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

                                    Form 10-Q

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

For the quarter ended  September 30, 1998    Commission file number   33-20417
                      ---------------------                         ------------
                            Capital Directions, Inc.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)
                                                                              
        Michigan                                    38-2781737                
--------------------------------      --------------------------------------- 
(State of other jurisdiction of       (I.R.S. Employer Identification Number) 
incorporation or organization)

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

Registrant's telephone number, including area code:        (517) 676-0500
                                                           --------------
                                        None
                 ----------------------------------------------------
                  Former name, former address and former fiscal year,
                             if changed since last report

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

As of October 27, 1998 the registrant had outstanding 595,056 shares of common
stock having a par value of $5 per share.

<PAGE>   2

                            CAPITAL DIRECTIONS, INC.
                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                        Page
                                                                                       Number
                                                                                       ------
PART I - FINANCIAL INFORMATION
<S>                                                                                      <C>
  Item 1.   Consolidated Balance Sheets
            September 30, 1998 and December 31, 1997......................................1

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

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

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

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

  Item 2.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations........................................7-12

PART II - OTHER INFORMATION

  Item 1.   Legal Proceedings............................................................13
  Item 2    Changes in Securities........................................................13
  Item 3.   Defaults Upon Senior Securities..............................................13
  Item 4.   Submission of Matters to a Vote of Security Holders .........................13
  Item 5.   Other Information ...........................................................13
  Item 6.   Exhibits and Reports on Form 8-K ............................................13
  Item 7.   Signatures ..................................................................14
            Index to Exhibits ...........................................................15

</TABLE>

<PAGE>   3

                            CAPITAL DIRECTIONS, INC.       
                           CONSOLIDATED BALANCE SHEET      
                                                           
<TABLE>                                                    
<CAPTION>                                                  
                                                                                                          
-------------------------------------------------------------------------------------------------------   
(In thousands)                                                     September 30,           December 31,   
                                                                       1998                    1997       
                                                                       ----                    ----       
                                                                    (Unaudited)                           
                                                                    -----------                           
ASSETS                                                                                                    
<S>                                                                 <C>                    <C>            
  Cash and non interest bearing deposits                                $3,423                 $ 2,188    
  Interest bearing deposits                                                 29                       0    
  Federal funds sold                                                     2,400                       0    
                                                                       -------                 -------    
          Total cash and cash equivalents                                5,852                   2,188    
  Securities available for sale                                          6,404                   6,271    
  Securities held to maturity (fair value of $7,015 as of                                                 
    Sept. 30, 1998 and $7,705 as of December 31, 1997)                                                    
      U.S. Government and agencies                                       1,996                   2,944    
      State and municipal                                                4,829                   4,539    
  Federal Home Loan Bank (FHLB) stock                                      747                     364    
                                                                       -------                 -------    
          Total securities                                              13,976                  14,118    
  Loans:                                                                                                  
    Commercial and agricultural                                          5,030                   4,241    
    Installment                                                          3,292                   3,601    
    Real estate mortgages                                               65,754                  53,492    
    Loans held for sale                                                      0                       0    
                                                                       -------                 -------    
          Total loans                                                   74,076                  61,334    
    Allowance for loan losses                                          (1,006)                 (1,035)    
                                                                       -------                 -------    
          Net loans                                                     73,070                  60,299    
  Premises and equipment, net                                              662                     618    
  Accrued income and other assets                                        3,049                   2,734    
                                                                       -------                 -------    
          Total assets                                                 $96,609                 $79,957    
                                                                       =======                 =======    
                                                                                                          
LIABILITIES AND SHAREHOLDERS' EQUITY                                                                      
  Liabilities                                                                                             
    Deposits:                                                                                             
      Non interest bearing                                              $9,467                  $8,322    
      Interest bearing                                                  59,918                  56,099    
                                                                       -------                 -------    
          Total deposits                                                69,385                  64,421    
    Federal funds purchased                                                  0                     450    
    Long-term FHLB borrowings                                           14,934                   3,670    
    Other liabilities                                                    1,483                   1,200    
                                                                       -------                 -------    
          Total liabilities                                             85,802                  69,741    
  Shareholders' equity                                                                                    
    Common stock:  $5 par value, 1,300,000 shares                                                         
    authorized; 595,056 shares outstanding                               2,975                   2,975    
    Additional paid in capital                                           2,561                   2,561    
    Retained earnings                                                    5,207                   4,652    
    Net unrealized gains/(losses) on securities available                                                 
    for sale, net of tax of $33 as of Sept. 30, 1998 and                                                  
    $14 as of December 31, 1997                                             64                      28    
                                                                       -------                 -------    
          Total shareholders' equity                                    10,807                  10,216    
                                                                       -------                 -------    
          Total liabilities and shareholders' equity                   $96,609                 $79,957    
                                                                       =======                 =======    
                                                                                               
</TABLE>                                                       
                                                               
                                                               
See accompanying notes to consolidated financial statements.   
                                                               
                                                               
                                       1                       

<PAGE>   4
                                                                              
                  CONSOLIDATED STATEMENT OF INCOME (Unaudited)


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                            Three Months Ended           Nine Months Ended
(In thousands, except per share data)                            Sept. 30,                     Sept. 30,
                                                           1998           1997           1998          1997
                                                           ----           ----           ----          ----
INTEREST AND DIVIDEND INCOME
<S>                                                      <C>            <C>             <C>           <C>      
  Interest and fees on loans                             $  1,497       $  1,300        $  4,265      $   3,620
  Federal funds sold                                           52             24             109             59
  Securities:  Taxable - available for sale                   113            144             339            442
               Taxable - held to maturity                      35             77             143            221
               Tax exempt - held to maturity                   53             58             155            179
  Dividends on FHLB stock                                      12              7              29             21
  Other interest income                                         1              -               7              2
                                                         --------       --------        --------      ---------
          Total interest and dividend income                1,763          1,610           5,047          4,544
INTEREST EXPENSE
  Deposits                                                    635            617           1,870          1,759
  Federal funds purchased                                       -              1               1             10
  Long-term FHLB borrowings                                   186             62             425            144
                                                         --------       --------        --------      ---------
          Total interest expense                              821            680           2,296          1,913
                                                         --------       --------        --------      ---------
NET INTEREST INCOME                                           942            930           2,751          2,631
                                                         --------       --------        --------      ---------
Provision for loan losses                                      (5)             -             (22)             -
                                                         --------       --------        --------      ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES           947            930           2,773          2,631
NON INTEREST INCOME
  Service charges on deposits                                  56             65             196            193
  Net gain (loss) on sale of securities                         -            (18)            (18)           (13)
  Net gain on sales of loans                                    4              -               3              7
  Other income                                                 80             41             243            190
                                                         --------       --------        --------      ---------
          Total non interest income                           140             88             424            377
NON INTEREST EXPENSE
  Salaries and employee benefits                              345            337           1,069          1,021
  Premises and equipment                                       78             82             233            248
  Other operating expense                                     183            152             537            468
                                                         --------       --------        --------      ---------
          Total non interest expense                          606            571           1,839          1,737

INCOME BEFORE INCOME TAX EXPENSE                              481            447           1,358          1,271
INCOME TAX EXPENSE                                            142            129             396            361
                                                         --------       --------        --------      ---------

NET INCOME                                               $    339       $    318        $    962      $     910
                                                         ========       ========        ========      =========

AVERAGE COMMON SHARES OUTSTANDING                         595,056        594,856         595,056        594,886
BASIC EARNINGS PER COMMON SHARE                              0.57           0.53            1.62           1.53
DILUTED EARNINGS PER COMMON SHARE                            0.57           0.53            1.61           1.53
DIVIDENDS PER SHARE OF COMMON STOCK, DECLARED                0.27           0.18            0.69           0.51

</TABLE>


See accompanying notes to consolidated financial statements.





                                       2



<PAGE>   5

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


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                                          Nine Months Ended
(In thousands)                                                               September 30,
                                                                         1998             1997
                                                                         ----             ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                               <C>               <C>         
  Net income                                                      $        962      $        910
  Adjustments to reconcile net income to net cash
    from operating activities
      Depreciation                                                          83                77
      Provision for loan losses                                            (22)                -
      Net amortization (accretion) on securities                            57                44
      Loans originated for sale                                         (1,051)                -
      Proceeds from loans originated for sale                            1,053                 -
      Net gain on sale of loans originated for sale                         (2)                -
      Net gain (loss) on sales of loans                                     (1)               (7)
      Net gain (loss) on sales of securities                                18                13
      Changes in assets and liabilities:
        Accrued interest receivable                                        (71)             (127)
        Accrued interest payable                                            46                19
        Other assets                                                      (244)             (157)
        Other liabilities                                                  237               194
                                                                  ------------      ------------
                                                                         1,065               966
CASH FLOWS FROM INVESTING ACTIVITIES 
  Securities available for sale:
    Purchases                                                           (6,820)           (1,467)
    Maturities and principal payments                                    4,070             1,960
    Call payments                                                        2,250               500
  Securities held to maturity:
    Purchases                                                           (1,246)             (180)
    Maturities and principal payments                                    1,888             1,043
  Proceeds from sale of non-residential loans                               68               182
  Net change in loans                                                  (12,816)           (5,901)
  Premises and equipment expenditures                                     (127)             (163)
                                                                  ------------      ------------
          Net cash from investing activities                           (12,733)           (4,026)
CASH FLOWS FROM FINANCING ACTIVITIES
  Net change in deposits                                                 4,964            (1,215)
  Federal funds purchased                                                 (450)                -
  Proceeds from long-term FHLB borrowings                               11,264             2,000
  Repayment of long-term FHLB borrowings                                   (86)              (85)
  Proceeds from shares issued upon exercise of stock options                                   3
  Dividends paid                                                          (360)             (300)
                                                                  ------------      ------------
          Net cash from financing activities                            15,332               403
                                                                  ------------      ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                  3,664            (2,657)
Cash and cash equivalents at beginning of year                           2,188             5,477
                                                                  ------------      ------------
CASH AND CASH EQUIVALENTS AT JUNE 30                              $      5,852      $      2,820
                                                                  ============      ============
Supplemental disclosure of cash flow information
  Cash paid during the year for:
    Interest                                                      $      2,243      $      1,894
    Income taxes - federal                                        $        412      $        380

</TABLE>


See accompanying notes to consolidated financial statements.



                                       3
<PAGE>   6

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
             For the nine months ended September 30, 1998 and 1997

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                                  Accumulated
                                                                                    Other
(In thousands)                             Common      Paid in      Retained     Comprehensive
                                            Stock      Capital      Earnings        Income          Total
                                          --------     -------      --------     -------------   -----------
                                                                                                 
<S>                                       <C>          <C>          <C>          <C>             <C>        
Balance, January 1, 1997                  $  1,487     $ 2,559      $  5,319     $          32   $     9,397
Net income                                                               910                             910
Unrealized gain (loss) on securities                                                         7             7
                                                                                                 -----------
Comprehensive income                                                                                     917
Exercise of stock options                        1           2                                             3
Cash dividends ($ .505 per share)                                       (301)                           (301)
                                          --------     -------      --------     -------------   ----------- 
 
Balance, September 30, 1997               $  1,488     $ 2,561      $  5,928     $          39   $    10,016
                                          ========     =======      ========     =============   ===========


Balance, January 1, 1998                  $  2,975     $ 2,561      $  4,652     $          28   $    10,216
Net income                                                               962                             962
Unrealized gain (loss) on securities                                                        36            36
                                                                                                 -----------
Comprehensive income                                                                                     998
Cash dividends ($ .685 per share)                                       (407)                           (407)
                                          --------     -------      --------     -------------   ----------- 

Balance, September 30, 1998               $  2,975     $ 2,561      $  5,207     $          64   $    10,807
                                          ========     =======      ========     =============   ===========

</TABLE>


See accompanying notes to consolidated financial statements.



                                       4
<PAGE>   7
                                                                               
                                                                               
                            CAPITAL DIRECTIONS, INC.                           
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS              
                                   (Unaudited)                                 
                                                                               
1.   In the opinion of management of the Registrant, the accompanying          
     Consolidated Financial Statements contain all adjustments (consisting only
     of normal recurring items) necessary to present fairly the consolidated   
     financial position of the Registrant as of September 30, 1998 and December
     31, 1997, the results of operations and cash flows for the nine month     
     periods ended September 30, 1998 and 1997, and the change in shareholders'
     equity for the nine month periods ended September 30, 1998 and 1997.      
                                                                               
2.   The results of operations for the nine months ended September 30, 1998 are
     not necessarily indicative of the results to be expected for the full year
                                                                               
3.   The accompanying unaudited Consolidated Financial Statements and the notes
     thereto should be read in conjunction with the Notes to Consolidated      
     Financial Statements and the notes included therein, for the fiscal year  
     end, 1997, included in the Registrant's 1997 Annual Report.               
                                                                               
4.   Management determines the adequacy of the allowance for loan losses based
     on an evaluation of the loan portfolio, recent loss experience, current
     economic conditions and other pertinent factors. Non-performing loans are
     defined as all loans which are accounted for as non-accrual; loans 90 days
     or more past due and still accruing interest; or loans which have been
     renegotiated due to the borrowers' inability to comply with the original
     terms. As of September 30, 1998, non-performing loans totaled $388,000 or
     .52% of total loans. This represents an increase of $11,000 from the
     $209,000 balance at December 31, 1997.                                     
                                                                               
<TABLE>                                                                        
<CAPTION>                                                                      
                                                  Sept. 30,        December 31,
               Non-performing loans                  1998              1997    
               -----------------------------      ---------        ------------
               <S>                                <C>                <C>       
               Non-accrual                        $  45,000          $ 48,000  
               90 days or more past due             343,000           161,000  
               Renegotiated                             ---               ---  
                                                  ---------          --------  
                                                  $ 388,000          $209,000  
                                                  =========          ========  
</TABLE>  

     A loan is considered impaired when full collection of principal and       
     interest is not expected. There were no impaired loans in the portfolio at
     September 30, 1998 or December 31, 1997.                                  
                                                                               
                                                                               
                                                                               
                                                                               
                                        5                                      
                                                                               
                                                                               
                                                                               
                                                                               
<PAGE>   8



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

<TABLE>
<CAPTION>

     (In thousands)                                1998        1997  
                                                   ----        ----
<S>                                              <C>         <C>
     Balance - beginning of period               $1,035      $1,020
     Provision charged to operating period          (22)          0
     Loans charged-off                              (29)         (1)
     Recoveries                                      22          13 
                                                 ------      ------  
      Balance, end of period                     $1,006      $1,032 
                                                 ======      ======
</TABLE>
                                                         
6.   The provision for income taxes represents federal income tax expense
     calculated using annualized rates on taxable income generated during the
     respective periods.




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

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

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

     FINANCIAL CONDITION

     Total assets at September 30, 1998 increased from December 31, 1997 by
     20.83% or $16,652. This increase resulted primarily from strong growth in
     mortgage lending. This growth was funded largely by an increase in Federal
     Home Loan Bank borrowings.

     The allowance for loan losses remains strong . At September 30, 1998 the
     allowance was equal to 1.39% of average total loans outstanding, down from
     1.69% at December 31, 1997.

     RESULTS OF OPERATIONS

     Net income for the three months ended September 30, 1998 totaled $339,000
     compared to $318,000 in 1997. Basic earnings per share for the third
     quarter of 1998 were $.57 compared to $.53 for the same period in 1997.
     Diluted earnings per share were $.57 for 1998 compared to $.53 in 1997. Net
     income for the nine months ended September 30, 1998 totaled $962,000
     compared to $910,0000 for 1997. Basic earnings per share were $1.62
     compared to $1.53 for the same period in 1997. Diluted earnings per share
     were $1.61 for 1998 compared to $1.53 in 1997.




                                        6


<PAGE>   9

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

     Net interest income for the first nine months of 1998 increased 4.6% or
     $120,000 compared to the same period in 1997. The increase is primarily a
     result of strong growth in the real estate mortgage loan portfolio as well
     as a decline in the interest rate paid on deposits. Loans grew by
     $12,742,000 or 20.8% during the first three-quarters of 1998 compared to an
     increase of $5,750,000 or 11.1% for the same period in 1997. Total deposits
     increased 7.7% or $4,964,000. This growth was divided between interest
     bearing and non interest bearing deposits. Non interest bearing deposits
     increased $1,145,000 while interest bearing deposits increased $3,819,000.

     Net interest margin for the first nine months of 1998 was 4.53% compared to
     4.97% for the same period in 1997. Lower rates, particularly in the
     mortgage lending area contributed to the decline in margin.

     An increase of $47,000 in non interest income for the first nine months of
     1998, compared to the same period in 1997, is due primarily to investment
     center earnings of $29,000 over prior year levels as well as increased fee
     income from ATM surcharges which was $25,000 over 1997. These items were
     partially offset by $5,000 in losses on securities.

     Non interest expense for the first nine months of 1998 increased $102,000
     compared to the same period in 1997. This is due primarily to increased
     salary and benefit expenses as well as increased data processing costs.

     The provision for loan losses was reduced $22,000 for the first nine months
     of 1998. This reduction corresponded directly to the recoveries booked thus
     far in 1998 and is in response to the previous five consecutive years of
     net recoveries. The 1997 provision for the same period was $0.

     The federal income tax provision for the first six months of 1998 was
     $396,000, up from $361,000 for the same period in 1997. This increase
     reflects a higher taxable income for 1998.

     LIQUIDITY AND INTEREST RATE SENSITIVITY

     The primary objective of asset/liability management is to assure the
     maintenance of adequate liquidity and maximize net interest income by
     maintaining appropriate maturities and balances between interest sensitive
     earning assets and interest bearing liabilities. Liquidity management
     insures sufficient funds are maintained to meet the cash withdrawal
     requirements of depositors and the credit demand of borrowers. Sources of
     liquidity include federal funds sold, investment security maturities and
     principal payments. A net average balance of $2,663,000 in federal funds
     sold was maintained during the first nine months of 1998. As a member of
     the Federal Home Loan Bank system, the Bank has access to an alternate
     funding source, lower cost for credit services, and an additional tool to
     manage interest rate risk. Throughout the first nine months of 1998, the
     Bank used this source of funding to offset new mortgage loan demand. Other
     sources of liquidity include internally generated cash flow, repayments and
     maturities of loans, borrowing and normal deposit growth. The primary
     source of funds for the parent company is the upstream of dividends from
     the Bank. Management believes these sources of liquidity are sufficient for
     the Bank and parent company to continue current business plans.

     At September 30, 1998 the securities available for sale were valued at
     $7,151,000. It is not anticipated that management will use these funds due
     to the optional sources available. Interest rate sensitivity management
     seeks to maximize net interest margins through periods of changing interest
     rates. The Bank develops strategies to assure desired levels of interest
     sensitive assets and interest bearing liabilities mature or reprice within
     selected time frames. 


                                       7

<PAGE>   10


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

     Strategies include the use of variable rate loan products in addition to
     managing deposit accounts and maturities in the investment portfolio. The
     following table, using recommended regulatory standards, reflects the "rate
     sensitive position" or the difference between loans and investments, and
     liabilities that mature or reprice within the next year and beyond. The
     financial industry has generally referred to this difference as "GAP" and
     its handing as "GAP Management". At September 30, 1998, the percentage of
     rate sensitive assets to rate sensitive liabilities within the one-year
     time horizon was 96.58%.

     The table shows the Bank's GAP position as of September 30, 1998. The Bank
     has a liability sensitive position of $1,343 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. Management is continually reviewing its interest
     rate risk position and modifying its strategies based on projections to
     minimize the impact of future interest rate declines.





                                        8
<PAGE>   11

GAP Measurement
(Dollars in thousands)


<TABLE>
<CAPTION>

                                                                                                                  Over    
                                     0-30    31-90    Second      Third   Fourth   Annual    1 - 3     3 - 5      Five
         ASSETS                      Days     Days   Quarter    Quarter  Quarter   Total     Years     Years      Years     Total
------------------------------       ----     ----   -------    -------  -------   -----     -----     -----      -----     -----

<S>                              <C>        <C>      <C>       <C>       <C>     <C>        <C>      <C>        <C>        <C>
Loans*                           $  11,640  $ 3,737  $ 4,429   $ 5,314   $4,350  $  29,470  $11,216  $  13,582  $  25,947  $ 80,215
Loan repayment offset                    -        -        -         -        -          -        -          -          -    (6,148)
Allowance for loan losses                -        -        -         -        -          -        -          -          -    (1,006)
Federal funds sold                   2,400        -        -         -        -      2,400        -          -          -     2,400
Investments**                        2,314      480      225     2,197      883      6,099    3,992      1,331      3,349    14,771
Mortgage-backed repayments               -        -        -         -        -          -        -          -          -      (800)
Other non-earning assets                 -        -        -         -        -          -        -          -          -     7,003
                                 --------------------------------------------------------------------------------------------------

  Total                          $  16,354  $ 4,217  $ 4,654   $ 7,511   $5,233  $  37,969  $15,208  $  14,913  $  29,296  $ 96,435

         LIABILITIES
------------------------------
                                                                                                                
Non interest bearing deposits          356      703    1,156     1,059    1,059      4,333    2,408      2,408        481     9,630
Interest bearing deposits           10,117    6,193    7,168     5,939    4,833     34,250   13,034      6,734      5,793    59,811
Federal funds purchased                  -        -        -         -        -          -        -          -          -         -
Long-term FHLB borrowings                -      141       88       500        -        729    3,922     10,033        250    14,934
Other liabilities                        -        -        -         -        -          -        -          -          -     1,322
Capital                                  -        -        -         -        -          -        -          -          -    10,738
                                 --------------------------------------------------------------------------------------------------

  Total                          $  10,473  $ 7,037  $ 8,412   $ 7,498   $5,892  $  39,312  $19,364  $  19,175  $   6,524  $ 96,435

GAP                              $   5,881  $(2,820) $(3,758)  $    13   $ (659) $  (1,343) $(4,156) $  (4,262) $  22,772  $      -

Cumulative GAP                       5,881    3,061     (697)     (684)  (1,343)    (1,343)  (5,499)    (9,761)    13,011         -

GAP Ratio                          156.15%   59.93%   55.33%   100.17%   88.82%     96.58%   78.54%     77.77%    449.05%         -

</TABLE>



 *Incorporates prepayment projections for certain assets which may shorten the
  time frame for repricing or maturity compared to contractual runoff.

**Maturities reflect probable prepayments and calls.

CAPITAL RESOURCES

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

Shareholders' equity increased $591,000 or 5.79% to $10,807,000 at September 30,
1998. This represents 11.19% of total assets. At September 30, 1997, the similar
ratio of shareholders' equity to total assets was 12.78%. The Corporation has a
strong capital position that will continue to meet our needs throughout 1998.


                                        9

<PAGE>   12

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

     Regulators established "risk-based" capital guidelines that became
     effective December 31, 1990. Under the guidelines, minimum capital levels
     are established for risk-based and total assets based on perceived risk in
     asset categories and certain off-balance-sheet items, such as loan
     commitments and standby letters of credit. On September 30, 1998, the Bank
     had a "risk-based" total capital to asset ratio of 17.96%. The ratio
     exceeds the requirements established by regulatory agencies as shown below.

<TABLE>
<CAPTION>

             CAPITAL                           Sept. 30, 1998      
             (dollars in thousands)        Risk-based  Leverage    
             <S>                           <C>         <C>
             Actual amount                 $  11,475   $  10,674   
             Actual percent                    17.96%      11.45%   
             Required amount               $   5,112   $   3,730   
             Required percent                   8.00%       4.00%   
             Excess amount                 $   6,363   $   6,944   
</TABLE>

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

     FEDERAL INCOME TAXES

     The provision for federal income taxes for the nine month periods ending
     September 30, 1998 and 1997 totaled $396,000 and $361,000 respectively. The
     increase in taxes is reflective of the increase in taxable income for the
     above mentioned time periods.

     OTHER MATTERS

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

     DISCLOSURE OF YEAR 2000 ISSUES AND CONSEQUENCES

     The approach of the Year 2000 presents potential problems to businesses
     that utilize computer systems in their daily operations. Some computer
     systems may not be able to properly interpret dates after December 31,
     1999, as they may use only two digits to indicate the year. Thus, a date
     using "00" as the year may be recognized as the year 1900 rather than the
     year 2000.

     Addressing the potential problem related to the year 2000 has been a top
     priority at Capital Directions, Inc. since 1997. At that time, a Year 2000
     Plan was developed and a committee, consisting of officers and employees
     was formed which meets on a regular basis and provides regular reports to
     the Board of Directors on the status of the plans implementation.


                                       10
<PAGE>   13


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

     As outlined in the Plan scope of the Year 2000 project includes ensuring
     the compliance of all operating systems and hardware on all platforms in
     the areas of both information and non-information technology. The phases of
     this project include the assessment phase where we identify all software
     and hardware systems we anticipate running as of the Year 2000; the
     renovation phase where all systems affected by the Year 2000 issue are
     changed either through code enhancement, upgrades or replacements; the
     validation phases where all changes made in the renovation phase and
     systems certified as Year 2000 compliant are tested to ensure compliance;
     and finally, the implementation phase where we continue to monitor the
     progress of certified systems through business use.

     Capital Directions expects to spend $35,000 associated with the Year 2000;
     20% of this amount is attributed to software and hardware upgrades, and 80%
     attributed to salaries. To date, 80% of the update costs have been
     expensed. The corporation's earnings have been adequate to handle Year 2000
     expenditures with no delay to other capital expenditures. It is difficult
     to predict exact expenses associated with the Year 200 issue and additional
     funds may be needed for unknown expenses that may occur.

     We have successfully concluded the assessment phase of the project and
     fully expect the renovation of all systems to be complete by the first
     quarter of 1999. The validation of systems began in June of this year and
     is targeted for completion by June 1999. Our overall target for all phases
     of this project is no later than the third quarter of 1999; however, we
     expect to have 75% of our mission critical systems compliant by the end of
     1998.

     The core processing system software is key to the continued operations of
     Capital Directions, Inc. The third-party provider of this system was
     certified as compliant at the time we entered into an agreement with them.
     While this system is certified as compliant, we have continued to perform
     numerous validation tests utilizing test dates in the Year 2000, including
     leap year. All testing will be complete by April 1999. The mainframe
     operating system software Year 2000 upgrade is expected to be installed
     prior to year-end 1998. Testing will be complete by the first quarter of
     1999. We consider our PC-based loan document processing software to be key
     to loan processing. We plan to purchase the Year 2000 upgrade for this
     software prior to year-end 1998; testing to be completed by the first
     quarter 1999.

     PC and network inventories were completed in July of this year. Testing of
     both hardware and software was completed at that time. Non-compliant PCs
     were either upgraded or replaced and have been retested. Word processing
     and spreadsheet software found to be non-compliant will be brought into
     compliance once that patch is made available. We expect this to be prior to
     year-end 1998. The network was upgraded to a certified Year 2000 compliant
     version recently and testing will begin prior to year-end. We fully expect
     compliance of all PC-based hardware and software by first quarter of 1999.

     Included in the assessment phase of all operating systems was the
     inventorying of all environmental, non-information technology systems -
     those systems with embedded chips. The third-party vendors to those systems
     have all been contacted and to date, no Year 2000 concerns have arisen.

     In conjunction with the implementation of the Plan noted above, all
     information and non-information systems (hardware, software and
     environmental) vendors have been assigned risk factors based on the current
     validation status of their service or product, their responsiveness to Year
     2000 issues, company history and financial strength. All vendors in this
     analysis have been found to be "on target" with their plans and at the
     present time we have no known material concerns to report.


                                       11

<PAGE>   14

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

All customers that have a borrowing or deposit relationship in excess of
$250,000 have also been interviewed and an evaluation of their Year 2000
preparedness has been completed. Most material customers are progressing
satisfactory with their Year 2000 plans. The corporation does not expect to
experience credit deterioration due to the Year 2000 issue. The corporation may
face a liquidity risk if the public perceives liquidity risk involved with the
Year 2000 and withdraws funds from the banking system. The Corporation has
established lines of credit to handle this uncertainty.

Despite careful planning, we recognize there may be circumstances beyond our
control that may prohibit us from operating "as usual" after December 31, 1999.
As such, for each mission critical system with the corporation we have developed
contingency plans. These contingency plans will provide us with direction should
any of these systems fail after the Year 2000. Contingency plans will continue
to be revised as testing of each system is completed and implementation takes
place.



                                       12
<PAGE>   15

                                    PART II.

ITEM 1. LEGAL PROCEEDINGS

The Corporation is not involved in any material pending legal proceedings to
which the Registrant or its subsidiaries, is a party or which any of its
property is subject, except for proceedings which arise in the ordinary course
of business. In the opinion of management, pending legal proceedings will not
have a material effect on the consolidated financial statements of the
Registrant or its subsidiaries as of and for the period ended September 30,
1998.

ITEM 2. CHANGES IN SECURITIES

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

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

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

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

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




                                       13

<PAGE>   16
                                   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 9, 1998                 By:   /s/   Timothy Gaylord   
         ----------------                 ------------------------------
                                                Timothy Gaylord
                                                President

  Date:  November 9, 1998                 By:   /s/   Lois A. Toth              
         ----------------                 ------------------------------
                                                Lois A. Toth
                                                Treasurer



                                       14
<PAGE>   17


                                INDEX TO EXHIBITS

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

     2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
       Succession - Consolidation Agreement included in Amendment No. 1 to
       Form S-4 Registration Statement No. 33-20417                             
                                                                                
     4 Instruments Defining the Rights of Security Holders, Including 
       Debentures - Not applicable              
                                                                                
    11 Statement Regarding Computation of Per Share Earnings - Not applicable   
                                                                                
    15 Letter Regarding Unaudited Interim Financial Information - Not applicable
                                                                                
    18 Letter Regarding Change in Accounting Principals - Not applicable        
                                                                                
    19 Previous Unfiled Documents - Not applicable                              
                                                                                
    20 Report Furnished to Security Holders - Not applicable                    
                                                                                
    23 Published Report Regarding Matters Submitted to Vote of Security 
       Holders - Not applicable                 
                                                                                
    24 Consents of Experts and Counsel - Not applicable                         
                                                                                
    25 Power of Attorney - Not applicable                                       
                                                                                
    27 Financial Data Schedule (filed herewith)                                 
                                                                                
    28 Additional Exhibits - Not applicable                                     
                                                                                
    




                                       15