<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

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

For the quarter ended      June 30, 1998     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          (I.R.S. Employer Identification Number)
incorporation or organization)

322 South Jefferson St., Mason, Michigan                        48854-0130
----------------------------------------                        ----------
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:           (517) 676-0500
                                                              --------------

                                      None
               ---------------------------------------------------
               Former name, former address and former fiscal year,
                          if changed since last report

Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such 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  X   No
                                       ---     ---

As of July 29, 1998 the registrant had outstanding 595,056 shares of common
stock having a par value of $5 per share.


<PAGE>   2

                            CAPITAL DIRECTIONS, INC.
                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                  Page
                                                                                 Number
                                                                                 ------
<S>                                                                                <C>
PART I - FINANCIAL INFORMATION

     Item 1.  Consolidated Balance Sheets
              June 30, 1998 and December 31, 1997. . . . . . . . . . . . . . . . .  1

              Consolidated Statements of Income for the three and six month
              periods ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . .  2

              Consolidated Statements of Cash Flows for the six month
              periods ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . .  3

              Consolidated Statements of
              Changes in Shareholders' Equity for six months
              ended June 30, 1998. . . . . . . . . . . . . . . . . . . . . . . . .  4

              Notes to Interim Consolidated Financial Statements . . . . . . . . .  5-6

    Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations. . . . . . . . . . . . . . . . .  7-10

PART II - OTHER INFORMATION

    Item 1.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .  11
    Item 2.   Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . .  11
    Item 3.   Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . .  11
    Item 4.   Submission of Matters to a Vote of Security Holders. . . . . . . . .  11
    Item 5.   Other Information. . . . . . . . . . . . . . . . . . . . . . . . . .  11
    Item 6.   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .  11
    Item 7.   Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
              Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . .  13
</TABLE>


<PAGE>   3
                            CAPITAL DIRECTIONS, INC.
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
(In thousands)                                                         June 30,                December 31,
                                                                        1998                      1997
                                                                        ----                      ----
                                                                     (Unaudited)
                                                                     -----------
ASSETS                                                               
<S>                                                                   <C>                        <C>   
  Cash and non interest bearing deposits                                $2,496                     $2,188
  Interest bearing deposits                                                 35                          0
  Federal funds sold                                                     8,350                          0
                                                                       -------                    ------- 
          Total cash and cash equivalents                               10,881                      2,188
  Securities available for sale                                          7,010                      6,271
  Securities held to maturity (fair value of $7,046 as of             
    June 30,  1998 and $7,705 as of December 31, 1997)               
      U.S. Government and agencies                                       2,254                      2,944
      State and municipal                                                4,003                      4,539
  Federal Home Loan Bank (FHLB) stock                                      597                        364
                                                                       -------                    ------- 
          Total securities                                              13,864                     14,118
  Loans:                                                             
    Commercial and agricultural                                          4,194                      4,241
    Installment                                                          3,358                      3,601
    Real estate mortgages                                               60,248                     53,492
    Loans held for sale                                                  1,049                          0
                                                                       -------                    ------- 
          Total loans                                                   68,849                     61,334
    Allowance for loan losses                                           (1,025)                    (1,035)
                                                                       -------                    ------- 
          Net loans                                                     67,824                     60,299
  Premises and equipment, net                                              598                        618
  Accrued income and other assets                                        2,953                      2,734
                                                                       -------                    ------- 
          Total assets                                                 $96,120                    $79,957
                                                                       =======                    ======= 
                                                                     
LIABILITIES AND SHAREHOLDERS' EQUITY                                 
  Liabilities                                                        
    Deposits:                                                        
      Non interest bearing                                              $9,388                     $8,322
      Interest bearing                                                  62,794                     56,099
                                                                       -------                    ------- 
          Total deposits                                                72,182                     64,421
    Federal funds purchased                                                  0                        450
    Long-term FHLB borrowings                                           11,934                      3,670
    Other liabilities                                                    1,413                      1,200
                                                                       -------                    ------- 
          Total liabilities                                             85,529                     69,741
  Shareholders' equity                                               
    Common stock:  $5 par value, 1,300,000 shares                    
    authorized; 595,056 shares outstanding                               2,975                      2,975
    Additional paid in capital                                           2,561                      2,561
    Retained earnings                                                    5,029                      4,652
    Net unrealized gains/(losses) on securities available            
    for sale, net of tax of $13 as of June 30, 1998 and              
    $14 as of December 31, 1997                                             26                         28
                                                                       -------                    ------- 
          Total shareholders' equity                                    10,591                     10,216
                                                                       -------                    ------- 
          Total liabilities and shareholders' equity                   $96,120                    $79,957
                                                                       =======                    ======= 
</TABLE>


See accompanying notes to consolidated financial statements.


                                      1
<PAGE>   4
                            CAPITAL DIRECTIONS, INC.
                  CONSOLIDATED STATEMENT OF INCOME (Unaudited)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                           Three Months Ended                    Six Months Ended
(In thousands, except per share data)                          June 30,                               June 30,
                                                        1998                1997            1998                    1997
                                                        ----                ----            ----                    ----
<S>                                                  <C>                 <C>             <C>                       <C>
INTEREST AND DIVIDEND INCOME                           
  Interest and fees on loans                         $ 1,407              $1,173          $2,768                     $ 2,320
  Federal funds sold                                      33                  26              57                          35
  Securities:  Taxable - available for sale              105                 145             226                         298
               Taxable - held to maturity                 53                  71             108                         144
               Tax exempt - held to maturity              50                  57             102                         121
  Dividends on FHLB stock                                 10                   7              17                          14
  Other interest income                                    6                   -               6                           2
                                                    --------            --------        --------                    --------
          Total interest and dividend income           1,664               1,479           3,284                       2,934

INTEREST EXPENSE
  Deposits                                               622                 576           1,235                       1,142
  Federal funds purchased                                  -                   -               1                           9
  Long-term FHLB borrowings                              146                  53             239                          82
                                                    --------            --------        --------                    --------
          Total interest expense                         768                 629           1,475                       1,233
                                                    --------            --------        --------                    --------
NET INTEREST INCOME                                      896                 850           1,809                       1,701
                                                    --------            --------        --------                    --------
Provision for loan losses                                 (9)                  -             (17)                          -
                                                    --------            --------        --------                    --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES      905                 850           1,826                       1,701
NON INTEREST INCOME
  Service charges on deposits                             72                  65             140                         128
  Net gain (loss) on sale of securities                   (5)                 (2)            (18)                          5
  Net gain on sales of loans                              (2)                  -              (1)                          7
  Other income                                            98                  76             163                         149
                                                    --------            --------        --------                    --------
          Total non interest income                      163                 139             284                         289
NON INTEREST EXPENSE
  Salaries and employee benefits                         355                 341             724                         684
  Premises and equipment                                  77                  83             155                         166
  Other operating expense                                184                 151             354                         316
                                                    --------            --------        --------                    --------
          Total non interest expense                     616                 575           1,233                       1,166

INCOME BEFORE INCOME TAX EXPENSE                         452                 414             877                         824
INCOME TAX EXPENSE                                       132                 117             254                         232
                                                    --------            --------        --------                    --------

NET INCOME                                           $   320                $297            $623                        $592
                                                    ========            ========        ========                    ========

AVERAGE COMMON SHARES OUTSTANDING                    595,056             594,856         595,056                     594,856
BASIC EARNINGS PER COMMON SHARE                         0.54                0.50            1.05                        1.00
DILUTED EARNINGS PER COMMON SHARE                       0.53                0.50            1.04                        0.99
DIVIDENDS PER SHARE OF COMMON STOCK, DECLARED           0.23                0.17            0.42                        0.33
</TABLE>

See accompanying notes to consolidated financial statements.


                                      2
<PAGE>   5
                            CAPITAL DIRECTIONS, INC.
                CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                              Six Months Ended
(In thousands)                                                                                    June 30,
                                                                                      1998                      1997
                                                                                      ----                      ----
<S>                                                                                 <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES                                                
  Net income                                                                        $   623                   $   592
  Adjustments to reconcile net income to net cash                                   
    from operating activities                                                       
      Depreciation                                                                       61                        50
      Provision for loan losses                                                         (17)                        -
      Net amortization (accretion) on securities                                         18                        35
      Net gain (loss) on sales of loans                                                   1                        (7)
      Net gain (loss) on sales of securities                                             18                        (5)
      Changes in assets and liabilities:                                            
        Accrued interest receivable                                                      32                       (14)
        Accrued interest payable                                                        (27)                      (23)
        Other assets                                                                   (251)                      (19)
        Other liabilities                                                               231                       107
                                                                                    -------                   ------- 
                                                                                        689                       716
CASH FLOWS FROM INVESTING ACTIVITIES                                                                          
  Securities available for sale:                                                                              
    Purchases                                                                        (4,693)                     (529)
    Maturities, call and principal payments                                           3,713                     1,655
  Securities held to maturity:                                                                                
    Purchases                                                                             -                      (180)
    Maturities, call and principal payments                                           1,223                     1,058
  Proceeds from sale of non-residential loans                                            68                       180
  Net change in loans                                                                (7,594)                   (2,386)
  Premises and equipment expenditures                                                   (41)                      (81)
                                                                                    -------                   ------- 
          Net cash from investing activities                                         (7,324)                     (283)
CASH FLOWS FROM FINANCING ACTIVITIES                                                                          
  Net change in deposits                                                              7,761                      (270)
  Federal funds purchased                                                              (450)                        -
  Proceeds from long-term FHLB borrowings                                             8,350                     2,000
  Repayment of long-term FHLB borrowings                                                (86)                      (85)
  Dividends paid                                                                       (247)                     (196)
                                                                                    -------                   ------- 
          Net cash from financing activities                                         15,328                     1,449
                                                                                    -------                   ------- 
NET CHANGE IN CASH AND CASH EQUIVALENTS                                               8,693                     1,882
Cash and cash equivalents at beginning of year                                        2,188                     5,477
                                                                                    -------                   ------- 
CASH AND CASH EQUIVALENTS AT JUNE 30                                                $10,881                   $ 7,359
                                                                                    =======                   ======= 
                                                                                                              
Supplemental disclosure of cash flow information                                                              
  Cash paid during the year for:                                                                              
    Interest                                                                        $ 1,241                   $ 1,156
    Income taxes - federal                                                          $   269                   $   245
</TABLE>


See accompanying notes to consolidated financial statements.

                                       3
<PAGE>   6
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
                 For the six months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------
                                                                                       Accumulated
                                                                                          Other
(In thousands)                                    Common    Paid in      Retained     Comprehensive
                                                  Stock     Capital      Earnings        Income        Total
                                                 -------    -------      --------     -------------  --------
<S>                                             <C>       <C>           <C>              <C>         <C>
Balance, January 1, 1997                         $ 1,487   $ 2,559       $ 5,319          $ 32       $  9,397
Net income                                                                   592                          592
Unrealized gain (loss) on securities                                                       (16)           (16)
                                                                                                     --------
Comprehensive income                                                                                      576
Cash dividends ($ .33 per share)                                            (196)                        (196)
                                                 -------   -------       -------          ----       --------

Balance, June 30, 1997                           $ 1,487   $ 2,559       $ 5,715          $ 16       $  9,777
                                                 =======   =======       =======          ====       ========


Balance, January 1, 1998                         $ 2,975   $ 2,561       $ 4,652          $ 28       $ 10,216
Net income                                                                   623                          623
Unrealized gain (loss) on securities                                                        (2)            (2)
                                                                                                     --------
Comprehensive income                                                                                      621
Cash dividends ($ .415 per share)                                           (246)                        (246)
                                                 -------   -------       -------          ----       --------

Balance, June 30, 1998                           $ 2,975   $ 2,561       $ 5,029          $ 26       $ 10,591
                                                 =======   =======       =======          ====       ========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       4
<PAGE>   7
                            CAPITAL DIRECTIONS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   In the opinion of management of the Registrant, the accompanying
     Consolidated Financial Statements contain all adjustments (consisting only
     of normal recurring items) necessary to present fairly the consolidated
     financial position of the Registrant as of June 30, 1998 and December 31,
     1997, the results of operations and cash flows for the six month periods
     ended June 30, 1998 and 1997, and the change in shareholders' equity for
     the six month periods ended June 30, 1998 and 1997.

2.   The results of operations for the six months ended June 30, 1998 are not
     necessarily indicative of the results to be expected for the full year.

3.   The accompanying unaudited Consolidated Financial Statements and the notes
     thereto should be read in conjunction with the Notes to Consolidated
     Financial Statements and the notes included therein, for the fiscal year
     end, 1997, included in the Registrant's 1997 Annual Report.

4.   Management determines the adequacy of the allowance for loan losses based
     on an evaluation of the loan portfolio, recent loss experience, current
     economic conditions and other pertinent factors. Non-performing loans are
     defined as all loans which are accounted for as non-accrual; loans 90 days
     or more past due and still accruing interest; or loans which have been
     renegotiated due to the borrowers' inability to comply with the original
     terms. As of June 30, 1998, non-performing loans totaled $220,000 or .32%
     of total loans. This represents an increase of $11,000 from the $209,000
     balance at December 31, 1997.

<TABLE>
<CAPTION>
                                                   June 30,     December 31,
           Non-performing loans                     1998           1997
           -----------------------------         ----------     -----------
           <S>                                   <C>             <C>      
           Non-accrual                           $ 131,000       $  48,000
           90 days or more past due                 89,000         161,000
           Renegotiated                                ---             ---
                                                 ---------       ---------
                                                 $ 220,000       $ 209,000
                                                 =========       =========
</TABLE>

    A loan is considered impaired when full collection of principal and interest
    is not expected. There were no impaired loans in the portfolio at June 30,
    1998 or December 31, 1997.






                                        5
<PAGE>   8


5.   A summary of the activity in the allowance for loan losses for the six
     months ended June 30, follows:

<TABLE>
<CAPTION>
     (In thousands)                                  1998             1997
                                                     ----             ----
     <S>                                            <C>              <C>   
     Balance - beginning of period                  $1,035           $1,020
     Provision charged to operating period             (16)               0
     Loans charged-off                                 (11)              (1)
     Recoveries                                         17               13
                                                    ------           ------
       Balance, end of period                       $1,025           $1,032
                                                    ======           ======
</TABLE>

6.  The provision for income taxes represents federal income tax expense
    calculated using annualized rates on taxable income generated during the
    respective periods.



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    The following discussion and analysis of financial condition and results of
    operations provides additional information to assess the Consolidated
    Financial Statements of the Registrant and its wholly-owned subsidiaries.
    The discussion should be read in conjunction with those statements.

    The company is not aware of any market or institutional trends, events or
    circumstances that will have or are reasonably likely to have a material
    effect on liquidity, capital resources, or results of operations except as
    discussed herein.

    FINANCIAL CONDITION

    Total assets at June 30, 1998 increased from December 31, 1997 by 18.65% or
    $15,108. This increase resulted primarily from strong growth in mortgage
    lending. This growth was funded largely by an increase in Federal Home Loan
    Bank borrowings.

    The allowance for loan losses remains strong . At June 30, 1998 the
    allowance was equal to 1.51% of average total loans outstanding, down from
    1.69% at December 31, 1997.

    RESULTS OF OPERATIONS

    Net income for the six months ended June 30, 1998 totaled $303,000 compared
    to $295,000 in 1997. Basic earnings per share for 1998 were $.51 compared to
    $.50 for the same period in 1997. Diluted earnings per share were $.51 for
    1998 compared to $.49 in 1997.


                                        6
<PAGE>   9
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)

    Net interest income for the first six months of 1998 increased 5.1% or
    $87,000 compared to the same period in 1997. The increase is primarily a
    result of strong growth in the real estate mortgage loan portfolio. Loans
    grew by $7,515,000 or 12.25% during the first half of 1998 compared to an
    increase of $2,216,000 or 4.28% for the same period in 1997. Total deposits
    increased 12.0% or $7,761,000. This growth was divided between interest
    bearing and non interest bearing deposits. Non interest bearing deposits
    increased $1,066,000 while interest bearing deposits increased $6,695,000.

    Net interest margin for the first six months of 1998 was 4.64% compared to
    4.94% for the same period in 1997. Lower rates, particularly in the mortgage
    lending area contributed to the decline in margin.

    A decrease of $5,000 in non interest income for the first six months of
    1998, compared to the same period in 1997, is due primarily to losses
    totaling $18,000 incurred on called securities which were partially offset
    by increased fee income from ATM surcharges.

    Non interest expense for the first six months of 1998 increased $67,000
    compared to the same period in 1997. This is due primarily to increased
    salary and benefit expenses as well as increased marketing and data
    processing costs.

    The provision for loan losses was reduced $17,000 for the first six months
    of 1998. This reduction corresponded directly to the recoveries booked thus
    far in 1998 and is in response to the previous five consecutive years of net
    recoveries. The 1997 provision for the same period was $0.

    The federal income tax provision for the first six months of 1998 was
    $254,000, up from $232,000 for the same period in 1997. This increase
    reflects a higher taxable income for 1998.

    LIQUIDITY AND INTEREST RATE SENSITIVITY

    The primary objective of asset/liability management is to assure the
    maintenance of adequate liquidity and maximize net interest income by
    maintaining appropriate maturities and balances between interest sensitive
    earning assets and interest bearing liabilities. Liquidity management
    insures sufficient funds are maintained to meet the cash withdrawal
    requirements of depositors and the credit demand of borrowers. Sources of
    liquidity include federal funds sold, investment security maturities and
    principal payments. A net average balance of $2,141,000 in federal funds
    sold was maintained during the first half of 1998. As a member of the
    Federal Home Loan Bank system, the Bank has access to an alternate funding
    source, lower cost for credit services, and an additional tool to manage
    interest rate risk. Throughout the first half of 1998, the Bank used this
    source of funding to offset new mortgage loan demand. Other sources of
    liquidity include internally generated cash flow, repayments and maturities
    of loans, borrowing and normal deposit growth. The primary source of funds
    for the parent company is the upstream of dividends from the Bank.
    Management believes these sources of liquidity are sufficient for the Bank
    and parent company to continue current business plans.

    At June 30, 1998 the securities available for sale were valued at
    $7,010,000. It is not anticipated that management will use these funds due
    to the optional sources available. Interest rate sensitivity management
    seeks to maximize net interest margins through periods of changing interest
    rates. The Bank develops strategies to assure desired levels of interest
    sensitive assets and interest bearing liabilities mature or reprice within
    selected time frames.


                                        7
<PAGE>   10

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)

    Strategies include the use of variable rate loan products in addition to
    managing deposit accounts and maturities in the investment portfolio. The
    following table, using recommended regulatory standards, reflects the "rate
    sensitive position" or the difference between loans and investments, and
    liabilities that mature or reprice within the next year and beyond. The
    financial industry has generally referred to this difference as "GAP" and
    its handing as "GAP Management". At June 30, 1998, the percentage of rate
    sensitive assets to rate sensitive liabilities within the one-year time
    horizon was 110.56%.

    The table shows the Bank's GAP position as of June 30, 1998. The Bank has an
    asset sensitive position of $4,281, which indicates higher net interest
    income may be earned if rates increase during the period. Due to the
    limitations of GAP analysis, modeling is also used to enhance measurement
    and control. Management is continually reviewing its interest rate risk
    position and modifying its strategies based on projections to minimize the
    impact of future interest rate declines.












                                        8
<PAGE>   11

<TABLE>
<CAPTION>
GAP Measurement
(Dollars in thousands)
                                                                                                                   Over
                                 0-30      31-90    Second     Third     Fourth    Annual     1 - 3      3 - 5     Five
            ASSETS               Days      Days     Quarter   Quarter    Quarter    Total     Years      Years     Years     Total
-----------------------------    ----      -----    -------   -------    -------   ------     -----      -----     -----     -----
<S>                             <C>       <C>       <C>       <C>        <C>       <C>       <C>        <C>       <C>       <C>
Loans*                          $11,722   $ 4,057   $ 5,356   $ 4,545    $ 4,683   $30,363   $10,064    $13,691   $20,869   $74,987
Loan repayment offset                 -         -         -         -          -         -         -          -         -    (6,148)
Allowance for loan losses             -         -         -         -          -         -         -          -         -    (1,025)
Federal funds sold                8,350         -         -         -          -     8,350         -          -         -     8,350
Investments**                     2,272     1,344       565       225      1,706     6,112     4,174      1,114     3,264    14,664
Mortgage-backed repayments            -         -         -         -          -         -         -          -         -      (800)
Other non-earning assets              -         -         -         -          -         -         -          -         -     5,947
                                ---------------------------------------------------------------------------------------------------

  Total                         $22,344   $ 5,401   $ 5,921   $ 4,770    $ 6,389   $44,825   $14,238    $14,805   $24,133   $95,975

         LIABILITIES                                                                                                       
-----------------------------                                                                                               
Non interest bearing deposits       350       690     1,134     1,040      1,040     4,254     2,363      2,363       473     9,453
Interest bearing deposits         7,106     9,512     6,153     6,694      6,096    35,561    13,678      7,545     6,008    62,792
Federal funds purchased               -         -         -         -          -         -         -          -         -         -
Long-term FHLB borrowings             -         -       141        88        500       729     2,922      8,030       250    11,931
Other liabilities                     -         -         -         -          -         -         -          -         -     1,282
Capital                               -         -         -         -          -         -         -          -         -    10,517
                                ---------------------------------------------------------------------------------------------------

  Total                         $ 7,456   $10,202   $ 7,428   $ 7,822    $ 7,636   $40,544   $18,963    $17,938   $ 6,731   $95,975

GAP                             $14,888   $(4,801)  $(1,507)  $(3,052)   $(1,247)  $ 4,281   $(4,725)   $(3,133)  $17,402   $     -

Cumulative GAP                   14,888    10,087     8,580     5,528      4,281     4,281      (444)    (3,577)   13,825         -

GAP Ratio                        299.68%    52.94%    79.71%    60.98%     83.67%   110.56%    75.08%     82.53%   358.54%        -
</TABLE>

 * Incorporates prepayment projections for certain assets which may shorten the
   time frame for repricing or maturity compared to contractual runoff.
** Maturities reflect probable prepayments and calls.

CAPITAL RESOURCES

The Corporation's capital adequacy is reviewed continuously. This ensures both
compliance with regulatory requirements and availability of sufficient capital
to meet current and future funding needs.

Shareholders' equity increased $375,000 or 3.67% to $10,591,000 at June 30,
1998. This represents 11.02% of total assets. At June 30, 1997, the similar
ratio of shareholders' equity to total assets was 12.78%. The Corporation has a
strong capital position that will continue to meet our needs throughout 1998.


                                        9
<PAGE>   12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONTINUED).

    Regulators established "risk-based" capital guidelines that became effective
    December 31, 1990. Under the guidelines, minimum capital levels are
    established for risk based and total assets based on perceived risk in asset
    categories and certain off-balance-sheet items, such as loan commitments and
    standby letters of credit. On June 30, 1998, the Bank had a "risk-based"
    total capital to asset ratio of 18.39%. The ratio exceeds the requirements
    established by regulatory agencies as shown below.


<TABLE>
<CAPTION>
                CAPITAL                               June 30, 1998
                (dollars in thousands)          Risk-based      Leverage
                                                ----------      --------
                <S>                             <C>             <C>
                Actual amount                   $ 11,259        $ 10,491
                Actual percent                    18.39%          12.00%
                Required amount                 $  4,898        $  3,496
                Required percent                   8.00%           4.00%
                Excess amount                   $  6,361        $  6,995
</TABLE>


    Bank management does not perceive that future rate changes or inflation will
    have a material impact on capital adequacy. It is the opinion of management
    that capital and shareholders' equity is adequate and will continue to be so
    throughout 1998.

    FEDERAL INCOME TAXES

    The provision for federal income taxes for the six-month periods ending June
    30, 1998 and 1997 totaled $254,000 and $232,000 respectively. The increase
    in taxes is reflective of the increase in taxable income for the above
    mentioned time periods.

    OTHER MATTERS

    SFAS No. 128, "Earnings per Share," was issued by the Financial Accounting
    Standards Board in 1997. It requires computation of basic earnings per share
    based on net income divided by the weighted average of shares outstanding
    during the period as well as the computation of diluted earnings per share
    which shows the dilutive effect of additional common shares issuable under
    stock options. All prior period amounts have been restated to be comparable.







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<PAGE>   13

                                    PART II.

ITEM 1.  LEGAL PROCEEDINGS

The Corporation is not involved in any material pending legal proceedings to
which the Registrant or its subsidiaries, is a party or 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 as of and for the period ended June 30, 1998.

ITEM 2. CHANGES IN SECURITIES

During the six months ended June 30, 1998, there weren't any changes in the
Registrant's securities, relevant to the requirements of this section, that
would cause any shareholder's rights to be materially modified, limited or
qualified.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

No defaults have occurred involving senior securities on the part of the
Registrant.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of security holders of the Company was held April 23, 1998.
Information concerning the matters brought to a vote of security holders is
contained in the Company's Proxy Statement and Notice of Annual Meeting of
Shareholders held April 23, 1997, as previously filed. There have been no
further matters submitted to a vote of the Registrant's security holders during
the six months ended June 30, 1998.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

  1. Exhibits required by Item 601 of Regulation S-K See Index to Exhibits on
     page 13.

  2. Reports on Form 8-K No reports on Form 8-K were filed for the three months
     ended June 30, 1998.




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<PAGE>   14

                                   SIGNATURES

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

                                      CAPITAL DIRECTIONS, INC.


Date:  August 5, 1998              By:  /s/   Timothy Gaylord
       --------------                 -----------------------------------
                                        Timothy Gaylord
                                        President

Date:  August 5, 1998              By:  /s/   Lois A. Toth
       --------------                 -----------------------------------
                                        Lois A. Toth
                                        Treasurer



















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<PAGE>   15

                                INDEX TO EXHIBITS

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

   2  Plan of Acquisition, Reorganization, Arrangement, Liquidation or
      Succession - Consolidation Agreement included in Amendment No. 1 to Form
      S-4 Registration Statement No. 33-20417

   4  Instruments Defining the Rights of Security Holders, Including Debentures
      - Not applicable

  11  Statement Regarding Computation of Per Share Earnings - Not applicable

  15  Letter Regarding Unaudited Interim Financial Information - Not applicable

  18  Letter Regarding Change in Accounting Principals - Not applicable

  19  Previous Unfiled Documents - Not applicable

  20  Report Furnished to Security Holders - Not applicable

  23  Published Report Regarding Matters Submitted to Vote of Security Holders -
      Not applicable

  24  Consents of Experts and Counsel - Not applicable

  25  Power of Attorney - Not applicable

  27  Financial Data Schedule (filed herewith)

  28  Additional Exhibits - Not applicable






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