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EXHIBIT 13

MAHASKA INVESTMENT COMPANY

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MAHASKA INVESTMENT COMPANY

1998 ANNUAL REPORT

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Mahaska Investment Company
Fundamentals of Success

At Mahaska Investment Company, our growth and above-average earnings can be
attributed to four major principles:

We build on our Iowa roots, we respond to our markets with individual solutions,
we strengthen our company and community through teamwork, and we foster
relationships with our customers face to face. Adherence to these fundamentals
resulted in significant loan growth and overall increases in assets in 1998.

FINANCIAL HIGHLIGHTS 1
MESSAGE TO SHAREHOLDERS 2
COMPANY PHILOSOPHY 4
CONTENTS MANAGEMENT'S DISCUSSION AND ANALYSIS 12
CONSOLIDATED FINANCIAL STATEMENTS 20
INDEPENDENT AUDITORS' REPORT 40
BOARD OF DIRECTORS 42 STOCK
INFORMATION 43

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MAHASKA INVESTMENT COMPANY

Financial Highlights

YEAR ENDED DECEMBER 31 (In thousands, except per share data) 1998 1997 1996 1995 1994
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SUMMARY OF INCOME DATA:
Interest income excluding loan pool participations $ 17,996 15,483 13,532 10,463 8,500
Interest and discount on loan pool participations 7,970 8,474 9,097 7,864 4,479
Total interest income 25,966 23,957 22,629 18,327 12,979
Total interest expense 10,490 9,312 8,531 7,100 4,676
Net interest income 15,476 14,645 14,098 11,227 8,303
Provision for loan losses 1,179 417 987 168 183
Other income 1,857 1,739 1,506 1,301 1,457
Total other operating expenses 8,948 8,315 7,738 6,450 5,452
Income before income tax 7,206 7,652 6,879 5,910 4,125
Income tax expense 2,583 2,594 2,385 1,987 1,345
Net income $ 4,623 5,058 4,494 3,923 2,780
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PER SHARE DATA:
Net income - basic $ 1.26 1.38 1.20 1.03 .99
Net income - diluted 1.20 1.33 1.19 1.03 .99
Cash dividends declared .56 .48 .44 .40 .36
Book value 10.51 10.03 9.22 8.49 7.82
Tangible book value 8.99 8.35 7.39 7.34 6.56

SELECTED FINANCIAL RATIOS:
Net income to average assets 1.65% 1.98% 1.93% 2.04% 1.68%
Net income to average equity 12.16% 14.47% 13.52% 12.67% 12.45%
Dividend payout ratio 44.44% 34.78% 36.50% 38.45% 36.27%
Average equity to average assets 13.54% 13.69% 14.31% 16.09% 13.46%
Tier 1 capital to risk weighted assets at end of period 14.02% 14.74% 16.25% 19.84% 19.92%
Net interest margin 6.04% 6.31% 6.69% 6.48% 5.58%
Gross revenue of loan pools to total gross revenue 28.64% 32.98% 37.69% 40.06% 31.03%
Interest and discount income of loan pools
to total interest income 30.69% 35.37% 40.20% 42.91% 34.51%
Allowance for loan losses to total loans 1.32% 1.26% 1.27% 1.17% 1.19%
Nonperforming loans to total loans 0.85% 1.28% 1.79% 0.81% 0.79%
Net loans charged off to average loans 0.52% 0.07% 0.63% 0.06% 0.20%

DECEMBER 31 (In thousands) 1998 1997 1996 1995 1994
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SELECTED BALANCE SHEET DATA:
Total assets $298,389 274,873 251,851 205,162 186,818
Total loans net of unearned discount 165,427 144,333 117,416 85,882 74,015
Total loan pool participations 54,510 54,326 50,687 45,318 46,852
Allowance for loan losses 2,177 1,816 1,491 1,001 881
Total deposits 232,733 215,308 206,952 161,505 146,476
Total shareholders' equity 38,232 36,754 34,243 32,106 29,780

2/3 MESSAGE TO SHAREHOLDERS

Throughout 1998, Mahaska Investment Company's subsidiaries made significant
contributions to asset growth. Mahaska State Bank's loan volumes continued to
grow, while Central Valley Bank enjoyed a substantial increase in both total
loans and deposits. We were also pleased to see loans and deposits grow steadily
at the newly-chartered Pella State Bank.
Concerns about the Asian economy put downward pressure on the stock prices
of large and small banks throughout the United States. The Company, like other
financial institutions in the Midwest, faced additional pressures when hog and
grain prices fell to historic lows.
Mahaska Investment Company stock began the year at a price of $19 7/8, rose
to a high of $23 5/8 in mid-March, then closed at $16 7/8 on December 31, 1998.
This rise and subsequent decline in the stock price generally paralleled the
movement of the NASDAQ Combined Bank Stock Index, which also experienced a 15
percent net decline from the beginning of the year through the end of December.
Although lower interest rates helped the overall economy maintain momentum,
the Company, like many financial institutions nationwide, experienced a squeeze
on net interest margins as loan and investment rates moved downward faster than
interest rates paid on deposits.
Earnings in the first quarter of 1998 set a new record. Second-quarter
earnings were 12 percent higher than for the same period in 1997. Third- and
fourth-quarter earnings, however, were lower than expected due to increased loan
loss provision expense and reduced loan pool income. Although earnings for the
year were lower, the Company remained profitable in comparison to its peers.
We realize that some of the economic uneasiness that contributed to a mixed
year in 1998 will remain with us as we enter 1999. As the world economy becomes
increasingly integrated, the ramifications of events in other parts of the globe
will trigger more volatility in our local economies.
We will continue to watch the farm economy carefully, but we are cautiously
optimistic. In general, today's farm customers are better able to weather
economic downturns than were farmers in the 1980s. Farmers now tend to be better
financial managers and more savvy marketers. They enjoy a stronger financial
position, due in part to lower interest rates and more realistic land prices
than were present during the 1980s farm crisis.
In February 1999, the Company announced important news--the signing of
a merger agreement with Midwest Bancshares, Inc. of Burlington, Iowa. Midwest
Bancshares, Inc. is the parent of Midwest Federal Savings and Loan Association
of Eastern Iowa. It is anticipated that the merger will be completed in the
third quarter of 1999. This merger will add approximately $163 million in assets
and $106 million in deposits to Mahaska Investment Company.
Looking forward to the remainder of 1999, we continue to make progress
toward Year 2000 readiness. We are excited about possible new acquisitions and
increased contributions from our subsidiaries. Mahaska Investment Company
anticipates continued growth and profitability during the coming year, resulting
in increased value to our shareholders.
Thank you for your continued support and confidence.

1998 MESSAGE TO SHAREHOLDERS

MAHASKA INVESTMENT COMPANY

[PHOTO]

Charles S. Howard David A. Meinert R. Spencer Howard
Charles S. Howard David A. Meinert R. Spencer Howard
Chairman Executive Vice Vice President
President & CEO President & CFO Corporate Planning

4/5 COMPANY PHILOSOPHY

The Iowa landscape is a testament to hard work. In the six southeast Iowa
communities we serve--Fairfield, North English, Oskaloosa, Ottumwa, Pella, and
Sigourney--you can see it in the rows of corn and soybeans, in the small
businesses and industrial buildings, and in the busy main streets. In an
environment ripe for growth, Mahaska Investment Company has put down deep roots.
A strong staff and good relationships with our customers allow the
Company to grow, even in uncertain economic times. In the past year, for
example, our subsidiaries continued to thrive despite uneasiness in the
Midwestern economy.
While the national economy remains strong, Iowa was impacted by falling
commodity prices, which put new pressures on the many agricultural customers we
serve. The impact of this situation on Mahaska Investment Company will be
minimized for two reasons.

First, both our subsidiaries and our customers have learned to
effectively weather changes in the agricultural climate. Since the farm crisis
of the 1980s, we have become better lenders, developing greater expertise and
understanding of the business of farming. Our customers, too, have become better
business managers and are in a stronger financial position.
Second, we have a more diverse loan portfolio than ever before. We now
serve more markets and have a broader mix of real estate and commercial loans
than in the 1980s. This diversity will lessen the impact of downturns in any one
segment of the economy.
All in all, our continued success is indicated by this fact: In 1998,
U.S. Banker magazine ranked Mahaska Investment Company as the 16th best
community bank holding company in the country, based on leverage ratio,
nonperforming assets ratio, return on average assets, return on average equity,
and efficiency ratio. We were the only Iowa company in the top 100,
demonstrating our commitment to hard work and consistent growth.

THE DEEPER THE ROOTS, THE STRONGER THE GROWTH.

In 1998, U.S. Banker magazine ranked Mahaska Investment Company as the 16th
best community bank holding company in the country.

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6/7 COMPANY PHILOSOPHY

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EVERY COMMUNITY IS DIFFERENT, AND SO IS EVERY BANK.

There's a management philosophy that says, "Hire good people, then let them do
their jobs." We take that principle a step further with this fundamental
imperative: Launch strong community banks, then let them grow and prosper.
Although part of a larger organization, our subsidiaries are closer in
character to independent, home-owned community banks than to institutions
operated by multi-bank holding companies. Each Mahaska Investment Company
subsidiary has its own distinct "personality," shaped by its customers and
community.
For example, each of our six southeast Iowa markets has its own
economic base--its own mix of small business, industry, and agriculture. To
respond best to these individual needs, our banks work with their customers in
unique partnerships. For instance, each bank sets its own deposit and loan rates
and its own service charge schedule based on its market.
On-Site Credit Services, a subsidiary of Mahaska Investment Company,
offers a complete range of financing to small- and medium-sized businesses.
Designed to help start-up enterprises, it's more than just financing or working
capital--it's a program that offers individual solutions for individual needs.
To reinforce the independent nature of our community banks, we strive
for local representation on our boards of directors, and our bank presidents
and managers make their own decisions about their bank's operations--from loan
approvals to staffing needs.
This local autonomy and responsiveness to market conditions has helped
our subsidiaries establish themselves as customer-focused institutions. Whether
we're helping people turn dreams into reality or making loans to established
businesses, we're there to help, one person and one company at a time.

Although part of a larger organization, our subsidiaries are closer in
character to independent, home-owned community banks than to institutions
operated by multi-bank holding companies. Each Mahaska Investment Company
subsidiary has its own distinct "personality," shaped by its customers and
community.

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8/9 COMPANY PHILOSOPHY

While our subsidiaries operate independently in their markets, Mahaska
Investment Company provides a framework that keeps all our subsidiaries and
employees focused on our common goal: to provide value to our shareholders,
customers, and communities. The Company actively fosters team-building within
the organization and with our customers in many ways.
- Our management style. While we give our subsidiaries freedom to make
decisions in their communities, our bank presidents and senior managers meet
regularly with each other and Company personnel to share information and
concerns. During these sessions, managers develop solutions to common problems,
identify issues that call for cooperative efforts throughout the Company, and
discuss ideas that increase responsiveness to customer needs.
- Internal support. Our subsidiaries are backed by the strength of the
holding company. This gives them flexibility and resources that their
competitors may not enjoy, such as larger lines of credit and the ability to
offer a broader range of services.
- Employee Stock Ownership Plan. Through the Company's ESOP, our
employees hold 11 percent of our stock, the largest block of shares held by any
one group of investors. Because all employees have a financial stake in the
Company, they have an extra incentive to provide a strong return to
shareholders.
- Employee incentive program. Our employees participate in an incentive
compensation plan that's based on performance. Therefore, our employees have a
vested interest in contributing to customer satisfaction and Company success.
Performance is measured by growth, profitability, productivity and loan quality.
- Shared vision. The Company and its subsidiaries share a common
philosophy and principles of business. As a result, all of our banks work
together toward the same goals. And as our team continues to grow, our members
will share the same underlying philosophy of exceptional service.

WORKING TOGETHER HELPS EVERYONE WORK SMARTER.

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10/11 COMPANY PHILOSOPHY

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[LOGO] MAHASKA INVESTMENT COMPANY

One of the most important elements of Mahaska Investment Company's success is a
commitment to our customers and communities. Company employees demonstrate this
commitment every day.
- We understand our customers and their needs. For example, several of our
loan officers are farmers, too. Their intimate knowledge of agriculture and its
day-to-day challenges enables them to make knowledgeable decisions and offer
their customers valuable advice.
- We look for ways to build partnerships with our customers and to give
them added value. We work with our customers to provide products and services
that are tailored to meet their individual needs. Last year, in cooperation with
a local CPA firm and local Chambers of Commerce, we presented seminars in three
communities to help small business customers understand and prepare for the Year
2000 issue.
- We're involved in the communities we serve. By taking an active role in
community affairs, our employees foster personal relationships with their
neighbors and stay in touch with their markets. In addition, our subsidiaries
provide financial support to civic and charitable groups and activities, and our
employees volunteer hundreds of hours to worthy causes.
Ultimately, these contacts provide our directors and officers with the
information and insight to make good business decisions. By meeting our
customers face to face, we build the mutual trust and reputation for service
that are hallmarks of our success.

MEETING FACE TO FACE HELPS IN SEEING EYE TO EYE.

Our employees stay in touch with their markets by taking an active role in
community affairs. These contacts provide our directors and officers with the
information and insight needed to make good business decisions and develop
strong relationships.

12/13 MANAGEMENT'S DISCUSSION & ANALYSIS

MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION -- FISCAL YEAR 1998
The following discussion and analysis is intended as a review of significant
factors affecting the financial condition and results of operation of Mahaska
Investment Company and subsidiaries (the "Company") for the periods indicated.
The discussion should be read in conjunction with the consolidated financial
statements and the notes thereto. In addition to historical information, this
discussion and analysis contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ significantly from
those anticipated in these forward-looking statements.

OVERVIEW
The Company's principal business is conducted by its subsidiary banks and
consists of full service community-based commercial and retail banking.
Additionally, the Company derives a substantial portion of its operating revenue
from its investments in pools of performing and nonperforming loans referred to
as loan pool participations. The Company also operates a commercial finance
subsidiary which provides services to small business organizations. The
profitability of the Company depends primarily on its net interest income,
provision for loan losses, other income, and operating expense.

Net interest income is the difference between total interest income and total
interest expense. Interest income is earned by the Company on its loans made to
customers, the investment securities it holds in its portfolio, and the interest
and discount recovery generated from its loan pool participations. The interest
expense incurred by the Company results from the interest paid on customer
deposits and borrowed funds. Fluctuations in net interest income can result from
the changes in volumes of assets and liabilities as well as changes in market
interest rates. The provision for loan losses reflects the cost of credit risk
in the Company's loan portfolio and is dependent on increases in the loan
portfolio and management's assessment of the collectibility of the loan
portfolio under current economic conditions. Other income consists of service
charges on deposit accounts, fees received for outside data processing services
provided, other fees and commissions, and security gains. Operating expenses
include salaries and employee benefits, occupancy and equipment expenses, and
other noninterest expenses. These operating expenses are significantly
influenced by the growth of operations, with additional employees necessary to
staff new banking centers.

PERFORMANCE SUMMARY
The Company recorded net income of $4,623,000, or $1.26 per share - basic ($1.20
- - diluted), for the year ended December 31, 1998, which is a decrease of 8.6
percent compared with the net income of $5,058,000, or $1.38 per share - basic
($1.33 - diluted), earned in 1997. A significant increase in the amount of the
provision for loan losses occurred in 1998 which contributed to the decrease in
net income for the year in comparison with 1997. The net income for 1997
increased 12.6 percent from the $4,494,000, or $1.20 per share - basic ($1.19 -
diluted), earned in 1996.

Total assets of the Company grew 8.6 percent to a year-end 1998 level of
$298,389,000. Deposits increased 8.1 percent to $232,733,000 as of December 31,
1998, while the Company's total loans outstanding grew 14.6 percent to
$165,427,000. Loan pool participation investments as of December 31, 1998,
totaled $54,510,000.

Return on average assets is a measure of profitability that indicates how
efficiently a financial institution utilizes its assets. It is calculated by
dividing net income by average total assets. The Company's return on average
assets was 1.65 percent in 1998, 1.98 percent in 1997, and 1.93 percent in 1996.
Return on average equity indicates what the Company earned on its shareholders'
investment and is calculated by dividing net income by average total
shareholders' equity. The return on average equity for the Company was 12.16
percent in 1998 compared with 14.47 percent in 1997, and 13.52 percent in 1996.

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RESULTS OF OPERATIONS -- 1998 COMPARED TO 1997
NET INTEREST INCOME

Net interest income for the year 1998 increased $831,000, or 5.7 percent, to
$15,476,000 compared with $14,645,000 in 1997. Total interest income on earning
assets increased $2,009,000 in 1998 from 1997. Interest and fees on loans
increased $2,733,000, or 22.2 percent, in 1998. The growth in the Company's
average loan volumes of $26,631,000, or 20.3 percent, in 1998 contributed
significantly to the overall increase in interest income. Interest income and
discount recovery on loan pool participations declined $504,000, or 6.0 percent,
in 1998 compared with 1997. The amount of interest income earned on investment
securities decreased $444,000, or 15.0 percent, in 1998 as proceeds from
maturing securities were utilized to fund loan growth. The Company's total
interest expense increased $1,178,000, or 12.7 percent, in 1998 from 1997. This
increase was mainly attributable to the overall growth in deposits and borrowed
funds in 1998. Average deposits increased $13,792,000, or 6.7 percent, in 1998
while average borrowed funds were up $8,283,000, or 68.5 percent. The Company's
net interest margin on a tax-equivalent basis declined to 6.04 percent in 1998
compared with 6.31 percent in 1997, mainly as a result of the lower income
recognized on loan pool participations. Net interest margin is a measurement of
the net return on interest-earning assets and is computed by dividing net
interest income by the average of total interest-earning assets.

PROVISION FOR LOAN LOSSES

The Company recorded a provision for loan loss expense of $1,179,000 in 1998
compared to $417,000 in 1997. Management determines an appropriate provision
based on its evaluation of the adequacy of the allowance for loan losses in
relationship to a continuing review of current collection risks within its loan
portfolio, identified problem loans, the current local and national economic
conditions, actual loss experience, and industry trends. The substantial
increase in the loss provision recorded in 1998 reflects an increase in the net
loan charge-offs experienced by the Company in 1998, growth in the Company's
loan portfolio throughout the year, and general uncertainties in the local and
national economy.

OTHER INCOME

Noninterest income increased $118,000, or 6.7 percent, in 1998 over the amount
earned in 1997. Most of this increase was the result of higher service charges
and overdraft fees collected on deposit accounts. In 1998, data processing
income earned from nonaffiliated banks declined $15,000, or 7.1 percent,
compared with 1997. During 1998, the Company recognized $58,000 in gains on the
sale of investment securities classified as available for sale. These securities
were sold to satisfy liquidity needs.

OTHER EXPENSE

The Company's other expense increased $633,000, or 7.6 percent, for the year
1998 in comparison to 1997. The salary and benefits, net occupancy, and other
operating expense categories all increased in some measure due to the opening of
Pella State Bank in December 1997. Additional staffing at On-Site Credit
Services also increased the amount of salaries and benefits expense. During the
first quarter of 1998, the Company's new mainframe computer was placed in
service which increased net occupancy expense by $74,000 in comparison to 1997
as additional depreciation expense was recorded.

INCOME TAX EXPENSE

Income tax expense declined $11,000, or 0.4 percent, in 1998 compared with 1997.
The Company's consolidated income tax rate varies from the statutory rates
mainly due to tax-exempt interest income. The effective income tax rate as a
percent of income before taxes was 35.9 percent in 1998 compared with 33.9
percent for 1997.

RETURN ON AVERAGE ASSETS TOTAL ASSETS
(In thousands)

'94 1.68% $ 186,818
'95 2.04 205,162
'96 1.93 251,851
'97 1.98 274,873
'98 1.65 298,389

14/15 MANAGEMENT'S DISCUSSION & ANALYSIS

RESULTS OF OPERATIONS -- 1997 COMPARED TO 1996
NET INTEREST INCOME

The Company's net interest income increased $547,000 in 1997 compared with 1996.
A $1,328,000 increase in total 1997 interest income was partially offset by a
$781,000 increase in overall interest expense. The interest income earned on
loans rose by $2,090,000 in 1997 mainly as a result of the growth in loan
volumes the Com-pany experienced during the year. The $623,000 decrease in
interest income and discount on loan pool participations reduced the overall
growth in interest income for the year. Interest income on investment securities
decreased $17,000 as the average volume of securities held by the Company
declined slightly. During 1997, the Company maintained a lower balance in
interest-bearing deposits at other banks which resulted in a decrease of
$158,000 in interest income from these accounts. Interest expense on deposits
increased $863,000 primarily due to the higher average volume of customer
deposits at the Company's subsidiary banks. The interest incurred on notes
payable in 1997 decreased $204,000 compared with 1996 primarily due to lower
interest rates. The Company's net interest margin on a tax-equivalent basis
declined to 6.31 percent for 1997 compared with 6.69 percent in 1996 mainly as a
result of the lower income recognized on loan pool participations.

PROVISION FOR LOAN LOSSES

The 1997 provision for loan losses of $417,000 decreased by $570,000 in
comparison to the provision of $987,000 recorded in 1996. The substantial
reduction in 1997 compared with 1996 reflected improvements in the Company's
problem loans and lower loan charge-offs in 1997.

OTHER INCOME

In 1997, noninterest income increased $233,000, or 15.5 percent, over the amount
earned in 1996. Most of this increase was the result of higher service charges
and overdraft fees collected on deposit accounts. Data processing income
received in 1997 from nonaffiliated banks declined 5.2 percent compared with
1996.

OTHER EXPENSE

The Company's operating expenses increased $577,000, or 7.5 percent, for the
year 1997 compared with 1996. The amounts of salary and benefits, net occupancy,
other operating, and goodwill amortization expense for 1997 all reflected a full
twelve months of the operation of a new branch of Central Valley Bank whereas
1996 only reflected expenses for six months of operations of the branch.
Additionally, the Company incurred expenses related to the new Pella State Bank
in late 1997 that it did not incur in 1996. Higher staffing levels in general
and increased payouts as a result of the Company's incentive compensation
program also increased salaries and benefit expense in 1997 compared with 1996.

INCOME TAX EXPENSE

Income tax expense increased $209,000, or 8.8 percent, in 1997 compared with
1996 primarily due to the overall increase in pre-tax earnings generated by the
Company. The effective income tax rate as a percent of income before taxes was
33.9 percent in 1997 compared with 34.7 percent in 1996.

ANALYSIS OF FINANCIAL CONDITION
LOANS

The Company continued to focus on the growth of its loan portfolio in 1998. Its
portfolio largely reflects the profile of the communities in which it operates.
Total loans as of December 31, 1998, were $165,427,000, which is an increase of
$21,094,000, or 14.6 percent, from 1997. Most of this growth was in the real
estate and commercial loan categories. As of December 31, 1998, the Company's
loan to deposit ratio was 71.1 percent, compared with 67.0 percent in 1997.

DIVIDENDS PER SHARE

'94 $ .36
'95 .40
'96 .44
'97 .48
'98 .56

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Agricultural loans totaled approximately $28,939,000 as of December 31, 1998,
compared with $26,500,000 in 1997. In 1998, agricultural loans represented 17.5
percent of the Company's total loans compared with 18.4 per- cent in 1997.
Concerns with the agricultural economy have caused management to require that
subsidiary lending officers closely review all ag lines and identify those
specific credits that would be more at risk in the event of continued
deterioration in that sector of the economy. Contingency plans are being
developed for those credits that will enable the lending officers to work with
these borrowers in an effort to prevent or minimize any potential loss to the
Company.

INVESTMENT IN LOAN POOLS

The Company invests in pools of performing and nonperforming loans categorized
as loan pool participations. These loan pool participations are purchased at a
discount from the aggregate outstanding principal amount of the underlying
loans. Income is derived from this investment in the form of interest collected
and the repayment of principal in excess of the purchase cost which is herein
referred to as "discount."

The average loan pool participation investment for 1998 was $49,805,000 compared
with an average for 1997 of $49,399,000. New loan pool participation investments
made by the Company during 1998 totaled $25,710,000 compared with $25,589,000
purchased in 1997. As of December 31, 1998, the breakdown of the loan pool
participation investment of $54,510,000 was $37,486,000 of performing loans and
$17,024,000 of nonperforming loans. In comparison, the December 31, 1997,
breakdown of the loan pool participation investment of $54,326,000 was
$25,625,000 of performing loans and $28,701,000 of nonperforming loans. The
change in the performing and nonperforming totals was due to principal
collections and the acquisition in 1998 of higher-quality performing assets
which were purchased at a lower discount from the stated principal balance. The
lowered discount from par will result in a lower discount recovery and a
subsequent reduction in the overall return on the investment. Throughout 1998,
loan pool participation investments averaged 19.2 percent of earning assets
while in 1997 they represented 21.0 percent of average earning assets. The yield
on loan pool participation investments declined to 16.0 percent for 1998,
compared with 17.2 percent in 1997. This was due in part to the higher quality
assets being purchased which, when collected, resulted in a lower amount of
discount recovery. The yield was also somewhat reduced by higher legal and other
collection costs incurred by the servicer related to the collection of assets
acquired in previous years.

INVESTMENT SECURITIES

The Company manages its investment portfolio to provide both a source of
liquidity and earnings. Investment securities available for sale increased
$6,427,000 at December 31, 1998, in comparison with 1997. Securities classified
as held to maturity declined by $6,154,000 in 1998 as maturing investments were
reinvested in the available for sale category. The Company did not increase its
overall securities portfolio in 1998 given the low interest rate environment and
the increased loan demand that it experienced.

DEPOSITS

Total deposits grew to $232,733,000 as of December 31, 1998, an increase of
$17,425,000, or 8.1 percent, from 1997. Most of the growth was in certificate of
deposit volumes which grew $13,947,000, or 13.7 percent, in 1998.

CAPITAL RESOURCES

As of December 31, 1998, total shareholders' equity was $38,232,000. Total
equity increased $1,478,000 in 1998 primarily as a result of earnings retained
by the Company. Total shareholders' equity as of December 31, 1997, was
$36,754,000.

Shareholders' equity as a percentage of total assets was 12.8 percent on
December 31, 1998, versus 13.4 percent on December 31, 1997. The decrease in the
percentage of shareholders' equity to total assets reflects the increase in
total assets in 1998. During 1998, the Company repurchased a total of 87,368
shares of its common stock to be used to satisfy the exercise of stock options
granted to employees and directors of the Company. A total of 58,219 option
shares were reissued from treasury stock throughout 1998, leaving 3,636,345
shares outstanding as of December 31, 1998.

The Company's risk-based Tier 1 core capital ratio was 14.0 percent as of
December 31, 1998, and the total capital ratio was 14.9 percent. Risk-based
capital guidelines require the classification of assets and some off-balance
sheet

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16/17 MANAGEMENT'S DISCUSSION & ANALYSIS

items in terms of credit-risk exposure and the measuring of capital as a
percentage of the risk-adjusted asset totals. Tier 1 core capital is the
Company's total common shareholders' equity reduced by goodwill. Total capital
adds the allowance for loan losses to the Tier 1 capital amount. As of December
31, 1997, the Company's Tier 1 capital ratio was 14.7 percent, and the total
capital ratio was 15.6 percent. Although these ratios declined in 1998 from 1997
due to an increase in risk-based asset totals, they substantially exceeded the
minimum regulatory requirements of 4.0 percent for Tier 1 capital and 8.0
percent for total capital. The Company's Tier 1 leverage ratio, which measures
Tier 1 capital in relation to total assets, was 11.3 percent as of December 31,
1998, and 11.8 percent at December 31, 1997, exceeding the regulatory minimum
requirement range of 3.0 percent to 5.0 percent.

As of December 31, 1998, the Company had borrowed $17,000,000 on a revolving
line of credit from a major commercial bank to fund loan pool participation
investments and to provide additional capital to Pella State Bank, Central
Valley Bank, and On-Site Credit Services. The Company entered into this
revolving line of credit agreement on January 31, 1996, with an amendment to the
agreement as of December 29, 1998. The agreement provides for a maximum line of
$20,000,000 and matures on June 30, 1999. Additionally, as of December 31, 1998,
the Company's subsidiaries had borrowed $7.6 million in fixed-rate advances from
the Federal Home Loan Bank of Des Moines. The Company had no material
commitments for capital expenditures as of December 31, 1998. The Company's
common stock closed the year at a bid price of $16.875 per share, representing
1.61 times the book value per share of $10.51 on December 31, 1998. Tangible
book value per share was $8.99 on December 31, 1998, compared with $8.35 in
1997. The year-end stock price represented a price-to-1998 basic earnings per
share multiple of 13.4 times.

LIQUIDITY

Liquidity management involves the ability to meet the cash flow requirements of
depositors and borrowers. Liquidity management is conducted by the Company on
both a daily and long-term basis. The Company adjusts its investments in liquid
assets based upon management's assessment of expected loan demand, projected
loan sales, expected deposit flows, yields available on interest-bearing
deposits, and the objectives of its asset/liability management program. Excess
liquidity is invested generally in short-term U.S. Government and agency
securities, short-term state and political subdivision securities, and other
investment securities.

Liquid assets (including cash and federal funds sold) are maintained to meet
customer needs. The Company had liquid assets of $22,121,000 as of December 31,
1998, compared with $19,195,000 as of December 31, 1997. Investment securities
classified as available for sale and securities and loans maturing within one
year totaled $102,772,000 and $98,248,000 as of December 31, 1998 and 1997,
respectively. Assets maturing within one year combined with liquid assets on
December 31, 1998, were 53.7 percent and on December 31, 1997, were 47.4 percent
of total deposits as of the same dates.

The Company's principal sources of funds are deposits, advances from the Federal
Home Loan Bank, principal repayments on loans, proceeds from the sale of loans,
principal recoveries on loan pool participations, proceeds from the maturity and
sale of investment securities, its commercial bank line of credit, and funds
provided by operations. While scheduled loan amortization and maturing
interest-bearing deposits are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by economic conditions, the
general level of interest rates, and competition. Principal recoveries on loan
pool participations are also influenced by economic conditions and, to a lesser
extent, the interest rate environment. The Company utilizes particular sources
of funds based on comparative costs and availability. This includes fixed-rate
advances from the Federal Home Loan Bank which were obtained at a more favorable
cost than deposits. The Company generally manages the pricing of its deposits to
maintain a steady deposit base, but has from time to time decided not to pay
rates on deposits as high as its competition.

Net cash provided by operations is another major source of liquidity. The net
cash provided by operating activities was $6,589,000 in 1998, $6,017,000 in
1997, and $7,137,000 in 1996. This trend of strong cash from operations is
expected to continue into the foreseeable future.

BOOK VALUE PER SHARE

'94 $ 7.82
'95 8.49
'96 9.22
'97 10.03
'98 10.51

20
[LOGO] MAHASKA INVESTMENT COMPANY

The Company anticipates that it will have sufficient funds available to fund its
loan commitments. As of December 31, 1998, the Company had outstanding
commitments to originate loans of $18,755,000 and had no commitments to sell
loans. Certificates of deposit maturing in one year or less totaled $78,558,000
as of December 31, 1998. Management believes that a significant portion of these
deposits will remain with the Company.

The Company continues to seek acquisition opportunities that would strengthen
its presence in current and new market areas. On February 2, 1999, the Company
entered into a definitive agreement to acquire all the outstanding shares of
Midwest Bancshares, Inc. in a tax-free one-for-one exchange of Company shares.
It is intended that the transaction will be accounted for as a pooling of
interests and is expected to be consummated sometime in the third quarter of
1999, subject to shareholder and regulatory approvals. There are currently no
other pending acquisitions that would require the Company to secure capital from
public or private markets.

ASSET-LIABILITY MANAGEMENT

The Company's strategy with respect to asset-liability management is to maximize
net interest income while limiting exposure to risks associated with volatile
interest rates. This strategy is implemented by subsidiary banks'
asset-liability committees which take action based upon their analysis of
expected changes in the composition and volumes of the balance sheet and the
fluctuations in market interest rates. One of the measures of interest-rate
sensitivity is the gap ratio. This ratio indicates the amount of
interest-earning assets repricing within a given period in comparison to the
amount of interest-bearing liabilities repricing within the same period of time.
A gap ratio of 1.0 indicates a matched position, in which case the effect on net
interest income due to interest rate movements will be minimal. A gap ratio of
less than 1.0 indicates that more liabilities than assets reprice within the
time period and a ratio greater than 1.0 indicates that more assets reprice than
liabilities.

As of December 31, 1998, the Company's gap ratios for assets and liabilities
repricing within three months and within one year were .69 and .72,
respectively, meaning more liabilities than assets are scheduled to reprice
within these periods. This situation suggests that a decrease in market interest
rates may benefit net interest income and that an increase in interest rates may
negatively impact the Company. The gap position is largely the result of
classifying interest-bearing NOW accounts, money market accounts, and savings
accounts as immediately repriceable and the classification of loan pool
participations as repricing over a three-year period based on the historical
average for return of loan pool participations.

MARKET RISK MANAGEMENT

Market risk is the risk of earnings volatility that results from adverse changes
in interest rates and market prices. The Company's market risk is comprised
primarily of interest rate risk arising from its core banking activities of
lending and deposit taking. Interest rate risk results from changes in market
interest rates and changes in net interest income due to the repricing
characteristics of assets and liabilities. Management continually develops and
applies strategies to mitigate this risk. Management does not believe that the
Company's primary market risk exposures and how those exposures were managed in
1998 changed when compared to 1997.

The Company uses a third-party computer software simulation modeling program to
measure its exposure to potential interest rate changes. For various assumed
hypothetical changes in market interest rates, numerous other assumptions are
made such as prepayment speeds on loans and securities backed by mortgages, the
slope of the Treasury yield curve, the rates and volumes of the Company's
deposits, and the rates and volumes of the Company's loans. This analysis
measures the estimated change in net interest income in the event of
hypothetical changes in interest rates. The following table presents the
Company's projected changes in net interest income for the various rate shock
levels at December 31, 1998.

$ CHANGE % CHANGE
- --------------------------------------------------------------------------------

+300 bp........................................... $(468,000) -3%
+200 bp........................................... (326,000) -2
+100 bp........................................... (179,000) -1
Base.............................................. 0 0
-100 bp........................................... 170,000 +1
-200 bp........................................... 275,000 +2
-300 bp........................................... 424,000 +3

18/19 MANAGEMENT'S DISCUSSION & ANALYSIS

As shown on the preceding table, at December 31, 1998, the effect of an
immediate and sustained 300 basis point increase in interest rates would reduce
the Company's net interest income by 3 percent, or approximately $468,000. The
effect of an immediate and sustained 300 basis point decrease in rates would
increase the Company's net interest income by 3 percent, or approximately
$424,000.

Computations of the prospective effects of hypothetical interest rate changes
are based on numerous assumptions. Actual values may differ from those
projections set forth above. Further, the computations do not contemplate any
actions the Company may undertake in response to changes in interest rates.
Current interest rates on certain liabilities are at a level that does not allow
for significant repricing should market interest rates decline significantly.

LOAN QUALITY

Total loans increased 14.6 percent during 1998 to a year-end total of
$165,427,000. The $21,094,000 increase in loans from 1997 was mainly in the real
estate and commercial loan categories.

Nonperforming assets as of December 31, 1998, totaled $1,400,000. As of December
31, 1997, nonperforming loans totaled $1,848,000. The ratio of nonperforming
loans to total loans was .85 percent for year-end 1998 and was 1.28 percent for
year-end 1997.

The allowance for loan losses was $2,177,000 as of December 31, 1998, and
$1,816,000 as of year-end 1997. The allowance represented 1.32 percent of total
loans at December 31, 1998, and 1.26 percent of loans on December 31, 1997. The
allowance as a percentage of nonperforming assets was 155.5 percent on December
31, 1998, and was 98.2 percent as of year-end 1997. Net loan charge-offs for
1998 totaled $818,000, or .52 percent of average loans, compared with 1997 net
charge-offs of $92,000, or .07 percent of average loans. Much of the net loan
charge-off experienced in 1998 was attributable to three separate lines of
credit. Two of these lines were commercial loans that experienced financial
difficulties during the year. The other significant charge-off was a factoring
account that had been in litigation for an extended period of time. Although
management believes that the present level of the allowance for loan losses is
an adequate assessment of the risk inherent in the loan portfolio, there can be
no assurance that significant provisions for losses will not be required in the
future based on factors such as loan portfolio growth, deterioration of market
conditions, major changes in borrowers' financial conditions, delinquencies, and
defaults. Future provisions will continue to be determined in relation to
overall asset quality as well as other factors mentioned previously.

FUTURE PROSPECTS

Inflation can have a significant effect on the operating results of all
industries. Management believes that inflation does not affect the banking
industry as much as it does other industries with a high proportion of fixed
assets and inventory. Inflation does, however, have an impact on the growth of
total assets and the need to maintain a proper level of equity capital.

Interest rates are significantly affected by inflation, but it is difficult to
assess the impact since neither the timing nor the magnitude of changes in the
various inflation indices coincides with changes in interest rates. There is, of
course, an impact on longer-term earning assets; however, this effect continues
to diminish as investment maturities are shortened and interest-earning assets
and interest-bearing liabilities shift from fixed-rate long-term to
rate-sensitive short-term.

During 1998, the national inflation rate remained historically low. Interest
rates continued to decline throughout the year. Management of the Company
believes that the 1999 rate of inflation will remain consistent with 1998 and
that interest rates in 1999 will hold relatively stable. Given the Company's
negative gap position (greater amount of interest-bearing liabilities repricing
than interest-earning assets), a decrease in interest rates may improve the
Company's net interest margin through the year 1999. Conversely, if interest
rates do increase, the Company's net interest margin may deteriorate. Management
continues to focus on improving the net interest margin in 1999.

INTEREST AND DISCOUNT ON LOAN
POOL PARTICIPATIONS
(In thousands)

'94 $ 4,479
'95 7,864
'96 9,097
'97 8,474
'98 7,970

[LOGO] MAHASKA INVESTMENT COMPANY

Concerns with the uncertainty in the economy in general and the agricultural
economy in particular will continue in 1999. Management will continually
evaluate the situation. As a result of these uncertainties or due to adverse
developments in the agricultural economy or other industries, it is conceivable
that additional loan loss provisions could be necessary in 1999.

Management anticipates that in 1999 they will continue to explore opportunities
to acquire additional loan pool participation investments. Bids on pool
participations during the year will take into account the availability of funds
to invest, the market for such pools in terms of price and availability, and the
potential return on the pools relative to risk.

YEAR 2000 COMPLIANCE

A critical issue has emerged in the banking industry and for the economy overall
regarding how existing computer application software programs, operating
systems, and hardware can accommodate the date value for the year 2000. Many
existing application software products in the marketplace were designed only to
accommodate a two-digit date position which represents the year (e.g., "98" is
stored on the system and represents the year 1998). As a result, the year 1999
(i.e., "99") could be the maximum date value these systems will be able to
accurately process. This issue is an area of major emphasis as management is
actively working with its software and hardware vendors to assure that the
Company is compliant. Additionally, the Company is working with material non-
information system providers, including but not limited to security, telephone,
utilities, ATM cards, elevators, heating and cooling systems, check clearing
services, teller machines, and proof equipment to determine their Year 2000
compliance. An assessment of the readiness of vendors, significant customers,
and other third parties with which the Company does business is also underway.

The Company could be faced with severe consequences if Year 2000 issues are not
identified and resolved in a timely manner. A worst-case scenario would result
in the short-term inability to update customer financial records due to
unforeseen processing issues. This would result in customers being unable to
receive timely information regarding their account balances. In addition, a
worst-case scenario for the Company is that major suppliers of electricity,
communication links, and outside data processing services may fail in spite of
their best efforts to remediate their systems and in spite of our best efforts
to test their systems. The major risk as a result of these possibilities would
be a loss of customer confidence.

The Company has established Year 2000 Committees and Plans at its bank and
thrift subsidiaries, and formal project plans have been developed and adopted.
Testing and contingency plans have also been developed and adopted by the
Company's subsidiaries. Required testing procedures were completed prior to
December 31, 1998. Additional testing will continue in 1999 whenever new or
updated software is installed. In 1997, the Company purchased a new mainframe
computer system that is Year 2000 compliant at a cost of $430,000. This computer
system became fully operational in the first quarter of 1998 with the equipment
cost being depreciated over a five-year period beginning in 1998.

The Company's contingency plans include two components which are business
remediation and business resumption. The business remediation plan was developed
to mitigate the risk associated with the failure to successfully complete system
renovation, validation or implementation of the Company's Year 2000 readiness.
This plan pertains to mission-critical systems developed in-house, by outside
software vendors, and by third-party service providers. The business resumption
plan is designed to be implemented in the event there are system failures at
critical dates.

The Company anticipates that it will incur internal staff costs and other
expenses related to the enhancements necessary to become Year 2000 compliant.
Based on the Company's current knowledge, the expense related to Year 2000
compliance is not expected to have a material effect on the Company's financial
position or results of operations. It is estimated that the Company's total cost
for Year 2000 compliance will be approximately $35,000, exclusive of costs
associated with the new mainframe computer.

20/21 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

DECEMBER 31 (In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------

ASSETS:
Cash and due from banks ...................................................$ 9,292 10,854
Interest-bearing deposits in banks ........................................ 3,559 1,526
Federal funds sold ........................................................ 9,270 6,815
--------------------
Cash and cash equivalents ............................................... 22,121 19,195
--------------------
Investment securities (notes 2 and 8):
Available for sale ...................................................... 29,655 23,228
Held to maturity (fair value of $13,838 in 1998
and $19,869 in 1997) .................................................. 13,679 19,833
Loans, net of unearned discount (notes 3, 5, and 8) ....................... 165,427 144,333
Allowance for loan losses (note 4) ...................................... (2,177) (1,816)
--------------------
Net loans ............................................................. 163,250 142,517
--------------------
Loan pool participations .................................................. 54,510 54,326
Premises and equipment, net (note 6) ...................................... 4,043 4,183
Accrued interest receivable ............................................... 3,175 2,927
Other assets .............................................................. 7,956 8,664
--------------------
Total assets ..........................................................$298,389 274,873
====================

LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (notes 2 and 7):
Demand ..................................................................$ 23,029 21,277
NOW and Super NOW ....................................................... 34,214 33,226
Savings ................................................................. 59,758 59,020
Certificates of deposit ................................................. 115,732 101,785
--------------------
Total deposits ........................................................ 232,733 215,308
Federal Home Loan Bank advances (note 8) .................................. 7,595 6,000
Notes payable (note 9) .................................................... 17,000 14,050
Other liabilities ......................................................... 2,829 2,761
--------------------
Total liabilities ..................................................... 260,157 238,119
--------------------
Shareholders' equity:
Common stock, $5 par value; authorized 20,000,000 shares; issued and
outstanding 3,636,345 as of December 31, 1998, and 3,665,494 shares
as of December 31, 1997 ............................................... 19,038 19,038
Capital surplus ......................................................... 17 118
Treasury stock at cost, 171,156 and 142,007 shares as of
December 31, 1998 and 1997, respectively .............................. (2,799) (1,752)
Retained earnings (note 15) ............................................. 21,806 19,231
Accumulated other comprehensive income .................................. 170 119
--------------------
Total shareholders' equity ............................................ 38,232 36,754
--------------------
Commitments and contingencies (note 16) ................................. -- --
--------------------
Total liabilities and shareholders' equity ............................$298,389 274,873
====================

See accompanying notes to consolidated financial statements.

[LOGO] MAHASKA INVESTMENT COMPANY

CONSOLIDATED STATEMENTS OF INCOME

YEAR ENDED DECEMBER 31 (In thousands, except per share amounts) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------

INTEREST INCOME:
Interest and fees on loans ............................................... $ 15,026 12,293 10,203
Interest income and discount on loan pool participations ................. 7,970 8,474 9,097
Interest on bank deposits ................................................ 122 108 266
Interest on federal funds sold ........................................... 338 128 92
Interest on investment securities:
Available for sale ..................................................... 1,617 1,705 1,348
Held to maturity ....................................................... 893 1,249 1,623
-------------------------------
Total interest income ................................................ 25,966 23,957 22,629
-------------------------------
INTEREST EXPENSE:
Interest on deposits (note 7):
NOW and Super NOW ...................................................... 656 677 612
Savings ................................................................ 2,241 2,259 2,058
Certificates of deposit ................................................ 6,102 5,442 4,845
Interest on federal funds purchased ...................................... 12 32 48
Interest on Federal Home Loan Bank advances .............................. 405 138 --
Interest on notes payable ................................................ 1,074 764 968
-------------------------------
Total interest expense ................................................. 10,490 9,312 8,531
-------------------------------
Net interest income .................................................... 15,476 14,645 14,098
Provision for loan losses (note 4) ....................................... 1,179 417 987
-------------------------------
Net interest income after provision for loan losses .................. 14,297 14,228 13,111
-------------------------------

OTHER INCOME:
Service charges .......................................................... 1,215 1,130 922
Data processing income ................................................... 195 209 221
Other operating income ................................................... 389 408 437
Investment securities gains (losses), net (note 2) ....................... 58 (8) (74)
-------------------------------
Total other income ................................................... 1,857 1,739 1,506
-------------------------------

OTHER EXPENSE:
Salaries and employee benefits expense (note 13) ......................... 4,796 4,343 3,774
Net occupancy expense .................................................... 1,349 1,173 1,011
Federal Deposit Insurance Corporation assessment ......................... 47 42 282
Professional fees ........................................................ 394 407 459
Other operating expense .................................................. 1,750 1,717 1,683
Goodwill amortization .................................................... 612 633 529
-------------------------------
Total other expense .................................................. 8,948 8,315 7,738
-------------------------------
Income before income tax expense ..................................... 7,206 7,652 6,879
Income tax expense (note 11) ............................................. 2,583 2,594 2,385
-------------------------------
Net income ........................................................... $ 4,623 5,058 4,494
-------------------------------
Net income per share - basic ............................................. $ 1.26 1.38 1.20
-------------------------------
Net income per share - diluted ........................................... $ 1.20 1.33 1.19
-------------------------------

See accompanying notes to consolidated financial statements.

22/23 CONSOLIDATED FINANCIAL STATEMENTS

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 INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1995 ............ $11,423 7,787 (231) 13,070 57 32,106
---------------------------------------------------------------------------------

Comprehensive income:
Net income ............................ -- -- -- 4,494 -- 4,494
Unrealized losses arising during the
year on securities available
for sale ............................ -- -- -- -- (143) (143)
Plus realized losses on securities
available for securities, net
of tax .............................. -- -- -- -- 46 46
---------------------------------------------------------------------------------
Total comprehensive income ............ -- -- -- 4,494 (97) 4,397
---------------------------------------------------------------------------------
Dividends paid (.44 per share) .......... -- -- -- (1,638) -- (1,638)
Treasury stock purchased
(66,667 shares) ....................... -- -- (622) -- -- (622)
---------------------------------------------------------------------------------

Balance at December 31, 1996 ............ 11,423 7,787 (853) 15,926 (40) 34,243
=================================================================================

Comprehensive income:
Net income ............................ -- -- -- 5,058 -- 5,058
Unrealized gains arising during the
year on securities available
for sale ............................ -- -- -- -- 154 154
Plus realized losses on securities
available for sale, net of tax ...... -- -- -- -- 5 5
---------------------------------------------------------------------------------
Total comprehensive income ............ -- -- -- 5,058 159 5,017
---------------------------------------------------------------------------------
Dividends paid (.48 per share) .......... -- -- -- (1,753) -- (1,753)
Stock split effected in the form of a
dividend (five-for-three) ............. 7,615 (7,615) -- -- -- --
Stock options exercised
(65,970 shares) ....................... -- (54) 783 -- -- 729
Treasury stock purchased
(116,310 shares) ...................... -- -- (1,682) -- -- (1,682)
---------------------------------------------------------------------------------

Balance at December 31, 1997 ............ 19,038 118 (1,752) 19,231 119 36,754
=================================================================================

Comprehensive income:
Net income ............................ -- -- -- 4,623 -- 4,623
Unrealized gains arising during the
year on securities available
for sale ............................ -- -- -- -- 88 88
Less realized gains on securities
available for securities, net
of tax .............................. -- -- -- -- (37) (37)
---------------------------------------------------------------------------------
Total comprehensive income ............ -- -- -- 4,623 51 4,674
---------------------------------------------------------------------------------
Dividends paid (.56 per share) .......... -- -- -- (2,048) -- (2,048)
Stock options exercised
(58,219 shares) ....................... -- (101) 790 -- -- 689
Treasury stock purchased
(87,368 shares) ....................... -- -- (1,837) -- -- (1,837)
---------------------------------------------------------------------------------

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

See accompanying notes to consolidated financial statements.
26

[LOGO] MAHASKA INVESTMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31 (in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ...................................................................... $ 4,623 5,058 4,494
---------------------------------------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 1,247 1,129 930
Provision for loan losses ..................................................... 1,179 417 987
Investment securities (gains) losses, net ..................................... (58) 8 74
Loss on sale of bank premises and equipment ................................... -- 14 7
Amortization of premiums on investment securities ............................. 155 225 301
Accretion of investment securities and loan discounts ......................... (447) (578) (353)
(Increase) decrease in other assets ........................................... (152) (759) 256
Increase in other liabilities ................................................. 42 503 441
---------------------------------------------
Total adjustments ........................................................... 1,966 959 2,643
---------------------------------------------
Net cash provided by operating activities ................................... 6,589 6,017 7,137
---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities available for sale:
Proceeds from sales ........................................................... 3,205 1,994 6,022
Proceeds from maturities ...................................................... 5,810 10,807 3,285
Purchases ..................................................................... (15,347) (9,330) (24,310)
Investment securities held to maturity:
Proceeds from maturities ...................................................... 10,390 9,639 8,611
Purchases ..................................................................... (4,333) (1,936) (5,698)
Purchases of loan pool participations ........................................... (25,710) (25,589) (29,827)
Principal recovery on loan pool participations .................................. 25,526 21,950 24,458
Net increase in loans ........................................................... (21,483) (26,450) (17,227)
Purchase of bank premises and equipment ......................................... (495) (1,615) (650)
Proceeds from sale of bank premises and equipment ............................... -- 24 12
Proceeds from branch acquisition, net ........................................... -- -- 14,246
---------------------------------------------
Net cash used in investing activities ....................................... (22,437) (20,506) (21,078)
---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ........................................................ 17,425 8,356 13,364
Federal Home Loan Bank advances ................................................. 8,000 11,600 --
Repayment of Federal Home Loan Bank advances .................................... (6,405) (5,600) --
Advances on notes payable ....................................................... 7,450 6,550 6,400
Principal payments on notes payable ............................................. (4,500) (1,000) (7,900)
Dividends paid .................................................................. (2,048) (1,753) (1,638)
Purchases of treasury stock ..................................................... (1,837) (1,682) (622)
Proceeds from exercise of stock options ......................................... 689 729 --
---------------------------------------------
Net cash provided by financing activities ................................... 18,774 17,200 9,604
---------------------------------------------
Net increase (decrease) in cash and cash equivalents ........................ 2,926 2,711 (4,337)
Cash and cash equivalents at beginning of year .................................. 19,195 16,484 20,821
---------------------------------------------
Cash and cash equivalents at end of year ........................................ $ 22,121 19,195 16,484
=============================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ...................................................................... $ 10,382 9,299 8,299
=============================================
Income taxes .................................................................. $ 2,128 2,894 2,239
=============================================

See accompanying notes to consolidated financial statements.

24/25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1998, 1997, AND 1996

1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Mahaska Investment Company and
subsidiaries (the "Company") conform to generally accepted accounting principles
and to general practices within the banking industry. The consolidated financial
statements of the Company include the accounts of its 100 percent owned
subsidiaries, Mahaska State Bank, Central Valley Bank, Pella State Bank, and
On-Site Credit Services. All material intercompany transactions have been
eliminated in consolidation.

FORMATION OF PELLA STATE BANK

Pella State Bank is a full service, state-chartered, commercial bank which was
formed as a de novo institution by the Company in December 1997. The Company
provided initial capitalization of $5,000,000 to Pella State Bank from cash on
hand and an advance on its commercial bank line of credit.

BANK OFFICE ACQUISITION

On June 21, 1996, Central Valley Bank acquired the Sigourney, Iowa, bank office
of Boatmen's Bank Iowa, N.A. and assumed approximately $32.1 million in deposits
and purchased certain loans totaling approximately $14.6 million. Central Valley
Bank's existing branch facility in Sigourney was consolidated into the newly
acquired facility. A premium of approximately $3.0 million was paid by Central
Valley Bank to acquire the deposits. The acquisition was accounted for as a
purchase transaction and, as such, did not require any restatement of prior
period financial statements.

NATURE OF OPERATIONS

The bank subsidiaries engage in retail and commercial banking and related
financial services, providing the usual products and services such as deposits,
commercial, real estate, and consumer loans, and trust services. Mahaska State
Bank also provides data processing services to affiliated and non-affiliated
banks. On-Site Credit Services provides equipment leasing and accounts
receivable financing.

Since 1988, the Company, either directly or through the bank subsidiaries, has
invested in loan pool participations that have been purchased by certain
non-affiliated independent service corporations (collectively, the "Servicer")
from the Federal Deposit Insurance Corporation ("FDIC"), the Resolution Trust
Corporation ("RTC"), or other sources. These loan pool investments are comprised
of packages of loans previously made by financial institutions, which often
include distressed or nonperforming loans, that have been sold at prices
reflecting varying discounts from the aggregate outstanding principal amount of
the underlying loans depending on the credit quality of the portfolio. The
Servicer collects and remits these amounts, less servicing fees, to the
participants.

EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS

The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income, effective January 1, 1998. SFAS No. 130 establishes the standards for
the reporting and display of comprehensive income in the financial statements.
Comprehensive income represents net income and certain amounts reported directly
in shareholders' equity, such as the net unrealized gain or loss on
available-for-sale securities. The statement requires additional disclosures in
the consolidated financial statements; it does not affect the Company's
financial position or results of operations. Prior year consolidated financial
statements have been reclassified to conform to the requirements of SFAS No.
130.

The Company adopted the provisions of SFAS No. 131, Disclosure about Segments of
an Enterprise and Related Information, effective January 1, 1998. SFAS No. 131
establishes disclosure requirements for segment operations. The adoption had no
effect on the Company's financial statement disclosures because the Company
operates as a single business segment.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, will
be effective for the Company for the year beginning January 1, 2000. Management
is evaluating the impact the adoption of SFAS No. 133 will have on the Company's
consolidated financial statements. The Company expects to adopt SFAS No. 133
when required.

[LOGO] MAHASKA INVESTMENT COMPANY

EARNINGS PER SHARE

Basic earnings per share amounts are computed by dividing net income by the
weighted average number of shares outstanding during the year. Diluted earnings
per share amounts are computed by dividing net income by the weighted average
number of shares and all dilutive potential shares outstanding during the year.
In November 1997, the Company issued a five-for-three stock split in the form of
a dividend. All prior year share amounts have been restated to reflect this
stock dividend. The Company has had a Stock Repurchase Plan in effect since
April 1995. In accordance with this plan, 87,368, 116,310 and 66,667 shares of
common stock were repurchased by the Company during 1998, 1997, and 1996,
respectively. The following information was used in the computation of earnings
per share on both a basic and diluted basis for the years ended December 31,
1998, 1997 and 1996:

(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------

BASIC EPS COMPUTATION
Numerator:
Net Income ............................................................... $4,623 5,058 4,494
-------------------------
Denominator:
Average Shares Outstanding ............................................... 3,660 3,653 3,744
-------------------------
Basic EPS .................................................................. $ 1.26 1.38 1.20
-------------------------

DILUTED EPS COMPUTATION
Numerator:
Net Income ............................................................... $4,623 5,058 4,494
-------------------------
Denominator:
Average Shares Outstanding ............................................... 3,660 3,653 3,744
Stock Options ............................................................ 182 137 28
-------------------------
3,842 3,790 3,772
-------------------------
Diluted EPS ................................................................ $ 1.20 1.33 1.19
=========================

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates do not
reflect any premium or discount that could result from offering the Company's
entire holdings of a particular financial instrument for sale at one time.
Unless included in assets available for sale, it is the Company's general
practice and intent to hold its financial instruments to maturity and not to
engage in trading or sale activities.

Fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.

Estimated fair values have been determined by the Company using the best
available data and an estimation method suitable for each category of financial
instruments.

CASH AND DUE FROM BANKS

The Company is required to maintain certain daily reserve balances on hand in
accordance with federal banking regulations. The average reserve balances
maintained in accordance with such regulations for the years ended December 31,
1998, 1997, and 1996 were $1,048,000, $897,000 and $835,000, respectively.

26/27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVESTMENT SECURITIES

The Company classifies its investment securities based on the intended holding
period. Securities which may be sold prior to maturity to meet liquidity needs,
to respond to market changes, or to adjust the Company's asset-liability
position are classified as available for sale. Securities held principally for
the purpose of near-term sales are classified as trading. Securities which the
Company intends to hold until maturity are classified as held to maturity.

Investment securities available for sale are recorded at fair value. The
aggregate unrealized gains or losses, net of the income tax effect, are recorded
as a component of other comprehensive income until realized. Securities held to
maturity are recorded at cost, adjusted for amortization of premiums and
accretion of discounts.

Net gains or losses on the sales of securities are shown in the consolidated
statements of income using the specific identification method.

LOANS

Loans are stated at the principal amount outstanding, net of unearned discount
and allowance for loan losses. Unearned discount on installment loans is
transferred to income over the term of the loan using the level-yield method.
Interest on all other loans is credited to income as earned based on the
principal amount outstanding.

It is the Company's policy to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Nonaccrual loans are returned to
an accrual status when, in the opinion of management, the financial position of
the borrower indicates there is no longer any reasonable doubt as to timely
payment of principal or interest.

CONCENTRATIONS OF CREDIT RISK

The Company originates real estate, consumer, and commercial loans primarily in
its southeast Iowa market area and adjacent counties. Although the Company has a
diversified loan portfolio, a substantial portion of its borrowers' ability to
repay their loans is dependent upon economic conditions in the Company's market
area.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes collectibility of the principal is unlikely.

Management believes the allowance for loan losses is adequate to absorb losses
in the loan portfolio. While management uses available information to recognize
loan losses, future additions to the allowance may be necessary based on changes
in economic conditions. In addition, various regulatory agencies, as an integral
part of the examination process, periodically review the subsidiary banks'
allowance for loan losses. Such agencies may require the subsidiary banks to
increase their allowance for loan losses based on their judgments and
interpretations about information available to them at the time of their
examinations.

LOAN POOL PARTICIPATIONS

The Company has invested in participations in pools of loans acquired from the
FDIC, the RTC, and other sources at substantial discounts. The pools, all
acquired since 1988, consist of loans to borrowers located throughout the United
States.

The Company carries its investment in the loan pools as a separate earning asset
on its balance sheet. Principal or interest restructures, write-downs, or
write-offs within the pools are not included in the Company's disclosures for
its loan portfolio.

The loan pools are managed by the Servicer operating in Omaha, Nebraska, the
sole incentive of which is cash collection without regard to principal or income
allocation of the payment. The investment in loan pools is accounted for on a
nonaccrual basis. For loans receiving regular payments, cash is applied first to
interest income for interest due at the contract rate. Additional payment is
then applied to principal in a ratio of cost basis to loan face amount and to
discount income for the remainder.

For loans where payments are received on an irregular basis, the Servicer
evaluates the collateral position of the loan and, where well-secured, the
payments are applied as described above. When the loan is judged to be other
than

30
[LOGO] MAHASKA INVESTMENT COMPANY

well-secured, the payment is applied to principal and discount income with no
recognition of interest due at the contract rate.

For loans where the circumstances or new information lead the Servicer to
believe that collection of the note or recovery through collateral is less than
originally determined, the cost basis assigned to the loan is written down or
off through a charge to discount income.

For loans where the Servicer negotiates a settlement of the obligation for a
lump sum, the payment is applied first to principal, then to discount income and
last to interest due at the contract rate.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line or accelerated method over the
estimated useful lives of respective assets, which range from 5 to 40 years for
building and improvements and 3 to 10 years for furniture and equipment.

EXCESS OF COST OVER UNDERLYING NET ASSETS

The excess of cost over underlying net assets of $5,550,000, $6,162,000 and
$6,795,000 at December 31, 1998, 1997, and 1996, respectively, is being
amortized primarily using the straight-line method over 15 years. Amortization
expenses for 1998, 1997, and 1996 were $612,000, $633,000 and $529,000,
respectively.

OTHER REAL ESTATE OWNED

Other real estate owned represents property acquired through foreclosure or
deeded to the subsidiary banks in lieu of foreclosure on real estate mortgage
loans on which the borrowers have defaulted as to payment of principal and
interest. Other real estate owned is carried at the lower of the cost of
acquisition or the asset's fair market value, less estimated costs of
disposition, and is included in other assets on the consolidated balance sheets.
Reductions in the balance of other real estate at the date of acquisition are
charged to the allowance for loan losses. Expenses incurred subsequent to the
acquisition of the property and any subsequent write-downs to reflect current
fair market value are charged as noninterest expense as incurred. Gains or
losses on the disposition of other real estate are recognized in other income or
expense in the period in which they are realized.

Other real estate owned of $12,000 at December 31, 1998 and 1997 was included in
other assets.

TRUST DEPARTMENT ASSETS

Property held for customers in fiduciary or agency capacities is not included in
the accompanying consolidated balance sheets, as such items are not assets of
the Company.

INCOME TAXES

The Company files a consolidated federal income tax return. Federal income taxes
are allocated based on each entity computing its taxes on a separate company
basis. For state purposes, the bank subsidiaries each file a franchise return
and the remaining entities file a consolidated income tax return.

STATEMENTS OF CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest-bearing deposits in banks, and federal funds sold.

RECLASSIFICATIONS

Certain reclassifications have been made to prior years' consolidated financial
statements in order to conform to current year presentation.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. A significant estimate that is
particularly sensitive to change relates to the allowance for loan losses.

28/29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 | INVESTMENT SECURITIES
A summary of investment securities by type as of December 31, 1998 and 1997,
follows:

GROSS GROSS APPROX.
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 (In thousands) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------

INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. government securities ...................... $ 4,501 102 -- 4,603
U.S. government agency securities ............... 18,257 164 13 16,408
Other investment securities ..................... 8,627 29 12 8,644
---------------------------------------------
Total ......................................... $ 29,385 295 25 29,655

INVESTMENT SECURITIES HELD TO MATURITY:
U.S. government agency securities ............... $ 1,290 26 -- 1,316
Obligations of states and political subdivisions. 8,291 127 9 8,409
Other investment securities .................... 4,098 15 -- 4,113
---------------------------------------------
Total ........................................ $ 12,679 168 9 13,838

GROSS GROSS APPROX.
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997 (In thousands) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------

INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. government securities ..................... $ 4,506 57 -- 4,563
U.S. government agency securities .............. 15,177 143 7 15,313
Other investment securities .................... 3,352 5 5 3,352
---------------------------------------------
Total ........................................ $ 23,035 205 12 23,228
=============================================
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. government securities ..................... $ 5,046 -- 12 5,034
U.S. government agency securities .............. 2,885 34 5 2,914
Obligations of states and political
subdivisions .................................. 6,793 52 18 6,827
Other investment securities .................... 5,109 -- 15 5,094
---------------------------------------------
Total ........................................ $ 19,833 86 50 19,869
=============================================

Proceeds from the sale of investment securities available for sale during 1998,
1997, and 1996 were $3,205,000, $1,994,000, and $6,022,000, respectively. Gross
gains and losses realized on the sale of investment securities available for
sale for each of the following years ended December 31 were as follows:

(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------

Realized gains ...................................................... $ 58 -- 6
Realized losses ..................................................... -- (8) (80)
-------------------------
Total ............................................................. $ 58 (8) (74)
=========================

As of December 31, 1998 and 1997, investment securities of approximately
$9,557,000 and $16,103,000, respectively, were pledged as collateral to secure
public fund deposits and for other purposes required or permitted by law. Public
funds approximated $27,181,000 and $25,781,000 at December 31, 1998 and 1997,
respectively.

The amortized cost and approximate fair value of investment securities as of
December 31, 1998, by contractual maturity, are shown as follows. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.

[LOGO] MAHASKA INVESTMENT COMPANY

AMORTIZED APPROXIMATE
(In thousands) COST FAIR VALUE
- ------------------------------------------------------------------------------------------------

INVESTMENT SECURITIES AVAILABLE FOR SALE:
Due in 1 year or less .................................................... $ 4,005 4,011
Due after 1 year through 5 years ......................................... 17,734 17,869
Due after 5 years through 10 years ....................................... 2,043 2,078
Due after 10 years ....................................................... 5,603 5,697
---------------------
Total .................................................................. $ 29,385 29,655
---------------------

INVESTMENT SECURITIES HELD TO MATURITY:
Due in 1 year or less .................................................... $ 4,496 4,514
Due after 1 year through 5 years ......................................... 6,598 6,691
Due after 5 years through 10 years ....................................... 1,467 1,506
Due after 10 years ....................................................... 1,118 1,127
---------------------
Total .................................................................. $ 13,679 13,838
=====================

3 | LOANS
A summary of the respective loan categories as of December 31, 1998 and 1997,
follows:

(In thousands) 1998 1997
- ------------------------------------------------------------------------------------------------

Real estate loans ........................................................ $ 82,587 72,303
Commercial and agricultural loans ........................................ 66,463 55,977
Loans to individuals ..................................................... 12,847 13,268
Other loans .............................................................. 3,530 2,785
---------------------
Total .................................................................... $165,427 144,333
=====================

Total nonperforming loans and assets at December 31, 1998 and 1997, were:

(In thousands) 1998 1997
- ------------------------------------------------------------------------------------------------

Impaired loans and leases:
Nonaccrual ............................................................. $ 561 927
Restructured ........................................................... 164 387
---------------------
Total impaired loans and leases ..................................... 725 1,314
Loans and leases past due 90 days or more ................................ 663 522
---------------------
Total nonperforming loans ................................................ 1,388 1,836
Other real estate owned .................................................. 12 12
---------------------
Total nonperforming assets ............................................... $ 1,400 1,848
=====================

The average balances of nonperforming loans for the years ended December 31,
1998 and 1997, were $1,626,000 and $1,669,000, respectively. The allowance for
credit losses related to nonperforming loans at December 31, 1998 and 1997, was
$103,000 and $368,000, respectively. Nonperforming loans of $1,343,000 and
$902,000 at December 31, 1998 and 1997, respectively, were not subject to a
related allowance for credit losses because of the net realizable value of loan
collateral, guarantees and other factors. The effect of nonaccrual and
restructured loans on interest income for each of the three years ended December
31, 1998, 1997, and 1996 was:

(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------

INTEREST INCOME:
As originally contracted .......................................... $ 126 213 131
As recognized ..................................................... 17 91 41
-------------------------
Reduction of interest income ................................... $ 109 122 90
=========================

33
30/31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4 | ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses for the years ended December 31, 1998,
1997, and 1996 were as follows:

(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------

Balance at beginning of year ....................................... $1,816 1,491 1,001
Provision for loan losses .......................................... 1,179 417 987
Recoveries on loans previously charged off ......................... 22 45 38
Loans charged off .................................................. (840) (137) (705)
Acquisition allowance .............................................. -- -- 170
-------------------------
Balance at end of year ............................................. $2,177 1,816 1,491
=========================

5 | LOANS TO RELATED PARTIES

Certain directors and officers of the Company, including their immediate
families and companies in which they are principal owners, were loan customers
of the Company's subsidiaries. All loans to this group were made in the ordinary
course of business at prevailing terms and conditions. The loan activity of this
group included in loans as of December 31, 1998 and 1997, was as follows:

(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------

Aggregate balance at beginning of year .................................... $ 7,633 6,421
Advances .................................................................. 12,829 10,334
Payments .................................................................. 12,442 9,122
-------------------
Aggregate balance at end of year .......................................... $ 8,020 7,633
===================

6 | PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31, 1998 and 1997 was as
follows:

(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------

Land and improvements .................................................... $ 603 603
Building and improvements ................................................ 3,670 3,571
Furniture and equipment .................................................. 4,962 4,614
-------------------
Total office properties and equipment at cost .......................... 9,235 8,788
Less accumulated depreciation ............................................ 5,192 4,605
-------------------
Total .................................................................. $ 4,043 4,183
===================

7 | DEPOSITS
The scheduled maturities of certificate accounts are as follows as of December
31, 1998:

(In thousands)
- --------------------------------------------------------------------------------

1999 ................................................................. $ 78,558
2000 ................................................................. 23,420
2001 ................................................................. 9,087
2002 ................................................................. 3,062
2003 ................................................................. 1,605
Thereafter ........................................................... --
---------
Total .............................................................. $ 115,732
=========

Time deposits in excess of $100,000 approximated $24,468,000 and $19,755,000 as
of December 31, 1998 and 1997, respectively. Interest expense on such deposits
for the years ended December 31, 1998, 1997, and 1996 was approximately
$1,189,000, $871,000, and $663,000, respectively.

[LOGO] MAHASKA INVESTMENT COMPANY

8 | FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1998 and 1997, Federal Home Loan Bank (FHLB) advances consisted
of the following:

WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
(in thousands) 1998 INTEREST RATE 1997 INTEREST RATE
- -------------------------------------------------------------------------------------------------

Maturity in year ending
1998 .......................................... $ -- --% 1,000 5.82%
1999 .......................................... 3,027 5.96 3,000 5.96
2000 .......................................... 2,029 6.01 2,000 6.02
2001 .......................................... 30 5.40 -- --
Over 3 Years .................................. 2,509 5.07 -- --
-------------------------------------------------
Total ....................................... $ 7,595 6,000
=================================================

Advances from the FHLB are secured by stock in the FHLB. In addition, Mahaska
State Bank has pledged certain U.S. Agency securities, and Central Valley Bank
and Pella State Bank have agreed to maintain unencumbered additional security in
the form of certain residential mortgage loans aggregating not less than 125
percent and 150 percent of outstanding advances, respectively.

9 | NOTES PAYABLE
The notes payable balance at December 31, 1998, consists of advances on a
$20,000,000 line of credit. The line has a variable interest rate and is due
June 30, 1999. The current notes are secured by all of the common stock of the
subsidiaries. Interest is payable quarterly at 3/8 below the lender's prime
rate, which ranged from 7 3/8 percent to 8 1/2 percent in 1998.

32/33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10 | FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's financial instruments as of December 31, 1998
and 1997, were as follows:

CARRYING FAIR
1998 (In thousands) VALUE VALUE
- -----------------------------------------------------------------------------------------------

FINANCIAL ASSETS:
Cash and due from banks .................................................. $ 9,292 9,292
Interest-bearing deposits with banks ..................................... 3,559 3,559
Federal funds sold ....................................................... 9,270 9,270
Investment securities .................................................... 43,334 43,493
Loans, net ............................................................... 163,250 163,809
Loan pool participations ................................................. 54,510 54,510

FINANCIAL LIABILITIES:
Deposits ................................................................. $232,733 233,444
Federal Home Loan Bank advances .......................................... 7,595 7,609
Notes payable ............................................................ 17,000 17,000

OFF BALANCE SHEET ITEMS:
Commitments to extend credit ............................................. $ -- --
Letters of credit ........................................................ -- --

CARRYING FAIR
1997 (In thousands) VALUE VALUE
- -----------------------------------------------------------------------------------------------

FINANCIAL ASSETS:
Cash and due from banks .................................................. $ 10,854 10,854
Interest-bearing deposits with banks ..................................... 1,526 1,526
Federal funds sold ....................................................... 6,815 6,815
Investment securities .................................................... 43,061 43,097
Loans, net ............................................................... 142,517 143,405
Loan pool participations ................................................. 54,326 54,326

FINANCIAL LIABILITIES:
Deposits ................................................................. $215,308 216,494
Federal Home Loan Bank advances .......................................... 6,000 6,000
Notes payable ............................................................ 14,050 14,050

OFF BALANCE SHEET ITEMS:
Commitments to extend credit ............................................. $ -- --
Letters of credit ........................................................ -- --

The recorded amount of cash and due from banks, interest-bearing deposits with
banks, and federal funds sold approximates fair value.

The estimated fair value of investment securities has been determined using
available quoted market prices.

The estimated fair value of loans is net of an adjustment for credit risk. For
loans with floating interest rates, it is presumed that estimated fair values
generally approximate the recorded book balances. Fixed rate loans were valued
using a present value discounted cash flow with a discount rate approximating
the market rate for similar assets.

The recorded amount of the loan pools participations approximates fair value due
to the characteristics of the loan pool participations. Any additional value
attained in the loan pool participations over purchase cost is directly
attributable to the expertise of the Servicer to collect a higher percentage of
the book value of loans in the pools over the percentage paid.

[LOGO] MAHASKA INVESTMENT COMPANY

Deposit liabilities with no stated maturities have an estimated fair value equal
to the recorded balance. Deposits with stated maturities have been valued using
a present value discounted cash flow with a discount rate approximating the
current market for similar deposits. The fair value estimate does not include
the benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market. The Company
believes the value of these depositor relationships to be significant.

The estimated fair value of the Federal Home Loan Bank advances was determined
using a present-value discounted cash flow with a discount rate approximating
the current market for similar borrowings.

The recorded amount of the notes payable approximates fair value as a result of
the short-term nature of these instruments.

The fair value of commitments to extend credit and standby letters of credit are
estimated using the fees currently charged to enter into similar agreements.

11 | INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998, 1997, and
1996 is as follows:

1998 (In thousands) FEDERAL STATE TOTAL
- -----------------------------------------------------------------------------------------------

Current ........................................................... $2,297 370 2,667
Deferred .......................................................... (57) (27) (84)
-------------------------
$2,240 343 2,583
=========================

1997 (In thousands) FEDERAL STATE TOTAL
- -----------------------------------------------------------------------------------------------

Current ........................................................... $2,389 350 2,739
Deferred .......................................................... (133) (12) (145)
-------------------------
$2,256 338 2,594
=========================

1996 (In thousands) FEDERAL STATE TOTAL
- -----------------------------------------------------------------------------------------------

Current ........................................................... $2,198 276 2,474
Deferred .......................................................... (89) -- (89)
-------------------------
$2,109 276 2,385
=========================

Income tax expense differs from the amount computed by applying the United
States federal income tax rate of 34 percent in 1998, 1997, and 1996 to income
before income tax expense. The reasons for these differences are as follows:

(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------

Provision at statutory rate ......................................... $2,450 2,602 2,239
State franchise tax (net of federal tax benefit) .................... 227 223 182
Nontaxable interest income .......................................... (113) (115) (144)
Nondeductible goodwill amortization ................................. 21 21 21
Life insurance cash value increase .................................. (26) (26) (31)
Other, net .......................................................... 24 (111) 18
-------------------------
Total ............................................................. $2,583 2,594 2,385
=========================

37
34/35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1998 and 1997, are as
follows:

(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------

DEFERRED TAX ASSETS:
Allowance for loan losses ................................................. $ 569 438
Deferred compensation ..................................................... 72 79
Premium amortization ...................................................... 73 58
-------------------
Gross deferred tax assets ............................................... 714 575
-------------------

DEFERRED TAX LIABILITIES:
Depreciation and amortization ............................................. (105) (94)
Federal Home Loan Bank stock .............................................. (11) (17)
Deferred loan fees ........................................................ (87) (70)
Unrealized gain on available for sale securities .......................... (100) (74)
Other ..................................................................... (49) (15)
-------------------
Gross deferred tax liabilities .......................................... (352) (270)
-------------------
Net deferred tax asset .................................................. $ 362 305
-------------------

No valuation allowance was required for the deferred tax asset at December 31,
1998 or 1997.

12 | STOCK INCENTIVE PLAN

The Company has a stock incentive plan under which up to 750,000 shares of
common stock are reserved for issuance pursuant to options or other awards which
may be granted to officers, key employees, and certain non-affiliated directors
of the Company. The exercise price of each option equals the market price of the
Company's stock on the date of grant. The option's maximum term is ten years,
with vesting occurring at the rate of thirty-three percent on the one-year
anniversary of date of grant, sixty-six percent vesting on the two-year
anniversary, and one hundred percent vesting on the three-year anniversary of
date of grant. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, no compensation cost
has been recognized for its stock options in the financial statements. Had
compensation cost for the Company's stock incentive plan been determined
consistent with SFAS No. 123, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below:

(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------

NET INCOME:
As reported .............................................................. $ 4,623 5,058
Pro forma ................................................................ 4,362 4,770
NET INCOME PER SHARE:
As reported - basic ...................................................... $ 1.26 1.38
As reported - diluted .................................................... 1.20 1.33
Pro forma - basic ........................................................ 1.19 1.31
Pro forma - diluted ...................................................... 1.18 1.28

The fair value of each option grant has been estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1998 and 1997, respectively: dividend yield of 2.80 percent for 1998
and 2.80 percent for 1997; expected volatility of 24 percent for 1998 and 25
percent for 1997; risk free interest rates of 4.71 percent for 1998 and 5.74
percent for 1997; and expected lives of 7.5 years for both years.

[LOGO] MAHASKA INVESTMENT COMPANY

A summary of the status of the Company's stock incentive plan as of December 31,
1998 and 1997, and the activity during the years ended on those dates is
presented below:

1998 1997
-------------------------- ------------------------
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
- ------------------------------------------------------------------------------------------------------------------------------

Balance at beginning of year ............................................ 519,769 $ 7.50-19.875 440,827 $ 7.50-11.10
Granted ................................................................. 43,041 16.875-22.00 151,819 11.10-19.875
Exercised ............................................................... 58,219 7.50-13.95 65,970 7.50-9.00
Forfeited ............................................................... 7,292 11.10-22.00 6,907 9.00-11.10
------- -------
Outstanding at end of year .............................................. 497,299 $ 7.50-22.00 519,769 $ 7.50-19.875
Options exercisable at year-end ......................................... 363,494 $ 7.50-19.875 308,671 $ 7.50-19.875
Weighted-average fair value of options granted during the year $ 4.65 $ 4.65

13 | EMPLOYEE BENEFIT PLANS

The Company maintains an employee stock ownership plan ("ESOP") covering
substantially all employees meeting minimum age and service requirements.
Contributions are determined by the board of directors of each subsidiary.
Contributions relating to the plan were $161,000, $142,000 and $114,000 for
1998, 1997, and 1996, respectively. As of December 31, 1998 and 1997, the ESOP
owned 417,667 and 421,025 shares of the Company's Common Stock, respectively.

A 401(k) plan was adopted by the Company in 1994. The Company does not make any
contributions to this plan. The Company has also provided deferred compensation
plans to certain executive officers, which provide for a series of payments to
be made after retirement. The present value of the future payments is being
accrued over the respective employees' remaining active service periods. The
total expense related to these plans was ($19,000), $39,000 and $33,000 for the
years ended December 31, 1998, 1997, and 1996, respectively.

The Company provides no material post-retirement benefits.

36/37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14 | REGULATORY CAPITAL REQUIREMENTS

The Company is subject to various capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possible additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require the Company to
maintain minimum amounts and ratios (set forth in the following table) of total
capital and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
average assets. Management believes, as of December 31, 1998, that the Company
meets all capital adequacy requirements to which it is subject.The Company and
significant subsidiaries actual capital amounts and ratios are also presented in
the following table.

TO BE WELL CAPITALIZED
MINIMUM FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------------------------------------------

AS OF DECEMBER 31, 1998:
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated .................................................$34,858 14.9% $18,656 8.0% N/A N/A
Mahaska State Bank ........................................... 15,638 11.2 11,162 8.0 $13,953 10.0%
Central Valley Bank .......................................... 8,364 14.0 4,763 8.0 5,954 10.0
Pella State Bank ............................................. 4,924 44.3 890 8.0 1,113 10.0
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated .................................................$32,682 14.0% $ 9,328 4.0% N/A N/A
Mahaska State Bank ........................................... 14,518 10.4 5,581 4.0 $ 8,372 6.0%
Central Valley Bank .......................................... 7,966 13.4 2,382 4.0 3,572 6.0
Pella State Bank ............................................. 4,765 42.8 445 4.0 668 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Consolidated .................................................$32,682 11.3% $ 8,682 3.0% N/A N/A
Mahaska State Bank ........................................... 14,518 8.6 5,041 3.0 $ 8,402 5.0%
Central Valley Bank .......................................... 7,966 9.3 2,569 3.0 4,282 5.0
Pella State Bank ............................................. 4,765 33.8 423 3.0 705 5.0

AS OF DECEMBER 31, 1997:
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated .................................................$32,408 15.6% $16,602 8.0% N/A N/A
Mahaska State Bank ........................................... 16,084 12.2 10,541 8.0 $13,176 10.0%
Central Valley Bank .......................................... 7,055 12.7 4,428 8.0 5,536 10.0
Pella State Bank ............................................. 4,940 207.1 191 8.0 239 10.0
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated .................................................$30,592 14.7% $ 8,301 4.0% N/A N/A
Mahaska State Bank ........................................... 15,022 11.4 5,270 4.0 $ 7,905 6.0%
Central Valley Bank .......................................... 6,756 12.2 2,214 4.0 3,321 6.0
Pella State Bank ............................................. 4,926 206.5 95 4.0 14 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Consolidated .................................................$30,592 11.8% $ 7,773 3.0% N/A N/A
Mahaska State Bank ........................................... 15,022 9.1 4,946 3.0 $ 8,244 5.0%
Central Valley Bank .......................................... 6,756 8.9 2,278 3.0 3,796 5.0
Pella State Bank ............................................. 4,926 378.5 39 3.0 65 5.0

[LOGO] MAHASKA INVESTMENT COMPANY

15 | DIVIDEND RESTRICTIONS

The Company derives a substantial portion of its cash flow, including that
available for dividend payments to shareholders, from its bank subsidiaries in
the form of dividends received. The bank subsidiaries are subject to certain
statutory and regulatory restrictions that affect dividend payments. Based on
minimum regulating guidelines as published by those regulators, the maximum
dividends which could be paid by the bank subsidiaries to the Company at
December 31, 1998, approximated $12,271,000.

16 | COMMITMENTS AND CONTINGENCIES

The Company is a party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of its customers,
which include commitments to extend credit. The Company's exposure to credit
loss in the event of nonperformance by the other party to the commitments to
extend credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments as it does for
on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any conditions established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. As of December 31, 1998 and 1997,
outstanding commitments to extend credit totaled approximately $18,755,000 and
$15,597,000, respectively.

Commitments under standby letters of credit outstanding aggregated $3,018,000
and $2,297,000 as of December 31, 1998 and 1997, respectively. The Company does
not anticipate any losses as a result of these transactions.

The Company is involved in various legal actions and proceedings arising from
the normal course of operations. Management believes, based on known facts and
the advice of legal counsel, that the ultimate liability, if any, not covered by
insurance, arising from all legal actions and proceedings will not have a
material adverse effect upon the
consolidated financial position of the Company.

17 | SUBSEQUENT EVENT

On February 2, 1999, the Company announced execution of a definitive merger
agreement with Midwest Bancshares, Inc. of Burlington, Iowa ("Midwest"). The
merger will be accomplished through a tax-free fixed exchange of one (1) share
of Company common stock for each share of outstanding common stock of Midwest
Bancshares, Inc. The transaction is intended to qualify as a tax-free
reorganization and be accounted for as a pooling of interests. The transaction
is expected to be completed in the third quarter of 1999, after customary
regulatory and shareholder approvals have been received. Based on the Company's
closing price of $17.00 on February 2, 1999, the transaction will be valued at
$19.0 million. Based on Midwest's total shares outstanding of approximately 1.1
million shares as of February 2, 1999, the Company will have approximately 4.7
million shares outstanding after the merger. This merger will add approximately
$163,000,000 in assets and $106,000,000 in deposits to the Company.

38/39 NOTES CONSOLIDATED FINANCIAL STATEMENTS

18 | MAHASKA INVESTMENT COMPANY (PARENT COMPANY ONLY)

BALANCE SHEETS

DECEMBER 31 (In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------

ASSETS:
Cash on deposit at bank subsidiary ....................................... $ 309 617
Cash at other institutions ............................................... 22 19
--------------------
Cash and cash equivalents .............................................. 331 636
Investment securities .................................................... 377 299
Loans .................................................................... 7,511 2,447
Loan pool participations ................................................. 7,607 7,734
Investments in:
Bank subsidiaries ...................................................... 32,678 32,782
Bank-related subsidiary ................................................ 5,274 5,059
Excess cost over net assets .............................................. 21 83
Premises and equipment ................................................... 685 733
Other assets ............................................................. 923 1,182
--------------------
Total assets ........................................................... 55,407 50,955
--------------------

LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable ............................................................ $ 17,000 14,050
Accrued expenses payable and other liabilities ........................... 175 151
--------------------
Total liabilities ...................................................... 17,175 14,201
====================
Shareholders' equity:
Common stock ............................................................. 19,038 19,038
Capital surplus .......................................................... 17 7,734
Treasury stock at cost ................................................... (2,799) (1,752)
Retained earnings ........................................................ 21,806 11,615
Accumulated other comprehensive income ................................... 170 119
--------------------
Total shareholders' equity ............................................. 38,232 36,754
--------------------
Total liabilities and shareholders' equity ............................. $ 55,407 50,955
====================

[LOGO] MAHASKA INVESTMENT COMPANY

STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------

INCOME:
Dividends from subsidiaries ......................................................... $ 4,600 2,400 2,000
Interest income and discount on loan pool participations ............................ 1,878 2,713 3,498
Management, audit, and loan review fees ............................................. 236 398 285
Other operating income .............................................................. 433 146 247
----------------------------------
Total income ...................................................................... 7,147 5,657 6,030
==================================
EXPENSE:
Salaries and benefits expense ....................................................... 859 1,026 925
Interest on short-term borrowings ................................................... 1,074 800 968
Other operating expense ............................................................. 638 646 642
----------------------------------
Total expense ..................................................................... 2,571 2,472 2,535
==================================
Income before income tax expense and equity in undistributed earnings of
subsidiaries ...................................................................... 4,576 3,185 3,495
Income tax expense .................................................................. 13 151 529
----------------------------------
Income before equity in undistributed earnings of subsidiaries .................... 4,563 3,034 2,966
Equity in undistributed earnings of subsidiaries .................................... 60 2,024 1,528
----------------------------------
Net income ........................................................................ $ 4,623 5,058 4,494
==================================

STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................................... $ 4,623 5,058 4,494
----------------------------------
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries .................................. (60) (2,024) (1,528)
Depreciation and amortization ..................................................... 124 121 105
Investment securities gains ....................................................... (26) -- --
Decrease (increase) in other assets ............................................... 259 (504) (41)
Increase (decrease) in other liabilities .......................................... 24 (133) 238
----------------------------------
Total adjustments ................................................................. 320 (2,540) (1,226)
----------------------------------
Net cash provided by operating activities ......................................... 4,943 2,518 3,268
==================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities .................................................. (227) -- (149)
Proceeds from investment securities sales ........................................... 175 -- --
Purchases of loan pool participations: .............................................. (4,610) (2,091) (1,033)
Principal recovery on loan pool participations ...................................... 4,737 5,665 7,590
Net (increase) decrease in loans .................................................... (5,064) (2,243) 2,655
Purchases of premises and equipment ................................................. (13) (151) (55)
Investment in subsidiaries .......................................................... -- (5,000) (10,000)
----------------------------------
Net cash used in investing activities ............................................. (5,002) (3,820) (992)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on notes payable ........................................................... 7,450 6,500 7,800
Principal payments on notes payable ................................................. (4,500) (2,400) (7,900)
Dividends paid ...................................................................... (2,048) (1,753) (1,638)
Purchases of treasury stock ......................................................... (1,837) (1,682) (622)
Proceeds from stock issued .......................................................... 689 729 --
----------------------------------
Net cash (used in) provided by financing activities ............................... (246) 1,444 (2,360)
----------------------------------
Net (decrease) increase in cash and cash equivalents .............................. (305) 142 (84)
Cash and cash equivalents at beginning of year ...................................... 636 494 578
----------------------------------
Cash and cash equivalents at end of year ............................................ $ 331 636 494
==================================

40/41 INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS
MAHASKA INVESTMENT COMPANY:

We have audited the accompanying consolidated balance sheets of Mahaska
Investment Company and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mahaska Investment
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

KPMG Peat Marwick LLP

February 12, 1999
Des Moines, Iowa

[LOGO] MAHASKA INVESTMENT COMPANY

BANK SUBSIDIARY HIGHLIGHTS

The bank subsidiary schedule is not covered by the Independent Auditors' Report.

DECEMBER 31 (In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------

MAHASKA STATE BANK
Total assets ............................................................ $169,524 $167,754
Total loans, net of unearned discount ................................... 97,176 95,905
Total loan pool participations .......................................... 26,341 26,964
Allowance for loan losses ............................................... (1,120) (1,062)
Total deposits .......................................................... 149,610 147,432
Total shareholders' equity .............................................. 15,413 16,021

CENTRAL VALLEY BANK
Total assets ............................................................ $ 90,951 $84,749
Total loans, net of unearned discount ................................... 46,370 39,242
Total loan pool participations .......................................... 18,965 19,627
Allowance for loan losses ............................................... (398) (299)
Total deposits .......................................................... 73,575 69,098
Total shareholders' equity .............................................. 12,501 11,835

PELLA STATE BANK
Total assets ............................................................ $ 15,583 $ 5,191
Total loans, net of unearned discount ................................... 8,461 1,028
Total loan pool participations .......................................... 1,598 0
Allowance for loan losses ............................................... (159) (14)
Total deposits .......................................................... 10,195 238
Total shareholders' equity .............................................. 4,765 4,926

42/43 DIRECTORS AND OFFICERS / STOCK INFORMATION

BOARD OF DIRECTORS

MARTIN L. BERNSTEIN
Owner, Bernstein Realty

ROBERT K. CLEMENTS
Attorney, Clements Law Firm

CHARLES S. HOWARD
Chairman, President & CEO

R. SPENCER HOWARD
Vice President Corporate Planning

JAMES F. MATHEW
President,
Mathew Lumber Company

DAVID A. MEINERT
Executive Vice President & CFO

JOHN P. POTHOVEN
Chairman & President,
Mahaska State Bank

JOHN W. N. STEDDOM
Civil Engineer, Retired

CORPORATE OFFICERS

CHARLES S. HOWARD
Chairman, President & CEO

DAVID A. MEINERT
Executive Vice President
& CFO

R. SPENCER HOWARD
Vice President Corporate Planning

KAREN K. BAACK
Secretary/Treasurer &
Administrative Assistant

JEFFREY L. RHOADS
Controller

MARK T. GIBBONS
Loan Review Officer

LORI J. SEUBERT
Assistant Controller

BRYCE C. ABBAS
Auditor

BARBARA J. BONE
Human Resources Officer
SHEILA DAVIS-WELKER

Marketing Director

Board of Directors pictured below, left to right: Charles S. Howard, John P.
Pothoven, Robert K. Clements, Martin L. Bernstein, James F. Mathew, R. Spencer
Howard, John W. N. Steddom, and David A. Meinert.

[PHOTO]

[LOGO] MAHASKA INVESTMENT COMPANY

STOCK INFORMATION

Mahaska Investment Company's Common Stock trades on The NASDAQ National Market
and the quotations are furnished by the NASDAQ system. There were 239
shareholders of record on December 31, 1998, and an estimated 750 additional
beneficial holders whose stock was held in street name by brokerage houses.

The following table sets forth the quarterly high and low sales per share for
the Company's stock during 1998, 1997, and 1996:

1998 QUARTER ENDED HIGH LOW
- ---------------------------------------------------
March 31 $23.63 18.50
June 30 22.63 20.75
September 30 21.81 19.63
December 31 20.00 16.75

1997 Quarter Ended HIGH LOW
- ---------------------------------------------------
March 31 $14.41 11.10
June 30 16.81 13.96
September 30 19.51 15.76
December 31 21.00 18.01

NASDAQ symbol: OSKY

WALL STREET JOURNAL
AND OTHER NEWSPAPERS: MahaskaInv

MARKET MAKERS:
Howe Barnes Investments, Inc.
Knight Securities L.P.
Midwest Stock Exchange

CORPORATE HEADQUARTERS
222 First Avenue East
P.O. Box 1104
Oskaloosa, IA 52577
515-673-8448

ANNUAL SHAREHOLDERS' MEETING
April 30, 1999, 10:30 a.m.
Elmhurst Country Club
2214 South 11th Street
Oskaloosa, IA 52577

INTERNET
www.mahaskainv.com

TRANSFER AGENT/DIVIDEND
DISBURSING AGENT
Illinois Stock Transfer Company
209 West Jackson Boulevard, Suite 903
Chicago, IL 60606

INDEPENDENT AUDITOR
KPMG Peat Marwick LLP
2500 Ruan Center
Des Moines, IA 50309

ANNUAL REPORT DESIGN
Designgroup, Inc., Des Moines, IA

The Company has declared per share cash dividends with respect to its Common
Stock as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ------------------------------------------------------------

1998 $ .14 $ .14 $ .14 $ .14
1997 .12 .12 .12 .12
1996 .1095 .1095 .1095 .1095

FORM 10-K
Copies of Mahaska Investment Company's Annual Report to the Securities and
Exchange Commission Form 10-K will be mailed when available without charge to
shareholders upon written request to Karen K. Baack, Secretary/Treasurer, at
the corporate headquarters. It is also available on the Securities and
Exchange Commission's Internet
web site at http://www.sec.gov/cgi-bin/srch-edgar.