MAHASKA
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INVESTMENT COMPANY
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2001 ANNUAL REPORT
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VISION STATEMENT

Mahaska Investment Company
and Subsidiaries

It is the vision of Mahaska Investment Company to remain an independent banking
organization, expanding its presence through internal growth and the addition of
strategically important branch locations. The Company will pursue attractive
opportunities to enter related lines of business as well as the possibility of
acquiring other financial institutions with complementary lines of business. The
Company will distinguish itself from the competition by a commitment to
efficient delivery of products and services in its target markets. The Company
will strive to be identified as a "community bank" within those markets.

MAHASKA INVESTMENT COMPANY WILL REMAIN COMMITTED TO CERTAIN CORE VALUES:

. The Company exists to serve the financial needs of its customers.
Customer needs must be the first consideration in everything that is
done. It is important that everyone in the Company conduct
themselves in an honest and ethical manner when dealing with
customers as well as fellow employees.

. The Company is a product of the communities it serves, and as such,
must be a leader in those communities. The Company will always keep
the communities' best interests in mind. The Company will support
the charitable, cultural and economic needs of the communities.

. The Company is a for-profit business that is committed to achieving
profits from providing quality services to its customers and to
providing continuous value to shareholders.

. The Company's employees are a family who care for one another and
for their customers. The Company is loyal to and protective of its
employees.

To achieve this vision, each employee, officer, and director will be challenged
to work hard and utilize all skills while focused on the Company's long-term
goals. We will create an environment in which each employee is encouraged to
achieve his or her highest potential and one that facilitates innovation and
creativity to drive performance. The Company is committed to ongoing training
and development of its employees. To overcome the threats of a consolidating
industry, we will maintain an excellence in banking that has been the tradition
of Mahaska Investment Company and its people since it was founded. Each
employee, officer, director and shareholder is asked to share this vision.

MAHASKA
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INVESTMENT COMPANY
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TABLE OF CONTENTS

MESSAGE TO SHAREHOLDERS 1

2001 FINANCIAL HIGHLIGHTS 3

COMPANY FOCUS 5

CONSOLIDATED FINANCIAL STATEMENTS 14

COMPANY INFORMATION 17

AUDITORS' REPORT 18

OFFICERS & Directors 19

Please refer to the Mahaska Investment Company 2002 Proxy Statement for
Management's Discussion and Analysis, Consolidated Financial Statements, and
notes to Consolidated Financial Statements.

Message
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MESSAGE TO SHAREHOLDERS

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Mahaska Investment Company is proud of its many accomplishments in 2001. Despite
the unstable national markets and the uncertainty in the economy in general, the
Company continued to show growth and improvement. The unified efforts of a
dedicated and hardworking staff led to improved earnings and increased stock
price.

The Company's net income increased nine percent to $4,356,000 in 2001,
with basic earnings per share of $1.10, an eleven percent increase from the year
2000. Lower interest rates on deposits, increased volume in loan pool
participations, and additional non-interest income contributed to the Company's
improved earnings in 2001. Total assets as of December 31, 2001, were
$545,795,000, up six percent over last year. Both loans and deposits grew in
comparison to the previous year-end totals.

The improvement in earnings was reflected in our Company's stock price.
Mahaska Investment Company stock closed at $11.70 per share on December 31,
2001, a 38 percent increase from last year's closing price of $8.50. Small bank
stocks in general had a good year. The Nasdaq Bank Index rose ten percent by
year-end to close at 2135 compared to 1885 at year-end 2000. The improvement in
our stock's performance exceeded the market in general. Our stock now trades at
a multiple of earnings of 10.6, which is in the range of other banking
organizations our size.

Early in 2001, the Company's board of directors and senior management
determined that the long-term direction of the organization needed to be more
focused. Management and staff, working with an outside consultant, developed
priorities and established goals to improve business processes and performance.
Our goal is a more efficient organization that will provide improved returns to
our shareholders.

As part of the strategic planning process, the board and management
reaffirmed their commitment to maintain the Company's community bank identity.
We believe that community banks provide the best personal service for customers
and satisfactory returns for shareholders.

Our beliefs are set down in a new Mission Statement. Communicating this
important statement serves to reinforce the focus on our goals and to strengthen
our commitment to our shareholders, customers, and employees. The Company's new
Mission Statement and excerpts from the Vision Statement are included in this
annual report.

We also established new objectives that will help us strengthen
relationships with existing customers, expand our relationships with small
business customers, and improve customer service in all of our markets.

We were pleased to have been one of the forty community bank organizations
invited to make a presentation at the 2001 Community Bank Investor Conference
hosted by the investment banking firm of Keefe, Bruyette & Woods, Inc. The
conference, held in New York City, was an excellent opportunity to share this
Company's successes and goals for the future with stock analysts, institutional
investors, and other bankers.

Our thoughts and prayers remain with the many families who lost loved ones
in the shocking September 11 attack on America. Several of the industry's
leading investment banking and brokerage firms located in the World Trade Center
suffered tremendous losses. We had established relationships with two firms,
Sandler O'Neill and Keefe, Bruyette & Woods, and were personally touched by
their losses.

While we take pride in past progress and accomplishments, we are
determined to continue to improve earnings by enhancing performance, loan
quality and customer service. We are committed to ongoing improvement and
continue to seek new opportunities for your Company. Your continued support of
Mahaska Investment Company is sincerely appreciated.

/s/ Charles S. Howard /s/ David A. Meinert

Charles S. Howard David A. Meinert
Chairman, President & CEO Executive Vice President & CFO

1 MAHASKA INVESTMENT COMPANY

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MOMENTUM
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FINANCIAL HIGHLIGHTS
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Year Ended December 31 (In thousands, except per share data) 2001 2000 1999 1998 1997
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SUMMARY OF INCOME DATA
Interest income excluding loan pool participations ................. $ 30,510 31,551 21,162 17,996 15,483
Interest and discount on loan pool participations .................. 9,595 7,275 7,668 7,970 8,474
Total interest income .............................................. 40,105 38,826 28,830 25,966 23,957
Total interest expense ............................................. 21,427 21,427 13,195 10,490 9,312
Net interest income ................................................ 18,678 17,399 15,635 15,476 14,645
Provision for loan losses .......................................... 1,776 892 3,628 1,179 417
Other income ....................................................... 4,287 2,566 1,947 1,856 1,739
Other operating expenses ........................................... 14,467 13,313 10,462 8,947 8,315
Income before income tax ........................................... 6,722 5,760 3,492 7,206 7,652
Income tax expense ................................................. 2,366 1,759 1,270 2,583 2,594
Net income ......................................................... $ 4,356 4,001 2,222 4,623 5,058
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PER SHARE DATA
Net income - basic ................................................. $ 1.10 0.99 0.58 1.26 1.38
Net income - diluted ............................................... 1.09 0.99 0.56 1.20 1.33
Cash dividends declared ............................................ 0.60 0.60 0.60 0.56 0.48
Book value ......................................................... 13.12 12.51 11.59 10.51 10.03
Net tangible book value ............................................ 10.37 9.54 8.62 8.99 8.35
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SELECTED FINANCIAL RATIOS
Net income to average assets ....................................... 0.82% 0.81% 0.64% 1.65% 1.98%
Net income to average equity ....................................... 8.59% 8.18% 5.29% 12.16% 14.47%
Dividend payout ratio .............................................. 54.55% 60.61% 103.45% 44.44% 34.78%
Average equity to average assets ................................... 9.57% 9.90% 12.04% 13.54% 13.69%
Tier 1 capital to assets at end of period .......................... 9.95% 10.58% 11.42% 14.02% 14.74%
Net interest margin ................................................ 3.84% 3.87% 4.89% 6.04% 6.31%
Gross revenue of loan pools to total gross revenue ................. 21.61% 17.58% 24.91% 28.64% 32.98%
Interest and discount income of loan pools to total interest income. 23.92% 18.74% 26.59% 30.69% 35.37%
Allowance for loan losses to total loans ........................... 1.05% 0.94% 1.42% 1.32% 1.26%
Non-performing loans to total loans ................................ 1.08% 0.95% 1.71% 0.84% 1.27%
Net loans charged off to average loans ............................. 0.42% 0.65% 1.14% 0.52% 0.07%
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December 31 (In thousands) 2001 2000 1999 1998 1997
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SELECTED BALANCE SHEET DATA
Total assets ....................................................... $545,795 515,212 486,189 298,389 274,873
Total loans net of unearned discount ............................... 322,681 312,081 282,091 165,427 144,333
Total loan pool participations ..................................... 110,393 74,755 67,756 54,510 54,326
Allowance for loan losses .......................................... 3,381 2,933 4,006 2,177 1,816
Total deposits ..................................................... 378,645 370,144 348,672 232,733 215,308
Total shareholders' equity ......................................... 50,827 49,295 50,235 38,232 36,754
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3 MAHASKA INVESTMENT COMPANY

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STRATEGY
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COMPANY FOCUS

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Mahaska Investment Company has always operated on the philosophy that the best
way to enhance value to its primary constituencies--shareholders, customers,
communities and employees--is to remain an independent company committed to
service-focused community banking. The Company endeavors to achieve value for
shareholders through continuing focus on its customers, leadership and support
for its communities, and an ongoing investment in its employees.

Commitment to those core values has proven itself over time, as the
Company grew from one institution and $185 million in assets at year-end 1993 to
four independent operating subsidiaries and assets of more than $545 million at
year-end 2001.

These values were reaffirmed when directors and officers gathered in late
2000 and early 2001 to take a critical look at what was needed to ensure the
Company's continued growth and profitability. This group realized operational
and procedural changes were needed to maintain--and manage--success in a rapidly
changing environment.

Both the Company and the times are much different today than they were
seven years ago when the first shares of Mahaska Investment Company stock were
traded on the Nasdaq National Market System.

By every measure--total assets, number of subsidiaries, number of locations,
number of employees and even geographic territory--the Company has doubled in
size. Meanwhile, the tremendous economic expansion that characterized the 1990s
began to sputter as the 21st century arrived. In Iowa, uneasiness about the farm
economy served to heighten concerns about a volatile stock market and a possible
recession.

At the same time, the financial services market is more competitive than
ever before. Many of the Company's former community and regional bank
competitors are now branches of huge corporations that do business nationwide.
Non-bank companies also offer traditional bank products and services. Changes in
legislation have turned credit unions into direct competitors. The prevalence of
services like direct deposit and Internet and telephone banking make physical
proximity to a bank office increasingly less important--and at times, the
Company competes with institutions whose branch offices are found only in
cyberspace.

With the amount of time customers spend in a traditional bank office
decreasing, each of the Company's interactions with customers becomes more
important. The Company must work effectively with its customers to maintain the
strong and lasting relationships that have been responsible for its continuing
growth.

As directors and senior managers identified strategies to ensure that the
Company can compete effectively and profitably in all types of economic
environments, it became clear that a turning point had been reached. The Company
needed to take better advantage of its size and resources to improve customer
service, efficiency and profitability without affecting the sensitivity and
responsiveness to customers and communities that have played such a significant
role in the Company's previous successes.

By addressing those issues within the framework of the Company's values,
directors and senior management ultimately determined that they could best
fulfill their commitment to shareholders, customers, communities, and employees
by creating an environment that makes it possible for each subsidiary and its
employees to spend more time focusing on customers and establishing those
important relationships.

CONSOLIDATED TOTAL ASSETS (In thousands)

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2001 2000 1999 1998 1997
$545,795 $515,212 $486,189 $298,389 $274,873

5 MAHASKA INVESTMENT COMPANY

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MAHASKA STATE BANK
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Mahaska State Bank, the Company's first bank subsidiary, is the largest
financial institution in its market. Total assets continued to grow throughout
2001, reaching $186 million by year-end. The bank, which enjoyed growth in both
its brokerage and trust areas during 2001, maintains the largest deposit base in
Mahaska County. It also enjoyed increased market share in 2001.

Mahaska State Bank has long been the dominant lender in Oskaloosa,
particularly for agricultural and commercial loans. Real estate loans continue
to play a significant role in the bank's growth. Multiple reductions in market
interest rates sparked substantial increases in applications for mortgages, as
well as home equity loans.

Financing for commercial real estate purchases, new residential mortgages
and refinancing of existing mortgages accounted for significant loan growth.
Through its secondary market mortgage program, the bank also offered customers
long-term, fixed-rate real estate loans.

During 2001, Mahaska State Bank began making changes that will enhance
customer service and efficiency. One of the most significant was the decision to
consolidate the bank's data processing and check processing departments into a
separate operating division of the holding company effective January 1, 2002.

Both departments, which operate as MIC Data Services, serve all four
subsidiaries, as well as some non-affiliated institutions. By moving
responsibility for these functions to the holding company, Mahaska State Bank
can devote more time and resources to its own customers.

The bank is always alert for opportunities to strengthen relationships
with customers, through new products--such as Commercial Internet Banking, which
will be introduced in 2002--and by offering customers the quality service
they've come to expect from Mahaska State Bank.

One of the primary reasons for Mahaska State Bank's success in both
Oskaloosa and North English is its friendly, knowledgeable and professional
staff. Employees also exemplify the bank's commitment to its communities and
donate time, talent and money to a variety of causes.

Mahaska State Bank is confident that its commitment to quality products
and quality service will continue to contribute to the bank's growth.

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SELECTED BALANCE SHEET DATA:
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Year Ended December 31 (In thousands) 2001 2000 1999
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Total assets .............................. $186,418 179,327 165,188
Total loans net of unearned discount ...... 111,848 113,192 104,116
Total loan pool participations ............ 38,257 30,613 26,421
Total deposits ............................ 149,405 150,719 145,379
Total shareholders' equity ................ 15,660 15,727 15,158

MAHASKA INVESTMENT COMPANY 6

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The Company has always endeavored to improve efficiency and reduce expenses by
consolidating services such as data processing, accounting, Internet Banking
operations, human resources, loan review and audit functions. However, given the
increasingly critical importance of building and maintaining customer loyalty,
the Company needed to do even more to reduce the amount of time and effort the
subsidiaries were spending on activities that did not directly affect customer
relationships.

To allow the Company to efficiently and cost-effectively provide
additional support services, the four independent subsidiaries needed to adopt
some standardized products, processes and procedures. At the same time, every
strategy and initiative had to be evaluated in terms of its potential impact on
the Company's customers and communities. Consequently, the re-engineering
process made 2001 an exciting and often challenging year.

In establishing a long-term direction for the Company, directors and
senior managers outlined three key strategies for enhancing shareholder value:

EFFICIENT DELIVERY OF PRODUCTS AND SERVICES

As directors and senior managers scrutinized the Company's operations, it became
apparent that standardizing products and processes between the four subsidiaries
could greatly improve efficiency. At the same time, the Company did not want to
compromise the ability of the subsidiaries to meet the needs of their own
customers and communities.

The Company's solution was the establishment of a formal Project
Management Committee to foster coordinated implementation of process
improvements throughout the Company. The Project Management Committee is
responsible for identifying challenges that impact the entire organization,
prioritizing needs, and recommending solutions.

To ensure that all stakeholders are represented, the committee consists of
a senior executive from each subsidiary and the Company's managers for
operations, data processing, accounting, human resources and marketing. All
subsidiary representatives and department managers have the opportunity to voice
opinions about issues under discussion and communicate how an issue affects
their particular area of influence.

This process was designed to make sure the needs and concerns of each
department and subsidiary--as well as its customers and communities--are taken
into consideration when changes are proposed. The project management process is
also enhancing communication and cooperation among departments and subsidiaries
throughout the organization.

To find solutions to specific challenges, the Project Management Committee
forms subcommittees comprised of a Project Management Committee member and
representatives from each subsidiary and any affected department.

Typically, these representatives are employees who are either extremely
knowledgeable about the issue or those whose jobs will be most affected. For
example, tellers from each subsidiary and data processing personnel will select
the new teller software that all four institutions will use.

Recommendations for best practice solutions are forwarded to the senior
executives for review. If approved, the Project Management Committee is
responsible for smooth implementation of any changes. Individual committee
members are responsible for making sure their own subsidiary or department meets
its specific obligations and communicating any issues that might affect
implementation.

Some of the initiatives the Project Management Committee is working on
include:

. Standardization of the data processing codes used to classify
different types of products, transactions, collateral and other data
to make the accounting and reporting processes more efficient;

. Upgrading the loan documentation, teller and deposit software and
migrating all four subsidiaries to the same platforms;

. Purchase of an MCIF (Marketing Customer Information File) system, a
tool that will enhance the Company's ability to identify customer
needs; and

. Ongoing analysis of the profitability of the Company's products and
services. Change is rarely easy, but the Company is optimistic that
by providing a forum for open communication between the subsidiaries
and by involving employees at all levels of the organization, the
Project Management Committee can effectively implement changes that
will improve efficiency and productivity throughout the Company.

Another change that should improve efficiency and customer service is the
establishment of MIC Data Services as a separate operating division, comprised
of what had been Mahaska State Bank's data processing and check processing
departments. This consolidation was effective January 1, 2002.

Placing these two related functions under common management at the holding
company level will improve internal efficiency and make MIC Data Services even
more

CONSOLIDATED TOTAL LOANS/*/ (In thousands)

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2001 2000 1999 1998 1997
$322,681 $312,081 $282,091 $165,427 $144,333

/*/ EXCLUDING LOAN POOLS

7 MAHASKA INVESTMENT COMPANY

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CENTRAL VALLEY BANK
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Central Valley Bank enjoyed another highly successful year in 2001, achieving
significant increases in both assets and total loans. As of December 31, 2001,
assets were approaching $120 million, compared with $108.3 million at year-end
2000. Total loans increased by $8.6 million to $78.6 million as of December 31,
2001.

An established real estate lender, Central Valley Bank benefited from
multiple reductions in market interest rates. The real estate loan portfolio
grew significantly as customers took advantage of the lower rates to purchase or
refinance homes. Secondary market mortgages were offered to customers desiring
long-term, fixed-rate real estate loans.

Lower market interest rates also contributed to an increase in commercial
real estate purchases, furthering the bank's efforts to expand its commercial
customer base. The bank also achieved increases in other types of commercial and
ag loans, particularly in the Ottumwa market.

Central Valley Bank reported only a slight increase in total deposits at
the end of 2001. However, it did enjoy more significant deposit growth than most
of its competitors. Market share in all three communities--Ottumwa, Fairfield,
and Sigourney--increased during 2001.

One of the most visible accomplishments of 2001 was the opening of a new
facility in Fairfield, which replaced a small grocery store branch. The new
branch office, which is in a highly visible location, offers real estate,
consumer and commercial loan services, brokerage services, extended hours,
drive-up service and 24-hour drive-up ATM.

Central Valley Bank continues to enjoy steady, consistent growth, despite
the economic uncertainty and numerous competitors found in its markets. Central
Valley Bank is able to offer customers the selection and pricing usually
available only from larger competitors and the caring, personal service
associated with hometown banking. It strives to provide customers with
professional expertise, a variety of competitive products, and one-on-one
customer service.

Central Valley Bank takes great pride in being a community bank and is
expanding its leadership role in its communities, supporting numerous civic and
charitable organizations. As a community bank, Central Valley Bank consistently
explores ways to strengthen its relationships with its customers and its
communities, thus ensuring its continued growth.

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SELECTED BALANCE SHEET DATA:
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Year Ended December 31 (In thousands) 2001 2000 1999
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Total assets ............................... $119,730 108,344 97,064
Total loans net of unearned discount ....... 78,577 69,953 54,906
Total loan pool participations ............. 20,879 17,974 16,519
Total deposits ............................. 85,618 85,205 77,892
Total shareholders' equity ................. 12,689 13,041 12,554

MAHASKA INVESTMENT COMPANY 8

Focus
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responsive to the needs of all four subsidiaries, as well as non-affiliated
banks that contract for data processing services. In addition, by making MIC
Data Services a division of the holding company, Mahaska State Bank can devote
additional time and resources to serving customers.

PROTECTING ASSET QUALITY

Protecting the quality of the Company's assets is a continuous process.
Improving loan quality continues to be a company-wide priority and all four
subsidiaries are making progress in that area. The Company adopted a new credit
policy that strengthened oversight and revamped existing procedures to provide
more proactive monitoring of loan quality. Additional measures designed to keep
the Company focused on this goal were also adopted.

One was the addition of a Chief Credit Officer, who is responsible for
credit administration on a daily basis, as well as leading and directing the
Company's long-term strategic lending practices and policies. Other duties
include loan policy administration, compliance, and when necessary, problem loan
administration. The Chief Credit Officer also serves as the Company's liaison
with regulatory agencies on loan-related matters.

A second step was the formation of an Executive Loan Committee, which
includes three representatives from Mahaska Investment Company and two senior
managers from each of the four operating subsidiaries. This committee is now
responsible for reviewing larger loan applications and participation requests.

The active involvement of senior managers ensures that each subsidiary's
interests, and those of its customers and community, are represented. A primary
advantage is that Executive Loan Committee members have years of experience and
a variety of expertise, including accounting, commercial lending and
agricultural lending. This contributes to a much more detailed analysis of
credit applications, and should result in more consistent loan quality.

It has also allowed the Company to provide significantly faster and more
responsive customer service. Since the Executive Loan Committee meets
weekly--and can easily meet on short notice when necessary--credit decisions can
be made more quickly, enhancing customer service.

MAINTAINING A DIVERSIFIED BALANCE SHEET

As in previous years, the Company continues to maintain a balance sheet that is
a solid blend of loan pool participations, a conservative and liquid investment
portfolio, and a diversified loan portfolio. This is a proven strategy that has
minimized the Company's risk and, over time, returned value to shareholders.

It is particularly effective in years like 2001, when several sectors of the
economy slowed at once.

In recent years, the Company's loan pool participations, which provide
geographic diversification, have been higher quality assets than in the past and
are less susceptible to economic downturns. These assets continue to perform
well, despite falling interest rates throughout 2001. In response to falling
interest rates, the Company reduced the size of its investment portfolio and
increased its loan pool participations, which provide higher returns.

Real estate loans contributed to increases in both total loans and other
income during 2001. The Federal Reserve Board cut market interest rates eleven
times during the year, creating enormous customer demand for mortgages and
refinancings at all four subsidiaries. The subsidiaries retained some
variable-rate mortgages, which will reprice in a few years. Most long-term,
fixed-rate real estate loans were sold on the secondary market, generating fee
income.

Building commercial loan portfolios was a priority for all of the
subsidiaries, particularly Midwest Federal Savings, which recently began making
commercial loans. Since it established a commercial lending department in late
2000 and began offering secondary market mortgage loans, the bank has made
consistent progress in diversifying its loan portfolio, which had been dominated
by real estate loans.

Of the four subsidiaries, Central Valley Bank achieved the most
significant gains in its loan portfolio during 2001, helped by consistent
commercial loan growth. To better serve its growing customer base, Central
Valley Bank opened a new full-service office in Fairfield in early 2001. This
new branch, which includes a drive-up facility, replaced a grocery store
location that handled mainly deposit transactions.

Pella State Bank also saw a sizeable increase in its loan portfolio. After
opening a new larger office in downtown Pella, which now serves as the bank's
headquarters, Pella State Bank hired an additional loan officer to better serve
its commercial and farm customers. Mahaska State Bank, the dominant commercial
lender in its markets, continues to explore new methods to increase commercial
loan activity outside its traditional market boundaries.

CONSOLIDATED TOTAL DEPOSITS (In thousands)

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2001 2000 1999 1998 1997
$378,645 $370,144 $348,672 $232,733 $215,308

9 MAHASKA INVESTMENT COMPANY

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PELLA STATE BANK
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With more than $44 million in assets as of December 31, 2001, Pella State Bank
has enjoyed tremendous growth since it opened in December 1997. The bank's
increases in three key measures--total assets, net loans and total
deposits--have been among the largest reported by any financial institution in
its market.

Consequently, many of Pella State Bank's accomplishments in 2001 focused
on ways to better serve a rapidly expanding customer base.

In early 2001, the bank moved its headquarters to a more spacious facility
in a highly visible downtown development. Executive offices, all lending
activities and full-service brokerage are housed there, offering customers a
complete range of financial services in one convenient location. Pella State
Bank's original facility remains open as a branch, with extended hours and
drive-up service for deposit customers.

To ensure that customers continue to receive the same friendly, personal,
and professional service that has been such a significant factor in its success,
Pella State Bank also enlarged its staff. Some of the bank's more experienced
employees, who exemplify the quality service the bank strives to provide, were
promoted and now work to instill newer employees with that same commitment to
customer satisfaction.

Pella State Bank also hired an additional loan officer to better serve a
growing number of farm and small business customers. Developing strong
relationships with commercial customers is a priority.

A favorable rate environment contributed to increased real estate lending
activity throughout 2001, helping to increase Pella State Bank's loan portfolio.
Secondary market mortgages were available to customers wanting long-term,
fixed-rate real estate loans.

The bank's full-service brokerage office continues to grow. In 2002, Pella
State Bank will provide additional marketing support to help the brokerage
service expand its customer base.

Although the economic expansion in the market slowed somewhat during 2001,
Pella State Bank is optimistic that 2002 will bring continued growth. Pella
State Bank believes that its friendly, professional employees--most of whom have
very strong community ties--its innovative mix of products and services, its
competitive rates, and its strong commitment to its community will continue to
contribute to its success.

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SELECTED BALANCE SHEET DATA:
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Year Ended December 31 (In thousands) 2001 2000 1999
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Total assets ................................. $44,052 34,996 26,182
Total loans net of unearned discount ......... 23,192 20,761 16,268
Total loan pool participations ............... 9,666 7,028 5,604
Total deposits ............................... 36,218 28,221 19,506
Total shareholders' equity ................... 5,105 5,040 4,795

MAHASKA INVESTMENT COMPANY 10

Focus
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The subsidiaries experienced minimal increases in agricultural loans. The
Company continues to keep a cautious eye on the farm economy. The slow progress
on new farm legislation is a major concern. Successive years of low commodity
prices have made producers increasingly dependent on government payments and any
reduction in crop subsidies may have a detrimental effect on customers.

Other income increased due to higher revenue from secondary market loan
originations, overdraft and other service charges, and trust fees. The Company
also saw an increase in fees generated from brokerage offices located at each
subsidiary.

Increasing core deposits remained a priority for all four subsidiaries in
2001. An erratic stock market helped increase liquid deposits. However, the low
market interest rates that encouraged loan activity and improved the Company's
net interest margin (the difference between what a bank pays for funds and what
it earns on assets) put a damper on time deposit growth. Only Pella State Bank
saw a noticeable increase in total deposits during 2001.

Because deposit growth did not keep pace with demand for loans, the
Company utilized borrowed funds. However, the Company was able to secure
favorable long-term fixed rates on these advances resulting in acceptable net
interest margins.

Directors authorized a stock repurchase program in the third quarter of
2001 and later extended that authorization through June 30, 2002. Reducing the
number of outstanding shares on the market should strengthen the return to
shareholders. Thru December 31, 2001, the Company had repurchased 101,000
shares.

To meet its commitment to quality customer service, the Company continues
to invest in technology. The Company is now testing Commercial Internet Banking,
which allows business customers to perform a variety of transactions. This
service will be introduced in 2002.

Retail Internet Banking has quickly gained popularity with customers. In
2001, the Company upgraded its Retail Internet Banking software, offering users
an improved interface and new security features.

As the number of Internet transactions grows, protecting customers'
confidential information becomes a more critical component of service. During
2001, the Company revised its privacy policy, which is mailed to customers
annually. Copies are now given to all new customers at the time an account is
opened. The Company also plans to increase its efforts to educate customers
about ways to protect themselves against identify theft.

The Company is also investing in technology to help employees become more
productive, including loan, deposit and teller software. Replacing older
software with more functional versions provides an opportunity to migrate all
four institutions to the same systems, allowing for procedure standardization
and enhancing processing efficiency. The Company will also convert to a new
payroll processing system that eliminates much of the paperwork for employees,
supervisors and human resources personnel.

The Company views employees as its most important asset and is committed
to creating an environment that encourages creativity and innovation, allowing
each employee to achieve his or her highest potential. Competitive salaries and
benefits, particularly health insurance, help retain employees. Relatively low
employee turnover contributes to consistent service quality and reduces the
expense of recruiting and training new employees.

During 2001, the Company began offering employees a cash match on 401(k)
contributions. Company stock is not included in the 401(k) plan. However, the
Company does contribute to an Employee Stock Ownership Plan (ESOP) set up to
provide employees with an additional source of retirement income. The ESOP is
the Company's single largest shareholder.

Employees are encouraged to be involved in their communities and many have
assumed leadership roles on local school, government, civic, and charity boards.
Countless others donate time as volunteers for organizations ranging from youth
sports to local economic development groups. As community banks, all four
subsidiaries provide financial support for a variety of civic and charitable
causes.

Certainly, the banking industry is in a state of transition as
consolidation and new competitors challenge the traditional thinking. However,
the Company, with its continued commitment to excellence and strong customer
focus, is in good position to increase its market share. The Company offers
customers the best of both worlds: the quality customer service and commitment
to its markets associated with community banks, and the wide selection of
services and delivery systems usually offered by far larger bank competitors.

The Company continues to implement practices that will improve operating
efficiencies and enhance the quality of service offered to its customers and
communities. The Company's strong commitment to traditional values and clear
vision for the future position it to grow and prosper in the years ahead, thus
returning even more value to its shareholders, customers, communities and
employees.

CONSOLIDATED NET INCOME (In thousands)

[GRAPHIC APPEARS HERE]

2001 2000 1999 1998 1997
$4,356 $4,001 $2,222 $4,623 $5,058

11 MAHASKA INVESTMENT COMPANY

- -----------------------
MIDWEST FEDERAL SAVINGS
- --------------------------------------------------------------------------------

Midwest Federal Savings & Loan Association of Eastern Iowa (Midwest Federal),
the Company's largest subsidiary, enjoyed a number of successes--highlighted by
record earnings--during 2001. At year-end, Midwest Federal reported net earnings
of $1.87 million, net interest income of more than $5.3 million and $718,000 in
income from fees and service charges.

A total-return approach to its investment portfolio resulted in realized
gains of $948,000 on the sale of investments. The proceeds were reinvested in
higher-earning assets, thereby increasing net interest margin for the long term.
Midwest Federal reported total assets of $189 million at year-end, compared to
$183 million at year-end 2000.

Midwest Federal made the transition to full-service banking in 2001,
adding products and services to better serve its customers and its
communities--Burlington, West Burlington, Fort Madison and Wapello.

Almost fifteen percent of all checking account customers have signed up
for Retail Internet Banking, which was introduced on January 2, 2001. In 2002,
Midwest Federal will introduce Commercial Internet Banking.

A new commercial loan department completed its first full year of
operation in 2001, adding $2.2 million to Midwest Federal's loan portfolio.
Midwest Federal is encouraged by the many opportunities for commercial lending
in Burlington and the surrounding area.

Multiple reductions in market interest rates over the year created heavy
demand for both in-house and secondary market real estate loans. Secondary
market mortgages provided Midwest Federal customers with the ability to lock in
long-term fixed rates on real estate loans.

Midwest Federal is also excited about the opportunities to offer customers
investment products, such as stocks, bonds and mutual funds, through Midwest
Financial Products, Inc., a wholly owned subsidiary of Midwest Federal.

To accommodate its expanded services and to provide a more
customer-friendly environment, Midwest Federal's main office in Burlington was
remodeled. New offices were added to the lobby area to provide visibility for
the loan and brokerage services, and the reception area was improved to provide
better access for customers. The teller area was also remodeled to provide a
more inviting and modern look.

By providing excellent service and an expanded selection of financial
products and services, Midwest Federal can strengthen relationships with
existing customers, attract new customers and return more value to shareholders.

- ----------------------------
SELECTED BALANCE SHEET DATA:
- ----------------------------

Year Ended December 31 (In thousands) 2001 2000 1999
- --------------------------------------------------------------------------------

Total assets .............................. $189,232 183,418 182,934
Total loans net of unearned discount ...... 107,375 105,848 101,566
Total loan pool participations ............ 38,499 14,571 10,861
Total deposits ............................ 108,073 106,131 107,114
Total shareholders' equity ................ 19,486 19,837 19,285

MAHASKA INVESTMENT COMPANY 12

---------
STABILITY
---------

[GRAPHIC APPEARS HERE]

- ---------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------

December 31 (In thousands) 2001 2000
- -------------------------------------------------------------------------------------------------------

ASSETS
Cash and due from banks ....................................................... $ 12,872 10,544
Interest-bearing deposits in banks ............................................ 2,965 3,818
Federal funds sold ............................................................ -- 1,155
---------------------
Cash and cash equivalents ................................................... 15,837 15,517
---------------------
Investment securities:
Available for sale .......................................................... 50,206 60,758
Held to maturity (fair value of $22,034 in 2001
and $26,234 in 2000) ...................................................... 21,332 25,921
Loans, net of unearned discount ............................................... 322,681 312,081
Allowance for loan losses ..................................................... (3,381) (2,933)
---------------------
Net loans ................................................................... 319,300 309,148
---------------------
Loan pool participations ...................................................... 110,393 74,755
Premises and equipment, net ................................................... 8,355 6,890
Accrued interest receivable ................................................... 4,540 5,201
Goodwill and other intangible assets .......................................... 10,675 11,725
Other assets .................................................................. 5,157 5,297
---------------------
Total assets ................................................................ $ 545,795 515,212
=====================

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand ...................................................................... $ 26,961 26,031
NOW and Super NOW ........................................................... 45,372 43,380
Savings ..................................................................... 97,989 88,378
Certificates of deposit ..................................................... 208,323 212,355
---------------------
Total deposits ............................................................ 378,645 370,144
Federal funds purchased ....................................................... 10,650 2,345
Federal Home Loan Bank advances ............................................... 91,174 75,050
Notes payable ................................................................. 9,200 13,200
Other liabilities ............................................................. 5,299 5,178
---------------------
Total liabilities ........................................................... 494,968 465,917
---------------------

SHAREHOLDERS' EQUITY
Common stock, $5 par value; authorized 20,000,000 shares; issued 4,912,849
as of December 31, 2001 and December 31, 2000 ............................... 24,564 24,564
Capital surplus ............................................................... 13,033 13,127
Treasury stock at cost, 1,040,255 and 973,535 shares as of
December 31, 2001 and 2000, respectively .................................... (12,595) (11,869)
Retained earnings ............................................................. 25,082 23,102
Accumulated other comprehensive income ........................................ 743 371
---------------------
Total shareholders' equity .................................................. 50,827 49,295
---------------------
Total liabilities and shareholders' equity .................................. $ 545,795 515,212
=====================

MAHASKA INVESTMENT COMPANY 14

- ---------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------

Year Ended December 31 (In thousands, except per share amounts) 2001 2000 1999
- -------------------------------------------------------------------------------------------------

INTEREST INCOME
Interest and fees on loans ......................................... $25,172 25,298 17,577
Interest income and discount on loan pool participations ........... 9,595 7,275 7,668
Interest on bank deposits .......................................... 56 116 82
Interest on federal funds sold ..................................... 252 164 260
Interest on investment securities:
Available for sale ............................................... 3,542 4,182 2,214
Held to maturity ................................................. 1,488 1,791 1,029
--------------------------
Total interest income .......................................... 40,105 38,826 28,830
--------------------------

INTEREST EXPENSE
Interest on deposits:
NOW and Super NOW ................................................ 521 782 637
Savings .......................................................... 2,961 3,779 2,837
Certificates of deposit .......................................... 11,920 10,788 7,060
Interest on federal funds purchased ................................ 57 191 94
Interest on Federal Home Loan Bank advances ........................ 5,166 4,484 1,287
Interest on notes payable .......................................... 802 1,403 1,280
--------------------------
Total interest expense ......................................... 21,427 21,427 13,195
--------------------------
Net interest income ............................................ 18,678 17,399 15,635
Provision for loan losses .......................................... 1,776 892 3,628
--------------------------
Net interest income after provision for loan losses ............ 16,902 16,507 12,007
--------------------------

OTHER INCOME
Service charges .................................................... 2,117 1,821 1,332
Data processing income ............................................. 206 203 200
Other operating income ............................................. 946 502 443
Investment security gains (losses), net ............................ 1,018 40 (28)
--------------------------
Total other income ............................................. 4,287 2,566 1,947
--------------------------

OTHER EXPENSE
Salaries and employee benefits expense ............................. 7,157 6,378 5,144
Net occupancy expense .............................................. 2,162 1,877 1,517
Professional fees .................................................. 988 658 431
Goodwill and other intangible asset amortization ................... 1,050 1,125 711
Other operating expense ............................................ 3,110 3,275 2,659
--------------------------
Total other expense .............................................. 14,467 13,313 10,462
--------------------------
Income before income tax expense ................................. 6,722 5,760 3,492
Income tax expense ................................................. 2,366 1,759 1,270
--------------------------
Net income ..................................................... $ 4,356 4,001 2,222
==========================

Net income per share - basic ....................................... $ 1.10 0.99 0.58
==========================
Net income per share - diluted ..................................... $ 1.09 0.99 0.56
==========================

15 MAHASKA INVESTMENT COMPANY

- ----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
- ----------------------------------------------------------------------------

Accumulated
Other
Common Capital Treasury Retained Comprehensive
(In thousands, except share data) Stock Surplus Stock Earnings (Loss) Income Total
- ----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1998 ............... $19,038 17 (2,799) 21,806 170 38,232
==========================================================================

Comprehensive income:
Net income ................................ -- -- -- 2,222 -- 2,222
Unrealized gains arising during the
year on securities available for sale ... -- -- -- -- (695) (695)
Plus realized gains on securities
available for sale, net of tax .......... -- -- -- -- 18 18
--------------------------------------------------------------------------
Total comprehensive income ................ -- -- -- 2,222 (677) 1,545
--------------------------------------------------------------------------
Dividends paid ($.60 per share) ............. -- -- -- (2,310) -- (2,310)
Stock issued for acquisition of Midwest
Bancshares, Inc. (1,105,348 shares) ....... 5,526 (13,281) -- -- -- 18,807
Stock options exercised
(54,821 shares) ........................... -- (106) 868 (207) -- 555
Treasury stock purchased
(461,400 shares) .......................... -- -- (6,594) -- -- (6,594)
--------------------------------------------------------------------------

Balance at December 31, 1999 ................ 24,564 13,192 (8,525) 21,511 (507) 50,235
==========================================================================

Comprehensive income:
Net income ................................ -- -- -- 4,001 -- 4,001
Unrealized gains arising during the
year on securities available for sale ... -- -- -- -- 908 908
Less realized gains on securities
available for securities, net of tax .... -- -- -- -- (30) (30)
--------------------------------------------------------------------------
Total comprehensive income ................ -- -- -- 4,001 878 4,879
--------------------------------------------------------------------------
Dividends paid ($.60 per share) ............. -- -- -- (2,410) -- (2,410)
Stock options exercised
(7,300 shares) ............................ -- (65) 89 -- -- 24
Treasury stock purchased
(403,100 shares) .......................... -- -- (3,433) -- -- (3,433)
--------------------------------------------------------------------------

Balance at December 31, 2000 ................ 24,564 13,127 (11,869) 23,102 371 49,295
==========================================================================

Comprehensive income:
Net income ................................ -- -- -- 4,356 -- 4,356
Unrealized gains arising during the
year on securities available for sale ... -- -- -- -- 1,010 1,010
Less realized gains on securities
available for sale, net of tax .......... -- -- -- -- (638) (638)
--------------------------------------------------------------------------
Total comprehensive income ................ -- -- -- 4,356 372 4,728
--------------------------------------------------------------------------
Dividends paid ($.60 per share) ............. -- -- -- (2,376) -- (2,376)
Stock options exercised
(34,280 shares) ........................... -- (94) 418 -- -- 324
Treasury stock purchased
(101,000 shares) .......................... -- -- (1,144) -- -- (1,144)
--------------------------------------------------------------------------

Balance at December 31, 2001 ................ $24,564 13,033 (12,595) 25,082 743 50,827
==========================================================================

MAHASKA INVESTMENT COMPANY 16

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