      |  
|------------------------ |  | --- | -- |  | ------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | -------- | ---- | ------------- | ------------- | ----------------- | -------- | ------- |  |  | ---- | -
|                         |  |     |    |  |         | Principal Occupation For                                                                                                                                             |           |          |      |               |               | Amount and Nature |          |         |  |  |     
|                         |  |     |    |  |         | Last Five Years                                                                                                                                                      |           | Director |      |               | of Beneficial |                   |          | Percent | 
|Name                     |  | Age |    |  | Or More |                                                                                                                                                                      | Since (1) |          |      | Ownership (2) |               |                   | of Class |        
|                         |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   |          |        
|Gerald W. Ambrose        |  |     | 53 |  |         | County Controller for the
County of Ingham;
Chairman of the Board,
Mason State Bank and the
Company                                                                  |           |          | 1990 |               |               |                   | 1,011    |         |  |  | (3   | )
|                         |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   |          |         |  |  |      |  
|Douglas W. Dancer        |  |     | 62 |  |         | Partner, Nu-Horizons, Inc.,
Realtor, Vision Real Estate;
Former President, Dancers Inc.
Department Stores; Secretary
of the Board, Mason State
Bank and the Company |           |          | 1986 |               |               |                   | 20,580   |         |  |  | 3.49 |  
|                         |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   |          |         |  |  |      |  
|Timothy P. Gaylord       |  |     | 48 |  |         | President & Chief Executive
Officer of Mason State Bank
and the Company                                                                                              |           |          | 1995 |               |               |                   | 9,126    |         |  |  | 1.55 |  
|                         |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   |          |         |  |  |      |  
|Paula J. Johnson         |  |     | 56 |  |         | Realtor, Vision Real Estate and
Developer, PAL, LLC i.e.: Vision
Village Condominiums                                                                                |           |          | 1996 |               |               |                   | 450      |         |  |  | (3   | )
|                         |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   |          |         |  |  |      |  
|James W. Leasure         |  |     | 52 |  |         | Owner, Showtime, Inc. and
Wash Express                                                                                                                               |           |          | 2000 |               |               |                   | 8,348    |         |  |  | 1.42 |  
|                         |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   |          |         |  |  |      |  
|Marvin B. Oesterle       |  |     | 51 |  |         | Partner, Oesterle Brothers
Seed Corn; Vice Chairman of
the Board, Mason State Bank
and the Company                                                                   |           |          | 1981 |               |               |                   | 3,934    |         |  |  | (3   | )
|                         |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   |          |         |  |  |      |  
|Six directors as a group |  |     |    |  |         |                                                                                                                                                                      |           |          |      |               |               |                   | 43,449   |         |  |  | 7.38 |  



| |     |  |                                                                                                                                                                                                                                                                   
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) |  | Includes service as a director of the Companys wholly-owned
subsidiary, Mason State Bank (the Bank). The Company was organized
in 1988 to act, inter alia, as a holding company for Mason State Bank,
and the Banks directors became directors of the Company.
|
| | (2) |  | Includes shares owned by or jointly with spouse, or minor child, or
other relative residing in same household, or as trustee.                                                                                                                                     
|
| | (3) |  | Less than one percent.                                                                                                                                                                                                                                            

Reference is made to Additional Item  Executive Officers under Part I, Item 4,
of this Form 10-K report on page 11.

The information required by item 405 of Regulation
S-K is hereby incorporated by reference from the Companys 2003 Proxy
Statement under the caption Section 16(a) Beneficial Ownership
Reporting Compliance.

13



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##### Table of Contents



Part III (continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Item 11. Executive Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Each director of the Company is entitled to receive an annual retainer of
$8,207. In lieu of payment of director fees, certain directors have elected
to participate in a deferred compensation plan adopted in 1986. The plan
was closed to new participants May 18, 1996. Douglas W. Dancer and Marvin
B. Oesterle elected to participate in the plan which provides for retirement
and death benefits to be paid to the participating directors or their
beneficiaries over fifteen years. Deferred director fees are used to
purchase life insurance policies of which the Bank is the owner and
beneficiary.
|
| | COMPENSATION OF EXECUTIVE OFFICERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | The following table sets forth compensation paid by the Company and its
subsidiaries during the fiscal year ended December 31, 2002 to the Companys
Chief Executive Officer. There were no executive officers, other than the
CEO, whose combined salary and bonus exceeded $100,000.                                                                                                                                                                                                                                                                                                                           
|
| | SUMMARY COMPENSATION TABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                   |  |      |      |  |                |                     |         |           |        |   |                 |  |  |                        |       |  |  |           |        | 
|------------------ |  | ---- | ---- |  | -------------- | ------------------- | ------- | --------- | ------ | - | --------------- |  |  | ---------------------- | ----- |  |  | --------- | ------ | 
|                   |  |      |      |  |                |                     |         |           |        |   |                 |  |  | Long-Term Compensation |      
|                   |  |      |      |  |                | Annual Compensation |         |           | Awards |  
|Name and           |  |      |      |  |                |                     |         |           |        |   |                 |  |  |                        |       |  |  | All Other |       
|Principal Position |  | Year |      |  | Salary ($) (1) |                     |         | Bonus ($) |        |   | Options (#) (2) |  |  | Compensation ($) (3)   |      
|                   |  |      |      |  |                |                     |         |           |        |   |                 |  |  |                        |      
|Timothy P. Gaylord |  |      | 2002 |  |                | $                   | 135,314 |           |        | $ | 25,600          |  |  |                        | 2,000 |  |  | $         | 14,190 | 
|President and CEO  |  |      | 2001 |  |                | $                   | 127,514 |           |        | $ | 23,121          |  |  |                        | 2,000 |  |  | $         | 15,355 | 
|                   |  |      | 2000 |  |                | $                   | 121,240 |           |        | $ | 22,000          |  |  |                        | 2,000 |  |  | $         | 11,603 | 



---

|(1) |  | Includes directors fees of $7,899 for 2002; $7,595 for 2001; and
$7,303 for 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The amounts shown represent the number of shares covered by stock
options granted under the
Capital Directions, Inc. Incentive Stock Option Plan as more fully
described in the Option Grants in Last Fiscal Year table set forth on
the following page.                                                                                                                                                                                                                                                                                                                                             
|   
|(3) |  | All Other Compensation is comprised of the following items: The
Bank is accustomed to awarding a longevity bonus to all employees based
on their salary and length of service at five year increments. Mr.
Gaylord received an award of $1,196 for ten years of service in 2001.
The Bank entered into a lease agreement on a vehicle for Mr. Gaylords
use. The income benefit to Mr. Gaylord was $3,843 for 2002; $4,388 for
2001; and $2,628 for 2000. A contribution by the Bank for Mr.
Gaylords benefit to the Banks 401(k) Plan of $10,347 for 2002; $9,771
for 2001; and $8,975 for 2000.

14



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##### Table of Contents



Part III (continued)



| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table presents information about stock options granted to the
named executive officer during 2002 under the Capital Directions, Inc.
Incentive Stock Option Plan (the Stock Option Plan).




OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants

|                   |  |                 |       |  |                |  |       |          |  |  |            |  |  |        |                     |                       |         |                      |        |  |  |  |         | 
|------------------ |  | --------------- | ----- |  | -------------- |  | ----- | -------- |  |  | ---------- |  |  | ------ | ------------------- | --------------------- | ------- | -------------------- | ------ |  |  |  | ------- | 
|                   |  |                 |       |  |                |  |       |          |  |  |            |  |  |        |                     |                       |         | Potential Realizable |       
|                   |  |                 |       |  |                |  |       |          |  |  |            |  |  |        |                     |                       |         | Value at Assumed     |       
|                   |  | Number of       |       |  | % of Total     |  |       |          |  |  |            |  |  |        |                     | Annual Rates of Stock |        
|                   |  | Securities      |       |  | Options        |  |       | Exercise |  |  |            |  |  |        | Price Appreciation  |                      
|                   |  | Underlying      |       |  | Granted to     |  |       | or Base  |  |  |            |  |  |        | for Option Term (2) |                      
|                   |  | Options         |       |  | Employees      |  |       | Price    |  |  | Expiration |  |  |        |                    
|Name               |  | Granted (#) (1) |       |  | in Fiscal Year |  |       | ($/Sh)   |  |  | Date       |  |  | 5% ($) |                     |                       | 10% ($) |                     
|                   |  |                 |       |  |                |  |       |          |  |  |            |  |  |        |                     |                       |         |                     
|Timothy P. Gaylord |  |                 | 2,000 |  |                |  | 50.00 |          |  |  | 38.00      |  |  |        | 2/21/12             |                       |         |                      | 47,796 |  |  |  | 121,124 | 



---

|(1) |  | The amounts shown are shares of the Companys Common Stock
covered by options granted under the Stock Option Plan. The vesting
of Stock Options does not start until two years from the date of
grant, February 21, 2002. The options vest over 3 years, with
one-third of the covered shares becoming part of the exercisable
portion each of the three years.                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The potential realizable value is reported net of the option
exercise price, but before income taxes associated with exercise.
These amounts represent assumed annual compounded rates of
appreciation of five percent and ten percent from the date of grant
to the end of the option. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Companys
Common Stock, overall stock market conditions, and the optionees
continued employment through the vesting period. The amounts
reflected in this table may not necessarily be achieved.



| |                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table presents the number of shares covered by, and the value
of, unexercised options held by the named executive officer at December 31,
2002. One Thousand (1,000) options were exercised by the named executive
officer during 2002.




AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

|                   |  |              |       |            |  |               |                   |                       |                   |                     |                |  | 
|------------------ |  | ------------ | ----- | ---------- |  | ------------- | ----------------- | --------------------- | ----------------- | ------------------- | -------------- |  | 
|                   |  |              |       |            |  |               |                   | Number of             |                   | Value of            |               
|                   |  |              |       |            |  |               |                   | Securities Underlying |                   | Unexercised In-the- |               
|                   |  |              |       |            |  |               |                   | Unexercised Options   |                   | Money Options       |               
|                   |  | Shares       |       |            |  |               | at FY-End (#) (1) |                       | at FY-End ($) (2) |                    
|                   |  | Acquired on  |       | Value      |  | Exercisable/  |                   | Exercisable/          |                  
|Name               |  | Exercise (#) |       | Realized $ |  | Unexercisable |                   | Unexercisable         |                  
|                   |  |              |       |            |  |               |                   |                       |                  
|Timothy P. Gaylord |  |              | 1,000 |            |  | 25,500        |                   | 7,001/5,999           |                   |                     | 103,756/25,994



---

|(1) |  | On March 18, 1999, the Companys Board of Directors, with the
consent of each grantee, voted to rescind all outstanding SARs,
which had been previously granted under the Companys Incentive
Stock Option Plan.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The value shown is based upon the market bid price at
December 31, 2002 of $43.50 net of the option exercise price.                                                                                             

15



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##### Table of Contents



Part III (continued)




EMPLOYMENT AGREEMENT



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has entered into an agreement with Mr. Gaylord relating to
his employment by the Company and the Bank. This agreement is summarized
below. This summary is not intended to be complete and is qualified in
its entirety by reference to the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | The agreement among Mr. Gaylord, the Company, and the Bank (the
Agreement) provides that Mr. Gaylord will be employed by the Company
and the Bank as their President and Chief Executive Officer. The
Agreement was automatically renewed in 2002 for a one-year period ending
September 30, 2003 and is subject to automatic renewals of one-year
periods unless terminated in accordance with the Agreement. The
Agreement provided an annual salary rate in 1995 of $85,000, subject to
adjustment by the Board of Directors in subsequent years during the term
of the Agreement. During 2002, Mr. Gaylords salary was $127,415. Mr.
Gaylord is also entitled to customary employee benefits and perquisites.
The Agreement provides that in the event of a change in control of the
Company or the Bank, if Mr. Gaylords employment is involuntarily
terminated, or if Mr. Gaylords status and compensation are reduced
without cause within one year of the change in control, Mr. Gaylord shall
be entitled to payment of an amount equal to his annual salary. The
Agreement provides that the Company and the Bank may terminate Mr.
Gaylords employment at any time for cause without further obligation to
compensate Mr. Gaylord. The Agreement broadly defines cause to generally
include, among other things, misfeasance, malfeasance, and nonfeasance of
Mr. Gaylords duties and breach of the Agreement. The Agreement further
provides that Mr. Gaylord shall not, for a period of one year after Mr.
Gaylords last day of employment, provide financial services or otherwise
compete with the business of the Company and the Bank in the City of
Mason, Michigan and a three mile radius surrounding it. Further, Mr.
Gaylord shall not during that one year period, solicit customers of the
Bank and its affiliates or solicit for hire any then current Bank or
Company employees or contact them for the purpose of inducing them to
leave the Bank or Company. The Agreement also requires Mr. Gaylord to
maintain the confidentiality of certain information and trade secrets of
the Company and the Bank following the termination of his employment.
|
| | Information under the captions
Report on Executive Compensation and Performance
Graph are furnished from the 2003 Proxy Statement pursuant to this Item 11 but shall not
be deemed filed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Item 12. Security Ownership of Certain Beneficial Owners and Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   




PRINCIPAL SHAREHOLDERS



| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table sets forth certain information, as of March 3, 2003,
as to the Common Stock beneficially owned by each person known by the
Company to be the beneficial owner of more than five percent (5%) of the
Common Stock:

|                           |  |                                                                                |  |                         |  |          |      |  
|-------------------------- |  | ------------------------------------------------------------------------------ |  | ----------------------- |  | -------- | ---- | -
|                           |  | Name and Address                                                               |  | Amount and Nature       |  | Percent  |     
|Title of Class             |  | of Beneficial Owner                                                            |  | of Beneficial Ownership |  | of Class |     
|                           |  |                                                                                |  |                         |  |          |     
|Common Stock,
$5 par value |  | June M. Oesterle Trust
Lyle M. Oesterle Trust
1975 Okemos Road
Mason, MI 48854 |  | 54,586 (1)              |  |          | 9.25 | %
|                           |  |                                                                                |  |                         |  |          |      |  
|Common Stock,
$5 par value |  | Colin J. Fingerle Trust
2505 Londonderry Road
Ann Arbor, MI 48104              |  | 37,343                  |  |          | 6.33 | %



|    |  |                                                                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Total of shares owned by both the June M. Oesterle
Trust of which June M. Oesterle is the sole Trustee and the Lyle
M. Oesterle Trust of which Lyle M. Oesterle, spouse of June M.
Oesterle, is sole Trustee.

16



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##### Table of Contents



Part III (continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The information required by
Item 201(d) of Regulation S-K is hereby incorporated by
reference from the Companys 2003 Proxy Statement under the
caption (2) Approval of the 2003 Stock Option Plan 
Existing Equity Compensation Plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | In addition, reference is made to Directors  under Part III, Item 10, of
this Form 10-K report on page 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Item 13. Certain Relationships and Related Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Directors and officers of the Company and their associates were customers
of, and had transactions with, subsidiaries of the Company in the
ordinary course of business during 2002. All loans and commitments
included in such transactions were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with other persons and did not involve more than the normal risk of
collectibility or present other unfavorable features.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | The information appearing in Note 3 on page 21 of the Notes to
Consolidated Financial Statements of the 2002 Annual Report to
Shareholders is incorporated by reference in response to this item.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Item 14. Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Within the 90-day period prior to the filing date of this report, an
evaluation was carried out under the supervision and with the
participation of Capital Directions, Inc.s management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934).
Based on their evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that the Companys disclosure controls
and procedures are, to the best of their knowledge, effective to ensure
that information required to be disclosed by Capital Directions, Inc. in
reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within time periods specified in
Securities and Exchange Commission rules and forms. Subsequent to the
date of their evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that there were no significant changes in Capital
Directions, Inc.s internal controls or in other factors that could
significantly affect its internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
|
| | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



| |  | (a) | The following documents are filed as part of this report:
| |  | --- | ---------------------------------------------------------



| | 1. |  | The following consolidated financial statements of Capital Directions,
Inc. included in the 2002 Annual Report to Shareholders for the year ended
December 31, 2002, are incorporated herein by reference in Item 8:
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                       |  |               |    | 
|-------------------------------------------------------------------------------------- |  | ------------- | -- | 
|                                                                                       |  | Page in 2002  |   
|                                                                                       |  | Annual Report |   
|                                                                                       |  |               |   
|Consolidated
balance sheets December 31, 2002 and 2001                                |  |               | 13 | 
|                                                                                      
|Consolidated
statements of income for the years
ended December 31, 2002, 2001 and 2000 |  |               | 14 | 

17



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##### Table of Contents



PART III  Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued)

| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         |  |  | 
| | --- | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | 
| |     |                                                                                                      | Consolidated
statements of cash flows for the yearsended December 31, 2002,
2001 and 2000                                                                                                                  | 15                                                                                                                                    
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | Consolidated
statements of changes in shareholdersequity for the years
ended December 31, 2002, 2001 and 2000                                                                                             | 16                                                                                                                                    
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | Notes to consolidated financial statements                                                                                                                                                                 | 17 - 28                                                                                                                               
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | Report of Independent Auditors                                                                                                                                                                             | 12                                                                                                                                    
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     | 2                                                                                                    | Financial  Statement Schedules                                                                                                                                                                             |                                                                                                                                       
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | Not applicable                                                                                                                                                                                             |                                                                                                                                       
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     | 3                                                                                                    | Exhibits                                                                                                                                                                                                   |                                                                                                                                       
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | (3a) Articles of Incorporation and
(3b) Bylaws (previously filed as Exhibits included in Capital
Directions, Inc. Registration Statement Amendment No. 1 to Form S-4,
No. 33-20417, Dated March 17, 1988).
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | (10)                                                                                                                                                                                                       | Material Contracts                                                                                                                     |                                                                                                                                                                                        
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      |                                                                                                                                                                                                            | (a)                                                                                                                                    | Incentive
Compensation Plans (previously filed as Exhibits included in Capital
Directions, Inc.s 1988 10-K report dated March 29, 1989 and the 1993 10-K report dated March 29, 1994). | 
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      |                                                                                                                                                                                                            | (b)                                                                                                                                    | Directors Deferred
Compensation Plans (previously filed as Exhibits included in Capital
Directions, Inc.s 1988 10-K report dated March 29, 1989).                                     
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      |                                                                                                                                                                                                            | (c)                                                                                                                                    | Supplementary
Executive Retirement Plan (previously filed as Exhibits included in
Capital Directions, Inc.s 1988 10-K report dated March 29, 1989).                                   
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      |                                                                                                                                                                                                            | (d)                                                                                                                                    | Employment Agreement
with Timothy Gaylord.                                                                                                                                             
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | (13)                                                                                                                                                                                                       | Annual Report to
Shareholders for the year ended December 31, 2002 (filed herewith).                                                  
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | (22)                                                                                                                                                                                                       | Subsidiaries of
registrant (previously filed as Exhibits included in Capital
Directions, Inc.s 1988 10-K report dated March 29, 1989)
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | (23)                                                                                                                                                                                                       | Consents of experts.
Consent of Crowe, Chizek and Company LLP.                                                                        
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | (99.1)                                                                                                                                                                                                     | Certification of Chief Executive Officer.                                                                                             
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     |                                                                                                      | (99.2)                                                                                                                                                                                                     | Certification of Treasurer.                                                                                                           
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| | (b) | Reports on Form 8-K                                                                                 
| |     |                                                                                                      |                                                                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                                         | 
| |     | Form 8-K was filed on
November 1, 2002 relating to the implementation of a stock repurchase program.

18



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on
March 31, 2003.

|                        |  |                                                           
|----------------------- |  | ----------------------------------------------------------
|CAPITAL DIRECTIONS, INC |  |                                                           
|                       
|/s/ Timothy P. Gaylord  |  | Timothy P. Gaylord
(President and Chief Executive Officer)
|                       
|/s/ Lois A. Toth        |  | Lois A. Toth
(Treasurer)                                  

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed by the following persons in the capacities
indicated on March 31, 2003.

|                       |  |                                                         
|---------------------- |  | --------------------------------------------------------
|/s/ Gerald W. Ambrose  |  | Gerald W. Ambrose
Chairman of Board of Directors        
|
|                       |  |                                                         
|
|/s/ Marvin B. Oesterle |  | Marvin B. Oesterle
Vice Chairman of Board of Directors  
|
|                       |  |                                                         
|
|/s/ Douglas W. Dancer  |  | Douglas W. Dancer
Secretary of Board of Directors       
|
|                       |  |                                                         
|
|/s/ Timothy P. Gaylord |  | Timothy P. Gaylord
President and Chief Executive Officer
|
|                       |  |                                                         
|
|/s/ Paula Johnson      |  | Paula Johnson
Director                                  
|
|                       |  |                                                         
|
|/s/ James W. Leasure   |  | James W. Leasure
Director                               

19



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##### Table of Contents






Certifications

I, Timothy P. Gaylord, certify that:



| | 1. |  | I have reviewed this Annual Report on Form 10-K of Capital
Directions, Inc.;                                                                                                                                                                                                                                            
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|
| | 4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                   



| |  | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of the date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                
|
| |  | c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a) |  | all significant deficiencies in the design or
operation of internal controls which could
adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | any fraud, whether or not material, the involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                         



| | 6. |  | The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |  |  |  |                                                                    
|---------------------- |  |  |  | -------------------------------------------------------------------
|Date:   March 31, 2003 |  |  |  |                                                                    
|                      
|                       |  |  |  | /s/  Timothy P.
Gaylord

Timothy P. Gaylord
Chief Executive Officer

20



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##### Table of Contents






Certifications

I, Lois A. Toth, certify that:



| | 1. |  | I have reviewed this Annual Report on Form 10-K of Capital
Directions, Inc.;                                                                                                                                                                                                                                            
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|
| | 4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                   



| |  | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of the date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                
|
| |  | c. |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Dare;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a. |  | all significant deficiencies in the design or
operation of internal controls which could
adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b. |  | any fraud, whether or not material, the involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                         



| | 6. |  | The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |  |  |  |                                         
|---------------------- |  |  |  | ----------------------------------------
|Date:   March 31,
2003 |  |  |  |                                         
|                      
|                       |  |  |  | /s/  Lois A.
Toth
Lois A. Toth
Treasurer

21



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##### Table of Contents






Index to Exhibits

The following exhibits are filed or incorporated by reference as part of
this report:



| | 3(A)  |  | Articles of Incorporation of the Registrant as currently in effect
and any amendments thereto (Incorporated herein by reference to Exhibit 3(A) of
the Registrants Form S-4 Registration Statement dated March 17, 1988 No.
33-20417).
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3(B)  |  | Bylaws of the Registrant as currently in effect and any amendments
thereto (Incorporated herein by reference to Exhibit 3(B) of the Registrants
Form S-4 Registration Statement dated March 17, 1988 No. 33-20417).                   
|
| | 10(A) |  | Incentive Compensation Plans (Incorporated herein by
reference to Exhibit 10(A) to Registrants Report on Form 10-K for
the year ended December 31, 1988 and December 31, 1993 [1988 and
1993 10-K Reports]).                          
|
| | 10(B) |  | Directors Deferred Compensation Plan (Incorporated herein by
reference to Exhibit 10(B) to Registrants Report on Form 10-K for the year
ended December 31, 1988 [1988 10-K Report]).                                                  
|
| | 10(C) |  | Supplementary Executive Retirement Plan (Incorporated herein by
reference to Exhibit 10(C) to Registrants Report on Form 10-K for the year
ended December 31, 1988 [1988 10-K Report]).                                               
|
| | 10(D) |  | Employment Agreement with
Timothy Gaylord.                                                                                                                                                                                             
|
| | 13    |  | Annual Report to Shareholders for the year ended December 31,
2002 (filed herewith).                                                                                                                                                   
|
| | 22    |  | List of Subsidiaries (Incorporated herein by reference to
Exhibit 22 to Registrants Report on Form 10-K for the year ended
December 31, 1988 [1988 10-K Report]).                                                                     
|
| | 23    |  | Consents of experts. Consent of Crowe, Chizek and Company
LLP.                                                                                                                                                                         
|
| | 99.1  |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                
|
| | 99.2  |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                

22