##### Table of Contents

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UNITED STATES
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 endedMarch 31, 2003 Commission file number33-20417

Capital Directions, Inc.

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

|                                         |  |           
|---------------------------------------- |  | ----------
|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

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 o

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

As of March 31, 2003 the registrant had outstanding 590,043 shares of common
stock having a par value of $5 per share.





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TABLE OF CONTENTS



|                                             |                                                                                               |                                                                                                    |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION              
|                                             | Item 1. Financial Statements                                                                 
|                                             |                                                                                               | Consolidated Balance Sheets March 31, 2003 and December 31, 2002                                  
|                                             |                                                                                               | Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002              
|                                             |                                                                                               | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002          
|                                             |                                                                                               | Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2003 and 2002
|                                             |                                                                                               | Notes to Interim Consolidated Financial Statements                                                
|                                             | Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
|                                             | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                             | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION                 
|                                             | Item 1. Legal proceedings                                                                    
|                                             | Item 2. Changes in Securities and Use of Proceeds                                            
|                                             | Item 3. Defaults Upon Senior Securities                                                      
|                                             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                             | Item 5. Other Information                                                                    
|                                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|                                             |                                                                                               | Signatures                                                                                        
|                                             |                                                                                               | Certifications                                                                                    
|                                             |                                                                                               | Index to Exhibits                                                                                 
|906 Certification of Chief Executive Officer
|906 Certfication of Chief Financial Officer 



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##### Table of Contents



CAPITAL DIRECTIONS, INC.
INDEX TO FORM 10-Q

|                                                                                                   |  |       
|-------------------------------------------------------------------------------------------------- |  | ------
|                                                                                                   |  | Page  
|                                                                                                   |  | Number
|                                                                                                   |  |       
|PART I  FINANCIAL INFORMATION                                                                     |  |       
|                                                                                                   |  |       
|Item 1. Financial Statements                                                                       |  |       
|                                                                                                   |  |       
|Consolidated Balance Sheets
March 31, 2003 and December 31, 2002                                   |  | 1     
|                                                                                                   |  |       
|Consolidated Statements of Income for the Three Months
Ended March 31, 2003 and 2002               |  | 2     
|                                                                                                   |  |       
|Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002           |  | 3     
|                                                                                                   |  |       
|Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2003 and 2002 |  | 4     
|                                                                                                   |  |       
|Notes to Interim Consolidated Financial Statements                                                 |  | 5-8   
|                                                                                                   |  |       
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations      |  | 8-13  
|                                                                                                   |  |       
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                 |  | 13    
|                                                                                                   |  |       
|Item 4. Controls and Procedures                                                                    |  | 13    
|                                                                                                   |  |       
|PART II - OTHER INFORMATION                                                                        |  |       
|                                                                                                   |  |       
|Item 1. Legal Proceedings                                                                          |  | 14    
|                                                                                                   |  |       
|Item 2. Changes in Securities and Use of Proceeds                                                  |  | 14    
|                                                                                                   |  |       
|Item 3. Defaults Upon Senior Securities                                                            |  | 14    
|                                                                                                   |  |       
|Item 4. Submission of Matters to a Vote of Security Holders                                        |  | 14    
|                                                                                                   |  |       
|Item 5. Other Information                                                                          |  | 14    
|                                                                                                   |  |       
|Item 6. Exhibits and Reports on Form 8-K                                                           |  | 14    
|                                                                                                   |  |       
|Signatures                                                                                         |  | 15    
|                                                                                                   |  |       
|Certifications                                                                                     |  | 16-17 
|                                                                                                   |  |       
|Index to Exhibits                                                                                  |  | 18    





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##### Table of Contents









PART I  FINANCIAL INFORMATION




CAPITAL DIRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS



|                                                |                                                                                                                                                      |                             |                            |                                            |              |             |         |        |        |         |         | 
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | -------------------------- | ------------------------------------------ | ------------ | ----------- | ------- | ------ | ------ | ------- | ------- | 
|(In thousands, except share and per share data) |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      | March 31,                   |                            |                                            | December 31, |            
|                                                |                                                                                                                                                      |                             |                            |                                            |              | 2003        |         |        | 2002   |        
|                                                |                                                                                                                                                      |                             |                            |                                            |              |             |         |        |        |        
|                                                |                                                                                                                                                      |                             |                            |                                            |              | (Unaudited) |         |        |        |         |        
|ASSETS                                          |                                                                                                                                                      |                             |                            |                                            |              |             |         |       
|                                                | Cash and non interest bearing deposits                                                                                                               |                             | $                          | 3,063                                      |              |             | $       | 3,287  |       
|                                                | Interest bearing deposits in other financial institutions                                                                                            |                             |                            | 609                                        |              |             |         | 1,917  |       
|                                                | Federal funds sold                                                                                                                                   |                             |                            | 4,910                                      |              |             |         | 3,230  |       
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      |                             |                            | Total cash and cash equivalents            |              |             | 8,582   |        |        |         | 8,434   | 
|                                                | Time deposits with other financial institutions                                                                                                      |                             |                            | 3,458                                      |              |             |         | 981    |       
|                                               
|                                                | Securities available for sale                                                                                                                        |                             |                            | 11,762                                     |              |             |         | 12,644 |       
|                                                | Securities held to maturity                                                                                                                          |                             |                            | 400                                        |              |             |         | 400    |       
|                                                | Federal Home Loan Bank (FHLB) stock                                                                                                                  |                             |                            | 2,381                                      |              |             |         | 2,381  |       
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                | Total securities                                                                                                                                     |                             |                            | 14,543                                     |              |             |         | 15,425 |       
|                                                | Loan held for sale                                                                                                                                   |                             |                            |                                           |              |             |         | 635    |       
|                                                | Loans:                                                                                                                                               |                             |                            |                                            |              |             |         |        |       
|                                                |                                                                                                                                                      | Commercial and agricultural |                            |                                            | 5,488        |             |         |        | 5,990  |        
|                                                |                                                                                                                                                      | Installment                 |                            |                                            | 1,625        |             |         |        | 1,726  |        
|                                                |                                                                                                                                                      | Real estate mortgage        |                            |                                            | 88,102       |             |         |        | 89,383 |        
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      |                             |                            | Total loans                                |              |             | 95,215  |        |        |         | 97,099  | 
|                                                |                                                                                                                                                      |                             | Allowance for loan losses  |                                            |              | (1,039      | )       |        |        | (1,044  | )      
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      |                             |                            | Net loans                                  |              |             | 94,176  |        |        |         | 96,055  | 
|                                                | Premises and equipment, net                                                                                                                          |                             |                            | 1,035                                      |              |             |         | 1,029  |       
|                                                | Accrued interest receivable                                                                                                                          |                             |                            | 461                                        |              |             |         | 463    |       
|                                                | Bank owned life insurance                                                                                                                            |                             |                            | 1,813                                      |              |             |         | 1,794  |       
|                                                | Other assets                                                                                                                                         |                             |                            | 1,541                                      |              |             |         | 1,398  |       
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      |                             |                            | Total assets                               |              | $           | 125,609 |        |        | $       | 126,214 | 
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|LIABILITIES AND SHAREHOLDERS EQUITY            |                                                                                                                                                      |                             |                            |                                            |              |             |         |       
|LIABILITIES                                     |                                                                                                                                                      |                             |                            |                                            |              |             |         |       
|                                                | Deposits:                                                                                                                                            |                             |                            |                                            |              |             |         |        |       
|                                                |                                                                                                                                                      | Non interest bearing        |                            | $                                          | 12,964       |             |         | $      | 10,767 |        
|                                                |                                                                                                                                                      | Interest bearing            |                            |                                            | 61,836       |             |         |        | 63,940 |        
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      |                             | Total deposits             |                                            |              | 74,800      |         |        |        | 74,707  |        
|                                                | Accrued interest payable                                                                                                                             |                             |                            | 187                                        |              |             |         | 277    |       
|                                                | FHLB borrowings                                                                                                                                      |                             |                            | 34,171                                     |              |             |         | 35,401 |       
|                                                | Other liabilities                                                                                                                                    |                             |                            | 1,852                                      |              |             |         | 1,479  |       
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      |                             | Total liabilities          |                                            |              | 111,010     |         |        |        | 111,864 |        
|SHAREHOLDERS EQUITY                            |                                                                                                                                                      |                             |                            |                                            |              |             |         |       
|                                                | Common stock: $5 par value, 1,300,000 shares authorized;
590,043 and 589,043 shares outstanding at March 31, 2003 and
December 31, 2002 respectively |                             |                            | 2,950                                      |              |             |         | 2,945  |       
|                                                | Additional paid in capital                                                                                                                           |                             |                            | 2,243                                      |              |             |         | 2,231  |       
|                                                | Retained earnings                                                                                                                                    |                             |                            | 9,261                                      |              |             |         | 9,002  |       
|                                                | Accumulated other comprehensive income,
net of tax of $75 as of March 31, 2003 and $89 as of
December 31, 2002                                       |                             |                            | 145                                        |              |             |         | 172    |       
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      |                             | Total shareholders equity |                                            |              | 14,599      |         |        |        | 14,350  |        
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            
|                                                |                                                                                                                                                      |                             |                            | Total liabilities and shareholders equity |              | $           | 125,609 |        |        | $       | 126,214 | 
|                                                |                                                                                                                                                      |                             |                            |                                            |              |            

See accompanying notes to consolidated financial statements.

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CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

|                                                |                                       |            |                            |       |                    |       |         |       |     |       | 
|----------------------------------------------- | ------------------------------------- | ---------- | -------------------------- | ----- | ------------------ | ----- | ------- | ----- | --- | ----- | 
|                                                |                                       |            |                            |       | Three Months Ended |      
|                                                |                                       |            |                            |       | March 31,          |      
|                                                |                                       |            |                            |       |                    |      
|                                                |                                       |            |                            |       | 2003               |       |         | 2002  |    
|                                                |                                       |            |                            |       |                    |       |         |       |    
|(In thousands, except share and per share data) |                                       |            |                            |       |                    |       |         |      
|Interest and Dividend Income                    |                                       |            |                            |       |                    |       |         |      
|                                                | Interest and fees on loans            |            | $                          | 1,662 |                    |       | $       | 1,792 |    
|                                                | Federal funds sold and other          |            |                            | 28    |                    |       |         | 7     |    
|                                                | Interest and dividends on securities: |            |                            |       |                    |       |         |       |    
|                                                |                                       | Taxable    |                            |       | 123                |       |         |       | 168 |      
|                                                |                                       | Tax exempt |                            |       | 49                 |       |         |       | 40  |      
|                                                |                                       |            |                            |       |                    |      
|                                                |                                       |            | Total interest income      |       |                    | 1,862 |         |       |     | 2,007 | 
|Interest Expense                                |                                       |            |                            |       |                    |       |         |      
|                                                | Deposits                              |            |                            | 307   |                    |       |         | 383   |    
|                                                | FHLB borrowings and other debt        |            |                            | 464   |                    |       |         | 451   |    
|                                                |                                       |            |                            |       |                    |      
|                                                |                                       |            | Total interest expense     |       |                    | 771   |         |       |     | 834   | 
|                                                |                                       |            |                            |       |                    |      
|Net interest income                             |                                       |            | 1,091                      |       |                    |       | 1,173   |      
|Non Interest Income                             |                                       |            |                            |       |                    |       |         |      
|                                                | Service charges on deposit accounts   |            |                            | 81    |                    |       |         | 80    |    
|                                                | Investment commission fees            |            |                            | 10    |                    |       |         | 17    |    
|                                                | Net gains on sale of loans            |            |                            | 187   |                    |       |         | 31    |    
|                                                | Other operating income                |            |                            | 44    |                    |       |         | 75    |    
|                                                |                                       |            |                            |       |                    |      
|                                                |                                       |            | Total non interest income  |       |                    | 322   |         |       |     | 203   | 
|Non Interest Expense                            |                                       |            |                            |       |                    |       |         |      
|                                                | Salaries and employee benefits        |            |                            | 438   |                    |       |         | 403   |    
|                                                | Premises and equipment                |            |                            | 87    |                    |       |         | 89    |    
|                                                | Other operating expense               |            |                            | 194   |                    |       |         | 223   |    
|                                                |                                       |            |                            |       |                    |      
|                                                |                                       |            | Total non interest expense |       |                    | 719   |         |       |     | 715   | 
|                                                |                                       |            |                            |       |                    |      
|Income before income tax expense                |                                       |            | 694                        |       |                    |       | 661     |      
|Income tax expense                              |                                       |            | 205                        |       |                    |       | 210     |      
|                                                |                                       |            |                            |       |                    |      
|Net Income                                      |                                       | $          | 489                        |       |                    | $     | 451     |      
|                                                |                                       |            |                            |       |                    |      
|Average common shares outstanding               |                                       |            | 589,954                    |       |                    |       | 595,956 |      
|Basic earnings per common share                 |                                       | $          | 0.83                       |       |                    | $     | 0.76    |      
|Diluted earnings per common share               |                                       | $          | 0.82                       |       |                    | $     | 0.75    |      
|Dividends per share of common stock, declared   |                                       | $          | 0.39                       |       |                    | $     | 0.39    |      

See accompanying notes to consolidated financial statements.

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CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

|                                                 |                                                                           |                                                 |                                            |                                    |        |                    |        |        |        |        |     | 
|------------------------------------------------ | ------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------------ | ---------------------------------- | ------ | ------------------ | ------ | ------ | ------ | ------ | --- | 
|(In thousands)                                   |                                                                           |                                                 |                                            |                                    |        |                    |        |       
|                                                 |                                                                           |                                                 |                                            |                                    |        | Three Months Ended |       
|                                                 |                                                                           |                                                 |                                            |                                    |        | March 31,          |       
|                                                 |                                                                           |                                                 |                                            |                                    |        |                    |       
|                                                 |                                                                           |                                                 |                                            |                                    |        | 2003               |        |        | 2002   |       
|                                                 |                                                                           |                                                 |                                            |                                    |        |                    |        |        |        |       
|Cash flows from operating activities             |                                                                           |                                                 |                                            |                                    |        |                    |        |       
|                                                 | Net income                                                                |                                                 | $                                          | 489                                |        |                    | $      | 451    |       
|                                                 | Adjustments to reconcile net income to net cash from
operating activities |                                                 |                                            |                                    |        |                    |        |        |       
|                                                 |                                                                           | Depreciation                                    |                                            |                                    | 26     |                    |        |        | 32     |       
|                                                 |                                                                           | Net amortization (accretion) on securities      |                                            |                                    | 24     |                    |        |        | 1      |       
|                                                 |                                                                           | Loans originated for sale                       |                                            |                                    | (8,434 | )                  |        |        | (1,001 | )     
|                                                 |                                                                           | Proceeds from sale of loans originated for sale |                                            |                                    | 9,256  |                    |        |        | 1,006  |       
|                                                 |                                                                           | Net gain on sales of loans originated for sale  |                                            |                                    | (187   | )                  |        |        | (5     | )     
|                                                 |                                                                           | Changes in assets and liabilities:              |                                            |                                    |        |                    |        |        |        |       
|                                                 |                                                                           |                                                 | Accrued interest receivable                |                                    |        | 2                  |        |        |        | (57    | )  
|                                                 |                                                                           |                                                 | Accrued interest payable                   |                                    |        | (90                | )      |        |        | 14     |    
|                                                 |                                                                           |                                                 | Other assets and bank owned life insurance |                                    |        | (148               | )      |        |        | (35    | )  
|                                                 |                                                                           |                                                 | Other liabilities                          |                                    |        | 373                |        |        |        | 262    |    
|                                                 |                                                                           |                                                 |                                            |                                    |        |                   
|                                                 |                                                                           |                                                 |                                            | Net cash from operating activities |        |                    | 1,311  |        |        |        | 668 | 
|Cash flows from investing activities             |                                                                           |                                                 |                                            |                                    |        |                    |        |       
|                                                 | Securities available for sale:                                            |                                                 |                                            |                                    |        |                    |        |        |       
|                                                 |                                                                           | Purchases                                       |                                            |                                    | (248   | )                  |        |        |       |       
|                                                 |                                                                           | Maturities, calls and principal payments        |                                            |                                    | 1,065  |                    |        |        | 623    |       
|                                                 | Net change in time deposits with other financial institutions             |                                                 |                                            | (2,477                             | )      |                    |        |       |       
|                                                 | Net change in loans                                                       |                                                 |                                            | 1,879                              |        |                    |        | (8,153 | )     
|                                                 | Premises and equipment expenditures                                       |                                                 |                                            | (32                                | )      |                    |        | (2     | )     
|                                                 |                                                                           |                                                 |                                            |                                    |        |                   
|                                                 |                                                                           |                                                 | Net cash from investing activities         |                                    |        | 187                |        |        |        | (7,532 | )  
|Cash flows from financing activities             |                                                                           |                                                 |                                            |                                    |        |                    |        |       
|                                                 | Net change in deposits                                                    |                                                 |                                            | 93                                 |        |                    |        | 633    |       
|                                                 | Proceeds from long-term FHLB borrowings                                   |                                                 |                                            |                                   |        |                    |        | 2,000  |       
|                                                 | Repayment of long-term FHLB borrowings                                    |                                                 |                                            | (1,230                             | )      |                    |        | (17    | )     
|                                                 | Proceeds from shares issued upon exercise of stock options                |                                                 |                                            | 17                                 |        |                    |        |       |       
|                                                 | Cash dividends paid                                                       |                                                 |                                            | (230                               | )      |                    |        | (220   | )     
|                                                 |                                                                           |                                                 |                                            |                                    |        |                   
|                                                 |                                                                           |                                                 | Net cash from financing activities         |                                    |        | (1,350             | )      |        |        | 2,396  |    
|                                                 |                                                                           |                                                 |                                            |                                    |        |                   
|Net change in cash and cash equivalents          |                                                                           |                                                 | 148                                        |                                    |        |                    | (4,468 | )     
|Cash and cash equivalents at beginning of year   |                                                                           |                                                 | 8,434                                      |                                    |        |                    | 6,973  |       
|                                                 |                                                                           |                                                 |                                            |                                    |        |                   
|Cash and cash equivalents at March 31            |                                                                           | $                                               | 8,582                                      |                                    |        | $                  | 2,505  |       
|                                                 |                                                                           |                                                 |                                            |                                    |        |                   
|Supplemental disclosure of cash flow information |                                                                           |                                                 |                                            |                                    |        |                    |        |       
|                                                 | Cash paid during the period for:                                          |                                                 |                                            |                                    |        |                    |        |        |       
|                                                 |                                                                           | Interest                                        |                                            | $                                  | 861    |                    |        | $      | 820    |       
|                                                 |                                                                           | Income taxes federal                           |                                            | $                                  | 213    |                    |        | $      | 150    |       

See accompanying notes to consolidated financial statements.

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CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
For the three months ended March 31, 2003 and 2002

(In thousands)

|                                                                                                                                |             |   |                    |    |  |      |     |   | 
|------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ------------------ | -- |  | ---- | --- | - | 
|                                                                                                                                |             |   | Three Months Ended |   
|                                                                                                                                |             |   | March 31,          |   
|                                                                                                                                |             |   |                    |   
|                                                                                                                                |             |   | 2003               |    |  | 2002 |    
|                                                                                                                                |             |   |                    |    |  |      |    
|Net income                                                                                                                      |             | $ | 489                |    |  | $    | 451 |  
|Other comprehensive income (loss),
net
Unrealized holding gains (losses)
on securities available for sale
arising during period |             |   | (41                | )  |  |      | (27 | )
|                                                                                                                                | Tax effects |   |                    | 14 |  |      |     | 9 | 
|                                                                                                                                |             |   |                    |    |  |     
|Other comprehensive income (loss), net                                                                                          |             |   | (27                | )  |  |      | (18 | )
|                                                                                                                                |             |   |                    |    |  |     
|Comprehensive income                                                                                                            |             | $ | 462                |    |  | $    | 433 |  
|                                                                                                                                |             |   |                    |    |  |     

See accompanying notes to consolidated financial statements.

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CAPITAL DIRECTIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 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 March 31, 2003 and December 31,
2002 and results of operations and cash flows for the three month periods
ended March 31, 2003 and 2002.

Note 2.

The results of operations for the three months ended March 31, 2003 are not
necessarily indicative of the results to be expected for the full year.

Note 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 2002, included in the Registrants 2002 Annual Report on Form 10-K.

Note 4. Analysis of the Allowance for Loan Losses

Management determines the adequacy of the allowance for loan losses based
on an evaluation of the loan portfolio, recent loss experience, historical
performance, current economic conditions, current analyses of asset quality
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 March 31,
2003, non-performing loans totaled $57,000 or .06% of total loans. This
represents a decrease of $31,000 from the $88,000 balance at December 31,
2002.

|                         |                                       |                           |        |           |        |   |              |   |        |  
|------------------------ | ------------------------------------- | ------------------------- | ------ | --------- | ------ | - | ------------ | - | ------ | -
|                         |                                       |                           |        | March 31, |        |   | December 31, |  
|Non-performing Loans     |                                       | 2003                      |        |           | 2002   |  
|                         |                                       |                           |        |           |        |  
|Non-accrual              |                                       | $                         | 21,000 |           |        | $ | 5,000        |  
|90 days or more past due |                                       |                           | 13,000 |           |        |   | 59,000       |  
|Renegotiated             |                                       |                           | 23,000 |           |        |   | 24,000       |  
|                         |                                       |                           |        |           |        |  
|                         |                                       | Total                     |        | $         | 57,000 |   |              | $ | 88,000 |  
|                         |                                       |                           |        |           |        |  
|                         | Non-performing loans as a percent of: |                           |        |           |        |   |              |   |       
|                         |                                       | Total loans               |        |           | .06    | % |              |   | .09    | %
|                         |                                       | Allowance for loan losses |        |           | 5.49   | % |              |   | 8.43   | %

5



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##### Table of Contents



Note 4. Analysis of the Allowance For Loan Losses (continued)

The following table summarizes changes in the allowance for loan losses
arising from loans charged off, recoveries on loans previously charged-off,
and additions or reductions to the allowance which have been charged or
credited to expense.

|                                            |                                       |                                |                 |         |           |    |        |              |       |    |  
|------------------------------------------- | ------------------------------------- | ------------------------------ | --------------- | ------- | --------- | -- | ------ | ------------ | ----- | -- | -
|(Dollars in thousands)                      |                                       | Three                          |                 |         | Twelve    |   
|                                            |                                       |                                |                 |         | Months    |    |        | Months       |      
|                                            |                                       |                                |                 |         | Ended     |    |        | Ended        |      
|                                            |                                       |                                |                 |         | March 31, |    |        | December 31, |      
|                                            |                                       |                                |                 |         | 2003      |    |        | 2002         |      
|                                            |                                       |                                |                 |         |           |    |        |              |      
|                                            |                                       | Balance at beginning of period |                 | $       | 1,044     |    |        | $            | 1,048 |   
|                                            |                                       | Charge-offs                    |                 |         | (7        | )  |        |              | (14   | ) 
|                                            |                                       | Recoveries                     |                 |         | 2         |    |        |              | 10    |   
|                                            |                                       |                                |                 |         |           |   
|                                            |                                       |                                | Net charge-offs |         |           | (5 | )      |              |       | (4 | )
|                                            |                                       |                                |                 |         |           |   
|                                            |                                       | Balance at end of period       |                 | $       | 1,039     |    |        | $            | 1,044 |   
|                                            |                                       |                                |                 |         |           |   
|Average loans outstanding during the period |                                       | $                              | 97,047          |         |           | $  | 86,794 |             
|                                            |                                       |                                |                 |         |           |   
|Loans outstanding at end of period          |                                       | $                              | 95,215          |         |           | $  | 97,099 |             
|                                            |                                       |                                |                 |         |           |   
|Allowance as a percent of:                  |                                       |                                |                 |         |           |    |        |             
|                                            | Total loans at end of period          |                                |                 | 1.09    | %         |    |        | 1.08         | %    
|                                            |                                       |                                |                 |         |           |   
|                                            | Non-performing loans at end of period |                                |                 | 1822.81 | %         |    |        | 1186.36      | %    
|                                            |                                       |                                |                 |         |           |   
|Net charge-offs as a percent of:            |                                       |                                |                 |         |           |    |        |             
|                                            | Average loans outstanding             |                                |                 | .01     | %         |    |        | .00          | %    
|                                            |                                       |                                |                 |         |           |   
|                                            | Allowance for loan losses             |                                |                 | .48     | %         |    |        | .38          | %    
|                                            |                                       |                                |                 |         |           |   

6



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##### Table of Contents



Note 5. Earnings Per Share

A reconciliation of basic and diluted earnings per share for the three month
period ending March 31 follows:

|                                                                   |            |                    |         |     |  |      |         |     | 
|------------------------------------------------------------------ | ---------- | ------------------ | ------- | --- |  | ---- | ------- | --- | 
|(Dollars in thousands)                                             |            | Three months ended |        
|                                                                   |            |                    |         |    
|                                                                   |            |                    | 2003    |     |  | 2002 |        
|                                                                   |            |                    |         |     |  |      |        
|Basic earnings per share:                                          |            |                    |         |     |  |      |         |    
|                                                                   | Net income |                    | $       | 489 |  |      | $       | 451 | 
|                                                                   |            |                    |         |     |  |     
|Weighted average shares outstanding
for basic earnings per share   |            |                    | 589,954 |     |  |      | 595,956 |    
|                                                                   |            |                    |         |     |  |     
|Per share amount                                                   |            | $                  | .83     |     |  | $    | .76     |    
|                                                                   |            |                    |         |     |  |     
|Diluted earnings per share:                                        |            |                    |         |     |  |      |         |    
|                                                                   | Net income |                    | $       | 489 |  |      | $       | 451 | 
|                                                                   |            |                    |         |     |  |     
|Weighted average shares outstanding
for basic earnings per share   |            |                    | 589,954 |     |  |      | 595,956 |    
|Effect of dilutive securities-
stock options                       |            |                    | 6,563   |     |  |      | 4,056   |    
|                                                                   |            |                    |         |     |  |     
|Weighted average shares outstanding for
diluted earnings per share |            |                    | 596,517 |     |  |      | 600,012 |    
|                                                                   |            |                    |         |     |  |     
|Per share amount                                                   |            | $                  | .82     |     |  | $    | .75     |    
|                                                                   |            |                    |         |     |  |     

Stock options for 4,000 and 8,300 shares of common stock were not considered in
computing diluted earnings per common share in 2003 and 2002 because they were
not dilutive.

Note 6. Stock Option Plan

Options to buy common stock are granted to officers and other key employees
under a Stock Option Plan which provides for the issuance of up to 40,000
shares of common stock. The plan provides for stock options to be granted at
prices that approximate the fair value of the stock at the respective dates of
grant. The vesting of stock options does not start until two years from the
date of the grant. After two years, the options will vest evenly over a three
year period. The plan terminates on May 20, 2003. All shares and per share
amounts have been restated for stock splits.

A summary of activity in the plan is as follows:

|                          |  |           |        |   |             |  |        |          |         |          |         |          |              |          |     | 
|------------------------- |  | --------- | ------ | - | ----------- |  | ------ | -------- | ------- | -------- | ------- | -------- | ------------ | -------- | --- | 
|                          |  |           |        |   |             |  |        |          |         |          |         |          |              | Weighted |    
|                          |  |           |        |   |             |  |        |          |         | Weighted |         |          | Average Fair |         
|                          |  | Available |        |   |             |  |        |          | Average |          |         | Value of |             
|                          |  | For       |        |   | Options     |  |        | Exercise |         |          | Options |         
|                          |  | Grant     |        |   | Outstanding |  |        | Price    |         |          | Granted |         
|                          |  |           |        |   |             |  |        |          |         |          |         |         
|Balance
December 31, 2002 |  |           | 9,893  |   |             |  | 25,007 |          |         | $        | 33.63   |          |              |          |     | 
|Granted                   |  |           | (4,000 | ) |             |  | 4,000  |          |         |          | 48.00   |          |              |          | .91 | 
|Exercised                 |  |           |       |   |             |  | (1,000 | )        |         |          | 18.00   |          |              |          |     | 
|Forfeited                 |  |           | 600    |   |             |  | (600   | )        |         |          | 39.83   |          |              |          |     | 
|                          |  |           |        |   |             |  |        |          |         |          |         |          |              |         
|Balance
March 31, 2003    |  |           | 6,493  |   |             |  | 27,407 |          |         | $        | 34.70   |          |              |          |     | 
|                          |  |           |        |   |             |  |        |          |         |          |         |          |             

For the options outstanding at March 31, 2003, the range of exercise prices
was $12.75 to $48.00 per share with a weighted average remaining
contractual term of 6.80 years. At March 31, 2003, 15,836

7



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##### Table of Contents



Note 6. Stock Option Plan (continued)

stock options were exercisable at a weighted average price of $31.74 per
share. Effective January 1, 2002, the Company adopted the fair value recognition provisions of SFAS No.
123, Accounting for Stock-Based Compensation, prospectively to all employee
awards granted, modified, or settled after January 1, 2002. Awards under
the Companys plan vest over a five-year period. Therefore, the cost
related to stock based compensation included in the determination of net
income for 2003 and 2002 is less than that which would have been recognized
if the fair value based method had been applied to all awards since the
original effective date of SFAS No. 123.

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

|                                                                                  |                     |   |                |     |  |                |     |     | 
|--------------------------------------------------------------------------------- | ------------------- | - | -------------- | --- |  | -------------- | --- | --- | 
|                                                                                  |                     |   | Three Months   |     |  | Three Months   |    
|                                                                                  |                     |   | Ended          |     |  | Ended          |    
|                                                                                  |                     |   | March 31, 2003 |     |  | March 31, 2002 |    
|                                                                                  |                     |   |                |     |  |                |    
|Net income as reported                                                            |                     | $ | 489            |     |  | $              | 451 |    
|Add: stock-based compensation
expense included in reported net
income             |                     |   |               |     |  |                |    |    
|Deduct: stock-based compensation
expense determined under fair
value based method |                     |   | (3             | )   |  |                | (3  | )  
|                                                                                  |                     |   |                |     |  |               
|Pro forma net income                                                              |                     | $ | 486            |     |  | $              | 448 |    
|                                                                                  |                     |   |                |     |  |               
|Basic and diluted income per share:                                               |                     |   |                |     |  |                |     |    
|                                                                                  | As reported basic   |   | $              | .83 |  |                | $   | .76 | 
|                                                                                  | Pro forma basic     |   |                | .82 |  |                |     | .75 | 
|                                                                                  | As reported diluted |   |                | .82 |  |                |     | .75 | 
|                                                                                  | Pro forma diluted   |   |                | .81 |  |                |     | .75 | 

Stock-based compensation expense was computed using option pricing models. For
the options granted during the three months ended March 31, 2003 and March 31,
2002 the following weighted average assumptions as of the grant date were
utilized.

|                                |  |         |      |         |  |  |      |  
|------------------------------- |  | ------- | ---- | ------- |  |  | ---- | -
|Risk-free interest rate         |  |         | 2.82 | %       |  |  | 4.27 | %
|Expected option life            |  | 5 years |      | 5 years
|Expected stock price volatility |  |         | 4.26 | %       |  |  | 3.65 | %
|Expected dividend yield         |  |         | 3.56 | %       |  |  | 4.15 | %




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.
Capital Directions, Inc. is a one-bank holding company which commenced
operations on July 22, 1988. This was facilitated by the acquisition of
100% of the outstanding shares of Mason State Bank in an exchange of common
stock. The Company and its subsidiaries provide banking and financial
services in the banking industry. Substantially all revenues and services
are derived from banking products and services. The Banks primary services
include accepting retail deposits and making residential, consumer and
commercial loans.

8



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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations (continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 (In thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | During the first quarter of 2003, the assets of the Company decreased $605
or 0.48% from December 31, 2002. This decrease resulted primarily from
decreased residential mortgage loan balances due to normal repayment
streams. New loan activity did not fully replace the repayment streams, as
a portion of the new loans generated was sold directly into the secondary
market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Cash and cash equivalents have increased $148 or 1.75% in the three-month
period from December 31, 2002 to March 31, 2003. This is a result of an
increase in Federal funds sold and a decrease in short-term interest bearing
deposits in other financial institutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Total outstanding loans have decreased $1,884 during the first quarter of
2003. This is a decrease of 1.94% from December 31, 2002. The greatest
portion of this decrease has been realized in residential mortgage loans,
while commercial and installment loans have decreased slightly. During the
first quarter of 2003, the Company has continued to sell certain newly
originated loans into the secondary market as part of its asset and
liability management strategy to minimize the risk associated with the
recent reductions in interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The allowance for loan losses decreased $5 or .48% during the three month
period ending March 31, 2003. At March 31, 2003 the allowance as a percent
of outstanding loans was 1.09% compared to 1.08% at December 31, 2002.
Management continues to maintain the allowance for loan losses at a level
considered appropriate to absorb probable incurred losses in the portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Total deposits have increased $93 or .12% during the first quarter of 2003.
This increase was concentrated in non-interest bearing deposits while time
deposits showed a slight decline.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Total shareholders equity increased $249 or 1.74% in the first quarter of
2003. This increase was comprised of net income of $489 and offset by
decrease in net unrealized gains on available for sale securities of $27 and
by dividends declared of $230 and proceeds from shares issued upon the
exercise of stock options. Book value per share was $24.74 at March 31,
2003 compared to $24.36 at December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Results of Operations (In thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | For the first quarter of 2003, net income was $489, basic earnings per share
was $.83, and diluted earnings per share was $.82, compared to $451, $.76,
and $.75 for the same period in 2002. Average earning assets increased to
$118,842 or 5.43% from March 31, 2002 to March 31, 2003. The average yield
on earning assets decreased to 6.45% for the quarter ended March 31, 2003
from 7.30% for the comparable time period in 2002. Average costs for rate
related liabilities decreased forty-five basis points to 3.20% at March 31,
2003 from 3.65% at March 31, 2002. Net interest margin decreased to 3.82%
for the first three months of 2003 compared to 4.30% in the same period of
2002. The Company is experiencing a decreasing margin related primarily to
the change in the structure of earning assets. As mortgage loan payoffs
from refinancing increased during 2002, some of the funds were invested in
interest bearing deposits with other financial institutions, which tend to
be at lower yields as compared to loans. In addition, residential mortgage
loan demand increased significantly during the past several months and many
of the new, lower rate loans were sold into the secondary market to protect
the Company from interest-rate risk. The following table illustrates the
change in net interest margin for the three months ended March 31, 2003 and
March 31, 2002.

9



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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations (continued)

|                                 |                                    |   |         |         |  |             |       |       |         |        |      |         |         |   |             |         |  |         |       |        |  |  |      |      |  
|-------------------------------- | ---------------------------------- | - | ------- | ------- |  | ----------- | ----- | ----- | ------- | ------ | ---- | ------- | ------- | - | ----------- | ------- |  | ------- | ----- | ------ |  |  | ---- | ---- | -
|                                 |                                    |   | 2003    |         |  | 2002        |      
|                                 |                                    |   |         |         |  |             |      
|                                 |                                    |   | Average |         |  |             |       |       |         | Yield/ |      |         | Average |   |             |         |  |         |       | Yield/ | 
|                                 |                                    |   | Balance |         |  | Interest(1) |       |       | Rate(1) |        |      | Balance |         |   | Interest(1) |         |  | Rate(1) |      
|                                 |                                    |   |         |         |  |             |       |       |         |        |      |         |         |   |             |         |  |         |      
|Loans (taxable)                  |                                    | $ | 96,508  |         |  | $           | 1,654 |       |         |        | 6.95 | %       |         | $ | 97,143      |         |  | $       | 1,791 |        |  |  | 7.48 | %   
|Loans (non-taxable)              |                                    |   | 539     |         |  |             | 6     |       |         |        | 4.51 |         |         |   | 98          |         |  |         | 2     |        |  |  | 8.16 |     
|Taxable securities               |                                    |   | 9,836   |         |  |             | 123   |       |         |        | 5.07 |         |         |   | 10,594      |         |  |         | 168   |        |  |  | 6.43 |     
|Non-taxable securities           |                                    |   | 4,942   |         |  |             | 75    |       |         |        | 6.15 |         |         |   | 3,186       |         |  |         | 61    |        |  |  | 7.75 |     
|Loans held for sale              |                                    |   | 317     |         |  |             | 4     |       |         |        | 5.12 |         |         |   |            |         |  |         |      |        |  |  | .00  |     
|Federal funds sold and other     |                                    |   | 6,700   |         |  |             | 28    |       |         |        | 1.63 |         |         |   | 1,704       |         |  |         | 7     |        |  |  | 1.64 |     
|                                 |                                    |   |         |         |  |             |       |       |         |        |      |         |         |   |             |         |  |         |       |       
|                                 | Total interest earning assets      |   | $       | 118,842 |  |             | $     | 1,890 |         |        |      | 6.45    | %       |   | $           | 112,725 |  |         | $     | 2,029  |  |  |      | 7.30 | %
|                                 |                                    |   |         |         |  |             |       |       |         |        |      |         |         |   |             |         |  |         |       |        |  | 
|Interest bearing demand deposits |                                    | $ | 10,825  |         |  | $           | 16    |       |         |        | 0.60 | %       |         | $ | 10,094      |         |  | $       | 14    |        |  |  | .56  | %   
|Savings deposits                 |                                    |   | 25,079  |         |  |             | 63    |       |         |        | 1.02 |         |         |   | 23,310      |         |  |         | 84    |        |  |  | 1.46 |     
|Time deposits <$100,000          |                                    |   | 20,483  |         |  |             | 177   |       |         |        | 3.50 |         |         |   | 18,837      |         |  |         | 212   |        |  |  | 4.57 |     
|Time deposits $100,000 and more  |                                    |   | 6,713   |         |  |             | 51    |       |         |        | 3.08 |         |         |   | 8,094       |         |  |         | 73    |        |  |  | 3.66 |     
|Federal funds purchased          |                                    |   |        |         |  |             |      |       |         |        | .00  |         |         |   | 277         |         |  |         | 1     |        |  |  | 1.44 |     
|Other borrowings                 |                                    |   | 34,336  |         |  |             | 464   |       |         |        | 5.48 |         |         |   | 32,188      |         |  |         | 450   |        |  |  | 5.67 |     
|                                 |                                    |   |         |         |  |             |       |       |         |        |      |         |         |   |             |         |  |         |       |       
|                                 | Total interest bearing liabilities |   | $       | 97,436  |  |             | $     | 771   |         |        |      | 3.20    | %       |   | $           | 92,800  |  |         | $     | 834    |  |  |      | 3.65 | %
|                                 |                                    |   |         |         |  |             |       |       |         |        |      |         |         |   |             |         |  |         |       |       
|Net Interest Income/Spread       |                                    |   |         |         |  | $           | 1,119 |       |         |        | 3.24 | %       |         |   |             |         |  | $       | 1,195 |        |  |  | 3.65 | %   
|                                 |                                    |   |         |         |  |             |       |       |         |        |      |         |         |   |             |         |  |         |       |        |  | 
|Net Interest Margin              |                                    |   |         |         |  |             |       |       |         |        | 3.82 | %       |         |   |             |         |  |         |       |        |  |  | 4.30 | %   



---

| |  | (1) Earning assets are presented on a fully taxable equivalent basis using
a 34% tax rate, and average yields/rates are annualized.
| |  | -----------------------------------------------------------------------------------------------------------------------------------

The two variables that have the most significant effect on the change in the
net interest income are volume and rate. The change in interest due to both
volume and rate has been allocated to volume and rate changes in proportion
to the relationship of the absolute dollar amounts of the change in each.
As illustrated in the following table, the Company had a decrease in net
interest income due primarily to funds deployed into lower yielding deposits
with other financial institutions and fed funds growth as well as decreased
loan and investment rates.

|                              |                                  |                        |   |        |    |  |      |      |      |       |   |      |      |  
|----------------------------- | -------------------------------- | ---------------------- | - | ------ | -- |  | ---- | ---- | ---- | ----- | - | ---- | ---- | -
|Change in Net Interest Income |                                  |                        |   |        |    |  |      |      |      |       |   |     
|(Dollars in thousands)        |                                  | 2003 compared to 2002  |  
|                              |                                  |                        |   |        |   
|                              |                                  |                        |   | Volume |    |  | Rate |      |      | Total |  
|                              |                                  |                        |   |        |    |  |      |      |      |       |  
|Earning Assets                |                                  |                        |   |        |    |  |      |      |      |       |   |     
|                              | Loans (taxable)                  |                        | $ | (12    | )  |  | $    | (125 | )    |       | $ | (137 | )   
|                              | Loans (non-taxable)              |                        |   | 5      |    |  |      | (1   | )    |       |   | 4    |     
|                              | Taxable securities               |                        |   | (11    | )  |  |      | (34  | )    |       |   | (45  | )   
|                              | Non-taxable securities           |                        |   | 29     |    |  |      | (15  | )    |       |   | 14   |     
|                              | Loans held for sale              |                        |   | 4      |    |  |      |     |      |       |   | 4    |     
|                              | Federal funds sold and other     |                        |   | 21     |    |  |      |     |      |       |   | 21   |     
|                              |                                  |                        |   |        |    |  |      |      |     
|                              |                                  | Total interest income  |   | $      | 36 |  |      | $    | (175 | )     |   | $    | (139 | )
|Interest Bearing Liabilities  |                                  |                        |   |        |    |  |      |      |      |       |   |     
|                              | Interest bearing demand deposits |                        | $ | 1      |    |  | $    | 1    |      |       | $ | 2    |     
|                              | Savings deposits                 |                        |   | 6      |    |  |      | (27  | )    |       |   | (21  | )   
|                              | Time deposits <$100,000          |                        |   | 17     |    |  |      | (52  | )    |       |   | (35  | )   
|                              | Time deposits $100,000 or more   |                        |   | (11    | )  |  |      | (11  | )    |       |   | (22  | )   
|                              | Fed funds purchased              |                        |   | (1     | )  |  |      |     |      |       |   | (1   | )   
|                              | Other borrowings                 |                        |   | 29     |    |  |      | (15  | )    |       |   | 14   |     
|                              |                                  |                        |   |        |    |  |      |      |     
|                              |                                  | Total interest expense |   | $      | 41 |  |      | $    | (104 | )     |   | $    | (63  | )
|                              |                                  |                        |   |        |    |  |      |      |     
|                              | Net interest Income              |                        | $ | (5     | )  |  | $    | (71  | )    |       | $ | (76  | )   
|                              |                                  |                        |   |        |    |  |      |      |     

10



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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations (continued)

There was no provision for loan losses during the first three months of 2003
as well as for the same period of 2002. This is representative of the
stable loss experience and continuing performance experienced in the loan
portfolio.

Non interest income increased $119 or 58.62% during the first quarter of
2003 when compared to the first quarter of 2002. Of this increase, a
majority is attributable to gains realized on loans sold, which includes the
recognition of servicing rights related to loans sold, during the period
however, this was partially offset by less customer investment commissions
and decreased fees from ATM activity.

Non interest expense increased $4 or .56% when comparing the first quarter
of 2003 to the first quarter of 2002. Most of this increase is a result of
increased expenses for salaries and employee benefits as well as data
processing expenses, postage and supply costs. This is partially offset by
costs for marketing, telephone and Michigan Single Business Tax which have
decreased since the prior year.

The Federal income tax provision for the first three months of 2003 was
$205, down slightly from $210 for the same period in 2002.

Liquidity and Interest Rate Risk (in thousands)

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
ensures sufficient funds are maintained to meet the cash withdrawal
requirements of depositors and the credit demands of borrowers.

Sources of liquidity include federal funds sold, investment security
maturities and principal payments. A net average balance of $2,855 in
federal funds sold was maintained during the first quarter of 2003. 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. Other sources of liquidity include
internally generated cash flow, repayments and maturities of loans,
borrowings 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 March 31, 2003 the securities available for sale were valued at $11,762.
It is not anticipated that management will use these funds due to the
optional sources that may be available.

Interest rate sensitivity management seeks to maximize net interest margin
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.

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 handling as GAP Management. Throughout the first quarter of 2003, the
results of the GAP analysis were within the Banks policy guidelines. At
March 31, 2003, the percentage of rate sensitive assets to rate sensitive
liabilities within the one-year time horizon was 52%.The following table
shows the Companys GAP position as of March 31, 2003. The Company has a
liability sensitive position of approximately $33,089 within the one-year
time frame, which indicates higher net interest income may be earned if
rates decrease during the period and lower net

11



---



##### Table of Contents



Liquidity and Interest Rate Risk (continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | interest income may be earned if rates increase during the period. Due to
the limitations of GAP analysis, modeling is also used to enhance
measurement and control. The GAP model used by the Bank differs from the
following chart in that actual loan prepayment and deposit longevity
experience are also factored into the calculation. Using this method, the
Banks GAP position at March 31, 2003 was an asset sensitive position of
$15,805 or 12.61% at one year.

GAP Measurement (Dollars in thousands)

|                                                |       |   |         |        |  |       |         |        |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |       |         |        |  |   |        |        |  |   |        |         | 
|----------------------------------------------- | ----- | - | ------- | ------ |  | ----- | ------- | ------ | ------- | - | ------- | ------- |  | - | ------- | ----- |  | ------ | ------- | ----- | ----- | - | ------- | ------ |  | - | ------- | ------ |  | ----- | ------- | ------ |  | - | ------ | ------ |  | - | ------ | ------- | 
|                                                |       |   | 0-30    |        |  | 31-90 |         |        | 2nd     |   |         | 3rd     |  |   | 4th     |       |  | Annual |         |       | 1-3   |   |         | 3-5    |  |   | Over 5  |        |  |       |         |       
|                                                |       |   | Days    |        |  | Days  |         |        | Quarter |   |         | Quarter |  |   | Quarter |       |  | Total  |         |       | Years |   |         | Years  |  |   | Years   |        |  | Total |        
|                                                |       |   |         |        |  |       |         |        |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |       |        
|Assets                                          |       |   |         |        |  |       |         |        |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |       |         |        |  |   |        |        |  |   |        |        
|Loans                                           |       | $ | 3,514   |        |  | $     | 8,219   |        |         | $ | 1,644   |         |  | $ | 1,059   |       |  | $      | 3,104   |       |       | $ | 17,540  |        |  | $ | 2,506   |        |  | $     | 11,812  |        |  | $ | 63,357 |        |  | $ | 95,215 |        
|Allowance for
loan losses                       |       |   |        |        |  |       |        |        |         |   |        |         |  |   |        |       |  |        |        |       |       |   |        |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | -1,039 |        
|Securities (1)                                  |       |   | 3,313   |        |  |       | 931     |        |         |   | 2,056   |         |  |   | 1,248   |       |  |        | 1,623   |       |       |   | 9,171   |        |  |   | 4,481   |        |  |       | 586     |        |  |   | 305    |        |  |   | 14,543 |        
|Short-term
Investments                          |       |   | 4,925   |        |  |       | 594     |        |         |   |        |         |  |   |        |       |  |        |        |       |       |   | 5,519   |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | 5,519  |        
|Time deposits with
other financial
institutions |       |   |        |        |  |       |        |        |         |   | 1,575   |         |  |   |        |       |  |        | 1,487   |       |       |   | 3,062   |        |  |   | 396     |        |  |       |        |        |  |   |       |        |  |   | 3,458  |        
|Other non-
earning assets                       |       |   |        |        |  |       |        |        |         |   |        |         |  |   |        |       |  |        |        |       |       |   |        |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | 7,913  |        
|                                                |       |   |         |        |  |       |         |        |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |      
|                                                | Total |   | $       | 11,752 |  |       | $       | 9,744  |         |   | $       | 5,275   |  |   | $       | 2,307 |  |        | $       | 6,214 |       |   | $       | 35,292 |  |   | $       | 7,383  |  |       | $       | 12,398 |  |   | $      | 63,662 |  |   | $      | 125,609 | 
|                                                |       |   |         |        |  |       |         |        |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |      
|Liabilities
Non interest
bearing
deposits       |       | $ |        |        |  | $     |        |        |         | $ |        |         |  | $ |        |       |  | $      |        |       |       | $ |        |        |  | $ |        |        |  | $     |        |        |  | $ |       |        |  | $ | 12,964 |        
|Interest bearing
deposits                       |       |   | 36,725  |        |  |       | 3,141   |        |         |   | 3,379   |         |  |   | 3,363   |       |  |        | 3,749   |       |       |   | 50,357  |        |  |   | 5,274   |        |  |       | 6,205   |        |  |   |       |        |  |   | 61,836 |        
|FHLB
borrowings (2)                             |       |   | 4,000   |        |  |       | 10,000  |        |         |   | 2,000   |         |  |   | 1,024   |       |  |        | 1,000   |       |       |   | 18,024  |        |  |   | 7,253   |        |  |       | 8,062   |        |  |   | 832    |        |  |   | 34,171 |        
|Other
liabilities                               |       |   |        |        |  |       |        |        |         |   |        |         |  |   |        |       |  |        |        |       |       |   |        |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | 2,039  |        
|Capital                                         |       |   |        |        |  |       |        |        |         |   |        |         |  |   |        |       |  |        |        |       |       |   |        |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | 14,599 |        
|                                                |       |   |         |        |  |       |         |        |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |      
|                                                | Total |   | $       | 40,725 |  |       | $       | 13,141 |         |   | $       | 5,379   |  |   | $       | 4,387 |  |        | $       | 4,749 |       |   | $       | 68,381 |  |   | $       | 12,527 |  |       | $       | 14,267 |  |   | $      | 832    |  |   | $      | 125,609 | 
|                                                |       |   |         |        |  |       |         |        |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |      
|GAP                                             |       | $ | (28,973 | )      |  | $     | (3,397  | )      |         | $ | (104    | )       |  | $ | (2,080  | )     |  | $      | 1,465   |       |       | $ | (33,089 | )      |  | $ | (5,144  | )      |  | $     | (1,869  | )      |  | $ | 62,720 |        |  |   |        |        
|Cumulative
GAP                                  |       | $ | (28,973 | )      |  | $     | (32,370 | )      |         | $ | (32,474 | )       |  | $ | (34,554 | )     |  | $      | (33,089 | )     |       | $ | (33,089 | )      |  | $ | (38,233 | )      |  | $     | (40,102 | )      |  | $ | 22,618 |        |  |   |        |        
|GAP ratio                                       |       |   | 29      | %      |  |       | 74      | %      |         |   | 98      | %       |  |   | 53      | %     |  |        | 131     | %     |       |   | 52      | %      |  |   | 59      | %      |  |       | 87      | %      |  |   | 7,652  | %      |  |   |        |        



---

|(1) |  | Maturities reflect probable prepayments and calls.                                                                                                                                                                                       
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | FHLB borrowings include putable advances, which may be converted to
adjustable rates or prepaid beginning one, two or three years after the
purchase date. The above schedule reflects maturities at prepayment date on
putable advances.

12



---



##### Table of Contents





| |                                         
| | ----------------------------------------
| | Capital Resources (Dollars in thousands)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys capital adequacy is reviewed regularly to ensure that
sufficient capital is available to meet current and future funding needs and
comply with regulatory requirements. Shareholders equity, excluding the
net unrealized gain on securities available for sale, increased $276 or
1.95% to $14,454 for the first quarter of 2003. This represents 11.51% of
total assets. At December 31, 2002, the similar ratio of shareholders
equity to total assets was 11.23%. Dividends declared per common share at
$.39 per share in the first quarter of 2003 was unchanged when compared to
the same period in 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 March 31, 2003, the Bank has a risk-based
total capital to asset ratio of 19.81%. The ratio exceeds the requirements
established by regulatory agencies as shown below.

|                                         |  |        |        |  |                   |                  |       |                    |                         |   |       |  |  |        |      |   |       |   |       |  |  |  |       |  
|---------------------------------------- |  | ------ | ------ |  | ----------------- | ---------------- | ----- | ------------------ | ----------------------- | - | ----- |  |  | ------ | ---- | - | ----- | - | ----- |  |  |  | ----- | -
|(Dollars in thousands)                   |  |        |        |  |                   | Minimum Required |       |                    |                         |   |       |  |  |        |      |   |       |   |      
|March 31, 2003                           |  |        |        |  |                   | For Capital      |       |                    | Under Prompt Corrective |  
|                                         |  | Actual |        |  | Adequacy Purposes |                  |       | Action Regulations |                        
|                                         |  |        |        |  |                   |                  |       |                    |                        
|                                         |  | Amount |        |  | Ratio             |                  |       | Amount             |                         |   | Ratio |  |  | Amount |      |   | Ratio |  
|                                         |  |        |        |  |                   |                  |       |                    |                         |   |       |  |  |        |      |   |       |  
|Total Capital (to risk
weighted assets)  |  | $      | 14,459 |  |                   |                  | 19.81 | %                  |                         | $ | 5,838 |  |  |        | 8.00 | % |       | $ | 7,298 |  |  |  | 10.00 | %
|Tier 1 capital (to risk
weighted assets) |  |        | 13,545 |  |                   |                  | 18.56 |                    |                         |   | 2,919 |  |  |        | 4.00 |   |       |   | 4,379 |  |  |  | 6.00  |  
|Tier 1 capital (to
average assets)       |  |        | 13,545 |  |                   |                  | 10.89 |                    |                         |   | 4,976 |  |  |        | 4.00 |   |       |   | 6,220 |  |  |  | 5.00  |  



| |                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 2003.




Item 3. Quantitative and Qualitative Disclosures about Market Risk



| |                                                                            
| | ---------------------------------------------------------------------------
| | Not required as Registrant meets requirements to be a small business
filer.




Item 4. 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.

13



---



##### Table of Contents






Part II  Other Information






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Item 1. Legal proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | The Company 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 March 31,
2003.






| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Item 2. Changes in Securities and Use of Proceeds                                                                                                                                                                                               
|
| | During the three months ended March 31, 2003, 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                   
|
| | No matters have been submitted to a vote of the Registrants security
holders.






| |                          
| | -------------------------
| | 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 March 31,
2003.

14



---



##### Table of Contents






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: May 8, 2003       |  | By: /s/ Timothy Gaylord
|                        |  |                        
|                        |  | Timothy Gaylord        
|                        |  | President              
|                        |  |                        
|                        |  |                        
|Date: May 8, 2003       |  | By: /s/ Lois A. Toth   
|                        |  |                        
|                        |  | Lois A. Toth           
|                        |  | Treasurer              

15



---



##### Table of Contents






Certifications

I, Timothy P. Gaylord, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Capital
Directions, Inc.;                                                                                                                                                                                                                                               
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly 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 quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the
Evaluation Date); and                                                                                                
|
| | c) |  | presented in this quarterly 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, that 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 quarterly 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: May 8, 2003



| | /s/ Timothy P. Gaylord
     
Timothy P. Gaylord
Chief Executive Officer
| | -----------------------------------------------------------------------

16



---



##### Table of Contents



Certifications

I, Lois A. Toth, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Capital
Directions, Inc.;                                                                                                                                                                                                                                               
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly 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 quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the
Evaluation Date); and                                                                                                
|
| | c) |  | presented in this quarterly 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, that 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 quarterly 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: May 8, 2003



| | /s/ Lois A. Toth
     
Lois A. Toth
Treasurer
| | ---------------------------------------------

17



---



##### Table of Contents






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 Registrant Statement No. 33-20417
|     |  |                                                                                                                                                                                
|3    |  | 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   |  | Additional Exhibits  Not applicable                                                                                                                                           
|     |  |                                                                                                                                                                                
|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.                                                        

18