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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

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

For the quarter ended           June 30, 2002             Commission file number             33-20417             

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

As of July 24, 2002 the registrant had outstanding 589,308 shares of common stock having a par value of $5 per share.

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CAPITAL DIRECTIONS, INC.
INDEX TO FORM 10-Q

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PART I – FINANCIAL INFORMATION

CAPITAL DIRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS

     See accompanying notes to consolidated financial statements.

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

(In thousands, except share and per share data)

     See accompanying notes to consolidated financial statements.

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

(In thousands)

     See accompanying notes to consolidated financial statements.

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CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
For the three and six months ended June 30, 2002 and 2001

(In thousands)

     See accompanying notes to consolidated financial statements.

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

1.		In the opinion of management of the Registrant, the accompanying Consolidated Financial Statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the consolidated financial position of the Registrant as of June 30, 2002 and December 31, 2001, and results of operations for the three and six month periods ended June 30, 2002 and 2001, and the cash flows for the six month periods ended June 30, 2002 and 2001.
2.		The results of operations for the six months ended June 30, 2002 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 2001, included in the Registrant’s 2001 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 June 30, 2002, non-performing loans totaled $130,000 or .13% of total loans. This represents a decrease of $173,000 from the $303,000 balance at December 31, 2001.

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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.

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Note 5. Earnings per share

5.

A reconciliation of basic and diluted earnings per share for the three-month and six-month periods; ending June 30 follows:

     (Dollars in thousands, except per share amounts)

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.

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Note 6. Stock Option Plan (continued)

A summary of activity in the plan is as follows:

For the options outstanding June 30, 2002, the range of exercise prices was $12.75 to $41.50 per share with a weighted average remaining contractual term of 5.25 years. At June 30, 2002, 14,028 were exercisable at a weighted average price of $27.85 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)

The pro forma effects are computed with option pricing models. For the options granted during the six months ended June 30, 2002 the following weighted average assumptions as of the grant date were used.

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. Mason State Mortgage Company, LLC will be formed July 16, 2002. This will be facilitated by a 99% ownership provided by Mason State Bank and 1% ownership provided by Capital Directions, Inc. 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.

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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 $119,557 at June 30, 2002. The 1.94% increase of $2,280 from $117,277 at December 31, 2001 resulted primarily from a decrease of $4,293 in Federal funds sold and a $919 decrease in investment securities which were used to fund an increase of $7,963 in total loans.

Cash and cash equivalents have decreased $4,882 or 70.01% in the six month period from December 31, 2001 to June 30, 2002. This is a result of the reduction of excess Federal funds sold that were used to fund loan growth.

Total outstanding loans have increased $7,963 during the first six months of 2002. This is an increase of 8.58% from December 31, 2001. This increase has been concentrated in the residential real estate mortgage portfolio, while commercial and installment loans have decreased slightly. Currently, no 1-4 family residential loans reside in the held-for-sale category and as of June 30, 2002, as all loans were sold that had been committed for sale. During the first and second quarter of 2002, 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 increased $1 or .10% during the six-month period ending June 30, 2002. At June 30, 2002 the allowance as a percent of outstanding loans was 1.04% compared to 1.13% at December 31, 2001. Management continues to maintain the allowance for loan losses at a level considered appropriate to absorb losses inherent in the portfolio.

Total deposits as of June 30, 2002 compared to year-end 2001 decreased by $3,092 or 4.36%. The decline was concentrated in time deposits greater than $100,000, while savings 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 $108 or .78% in the first six months of 2002. Net income of $894 increased shareholders’ equity, while dividends declared, repurchase of common stock of $263 and $62 net unrealized gain on available for sale securities reduced shareholders’ equity. Book value per share was $23.54 at June 30, 2002 compared to $23.09 at December 31, 2001.

For the second quarter of 2002, net income was $443, basic earnings per share was $.75, and diluted earnings per share was $.74, compared to $443, $.74, and $.74 for the same period in 2001. During the six-month period ending June 30, 2002, net income totaled $894, basic earnings per share was $1.51, and diluted earnings per share was $1.49, compared to $849, $1.42 and $1.41 for the same period in 2001. Average earning assets increased by 7.10% or $7,555 from June 30, 2001 to June 30, 2002. The average yield on earning assets decreased to 7.09% for the six-month period ended June 30, 2002 from 7.81% for the comparable time period in 2001. Average costs for rate related liabilities decreased to 3.61% at June 30, 2002 from 4.46% at June 30, 2001. Net interest margin decreased to 4.12% for the first six-months of 2002 compared to 4.14% in the same period of 2001. This is a result of the continued 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 2001 and 2002, 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. Security maturities in 2002 were also used to fund residential loan growth. The following table illustrates the change in net interest margin for the six months ended June 30, 2002 and June 30, 2001.

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