##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

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

|                      |  |                    |  |                        |  |         
|--------------------- |  | ------------------ |  | ---------------------- |  | --------
|For the quarter ended |  | September 30, 2001 |  | Commission file number |  | 33-20417
|                      |  |                    |  |                        |  |         

Capital Directions, Inc.

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(Exact name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Michigan                                                       |  | 38-2781737                             
|                                                               |  |                                        
|(State or other jurisdiction of
incorporation or organization) |  | (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

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


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

As of October 26, 2001 the registrant had outstanding 598,056 shares of common
stock having a par value of $5 per share.





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TABLE OF CONTENTS



|                               |                                                                                               |                                                    |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | -------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               |                                                                                               | CONSOLIDATED BALANCE SHEETS                       
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME                 
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS             
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME   
|                               |                                                                                               | 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                           
|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                    
|Index to Exhibits             



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##### Table of Contents



CAPITAL DIRECTIONS, INC.INDEX TO FORM 10-Q

|                               |         |                                                                 |                                                            |  |      |    |  |        |  | 
|------------------------------ | ------- | --------------------------------------------------------------- | ---------------------------------------------------------- |  | ---- | -- |  | ------ |  | 
|                               |         |                                                                 |                                                            |  |      |    |  | Page   | 
|                               |         |                                                                 |                                                            |  |      |    |  | Number | 
|                               |         |                                                                 |                                                            |  |      |    |  |        | 
|PART I  FINANCIAL
INFORMATION |        
|                               | Item 1. |                                                                 | Consolidated Balance Sheets                                |  |      |    | 
|                               |         | September 30, 2001 and December 31, 2000                        |                                                            |  | 1    |   
|                               |         | Consolidated Statements of Income for the Three and Nine Months |                                                            |  |      |   
|                               |         | Ended September 30, 2001 and 2000                               |                                                            |  | 2    |   
|                               |         | Consolidated Statements of Cash Flows for the Nine Months       |                                                            |  |      |   
|                               |         | Ended September 30, 2001 and 2000                               |                                                            |  | 3    |   
|                               |         | Consolidated Statements of Comprehensive Income                 |                                                            |  |      |   
|                               |         | for the Three and Nine Months Ended September 30, 2001 and 2000 |                                                            |  | 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 | 
|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   |   
|                               |         | Index to Exhibits                                               |                                                            |  | 16   |   





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##### Table of Contents









PART I  FINANCIAL INFORMATION

CAPITAL DIRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS



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|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |               |         |       |              |        |         |  
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------- | ------------------------------------------ | ------ | ------------- | ------- | ----- | ------------ | ------ | ------- | -
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        | September 30, |         |       | December 31, |       
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        | 2001          |         |       | 2000         |       
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |               |         |       |              |       
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        | (Unaudited)   |         |       |              |        |        
|ASSETS                               |                                                                                                                                                 |                                        |                                 |                                            |        |               |         |      
|                                     |                                                                                                                                                 | Cash and non interest bearing deposits |                                 | $                                          | 5,046  |               |         | $     | 2,603        |       
|                                     |                                                                                                                                                 | Interest bearing deposits              |                                 |                                            | 37     |               |         |       | 58           |       
|                                     |                                                                                                                                                 | Federal funds sold                     |                                 |                                            | 5,606  |               |         |       | 5,905        |       
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 |                                        | Total cash and cash equivalents |                                            |        | 10,689        |         |       |              | 8,566  |        
|                                     |                                                                                                                                                 | Securities available for sale          |                                 |                                            | 14,316 |               |         |       | 15,670       |       
|                                     |                                                                                                                                                 | Federal Home Loan Bank (FHLB) stock    |                                 |                                            | 1,967  |               |         |       | 1,967        |       
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 | Total investment securities            |                                 |                                            | 16,283 |               |         |       | 17,637       |       
|                                     |                                                                                                                                                 | Loans:                                 |                                 |                                            |        |               |         |       |              |       
|                                     |                                                                                                                                                 |                                        | Commercial and agricultural     |                                            |        | 4,561         |         |       |              | 6,038  |        
|                                     |                                                                                                                                                 |                                        | Installment                     |                                            |        | 3,206         |         |       |              | 3,688  |        
|                                     |                                                                                                                                                 |                                        | Real estate mortgages           |                                            |        | 79,006        |         |       |              | 75,923 |        
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 |                                        |                                 | Total loans                                |        |               | 86,773  |       |              |        | 85,649  |  
|                                     |                                                                                                                                                 |                                        |                                 | Allowance for loan losses                  |        |               | (1,047  | )     |              |        | (1,053  | )
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 |                                        |                                 | Net loans                                  |        |               | 85,726  |       |              |        | 84,596  |  
|                                     |                                                                                                                                                 |                                        | Premises and equipment, net     |                                            |        | 1,113         |         |       |              | 947    |        
|                                     |                                                                                                                                                 |                                        | Accrued income and other assets |                                            |        | 3,280         |         |       |              | 3,277  |        
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 |                                        |                                 | Total assets                               |        | $             | 117,091 |       |              | $      | 115,023 |  
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                 |                                        |                                 |                                            |        |               |         |      
|LIABILITIES                          |                                                                                                                                                 |                                        |                                 |                                            |        |               |         |      
|                                     |                                                                                                                                                 | Deposits:                              |                                 |                                            |        |               |         |       |              |       
|                                     |                                                                                                                                                 |                                        | Non interest bearing            |                                            | $      | 10,515        |         |       | $            | 9,885  |        
|                                     |                                                                                                                                                 |                                        | Interest bearing                |                                            |        | 61,117        |         |       |              | 62,538 |        
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 |                                        |                                 | Total deposits                             |        |               | 71,632  |       |              |        | 72,423  |  
|                                     |                                                                                                                                                 | Long-term FHLB borrowings              |                                 |                                            | 30,246 |               |         |       | 28,339       |       
|                                     |                                                                                                                                                 | Other liabilities                      |                                 |                                            | 1,570  |               |         |       | 1,427        |       
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 |                                        |                                 | Total liabilities                          |        |               | 103,448 |       |              |        | 102,189 |  
|SHAREHOLDERS EQUITY                 |                                                                                                                                                 |                                        |                                 |                                            |        |               |         |      
|                                     | Common stock: $5 par value, 1,300,000 shares authorized;
598,056 outstanding at September 30, 2001 and 598,056
outstanding at December 31, 2000 |                                        |                                 | 2,990                                      |        |               |         | 2,990 |             
|                                     | Additional paid in capital                                                                                                                      |                                        |                                 | 2,590                                      |        |               |         | 2,590 |             
|                                     | Retained earnings                                                                                                                               |                                        |                                 | 7,784                                      |        |               |         | 7,126 |             
|                                     | Accumulated other comprehensive income,
net of tax of $144 as of September 30, 2001 and $66 as of
December 31, 2000                             |                                        |                                 | 279                                        |        |               |         | 128   |             
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 |                                        |                                 | Total shareholders equity                 |        |               | 13,643  |       |              |        | 12,834  |  
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              
|                                     |                                                                                                                                                 |                                        |                                 | Total liabilities and shareholders equity |        | $             | 117,091 |       |              | $      | 115,023 |  
|                                     |                                                                                                                                                 |                                        |                                 |                                            |        |              

See accompanying notes to consolidated financial statements.

1



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##### Table of Contents






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



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|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |       |       |       |         |       |       |       | 
|--------------------------------------------------- | ------------------------------------------------ | -------------------------- | --------------------- | ----- | ------------------ | ----- | ------- | ----------------- | --- | ----- | ------- | ----- | ----- | ----- | ------- | ----- | ----- | ----- | 
|                                                    |                                                  |                            |                       |       | Three Months Ended |       |         | Nine Months Ended |    
|                                                    |                                                  |                            |                       |       | September 30,      |       |         | September 30,     |    
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |    
|                                                    |                                                  |                            |                       |       | 2001               |       |         | 2000              |     |       | 2001    |       |       | 2000  |        
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |       |       |       |        
|Interest and Dividend Income                        |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |       |       |       |         |      
|                                                    | Interest and fees on loans                       |                            | $                     | 1,683 |                    |       | $       | 1,779             |     |       | $       | 5,121 |       |       | $       | 5,306 |      
|                                                    | Federal funds sold                               |                            |                       | 52    |                    |       |         | 28                |     |       |         | 155   |       |       |         | 55    |      
|                                                    | Interest and dividends on investment securities: |                            |                       |       |                    |       |         |                   |     |       |         |       |       |       |         |       |      
|                                                    |                                                  | Taxable                    |                       |       | 216                |       |         |                   | 154 |       |         |       | 671   |       |         |       | 415   |      
|                                                    |                                                  | Tax exempt                 |                       |       | 42                 |       |         |                   | 41  |       |         |       | 118   |       |         |       | 127   |      
|                                                    |                                                  | Other interest income      |                       |       |                   |       |         |                   |    |       |         |       | 1     |       |         |       | 1     |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|                                                    |                                                  |                            | Total interest income |       |                    | 1,993 |         |                   |     | 2,002 |         |       |       | 6,066 |         |       |       | 5,904 | 
|Interest Expense                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |       |       |       |         |      
|                                                    | Deposits                                         |                            |                       | 499   |                    |       |         | 644               |     |       |         | 1,615 |       |       |         | 1,847 |      
|                                                    | Short-term borrowings                            |                            |                       |      |                    |       |         |                  |     |       |         | 1     |       |       |         | 13    |      
|                                                    | Long-term borrowings                             |                            |                       | 424   |                    |       |         | 322               |     |       |         | 1,242 |       |       |         | 908   |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|                                                    |                                                  | Total interest expense     |                       |       | 923                |       |         |                   | 966 |       |         |       | 2,858 |       |         |       | 2,768 |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|Net Interest Income                                 |                                                  |                            | 1,070                 |       |                    |       | 1,036   |                   |     |       | 3,208   |       |       |       | 3,136   |      
|Provision for loan losses                           |                                                  |                            |                      |       |                    |       |        |                   |     |       |        |       |       |       | 6       |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|Net interest income after provision for loan losses |                                                  |                            | 1,070                 |       |                    |       | 1,036   |                   |     |       | 3,208   |       |       |       | 3,130   |      
|Non Interest Income                                 |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |       |       |       |         |      
|                                                    | Service charges on deposit accounts              |                            |                       | 81    |                    |       |         | 85                |     |       |         | 245   |       |       |         | 244   |      
|                                                    | Other income                                     |                            |                       | 111   |                    |       |         | 112               |     |       |         | 364   |       |       |         | 340   |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|                                                    |                                                  | Total non interest income  |                       |       | 192                |       |         |                   | 197 |       |         |       | 609   |       |         |       | 584   |      
|Non Interest Expense                                |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |       |       |       |         |      
|                                                    | Salaries and employee benefits                   |                            |                       | 347   |                    |       |         | 351               |     |       |         | 1,089 |       |       |         | 1,106 |      
|                                                    | Premises and equipment                           |                            |                       | 87    |                    |       |         | 79                |     |       |         | 257   |       |       |         | 229   |      
|                                                    | Other operating expense                          |                            |                       | 195   |                    |       |         | 182               |     |       |         | 613   |       |       |         | 602   |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|                                                    |                                                  | Total non interest expense |                       |       | 629                |       |         |                   | 612 |       |         |       | 1,959 |       |         |       | 1,937 |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|Income before income tax expense                    |                                                  |                            | 633                   |       |                    |       | 621     |                   |     |       | 1,858   |       |       |       | 1,777   |      
|Income tax expense                                  |                                                  |                            | 196                   |       |                    |       | 193     |                   |     |       | 572     |       |       |       | 540     |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|Net Income                                          |                                                  | $                          | 437                   |       |                    | $     | 428     |                   |     | $     | 1,286   |       |       | $     | 1,237   |      
|                                                    |                                                  |                            |                       |       |                    |       |         |                   |     |       |         |      
|Average common shares outstanding                   |                                                  |                            | 598,056               |       |                    |       | 598,056 |                   |     |       | 598,056 |       |       |       | 597,742 |      
|Basic earnings per common share                     |                                                  |                            | 0.73                  |       |                    |       | 0.72    |                   |     |       | 2.15    |       |       |       | 2.07    |      
|Diluted earnings per common share                   |                                                  |                            | 0.73                  |       |                    |       | 0.71    |                   |     |       | 2.13    |       |       |       | 2.05    |      
|Dividends per share of common stock, declared       |                                                  |                            | 0.36                  |       |                    |       | 0.32    |                   |     |       | 1.05    |       |       |       | 0.93    |      

See accompanying notes to consolidated financial statements.

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##### Table of Contents






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



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|                                                 |                                                                           |                                                 |                                    |                                    |        |                   |       |        |        |       |       | 
|------------------------------------------------ | ------------------------------------------------------------------------- | ----------------------------------------------- | ---------------------------------- | ---------------------------------- | ------ | ----------------- | ----- | ------ | ------ | ----- | ----- | 
|                                                 |                                                                           |                                                 |                                    |                                    |        | Nine Months Ended |      
|                                                 |                                                                           |                                                 |                                    |                                    |        | September 30,     |      
|                                                 |                                                                           |                                                 |                                    |                                    |        |                   |      
|                                                 |                                                                           |                                                 |                                    |                                    |        | 2001              |       |        | 2000   |      
|                                                 |                                                                           |                                                 |                                    |                                    |        |                   |       |        |        |      
|Cash flows from operating activities             |                                                                           |                                                 |                                    |                                    |        |                   |       |       
|                                                 | Net income                                                                |                                                 | $                                  | 1,286                              |        |                   | $     | 1,237  |       
|                                                 | Adjustments to reconcile net income to net cash from
operating activities |                                                 |                                    |                                    |        |                   |       |        |       
|                                                 |                                                                           | Depreciation                                    |                                    |                                    | 96     |                   |       |        | 85     |      
|                                                 |                                                                           | Provision for loan losses                       |                                    |                                    |       |                   |       |        | 6      |      
|                                                 |                                                                           | Net amortization (accretion) on securities      |                                    |                                    | (3     | )                 |       |        | 1      |      
|                                                 |                                                                           | Loans originated for sale                       |                                    |                                    | (2,465 | )                 |       |        |       |      
|                                                 |                                                                           | Proceeds from sale of loans originated for sale |                                    |                                    | 2,473  |                   |       |        |       |      
|                                                 |                                                                           | Net gain on sales of loans originated for sale  |                                    |                                    | (8     | )                 |       |        |       |      
|                                                 |                                                                           | Changes in assets and liabilities:              |                                    |                                    |        |                   |       |        |        |      
|                                                 |                                                                           |                                                 | Accrued interest receivable        |                                    |        | (16               | )     |        |        | (133  | )    
|                                                 |                                                                           |                                                 | Accrued interest payable           |                                    |        | (42               | )     |        |        | 37    |      
|                                                 |                                                                           |                                                 | Other assets                       |                                    |        | (65               | )     |        |        | 63    |      
|                                                 |                                                                           |                                                 | Other liabilities                  |                                    |        | 173               |       |        |        | 64    |      
|                                                 |                                                                           |                                                 |                                    |                                    |        |                  
|                                                 |                                                                           |                                                 |                                    | Net cash from operating activities |        |                   | 1,429 |        |        |       | 1,360 | 
|Cash flows from investing activities             |                                                                           |                                                 |                                    |                                    |        |                   |       |       
|                                                 | Securities available for sale:                                            |                                                 |                                    |                                    |        |                   |       |        |       
|                                                 |                                                                           | Purchases                                       |                                    |                                    | (1,028 | )                 |       |        | (3,083 | )    
|                                                 |                                                                           | Maturities, calls and principal payments        |                                    |                                    | 2,614  |                   |       |        | 1,710  |      
|                                                 | Purchase of FHLB stock                                                    |                                                 |                                    |                                   |        |                   |       | (199   | )     
|                                                 | Net change in loans                                                       |                                                 |                                    | (1,130                             | )      |                   |       | 1,631  |       
|                                                 | Premises and equipment expenditures                                       |                                                 |                                    | (262                               | )      |                   |       | (99    | )     
|                                                 |                                                                           |                                                 |                                    |                                    |        |                  
|                                                 |                                                                           |                                                 | Net cash from investing activities |                                    |        | 194               |       |        |        | (40   | )    
|Cash flows from financing activities             |                                                                           |                                                 |                                    |                                    |        |                   |       |       
|                                                 | Net change in deposits                                                    |                                                 |                                    | (791                               | )      |                   |       | 1,250  |       
|                                                 | Federal funds purchased                                                   |                                                 |                                    |                                   |        |                   |       | (1,700 | )     
|                                                 | Proceeds from long-term FHLB borrowings                                   |                                                 |                                    | 6,000                              |        |                   |       | 5,700  |       
|                                                 | Repayment of long-term FHLB borrowings                                    |                                                 |                                    | (4,093                             | )      |                   |       | (1,090 | )     
|                                                 | Proceeds from shares issued upon exercise of stock options                |                                                 |                                    |                                   |        |                   |       | 21     |       
|                                                 | Dividends paid                                                            |                                                 |                                    | (616                               | )      |                   |       | (539   | )     
|                                                 |                                                                           |                                                 |                                    |                                    |        |                  
|                                                 |                                                                           |                                                 | Net cash from financing activities |                                    |        | 500               |       |        |        | 3,642 |      
|                                                 |                                                                           |                                                 |                                    |                                    |        |                  
|Net change in cash and cash equivalents          |                                                                           |                                                 | 2,123                              |                                    |        |                   | 4,962 |       
|Cash and cash equivalents at beginning of year   |                                                                           |                                                 | 8,566                              |                                    |        |                   | 3,151 |       
|                                                 |                                                                           |                                                 |                                    |                                    |        |                  
|Cash and cash equivalents at June 30             |                                                                           | $                                               | 10,689                             |                                    |        | $                 | 8,113 |       
|                                                 |                                                                           |                                                 |                                    |                                    |        |                  
|Supplemental disclosure of cash flow information |                                                                           |                                                 |                                    |                                    |        |                   |       |       
|                                                 | Cash paid during the period for:                                          |                                                 |                                    |                                    |        |                   |       |        |       
|                                                 |                                                                           | Interest                                        |                                    | $                                  | 2,900  |                   |       | $      | 2,731  |      
|                                                 |                                                                           | Income taxes  federal                          |                                    | $                                  | 590    |                   |       | $      | 542    |      

See accompanying notes to consolidated financial statements.

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CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
For the three and nine months ended September 30, 2001 and 2000



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|                                |                                                                                 |   |     |                    |   |   |                   |     |   |      |       |     |      |   |       |    |   | 
|------------------------------- | ------------------------------------------------------------------------------- | - | --- | ------------------ | - | - | ----------------- | --- | - | ---- | ----- | --- | ---- | - | ----- | -- | - | 
|                                |                                                                                 |   |     | Three Months Ended |   |   | Nine Months Ended |    
|                                |                                                                                 |   |     | September 30,      |   |   | September 30,     |    
|                                |                                                                                 |   |     |                    |   |   |                   |    
|                                |                                                                                 |   |     | 2001               |   |   | 2000              |     |   | 2001 |       |     | 2000 |  
|                                |                                                                                 |   |     |                    |   |   |                   |     |   |      |       |     |      |  
|Net income                      |                                                                                 | $ | 437 |                    |   | $ | 428               |     |   | $    | 1,286 |     |      | $ | 1,237 |   
|Other comprehensive income, net |                                                                                 |   |     |                    |   |   |                   |     |   |      |       |     |      |   |       |   
|                                | Unrealized holding gains on
securities available for sale
arising during period |   |     | 67                 |   |   |                   | 46  |   |      |       | 229 |      |   |       | 18 |  
|                                | Tax effects                                                                     |   |     | (23                | ) |   |                   | (16 | ) |      |       | (78 | )    |   |       | (6 | )
|                                |                                                                                 |   |     |                    |   |   |                   |     |   |      |       |    
|Other comprehensive income, net |                                                                                 |   | 44  |                    |   |   | 30                |     |   |      | 151   |     |      |   | 12    |   
|                                |                                                                                 |   |     |                    |   |   |                   |     |   |      |       |    
|Comprehensive income            |                                                                                 | $ | 481 |                    |   | $ | 458               |     |   | $    | 1,437 |     |      | $ | 1,249 |   
|                                |                                                                                 |   |     |                    |   |   |                   |     |   |      |       |    

See accompanying notes to consolidated financial statements.

4



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##### Table of Contents






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



|1. |  | In the opinion of management of the Registrant, the accompanying
Consolidated Financial Statements contain all adjustments (consisting only
of normal recurring items) necessary to present fairly the consolidated
financial position of the Registrant as of September 30, 2001 and December
31, 2000, and results of operations for the three and nine month periods
ended September 30, 2001 and 2000, and the cash flows for the nine month
periods ended September 30, 2001 and 2000.                                                                                                                                                                                                             
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | The results of operations for the nine months ended September 30, 2001
are not necessarily indicative of the results to be expected for the full
year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|3. |  | The accompanying unaudited Consolidated Financial Statements and the
notes thereto should be read in conjunction with the Notes to Consolidated
Financial Statements and the notes included therein, for the fiscal year
end 2000, included in the Registrants 2000 Annual Report on Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|4. |  | 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 September 30, 2001, non-performing loans totaled $256,000
or .30% of total loans. This represents an increase of $119,000 from the
$137,000 balance at December 31, 2000.

|                                      |  |                           |         |               |         |   |              |   |         |  
|------------------------------------- |  | ------------------------- | ------- | ------------- | ------- | - | ------------ | - | ------- | -
|                                      |  |                           |         | September 30, |         |   | December 31, |  
|Non-performing loans                  |  | 2001                      |         |               | 2000    |  
|                                      |  |                           |         |               |         |  
|Non-accrual                           |  | $                         |        |               |         | $ |             |  
|90 days or more past due              |  |                           | 256,000 |               |         |   | 137,000      |  
|Renegotiated                          |  |                           |        |               |         |   |             |  
|                                      |  |                           |         |               |         |  
|                                      |  | Total                     |         | $             | 256,000 |   |              | $ | 137,000 |  
|                                      |  |                           |         |               |         |  
|Non-performing loans as a percent of: |  |                           |         |               |         |   |              |  
|                                      |  | Total loans               |         |               | .30     | % |              |   | .16     | %
|                                      |  | Allowance for loan losses |         |               | 24.45   | % |              |   | 13.01   | %

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 addition or reductions to the allowance which have been
charged or credited to expense.

| |  |  |                        |  |  |  |  |  |  |  | 
| |  |  | ---------------------- |  |  |  |  |  |  |  | 
| |  |  | (Dollars in thousands) |  |  |  |  |  |  |  | 

|                                            |                                       |                                                     |                              |        |               |    |        |              |       |    |  
|------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ---------------------------- | ------ | ------------- | -- | ------ | ------------ | ----- | -- | -
|                                            |                                       | Nine                                                |                              |        | Twelve        |   
|                                            |                                       | Months                                              |                              |        | Months        |   
|                                            |                                       |                                                     |                              |        | Ended         |    |        | Ended        |      
|                                            |                                       |                                                     |                              |        | September 30, |    |        | December 31, |      
|                                            |                                       |                                                     |                              |        | 2001          |    |        | 2000         |      
|                                            |                                       |                                                     |                              |        |               |    |        |              |      
|                                            |                                       | Balance at beginning of period                      |                              | $      | 1,053         |    |        | $            | 1,055 |   
|                                            |                                       | Charge-offs                                         |                              |        | (32           | )  |        |              | (27   | ) 
|                                            |                                       | Recoveries                                          |                              |        | 26            |    |        |              | 19    |   
|                                            |                                       |                                                     |                              |        |               |   
|                                            |                                       |                                                     | Net (charge-offs) recoveries |        |               | (6 | )      |              |       | (8 | )
|                                            |                                       | Additions (reductions) to allowance
for loan losses |                              |        |              |    |        |              | 6     |   
|                                            |                                       |                                                     |                              |        |               |   
|                                            |                                       | Balance at end of period                            |                              | $      | 1,047         |    |        | $            | 1,053 |   
|                                            |                                       |                                                     |                              |        |               |   
|Average loans outstanding during the period |                                       | $                                                   | 85,808                       |        |               | $  | 87,651 |             
|                                            |                                       |                                                     |                              |        |               |   
|Loans outstanding at end of period          |                                       | $                                                   | 86,773                       |        |               | $  | 85,649 |             
|                                            |                                       |                                                     |                              |        |               |   
|Allowance as a percent of:                  |                                       |                                                     |                              |        |               |    |        |             
|                                            | Total loans at end of period          |                                                     |                              | 1.21   | %             |    |        | 1.23         | %    
|                                            |                                       |                                                     |                              |        |               |   
|                                            | Non-performing loans at end of period |                                                     |                              | 408.98 | %             |    |        | 768.61       | %    
|                                            |                                       |                                                     |                              |        |               |   
|Net charge-offs as a percent of:            |                                       |                                                     |                              |        |               |    |        |             
|                                            | Average loans outstanding             |                                                     |                              | .00    | %             |    |        | .00          | %    
|                                            |                                       |                                                     |                              |        |               |   
|                                            | Allowance for loan losses             |                                                     |                              | .57    | %             |    |        | .76          | %    
|                                            |                                       |                                                     |                              |        |               |   

6



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##### Table of Contents



Note 5. Earnings per share



|5. |  | A reconciliation of basic and diluted earnings per share for the
three-month and nine-month periods; ending September 30 follows:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | (Dollars in thousands, except per share amounts)                                                                                 

|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |       |       |   |         |       |       | 
|------------------------------------------------------------------ | --------------------------------------------- | ---------- | ------- | ------------------ | --- | - | ----------------- | ----- | --- | ---- | ------- | ----- | ----- | - | ------- | ----- | ----- | 
|                                                                   |                                               |            |         | Three months ended |     |   | Nine months ended |      
|                                                                   |                                               |            |         | September 30,      |     |   | September 30,     |      
|                                                                   |                                               |            |         |                    |     |   |                   |      
|                                                                   |                                               |            |         | 2001               |     |   | 2000              |       |     | 2001 |         |       | 2000  |  
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |       |       |  
|Basic earnings per share                                           |                                               |            |         |                    |     |   |                   |       |     |      |         |       |       |   |         |      
|                                                                   |                                               | Net income |         | $                  | 437 |   |                   | $     | 428 |      |         | $     | 1,286 |   |         | $     | 1,237 | 
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |      
|Weighted average shares
outstanding for basic
earnings per share   |                                               |            | 598,056 |                    |     |   | 598,056           |       |     |      | 598,056 |       |       |   | 597,742 |      
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |      
|                                                                   | Per share amount                              |            | $       | .73                |     |   | $                 | .72   |     |      | $       | 2.15  |       |   | $       | 2.07  |      
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |      
|Diluted earnings per share
Net income                              |                                               | $          | 437     |                    |     | $ | 428               |       |     | $    | 1,286   |       |       | $ | 1,237   |      
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |      
|Weighted average shares
outstanding for basic
earnings per share   |                                               |            | 598,056 |                    |     |   | 598,056           |       |     |      | 598,056 |       |       |   | 597,742 |      
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |      
|                                                                   | Effect of dilutive securities -
Stock options |            |         | 1,606              |     |   |                   | 5,088 |     |      |         | 4,773 |       |   |         | 5,397 |      
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |      
|Weighted average shares
outstanding for diluted
earnings per share |                                               |            | 599,662 |                    |     |   | 603,144           |       |     |      | 602,829 |       |       |   | 603,139 |      
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |      
|Per share amount                                                   |                                               | $          | .73     |                    |     | $ | .71               |       |     | $    | 2.13    |       |       | $ | 2.05    |      
|                                                                   |                                               |            |         |                    |     |   |                   |       |     |      |         |      

Note 6. Stock Option Plan



|6. |  | 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7



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##### Table of Contents



| |  | Note 6. Stock Option Plan (continued)           
| |  | ------------------------------------------------
|
| |  | 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 at
December 31, 2000 |  |           | 16,593 |   |             |  | 20,207 |          |         | $        | 30.19   |          |              |          |      | 
|Granted                      |  |           | (4,000 | ) |             |  | 4,000  |          |         |          | 40.00   |          |              | $        | 2.75 | 
|Forfeited                    |  |           | 1,300  |   |             |  | (1,300 | )        |         |          | 39.65   |          |              |          |      | 
|                             |  |           |        |   |             |  |        |          |         |          |         |          |              |         
|Balance
September 30, 2001   |  |           | 13,893 |   |             |  | 22,907 |          |         | $        | 31.36   |          |              |          |      | 
|                             |  |           |        |   |             |  |        |          |         |          |         |          |             



| |  | For the options outstanding September 30, 2001, the range of exercise
prices was $12.75 to $41.50 per share with a weighted average remaining
contractual term of 7.2 years. At September 30, 2001, 10,951 were
exercisable at a weighted average price of $23.43 per share. Had
compensation cost for stock options been measured using SFAS No. 123, net
income and earnings per share would have been the pro forma amounts
indicated.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (Dollars in thousands, except per share amounts)                                                                                                                                                                                                                                                                                                                                                                                         

|                                   |                     |  |                |     |  |                |   |     |                |  |   |                |  |  |   |       | 
|---------------------------------- | ------------------- |  | -------------- | --- |  | -------------- | - | --- | -------------- |  | - | -------------- |  |  | - | ----- | 
|                                   |                     |  | Three Months   |     |  | Three Months   |   |     | Nine Months    |  |   | Nine Months    | 
|                                   |                     |  | Ended          |     |  | Ended          |   |     | Ended          |  |   | Ended          | 
|                                   |                     |  | Sept. 30, 2001 |     |  | Sept. 30, 2000 |   |     | Sept. 30, 2001 |  |   | Sept. 30, 2000 | 
|                                   |                     |  |                |     |  |                |   |     |                |  |   |                | 
|Net income                         |                     |  |                |     |  |                |   |     |                |  |   |                |  |  |   |      
|                                   | As reported         |  | $              | 437 |  |                | $ | 428 |                |  | $ | 1,286          |  |  | $ | 1,237 | 
|                                   | Pro forma           |  |                | 437 |  |                |   | 428 |                |  |   | 1,275          |  |  |   | 1,230 | 
|Basic and diluted income
per share |                     |  |                |     |  |                |   |     |                |  |   |                |  |  |   |      
|                                   | As reported basic   |  | $              | .73 |  |                | $ | .72 |                |  | $ | 2.15           |  |  | $ | 2.07  | 
|                                   | Pro forma basic     |  |                | .73 |  |                |   | .72 |                |  |   | 2.13           |  |  |   | 2.06  | 
|                                   | As reported diluted |  |                | .73 |  |                |   | .71 |                |  |   | 2.13           |  |  |   | 2.05  | 
|                                   | Pro forma diluted   |  |                | .72 |  |                |   | .71 |                |  |   | 2.11           |  |  |   | 2.04  | 

The pro forma effects are computed with option pricing models. For the options
granted during the nine months ended September 30, 2001 the following weighted
average assumptions as of the grant date were used.

|                                |  |         |      |  
|------------------------------- |  | ------- | ---- | -
|Risk-free interest rate         |  |         | 4.95 | %
|Expected option life            |  | 5 years
|Expected stock price volatility |  |         | 4.02 | %
|Expected dividend yield         |  |         | 3.44 | %




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 revenue 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 corporation 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)

Assets totaled $117,091 at September 30, 2001.   The 1.80% increase of $2,068
from $115,023 at December 31, 2000 resulted primarily from an increase of
$1,130 in net loans, a $2,443 increase in cash and non interest bearing
deposits and a decrease of $1,354 in investment securities.

Cash and cash equivalents have increased $2,123 or 24.78% in the nine month
period from December 31, 2000 to September 30, 2001. This is a result of a
large cash letter clearing position on the last day of the quarter.

Total outstanding loans have increased $1,124 during the first nine months
of 2001. This is an increase of 1.31% from December 31, 2000. This
increase has been concentrated in the real estate loan portfolio due to
favorable borrowing rates, while commercial loan demand has decreased.
During the first quarter of 2001, the Company decided to sell certain loans
into the secondary market as part of the asset and liability strategy to
minimize risk associated with the recent reduction in interest rates.
Management will closely monitor this strategy in the near term.

The allowance for loan losses decreased $6 or .57% during the nine-month
period ending September 30, 2001. At September 30, 2001 the allowance as a
percent of outstanding loans was 1.21% compared to 1.23% at December 31,
2000. Management continues to maintain the allowance for loan losses at a
level considered appropriate to absorb losses inherent in the portfolio and
the current trend of increased non-performing loans.

Total deposits as of September 30, 2001 compared to year-end 2000 decreased
slightly by $791 or 1.09%. The decline was concentrated in interest bearing
demand deposits and time deposits, while non interest bearing deposits
increased in the same period. This decline is primarily the result of
customers seeking alternative deposit opportunities due to the declining
rate environment.

Total shareholders equity increased $809 or 6.30% in the first nine months
of 2001. Net income of $1,286 and $151 net unrealized gain on available for
sale securities increased shareholders equity, while dividends of $616
reduced shareholders equity. Book value per share was $22.81 at September
30, 2001 compared to $21.46 at December 31, 2000.

For the third quarter of 2001, net income was $437, basic earnings per share
was $.73, and diluted earnings per share was $.73, compared to $428, $.72
and $.71 for the same period in 2000. During the nine-month period ending
September 30, 2001, net income totaled $1,286, basic earnings per share was
$2.15, and diluted earnings per share was $2.13, compared to $1,237, $2.07
and $2.05 for the same period in 2000. Average earning assets increased by
6.31% to $107,067 from September 30, 2000 to September 30, 2001. The
average yield on earning assets decreased to 7.67% for the nine-month period
ended September 30, 2001 from 7.93% for the comparable time period in 2000.
Average costs for rate related liabilities decreased thirteen basis points
to 4.34% at September 30, 2001 from 4.47% at September 30, 2000. Net
interest margin decreased to 4.10% for the first nine-months of 2001
compared to 4.26% in the same period of 2000. This is a result of the
rapidly falling rate environment. The Company is experiencing a declining
margin related primarily to the change in the structure of earning assets.
As commercial loan demand declined during 2000 and 2001, those funds were
used to increase the securities portfolio and residential mortgage
portfolios, which tend to be at lower yields as compared to commercial
loans. The following table illustrates the change in net interest margin
for the nine months ended September 30, 2001 and September 30, 2000.

9



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##### Table of Contents



Item 2. Managements discussion and analysis of financial condition and results of operations (continued)

|                                  |                                    |   |         |         |  |              |       |       |         |        |      |         |         |   |             |         |  |         |       |        |  |  |      |      |  
|--------------------------------- | ---------------------------------- | - | ------- | ------- |  | ------------ | ----- | ----- | ------- | ------ | ---- | ------- | ------- | - | ----------- | ------- |  | ------- | ----- | ------ |  |  | ---- | ---- | -
|                                  |                                    |   |         |         |  |              | 2001  |       |         |        |      |         |         |   |             |         |  | 2000    |       |        |  |  |     
|                                  |                                    |   |         |         |  |              |      
|                                  |                                    |   | Average |         |  |              |       |       |         | Yield/ |      |         | Average |   |             |         |  |         |       | Yield/ | 
|                                  |                                    |   | Balance |         |  | Interest (1) |       |       | Rate(1) |        |      | Balance |         |   | Interest(1) |         |  | Rate(1) |      
|                                  |                                    |   |         |         |  |              |       |       |         |        |      |         |         |   |             |         |  |         |      
|Loans (taxable)                   |                                    | $ | 84,747  |         |  | $            | 5,076 |       |         |        | 8.01 | %       |         | $ | 87,770      |         |  | $       | 5,292 |        |  |  | 8.05 | %   
|Loans (non-taxable)               |                                    |   | 585     |         |  |              | 38    |       |         |        | 8.68 | %       |         |   | 316         |         |  |         | 22    |        |  |  | 9.30 | %   
|Loans held for sale               |                                    |   | 476     |         |  |              | 21    |       |         |        | 5.90 | %       |         |   |            |         |  |         |      |        |  |  |     |     
|Taxable investment securities     |                                    |   | 13,374  |         |  |              | 671   |       |         |        | 6.71 | %       |         |   | 8,208       |         |  |         | 415   |        |  |  | 6.75 | %   
|Non-taxable investment securities |                                    |   | 3,029   |         |  |              | 179   |       |         |        | 7.90 | %       |         |   | 3,179       |         |  |         | 192   |        |  |  | 8.07 | %   
|Federal funds sold and other      |                                    |   | 4,856   |         |  |              | 155   |       |         |        | 4.30 | %       |         |   | 1,243       |         |  |         | 56    |        |  |  | 6.02 | %   
|                                  |                                    |   |         |         |  |              |       |       |         |        |      |         |         |   |             |         |  |         |       |       
|                                  | Total interest earning assets      |   | $       | 107,067 |  |              | $     | 6,140 |         |        |      | 7.67    | %       |   | $           | 100,716 |  |         | $     | 5,977  |  |  |      | 7.93 | %
|Interest bearing demand deposits  |                                    | $ | 9,180   |         |  | $            | 42    |       |         |        | .61  | %       |         | $ | 10,692      |         |  | $       | 66    |        |  |  | .82  | %   
|Savings deposits                  |                                    |   | 22,716  |         |  |              | 483   |       |         |        | 2.84 | %       |         |   | 19,028      |         |  |         | 413   |        |  |  | 2.90 | %   
|Time deposits <$100,000           |                                    |   | 17,292  |         |  |              | 707   |       |         |        | 5.47 | %       |         |   | 20,549      |         |  |         | 848   |        |  |  | 5.51 | %   
|Time deposits $100,000 or more    |                                    |   | 10,180  |         |  |              | 383   |       |         |        | 5.03 | %       |         |   | 11,814      |         |  |         | 520   |        |  |  | 5.88 | %   
|Federal funds purchased           |                                    |   | 11      |         |  |              | 1     |       |         |        | 6.08 | %       |         |   | 276         |         |  |         | 13    |        |  |  | 6.29 | %   
|Other borrowings                  |                                    |   | 28,732  |         |  |              | 1,242 |       |         |        | 5.78 | %       |         |   | 20,406      |         |  |         | 908   |        |  |  | 5.94 | %   
|                                  |                                    |   |         |         |  |              |       |       |         |        |      |         |         |   |             |         |  |         |       |       
|                                  | Total interest bearing liabilities |   | $       | 88,111  |  |              | $     | 2,858 |         |        |      | 4.34    | %       |   | $           | 82,765  |  |         | $     | 2,768  |  |  |      | 4.47 | %
|Net Interest                      |                                    |   |         |         |  | $            | 3,282 |       |         |        | 3.33 | %       |         |   |             |         |  | $       | 3,209 |        |  |  | 3.46 | %   
|Net Interest Margin               |                                    |   |         |         |  |              |       |       |         |        | 4.10 | %       |         |   |             |         |  |         |       |        |  |  | 4.26 | %   



| | (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 Corporation had an increase in
net interest income due primarily to changes due to interest rates, while
volume changes between assets and liabilities were offsetting.

Change in Net Interest Income
(Dollars in thousands)

|                             |                                                                   |                        |   |                       |     |  |      |     |      |       |   |      |     | 
|---------------------------- | ----------------------------------------------------------------- | ---------------------- | - | --------------------- | --- |  | ---- | --- | ---- | ----- | - | ---- | --- | 
|                             |                                                                   |                        |   | 2001 compared to 2000 |    
|                             |                                                                   |                        |   |                       |    
|                             |                                                                   |                        |   | Volume                |     |  | Rate |     |      | Total |  
|                             |                                                                   |                        |   |                       |     |  |      |     |      |       |  
|Earning Assets               |                                                                   |                        |   |                       |     |  |      |     |      |       |   |     
|                             | Loans (taxable)                                                   |                        | $ | (242                  | )   |  | $    | (40 | )    |       | $ | (282 | )  
|                             | Loans (non-taxable)                                               |                        |   | 23                    |     |  |      | (2  | )    |       |   | 21   |    
|                             | Loans held for sale                                               |                        |   | 28                    |     |  |      |    |      |       |   | 28   |    
|                             | Taxable investment securities                                     |                        |   | 347                   |     |  |      | (4  | )    |       |   | 343  |    
|                             | Non-taxable investment securities                                 |                        |   | (12                   | )   |  |      | (5  | )    |       |   | (17  | )  
|                             | Federal funds sold                                                |                        |   | 161                   |     |  |      | (27 | )    |       |   | 134  |    
|                             |                                                                   |                        |   |                       |     |  |      |     |     
|                             |                                                                   | Total interest income  |   | $                     | 305 |  |      | $   | (78  | )     |   | $    | 227 | 
|                             |                                                                   |                        |   |                       |     |  |      |     |     
|Interest Bearing Liabilities |                                                                   |                        |   |                       |     |  |      |     |      |       |   |     
|                             | Interest bearing demand deposits                                  |                        | $ | (11                   | )   |  | $    | (21 | )    |       | $ | (32  | )  
|                             | Savings deposits                                                  |                        |   | 105                   |     |  |      | (11 | )    |       |   | 94   |    
|                             | Time deposits <$100,000                                           |                        |   | (178                  | )   |  |      | (9  | )    |       |   | (187 | )  
|                             | Time deposits $100,000 or more                                    |                        |   | (89                   | )   |  |      | (94 | )    |       |   | (183 | )  
|                             | Federal funds purchased                                           |                        |   | (16                   | )   |  |      | (1  | )    |       |   | (17  | )  
|                             | Other borrowings                                                  |                        |   | 482                   |     |  |      | (34 | )    |       |   | 448  |    
|                             |                                                                   |                        |   |                       |     |  |      |     |     
|                             |                                                                   | Total interest expense |   | $                     | 293 |  |      | $   | (170 | )     |   | $    | 123 | 
|                             |                                                                   |                        |   |                       |     |  |      |     |     
|                             | Net Interest Income                                               |                        | $ | 12                    |     |  | $    | 92  |      |       | $ | 104  |    
|                             |                                                                   |                        |   |                       |     |  |      |     |     
|                             | Earning assets are presented on a fully taxable equivalent basis.

10



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##### Table of Contents



Item 2. Managements discussion and analysis of financial condition and results of operations (continued)

The provision for loan losses was $0 during the third quarter of 2001,
unchanged from the same period of 2000. For the nine months ended September
30, the provision was $0 in 2001 compared to $6 in 2000. This decrease is
consistent with the decline in average outstanding loans.

Non interest income decreased $5 or 2.54% during the third quarter of 2001
when compared to the third quarter of 2000. This is primarily attributable
to the decline in customer investment commissions and a market value
adjustment on a Rabi Trust. For the nine months ended September 30, non
interest income has increased $25 or 4.28% when compared to the similar
period in 2000. This is a result of the same factors affecting the third
quarter decrease, as well as new and increased fees on products, which were
not in effect for the entire time period in 2000.

Non interest expense increased $17 or 2.78% when comparing the third quarter
of 2001 to 2000. Most of this increase is a result of an increase in
premises and equipment costs due to the renovation of the main office
facility and increased postage and supply expenses. For the nine months
ended September 30, 2001 non interest expense increased $22 or 1.14%
compared to the same period in 2000. Salaries and benefits decreased $17 or
1.54% as some vacant positions have not yet been filled. Decreases were
also realized in marketing expense.

The federal income tax provision for the third quarter of 2001 was $196, up
$3 for the same period in 2000. Year-to-date the income tax provision has
increased by $32 or 5.93%. This increase reflects a higher taxable income
for 2001. The effective tax rate was 31% and 31% for the three months ended
September 30, 2001 and 2000 and 31% and 30% for the nine months ended
September 30, 2001 and 2000. The effective tax rates are lower than the 34%
statutory rate due to non-taxable income on loans and investments.

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 demand of borrowers.

Sources of liquidity include federal funds sold, investment security
maturities and principal payments. A net average balance of $5,768 in
federal funds sold was maintained during the third quarter of 2001. 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. During the first nine months of 2001,
the Bank used this source of funding to offset security purchases to be used
as collateral for public deposits. Other sources of liquidity include
internally generated cash flow, repayments and maturities of loans,
borrowing and normal deposit growth. The primary source of funds for the
parent company is the upstream of dividends from the Bank. Management
believes these sources of liquidity are sufficient for the Bank and parent
company to continue current business plans.

At September 30, 2001 the securities available for sale were valued at
$14,316. 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.

11



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##### Table of Contents



Item 2.   Managements discussion and analysis of financial condition and results of operations (continued)

Strategies include the use of variable rate loan products in addition to
managing deposit accounts and maturities in the investment portfolio. The
following table, using recommended regulatory standards,
reflects the rate sensitive position or the difference between loans and
investments, and liabilities that mature or reprice within the next year and
beyond. The financial industry has generally referred to this difference as
GAP and its handling as GAP Management. Throughout the third quarter of
2001, the results of the GAP analysis were within the Banks policy
guidelines. At September 30, 2001, the percentage of rate sensitive assets
to rate sensitive liabilities within the one-year time horizon was 44%.

The following table shows the Corporations GAP position as of September 30,
2001. The Corporation has a liability sensitive position of approximately
$41,885 within the one-year time horizon which indicates higher net interest
income may be earned if rates decrease during the period. Due to the
limitations of GAP analysis, modeling is also used to enhance measurement
and control.

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                         |       | $ | 4,243   |        |  | $     | 6,856   |       |         | $ | 3,235   |         |  | $ | 2,884   |       |  | $      | 3,009   |       |       | $ | 20,227  |        |  | $ | 6,493   |        |  | $     | 9,529   |        |  | $ | 50,524 |        |  | $ | 86,773 |        
|Allowance for
loan losses     |       |   |        |        |  |       |        |       |         |   |        |         |  |   |        |       |  |        |        |       |       |   |        |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | (1,047 | )      
|Investments                   |       |   | 2,047   |        |  |       | 2,048   |       |         |   | 692     |         |  |   | 1,639   |       |  |        |        |       |       |   | 6,426   |        |  |   | 8,889   |        |  |       | 512     |        |  |   | 456    |        |  |   | 16,283 |        
|Short-term
Investments        |       |   | 5,643   |        |  |       |        |       |         |   |        |         |  |   |        |       |  |        |        |       |       |   | 5,643   |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | 5,643  |        
|Other non-earning assets      |       |   |        |        |  |       |        |       |         |   |        |         |  |   |        |       |  |        |        |       |       |   |        |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | 9,439  |        
|                              |       |   |         |        |  |       |         |       |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |      
|                              | Total |   | $       | 11,933 |  |       | $       | 8,904 |         |   | $       | 3,927   |  |   | $       | 4,523 |  |        | $       | 3,009 |       |   | $       | 32,296 |  |   | $       | 15,382 |  |       | $       | 10,041 |  |   | $      | 50,980 |  |   | $      | 117,091 | 
|Liabilities                   |       |   |         |        |  |       |         |       |         |   |         |         |  |   |         |       |  |        |         |       |       |   |         |        |  |   |         |        |  |       |         |        |  |   |        |        |  |   |        |        
|Non interest
bearing
deposits |       | $ | 10,515  |        |  | $     |        |       |         | $ |        |         |  | $ |        |       |  | $      |        |       |       | $ | 10,515  |        |  | $ |        |        |  | $     |        |        |  | $ |       |        |  | $ | 10,515 |        
|Interest
bearing
deposits     |       |   | 41,873  |        |  |       | 3,253   |       |         |   | 3,143   |         |  |   | 3,305   |       |  |        | 2,954   |       |       |   | 54,528  |        |  |   | 5,817   |        |  |       | 722     |        |  |   | 50     |        |  |   | 61,117 |        
|Long-term
FHLB
borrowings     |       |   | 2,000   |        |  |       | 5,122   |       |         |   | 16      |         |  |   |        |       |  |        | 2,000   |       |       |   | 9,138   |        |  |   | 11,961  |        |  |       | 8,253   |        |  |   | 894    |        |  |   | 30,246 |        
|Other
liabilities             |       |   |        |        |  |       |        |       |         |   |        |         |  |   |        |       |  |        |        |       |       |   |        |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | 1,570  |        
|Capital                       |       |   |        |        |  |       |        |       |         |   |        |         |  |   |        |       |  |        |        |       |       |   |        |        |  |   |        |        |  |       |        |        |  |   |       |        |  |   | 13,643 |        
|                              | Total |   | $       | 54,388 |  |       | $       | 8,375 |         |   | $       | 3,159   |  |   | $       | 3,305 |  |        | $       | 4,954 |       |   | $       | 74,181 |  |   | $       | 17,778 |  |       | $       | 8,975  |  |   | $      | 944    |  |   | $      | 117,091 | 
|GAP                           |       | $ | (42,455 | )      |  | $     | 529     |       |         | $ | 768     |         |  | $ | 1,218   |       |  | $      | (1,945  | )     |       | $ | (41,885 | )      |  | $ | (2,396  | )      |  | $     | 1,066   |        |  | $ | 50,036 |        |  |   |        |        
|Cumulative
GAP                |       | $ | (42,455 | )      |  | $     | (41,926 | )     |         | $ | (41,158 | )       |  | $ | (39,940 | )     |  | $      | (41,885 | )     |       | $ | (41,885 | )      |  | $ | (44,281 | )      |  | $     | (43,215 | )      |  | $ | 6,821  |        |  |   |        |        
|GAP ratio                     |       |   | 22      | %      |  |       | 106     | %     |         |   | 124     | %       |  |   | 137     | %     |  |        | 61      | %     |       |   | 44      | %      |  |   | 87      | %      |  |       | 112     | %      |  |   | 5,400  | %      |  |   |        |        



| |  |  | Capital Resources                                                                                                                                                                                                                                                                                                 
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Corporation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 $658,000 or
5.18% to

12



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##### Table of Contents





| |  | Item 2. Managements discussion and analysis of financial condition and results of operations (continued)                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | $13,364,000 for the first nine months of 2001. This represents 11.41%
of total assets. At September 30, 2000, the similar ratio of shareholders
equity to total assets was 11.29%. Dividends declared per common share
increased by 12.90% to $1.05 per share in 2001 compared to $.93 in 2000.                                                                                                                                                                                                                      
|
| |  | 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 September 30, 2001, the Bank has a
risk-based total capital to asset ratio of 19.70%. The ratio exceeds the
requirements established by regulatory agencies as shown below.

(Dollars in thousands)   September 30,
2001

|                                         |  |        |        |  |                   |  |       |                    |  |                  |       |  |                   |        |      |   |       |   |       |  |  |  |       |  
|---------------------------------------- |  | ------ | ------ |  | ----------------- |  | ----- | ------------------ |  | ---------------- | ----- |  | ----------------- | ------ | ---- | - | ----- | - | ----- |  |  |  | ----- | -
|                                         |  |        |        |  |                   |  |       |                    |  | Minimum Required |       |  | Under             |       
|                                         |  |        |        |  |                   |  |       |                    |  | For Capital      |       |  | Prompt Corrective |       
|                                         |  | Actual |        |  | Adequacy Purposes |  |       | Action Regulations | 
|                                         |  |        |        |  |                   |  |       |                    | 
|                                         |  | Amount |        |  | Ratio             |  |       | Amount             |  |                  | Ratio |  |                   | Amount |      |   | Ratio |  
|                                         |  |        |        |  |                   |  |       |                    |  |                  |       |  |                   |        |      |   |       |  
|Total Capital (to risk
weighted assets)  |  | $      | 14,211 |  |                   |  | 19.70 | %                  |  | $                | 5,770 |  |                   |        | 8.00 | % |       | $ | 7,213 |  |  |  | 10.00 | %
|Tier 1 capital (to risk
weighted assets) |  |        | 13,308 |  |                   |  | 18.45 |                    |  |                  | 2,885 |  |                   |        | 4.00 |   |       |   | 4,328 |  |  |  | 6.00  |  
|Tier 1 capital (to
average assets)       |  |        | 13,308 |  |                   |  | 11.59 |                    |  |                  | 4,591 |  |                   |        | 4.00 |   |       |   | 5,739 |  |  |  | 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 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Impact of New Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | In June 2001, the Financial Accounting Standards Board FASB issued
Statement of Financial Accounting Standards SFAS No. 141, Business
Combinations. SFAS No. 141 requires all business combinations within its
scope to be accounted for using the purchase method, rather than the
pooling-of-interests method. The provisions of the Statement apply to all
business combinations initiated after June 30, 2001. The adoption of this
statement will only have an impact on our financial statements if we enter
into a business combination.                                                                                                                                                                                                                                                                               
|
| |  | Also in June 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets, which addresses the accounting for such assets arising
from prior and future business combinations. Upon the adoption of this
statement, goodwill arising from business combinations will no longer be
amortized, but rather will be assessed regularly for impairment, with any
such impairment recognized as a reduction to earnings in the period
identified. Other identified intangible assets, such as core deposit
intangible assets, will continue to be amortized over their estimated useful
lives. We are required to adopt this statement on January 1, 2002, and
early adoption is not permitted. The adoption of this statement will not
have an impact on our financial statements, as we do not have any intangible
assets.




Item 3. Quantitative and Qualitative Disclosures about Market Risk



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

13



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##### Table of Contents
























Part II  Other Information



| |  | Item 1. Legal proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Corporation is not involved in any material pending legal proceedings to
which the Registrant or its subsidiaries is a party or which any of its
property is subject, except for proceedings which arise in the ordinary
course of business. In the opinion of management, pending legal proceedings
will not have a material effect on the consolidated financial statements of
the Registrant or its subsidiaries as of and for the period ended September
30, 2001.
|
| |  | Item 2. Changes in securities and use of proceeds                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | During the nine months ended September 30, 2001, there werent any changes
in the Registrants securities, relevant to the requirements of this
section, that would cause any shareholders rights to be materially
modified, limited or qualified.                                                                                                                                                                                                                       
|
| |  | Item 3. Defaults upon senior securities                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | No defaults have occurred involving senior securities on the part of the
Registrant.                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Item 4. Submission of matters to a vote of security holders                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The annual meeting of security holders of the Company was held April 26,
2001. Information concerning the matters brought to a vote of security
holders is contained in the Companys Proxy Statement and Notice of Annual
Meeting of Shareholders held April 26, 2001, as previously filed. There
have been no further matters submitted to a vote of the Registrants
security holders during the nine months ended September 30, 2001.                                 
|
| |  | 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
16.                                               
|
| | 2. |  | Reports on Form 8-K                                                             
|
| |    |  | No reports on Form 8-K were filed for the three months ended September 30, 2001.

14



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##### 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: |  | November 6, 2001 |  | By:                      |  | /s/ Timothy GaylordTimothy Gaylord
President
|     
|Date: |  | November 6, 2001 |  | By:                      |  | /s/ Lois A. TothLois A. Toth
Treasurer      

15



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##### 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                                                                                                                                           

16