<PAGE>

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


FOR QUARTER ENDED                                 COMMISSION FILE NUMBER
JUNE 30, 2002                                              0-24630





                           MAHASKA INVESTMENT COMPANY
             (Exact Name of Registrant as Specified in its Charter)




         IOWA                                            42-1003699
(State of Incorporation)                    (I.R.S. Employer Identification No.)



                  222 First Avenue East, Oskaloosa, Iowa 52577

                         Telephone Number (641) 673-8448

Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.

                         Yes   X                   No______
                            -------

As of July 31, 2002, there were 3,875,604 shares of common stock $5 par value
outstanding.

                                       1

<PAGE>

PART I -- Item 1. Financial Statements

                           MAHASKA INVESTMENT COMPANY
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CONDITION

<TABLE>
<CAPTION>
(unaudited)
(dollars in thousands, except for share amounts)                             June 30,        December 31,
                                                                               2002              2001
                                                                           -----------       ------------
                                      ASSETS
<S>                                                                        <C>               <C>
Cash and due from banks ..................................................  $   8,749          $ 12,872
Interest-bearing deposits in banks .......................................      2,464             2,965
                                                                           -----------       ------------
    Cash and cash equivalents ............................................     11,213            15,837
                                                                           -----------       ------------
Investment securities:
    Available for sale ...................................................     73,692            50,206
    Held to maturity (fair value of $18,543 as of June 30, 2002
      and $22,034 as of December 31, 2001) ...............................     17,724            21,332
Loans ....................................................................    314,268           322,681
Allowance for loan losses ................................................     (3,849)           (3,381
                                                                           -----------       ------------
    Net loans ............................................................    310,419           319,300
                                                                           -----------       ------------
Loan pool participations .................................................     98,509           110,393
Premises and equipment, net ..............................................      8,224             8,355
Accrued interest receivable ..............................................      4,050             4,540
Goodwill .................................................................      5,667             5,667
Other intangible assets ..................................................      4,640             5,008
Other assets .............................................................      6,495             5,157
                                                                           -----------       ------------
      Total assets .......................................................  $ 540,633         $ 545,795
                                                                           ===========       ============

                       LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
    Demand ...............................................................  $  25,310          $ 26,961
    NOW and Super NOW ....................................................     43,987            45,372
    Savings ..............................................................    101,546            97,989
    Certificates of deposit ..............................................    213,976           208,323
                                                                           -----------       ------------
      Total deposits .....................................................    384,819           378,645
Federal funds purchased ..................................................      5,800            10,650
Federal Home Loan Bank advances ..........................................     80,234            91,174
Notes payable ............................................................      2,350             9,200
Long-term debt ...........................................................     10,000                 -
Other liabilities ........................................................      4,753             5,299
                                                                           -----------       ------------
      Total liabilities ..................................................    487,956           494,968
                                                                           -----------       ------------
Shareholders' equity:
    Common stock, $5 par value; authorized 20,000,000 shares; issued
      4,912,849 shares as of June 30, 2002 and December 31, 2001..........     24,564            24,564
    Capital surplus ......................................................     13,013            13,033
    Treasury stock at cost, 1,037,295 shares as of June 30, 2002,
      and 1,040,255 shares as of December 31, 2001 .......................    (12,563)          (12,595)
    Retained earnings ....................................................     26,662            25,082
    Accumulated other comprehensive income ...............................      1,001               743
                                                                           -----------       ------------
      Total shareholders' equity .........................................     52,677            50,827
                                                                           -----------       ------------
      Total liabilities and shareholders' equity .........................  $ 540,633         $ 545,795
                                                                           ===========       ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                        2

<PAGE>

PART I -- Item 1. Financial Statements, Continued

                      MAHASKA INVESTMENT COMPANY

                           AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
(unaudited)                                                                 Three Months Ended       Six Months Ended
(dollars in thousands, except per share amounts)                                 June 30,                 June 30,
                                                                            ------------------      --------------------
                                                                              2002     2001           2002       2001
                                                                            --------  --------      --------   ---------
<S>                                                                          <C>       <C>          <C>         <C>
Interest income:
    Interest and fees on loans .....................................         $ 5,794   $ 6,304      $ 11,650    $ 12,771
    Interest and discount on loan pool participations ..............           2,657     2,159         5,354       4,150
    Interest on bank deposits ......................................               5        24            11          35
    Interest on federal funds sold .................................              34        87            51         162
    Interest on investment securities:
      Available for sale ...........................................             856     1,111         1,555       2,125
      Held to maturity .............................................             293       381           612         786
                                                                             -------   -------      --------    --------
        Total interest income ......................................           9,639    10,066        19,233      20,029
                                                                             -------   -------      --------    --------

Interest expense:
    Interest on deposits:
      NOW and Super NOW ............................................              72       143           146         311
      Savings ......................................................             507       811           984       1,678
      Certificates of deposit ......................................           2,358     3,135         4,798       6,257
    Interest on federal funds purchased ............................               4         -            18           9
    Interest on Federal Home Loan Bank advances ....................           1,299     1,291         2,618       2,498
    Interest on notes payable ......................................             121       216           221         489
    Interest on long-term debt .....................................               6         -             6           -
                                                                             -------   -------      --------    --------
        Totallinteresttexpensee.....................................           4,367     5,596         8,791      11,242
                                                                             -------   -------      --------    --------
        Nettinteresttincomee........................................           5,272     4,470        10,442       8,787
Provision for loan losses ..........................................             276       354           536         501
                                                                             -------   -------      --------    --------
        Net interest income after provision for loan losses ........           4,996     4,116         9,906       8,286
                                                                             -------   -------      --------    --------

Noninterest income:
    Service charges ................................................             561       540         1,072       1,013
    Data processing income .........................................              60        55           117         108
    Other operating income .........................................             333       253           645         479
    Gains (losses) on sale of available for sale securities ........               -       395             -         393
                                                                             -------   -------      --------    --------
        Total noninterest income ...................................             954     1,243         1,834       1,993
                                                                             -------   -------      --------    --------

Noninterest expense:
    Salaries and employee benefits .................................           1,978     1,908         3,689       3,543
    Net occupancy ..................................................             572       530         1,104       1,057
    Professional fees ..............................................             162       427           334         621
    Goodwill amortization ..........................................               -        63             -         126
    Other intangible asset amortization ............................             184       200           368         400
    Other operating expense ........................................             884       760         1,851       1,558
                                                                             -------   -------      --------    --------
        Total noninterest expense ..................................           3,780     3,888         7,346       7,305
                                                                             -------   -------      --------    --------
        Income before income tax expense ...........................           2,170     1,471         4,394       2,974
Income tax expense .................................................             768       492         1,575       1,003
                                                                             -------   -------      --------    --------
        Net income .................................................         $ 1,402   $   979      $  2,819    $  1,971
                                                                             =======   =======      ========    ========

Earnings per common share - basic ..................................         $  0.36   $  0.25      $   0.73    $   0.50
Earnings per common share - diluted ................................         $  0.35   $  0.24      $   0.71    $   0.49
Dividends per common share .........................................         $  0.16   $  0.15      $   0.32    $   0.30
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3

<PAGE>

PART I -- Item 1. Financial Statements, Continued

                           MAHASKA INVESTMENT COMPANY
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
(unaudited)                                                             Three Months Ended   Six Months Ended
(in thousands)                                                               June 30,            June 30,
                                                                        ------------------   ----------------
                                                                          2002      2001       2002    2001
                                                                        --------  --------   -------  -------
<S>                                                                     <C>       <C>        <C>      <C>
Net income ........................................................     $  1,402  $   979    $ 2,819  $1,971
Other Comprehensive Income:
    Unrealized gains (losses) on securities available for sale:
      Unrealized holding gains arising during
        the period, net of tax ....................................          663       71        258     818
      Less: reclassification adjustment for net gains included
        in net income, net of tax .................................            -     (247)         -    (246)
                                                                        --------  --------   -------  -------
Other comprehensive income (loss), net of tax .....................          663     (176)       258     572
                                                                        --------  --------   -------  -------
Comprehensive income ..............................................     $  2,065  $   803    $ 3,077  $2,543
                                                                        ========  ========   =======  =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4

<PAGE>

PART I -- Item 1. Financial Statements, Continued

                           MAHASKA INVESTMENT COMPANY
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(unaudited)                                                             Six Months Ended
(dollars in thousands)                                                      June 30,
                                                                    -------------------------
                                                                       2002           2001
                                                                    ---------       ---------
<S>                                                                 <C>             <C>
Cash flows from operating activities:
    Net income ...................................................  $  2,819        $  1,971
    Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization ..............................       965             932
      Provision for loan losses ..................................       536             501
      Gain on sale of available for sale securities ..............         -            (393)
      (Gain) loss on sale of premises and equipment ..............        (3)              3
      Amortization of investment securities and loans premiums ...       228             123
      Accretion of investment securities and loan discounts ......      (107)           (148)
      (Increase) decrease in other assets ........................      (848)          2,151
      Decrease in other liabilities ..............................      (697)           (273)
                                                                    ---------       ---------
        Net cash provided by operating activities ................     2,893           4,867
                                                                    ---------       ---------
Cash flows from investing activities:
    Investment securities available for sale:
      Proceeds from sales ........................................         -          14,910
      Proceeds from maturities ...................................     4,836           5,858
      Purchases ..................................................   (28,060)        (22,881)
    Investment securities held to maturity:
      Proceeds from maturities ...................................     3,895           3,435
      Purchases ..................................................      (244)              -
    Net decrease (increase) in loans .............................     8,338          (3,120)
    Purchases of loan pool participations ........................   (17,104)        (28,913)
    Principal recovery on loan pool participations ...............    28,988          11,695
    Purchases of premises and equipment ..........................      (401)         (1,941)
    Proceeds from sale of premises and equipment .................        24               3
                                                                    ---------       ---------
        Net cash provided by (used in) investing activities ......       272         (20,954)
                                                                    ---------       ---------
Cash flows from financing activities:
    Net increase in deposits .....................................     6,174          10,416
    Net decrease in federal funds purchased ......................    (4,850)         (2,345)
    Federal Home Loan Bank advances ..............................     1,000          18,500
    Repayment of Federal Home Loan Bank advances .................   (12,036)         (6,784)
    Advances on notes payable ....................................     3,000               -
    Principal payments on notes payable ..........................    (9,850)         (1,900)
    Advances on long-term debt ...................................    10,000               -
    Dividends paid ...............................................    (1,239)         (1,191)
    Purchases of treasury stock ..................................       (72)              -
    Proceeds from exercise of stock options ......................        84             302
                                                                    ---------       ---------
        Net cash (used in) provided by financing activities ......    (7,789)         16,998
                                                                    ---------       ---------
        Net (decrease) increase in cash and cash equivalents .....    (4,624)            911
Cash and cash equivalents at beginning of period .................    15,837          15,517
                                                                    ---------       ---------
Cash and cash equivalents at end of period .......................  $ 11,213        $ 16,428
                                                                    =========       =========
Supplemental disclosures of cash flow information:
    Cash paid during the period for:
      Interest ...................................................  $  5,950        $ 11,280
                                                                    =========       =========
      Income taxes ...............................................  $  2,285        $  1,035
                                                                    =========       =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5

<PAGE>

1.       Basis of Presentation

         The accompanying consolidated statements of income, the consolidated
         statements of comprehensive income, and the consolidated statements of
         cash flow for the three months and the six months ended June 30, 2002
         and 2001 and the consolidated statements of condition as of December
         31, 2001 and June 30, 2002 include the accounts and transactions of the
         Company and its five wholly-owned subsidiaries, Mahaska State Bank,
         Central Valley Bank, Pella State Bank, Midwest Federal Savings and
         Loan, and MIC Financial, Inc. All material intercompany balances and
         transactions have been eliminated in consolidation.

         The accompanying consolidated financial statements have been prepared
         by the Company pursuant to the rules and regulations of the Securities
         and Exchange Commission. Certain information and footnote disclosures
         normally included in financial statements prepared in accordance with
         generally accepted accounting principles have been condensed or omitted
         pursuant to such rules and regulations. Although management believes
         that the disclosures are adequate to make the information presented not
         misleading, it is suggested that these interim consolidated financial
         statements be read in conjunction with the Company's most recent
         audited financial statements and notes thereto. In the opinion of
         management, the accompanying consolidated financial statements contain
         all adjustments (consisting of only normal recurring accruals)
         necessary to present fairly the financial position as of June 30, 2002,
         and the results of operations for the three months and the six months
         ended June 30, 2002 and 2001, and cash flows for the six months ended
         June 30, 2002 and 2001.

         The results for the three months and the six months ended June 30, 2002
         may not be indicative of results for the year ending December 31, 2002,
         or for any other period.

2.       Consolidated Statements of Cash Flows

         In the consolidated statements of cash flows, cash and cash equivalents
         include cash and due from banks, interest-bearing deposits with banks,
         and federal funds sold.

3.       Income Taxes

         Federal income tax expense for the three months and the six months
         ended June 30, 2002 and 2001 was computed using the consolidated
         effective federal tax rate. The Company also recognized income tax
         expense pertaining to state franchise taxes payable individually by the
         subsidiary banks.

4.       Earnings Per Common Share

         Basic earnings per common share computations are based on the weighted
         average number of shares of common stock actually outstanding during
         the period. The weighted average number of shares for the three-month
         periods ended June 30, 2002 and 2001 was 3,873,120 and 3,971,202,
         respectively. Weighted average shares outstanding for the six-month
         periods ended June 30, 2002 and 2001 was 3,872,085 and 3,962,386,
         respectively. 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 period. The
         computation of diluted earnings per share used a weighted average
         number of shares outstanding of 3,963,563 and 4,002,096 for the three
         months ended June 30, 2002 and 2001, respectively. For the six-months
         ended June 30, 2002 and 2001, diluted earnings per share was calculated
         using weighted average shares outstanding of 3,950,719 and 3,991,143,
         respectively.

                                       6

<PAGE>

5.       Effect of New Financial Accounting Standards

         Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
         for Derivative Instruments and Hedging Activities," and SFAS No. 138,
         "Accounting for Certain Derivative Instruments and Certain Hedging
         Activities - An Amendment to FASB Statement No. 133," were adopted by
         the Company beginning January 1, 2001. The adoption of the standards
         did not have a material effect on the Company's consolidated financial
         statements.

         SFAS No. 140, "Accounting for Transfers and Servicing of Financial
         Assets and Extinguishment of Liabilities (a replacement of FASB
         Statement No. 125)," was issued in September 2000. The Statement
         revises the standards for accounting for securitizations and other
         transfers of financial assets and collateral and requires certain
         disclosures, but it carries over most of the provisions of Statement
         No. 125 without reconsideration. The Statement is effective for
         transfers and servicing of financial assets and extinguishments of
         liabilities occurring after March 31, 2001. The adoption of the SFAS
         No. 140 did not have a material impact on the financial condition or
         results of operation of the Company.

         SFAS No. 141, "Business Combinations," was adopted by the Company on
         July 1, 2001. The Statement requires that the purchase method of
         accounting be used for all business combinations completed after June
         30, 2001. The adoption of this Statement did not have a material effect
         on the Company's financial statements.

         SFAS No. 142, "Goodwill and Other Intangible Assets," was adopted by
         the Company on January 1, 2002. Statement 142 requires that goodwill
         and intangible assets with indefinite useful lives no longer be
         amortized, but instead be tested for impairment at least annually in
         accordance with the provisions of Statement 142. Statement 142 also
         requires that intangible assets with estimable useful lives be
         amortized over their respective estimated useful lives to their
         estimated residual values, and reviewed for impairment in accordance
         with SFAS Statement No. 121, "Accounting for the Impairment of
         Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The
         adoption of SFAS No. 142 reduced the Company's goodwill amortization
         expense $63,000 in the second quarter of 2002 and $126,000 for the
         first six months of 2002 since the goodwill attributable to the
         acquisition of Midwest Federal Savings is no longer being amortized. As
         of January 1, 2002, the goodwill attributable to the Midwest Federal
         Savings acquisition totaled $5,667,000. Goodwill in the amount of
         $3,684,000 as of January 1, 2002 continues to be amortized under SFAS
         Statement No. 72, "Accounting for Certain Acquisitions of Banking or
         Thrift Institutions." Under the provisions of this Statement, the
         goodwill relating to the acquisitions of the United Federal Savings
         branches in 1994 and the acquisition of the Boatmen's Bank branch in
         1996 is defined as "unidentifiable intangible assets" and must continue
         to be amortized.

         The table below reconciles the reported earnings for the three months
         ended June 30, 2001 to "adjusted earnings," which exclude goodwill
         amortization.

                                       7

<PAGE>

<TABLE>
<CAPTION>
(unaudited)                                                                       Three Months Ended
(dollars in thousands, except per share amounts)                                        June 30,
                                                                   ---------------------------------------------------
                                                                      2002                       2001
                                                                   ----------  ---------------------------------------
                                                                    Reported    Reported       Goodwill      Adjusted
                                                                    Earnings    Earnings     Amortization    Earnings
                                                                   ----------  ----------    ------------   ----------
<S>                                                                <C>         <C>           <C>            <C>
Net income ....................................................     $  1,402    $    979       $     63      $  1,042

Earnings per share:
    Basic .....................................................     $   0.36    $   0.25       $   0.01      $   0.26
    Diluted ...................................................     $   0.35    $   0.24       $   0.02      $   0.26
</TABLE>

The following table reconciles the reported earnings for the six months ended
June 30, 2001 to "adjusted earnings," which exclude goodwill amortization.

<TABLE>
<CAPTION>
                                                                                    Six Months Ended
                                                                                        June 30,
                                                                   ---------------------------------------------------
                                                                      2002                       2001
                                                                   ----------  ---------------------------------------
                                                                    Reported    Reported       Goodwill      Adjusted
                                                                    Earnings    Earnings     Amortization    Earnings
                                                                   ----------  ----------    ------------   ----------
<S>                                                                <C>         <C>           <C>            <C>
Net income ....................................................     $  2,819    $  1,971       $    126      $  2,097

Earnings per share:
    Basic .....................................................     $   0.73    $   0.50       $   0.03      $   0.53
    Diluted ...................................................     $   0.71    $   0.49       $   0.04      $   0.53
</TABLE>

The gross carrying amount of intangible assets and the associated accumulated
amortizaion at June 30, 2002, is presented in the table below. Amortization
expense for intangible assets was $184 thousand for the quarter ended June 30,
2002 and $368 thousand for the six months ended June 30, 2002.

<TABLE>
<CAPTION>
(unaudited)                                                                                       June 30, 2002
                                                                                          ----------------------------
(in thousands)                                                                               Gross
                                                                                            Carrying     Accumulated
                                                                                             Amount     Amortization
                                                                                          ------------  --------------
<S>                                                                                       <C>           <C>
Intangible assets:
 Core deposit premium .............................................................         $  2,727      $    1,548
 Other intangible assets ..........................................................            6,702           3,241
                                                                                          ------------  --------------
  Total ...........................................................................         $  9,429      $    4,789
                                                                                          ------------  --------------
Unamortized intangible assets .....................................................                       $    4,640
                                                                                                        --------------
</TABLE>

Core deposit intangibles are amortized using the effective-yield method based on
a useful life of 10 years. Other unidentifiable intangible assets are being
amortized using the straight-line method based on a useful life of 15 years.
Amortization expense related to core deposit intangibles for the three months
and the six months ended June 30, 2002 was $73,000 and $145,000, respectively.
Amortization expense related to core deposit intangibles was $88,000 and
$176,000, respectively for the three months and the six months ended June 30,
2001. Amortization expense related to other unidentifiable intangible assets was
$111,000 for the three months ended June 30, 2002 and $112,000 for the three
months ended June 30, 2001. Amortization expense related to other unidentifiable
intangible assets was $223,000 for the six months ended June 30, 2002 and
$224,000 for the six months ended June 30, 2001.

Projections of amortization expense are based on existing asset balances and the
remaining useful lives. The following table shows the estimated future
amortization expense for

                                       8

<PAGE>

amortized intangible assets:

<TABLE>
<CAPTION>
(unaudited)                                                Core
(dollars in thousands)                                    Deposit
                                                          Premium       Other        Total
                                                        -----------  ------------ ------------
         <S>                                            <C>          <C>          <C>
         Six months ended December 31, 2002 ..........     $  145       $  223       $  368

         Year ended December 31,
              2003 ...................................        245          447          692
              2004 ...................................        189          447          636
              2005 ...................................        153          447          600
              2006 ...................................        132          447          579
              2007 ...................................        115          446          561
</TABLE>

         Effective January 1, 2002 goodwill will be assessed at least annually
         for impairment by applying a fair-value-based test using discounted
         cash flows. The Company completed its initial goodwill impairment
         assessment in the second quarter. No transitional impairment charge was
         required.

         SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
         Assets," was issued in August 2001 and was adopted by the Company on
         January 1, 2002. SFAS addresses financial accounting and reporting for
         the impairment or disposal of long-lived assets. The adoption of SFAS
         144 did not have a material effect on the results of operations or
         financial condition of the Company.

         SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64,
         Amendment of FASB Statement No. 13, and Technical Corrections" was
         issued April 2002. This Statement rescinds FASB Statement No. 4,
         Reporting Gains and Losses from Extinguishment of Debt, and an
         amendment of that Statement, FASB Statement No. 64, Extinguishments of
         Debt Made to Satisfy Sinking-Fund Requirements. This Statement also
         rescinds FASB Statement No. 44, Accounting for Intangible Assets of
         Motor Carriers. This Statement amends FASB Statement No. 13,
         Accounting for Leases, to eliminate an inconsistency between the
         required accounting for sale-leaseback transactions and the required
         accounting for certain lease modifications that have economic effects
         that are similar to sale-leaseback transactions. This Statement also
         amends other existing authoritative pronouncements to make various
         technical corrections, clarify meanings, or describe their
         applicability under changed conditions.

         The provisions of this Statement related to the rescission of
         Statement 4 shall be applied in fiscal years beginning after May 15,
         2002. The provisions in paragraphs 8 and 9(c) of this Statement
         related to Statement 13 shall be effective for transactions occurring
         after May 15, 2002. All other provisions of this Statement shall be
         effective for financial statements issued on or after May 15, 2002.
         The effects of implementation are not material.

         SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal
         Activities" was issued June 2002. This Statement addresses financial
         accounting and reporting for costs associated with exit or disposal
         activities and nulifies Emerging Issues Task Force (EITF) Issue No.
         94-3, "Liability Recognition for Certain Employee Termination Benefits
         and Other Costs to Exit an Activity (including Certain Costs Incurred
         in a Restructuring)."

         The provisions of this Statement are effective for exit and disposal
         activities that are initiated after December 31, 2002.

6.       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 reported period. Actual results could differ
         from those estimates. A significant estimate that is particularly
         sensitive to change is the allowance for loan losses.

7.       Sale of MIC Financial, Inc.

         On April 23, 1999, the Company announced that it had elected to seek a
         buyer for MIC Financial, Inc. ("MIC Financial"), its wholly-owned
         commercial finance subsidiary. A satisfactory agreement could not be
         reached with any potential buyers, so the decision was made to sell
         groups of leases and assets. As of June 30, 2002, MIC Financial's loan
         and lease portfolio totaled $861,000, less than 1 percent of the
         Company's total loans as of that date. Management continues to evaluate
         options on the remaining assets of MIC Financial.

                                       9

<PAGE>

PART I -- Item 2.  Management's Discussion and Analysis of Financial Condition
and Results of Operations.

                           QUARTER ENDED JUNE 30, 2002

The Company recorded net income of $1,402,000 for the quarter ended June 30,
2002, compared with net income of $979,000 for the quarter ended June 30, 2001,
an increase of $423,000 or 43 percent. The increase in net income was primarily
due to improved net interest income. Basic earnings per share for the second
quarter of 2002 were $.36 versus $.25 for the second quarter of 2001. Diluted
earnings per share were $.35 in 2002 and $.24 for the second quarter of 2001.
Actual weighted average shares outstanding were 3,873,120 and 3,971,202 for the
second quarter of 2002 and 2001, respectively. For the second quarter of 2002
and 2001, diluted weighted average shares outstanding were 3,963,563 and
4,002,096, respectively. The Company's return on average assets for the quarter
ended June 30, 2002 was 1.03 percent compared with a return of .74 percent for
the quarter ended June 30, 2001. The Company's return on average equity was
10.87 percent for the three months ended June 30, 2002 versus 7.74 percent for
the three months ended June 30, 2001.


RESULTS OF OPERATIONS


Net Interest Income

Net interest income is computed by subtracting total interest expense from total
interest income. Fluctuations in net interest income can result from the changes
in the volumes of assets and liabilities as well as changes in interest rates.
Market interest rates on a national and local level moved downward throughout
the year 2001. Interest rates remained relatively constant during the second
quarter of 2002. The Company's net interest income for the quarter ended June
30, 2002 increased $802,000 or 18 percent to $5,272,000 from $4,470,000 for the
three months ended June 30, 2001. Total interest income of $9,639,000 for the
second quarter of 2002 was $427,000 or 4 percent lower compared with $10,066,000
for the 2001 quarter primarily due to reduction in interest rates. The Company's
total interest expense for the second quarter of 2002 was $4,367,000, which was
$1,229,000 or 22 percent less compared with $5,596,000 for the 2001 quarter due
to the lower interest rate environment. The Company's net interest margin on a
federal tax-equivalent basis for the second quarter of 2002 increased to 4.19
percent from 3.69 percent in the second quarter of 2001. Net interest margin is
a measure of the net return on interest-earning assets and is computed by
dividing annualized net interest income by the average of total interest-earning
assets for the period. The Company's overall yield on earning assets was 7.61
percent for the second quarter of 2002 compared with 8.21 percent for the second
quarter of 2001. The rate on interest-bearing liabilities decreased in the
second quarter of 2002 to 3.78 percent compared to 4.98 percent for the second
quarter of 2001.

Interest income and fees on loans decreased $510,000 or 8 percent in the second
quarter of 2002 compared to the same period in 2001, mainly due to lower
interest rates. The Company recognized interest income and fees on loans of
$5,794,000 for the second quarter of 2002 and $6,304,000 for the 2001 quarter.
The average

                                       10

<PAGE>

yield on loans decreased to 7.40 percent for the second quarter of 2002,
compared to 8.06 percent in the second quarter of 2001. The yield on the
Company's loan portfolio is affected by the amount of nonaccrual loans (which do
not earn interest income), the mix of the portfolio (real estate loans generally
have a lower overall yield than commercial and agricultural loans), the effects
of competition and the interest rate environment on the amounts and volumes of
new loan originations, and the mix of variable rate versus fixed rate loans in
the Company's portfolio. The lower interest rates were not beneficial to the
Company as variable rate loans tied to prime were adjusted downward and produced
less interest income. Renewing fixed-rate loans have been rewritten at lower
rates reflecting the market interest rate environment. Loan demand by customers
in the market areas served by the Company has become "soft" as general economic
conditions have weakened and potential borrowers are less willing to increase
their debt load. Average loans outstanding were $314,277,000 in second quarter
of 2002 compared with $313,760,000 for the second quarter of 2001, an increase
of $517,000 or less than 1 percent.

Interest and discount income on loan pool participations increased $498,000 or
23 percent for the second quarter of 2002 compared with the quarter ended June
30, 2001. The increase was mainly due to the greater volume of loan pool
participations. Interest income and discount collected on the loan pool
participations for the three months ended June 30, 2002 was $2,657,000 compared
with $2,159,000 collected in the second quarter of 2001. The yield on loan pool
participations was 10.89 percent for the second quarter of 2002 compared with
11.46 percent for the quarter ended June 30, 2001. The average loan pool
participation investment balance was $22,301,000 or 30 percent higher in the
second quarter of 2002 than in same period for 2001 as a result of pool
purchases in the second, third, and fourth quarters of 2001. Newly purchased
loan pools typically do not produce income for a period of up to 120 days from
date of purchase, which significantly impacts the overall yield on pools. These
loan pool participations are pools of performing, distressed and nonperforming
loans that the Company has 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 the
principal in excess of the purchase cost which is herein referred to as
"discount recovery." The Company recognizes interest income and discount
recovery on its loan pool participations on a cash basis. The loan pool
participations have traditionally been a high-yield activity for the Company,
but this yield has fluctuated from period to period based on the amount of cash
collection, discount recovery, and net collection expenses of the servicer in
any given period. The income and yield on loan pool participations may vary in
future periods due to the volume and discount rate on loan pools purchased.

Interest income on investment securities decreased $343,000 or 23 percent in the
quarter ended June 30, 2002, compared with the quarter ended June 30, 2001 due
to decreased volume in the portfolio and also due to the decreased interest
rates. Interest income on investment securities totaled $1,149,000 for the
second quarter of 2002 compared with $1,492,000 in same quarter of 2001. The
average balance of investments for the quarter ended June 30, 2002 was
$89,002,000, down from $96,423,000 in the second quarter of 2001. The yield on
the Company's investment portfolio in the second quarter of 2002 decreased to
5.50 percent from 6.59 percent in the comparable period of 2001.

                                       11

<PAGE>

Interest expense on deposits decreased $1,152,000 or 28 percent in the second
quarter of 2002 compared with 2001 mainly due to the lowered national and local
market interest rate environment. Total interest expense on deposits was
$2,937,000 for the quarter ended June 30, 2002 and was $4,089,000 for the second
quarter of 2001. Average interest-bearing deposits for the second quarter of
2002 increased $3,939,000 or 1 percent from the same period in 2001.
Interest-bearing NOW and savings accounts increased in 2002 while average
certificates of deposit decreased. The weighted average rate paid on
interest-bearing deposits was 3.27 percent in the second quarter of 2002
compared with 4.60 percent in the second quarter of 2001. The full benefit of
lower market deposit rates may not be realized if the competitive environment
forces the Company to pay above-market rates to attract or retain deposits in
future periods.

Interest expense on borrowed funds was $1,430,000 for the three months ended
June 2002 compared with $1,507,000 in the 2001 quarter, a decrease of $77,000 or
5 percent. Interest expense on Federal Home Loan Bank advances was $8,000 higher
in the second quarter of 2002 reflecting the Company's greater utilization of
this alternative funding method, which was offset, in part, by a reduction in
the average rate reflecting the repricing of advances at lower rates. Interest
expense on notes payable decreased $95,000 in the second quarter of 2002
compared with 2001 reflecting lower average borrowings on the Company's
commercial bank line of credit and decreased interest rates. The Company's notes
payable line is variable with the national prime rate and any changes in this
rate will affect the amount of interest expense incurred in future periods.

Provision for Loan Losses

The Company recorded a provision for loan losses of $276,000 in the second
quarter of 2002 compared with $354,000 in the second quarter of 2001. 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 problem
loans, the current economic conditions, actual loss experience and industry
trends. Management believes that the allowance for loan losses is adequate based
on the inherent risk in the portfolio as of June 30, 2002, however, growth in
the loan portfolio and the uncertainty of the general economy require that
management continue to evaluate the adequacy of the allowance for loan losses
and make additional provisions in future periods as deemed necessary.

Non-interest Income

Non-interest income results from the charges and fees collected by the Company
from its customers for various services performed, data processing income
received from nonaffiliated banks, miscellaneous other income and gains (or
losses) from the sale of investment securities held in the available for sale
category. Total non-interest income was $954,000 in the second quarter of 2002,
$289,000 or 23 percent less than $1,243,000 from the quarter ended June 30,
2001. Most of the reduction was due to the realization of $395,000 in investment
security gains during the second quarter of 2001 that was nonrecurring in the
quarter ended June 30, 2002. All other categories of non-interest income
including service charges, data processing income and other operating income
were greater in the second quarter of 2002 compared with the same period of
2001.

                                       12

<PAGE>

Excluding gains from the sale of investment securities, non-interest income was
$106,000 greater for 2002 due to higher service charge income and origination
fees on loans sold to the secondary market.

Non-interest Expense

Non-interest expense for the quarter ended June 30, 2002 decreased $108,000 or 3
percent to $3,780,000 compared with $3,888,000 for the second quarter of 2001.
Non-interest expense includes all the costs incurred to operate the Company
except for interest expense, the loan loss provision and income taxes. Salaries
and benefits expense for the second quarter of 2002 increased $70,000 or 4
percent from 2001 as a result of increased salary levels and health insurance
costs. Professional fees decreased $265,000 for the second quarter of 2002 as
the Company incurred costs for the utilization of an outside firm to conduct
profit enhancement evaluation in 2001. Other operating expense increased by
$124,000 in the second quarter of 2002 compared with the three months ended June
30, 2001 primarily due to the settlement of litigation involving one of the
subsidiary banks. Goodwill amortization decreased $63,000 in the second quarter
of 2002 as a result of the adoption of FASB Statement No. 142, which permitted
the discontinuation of amortization of goodwill effective January 1, 2002. The
Company does continue to amortize core deposit intangibles and Statement 72
unidentifiable intangible assets, which decreased $16,000 for the second quarter
of 2002 compared with the same period in 2001 reflecting the utilization of the
effective-yield method of amortization.

Income Tax Expense

The Company incurred income tax expense of $768,000 for the three months ended
June 30, 2002 compared with $492,000 for the three months ended June 30, 2001.
The increased tax expense for the June 2002 quarter was mainly due to higher
overall taxable income compared to the same period in the prior year. The
effective income tax rate as a percent of income before taxes for the three
months ended June 30, 2002 and 2001 was 35.4 percent and 33.4 percent,
respectively.

                         SIX MONTHS ENDED JUNE 30, 2002

Net income for the six months ended June 30, 2002 was $2,819,000 or $.73 per
share basic and $.71 per share diluted. Net income was $848,000 or 43 percent
greater in 2002 compared with $1,971,000 for the first six months of 2001.
Earnings per share for the first half of 2001 was $.50 basic and $.49 diluted.
For the first six months of 2002, average shares outstanding were 3,872,085 and
average diluted shares were 3,950,719. Average shares outstanding in the first
six months of 2001 were 3,962,386 and average diluted shares for the period were
3,991,143. Return on average assets increased to 1.05 percent in 2002 from .76
percent for the six months ended June 30, 2001. The Company's return on average
shareholder equity rose to 11.04 percent for the first six months of 2002
compared with 7.90 percent for the same period of 2001.

                                       13

<PAGE>

RESULTS OF OPERATION


Net Interest Income

Net interest income for the six months ended June 30, 2002 was $1,655,000 or 19
percent greater than the comparable period of 2001. Net interest income was
$10,442,000 in 2002 versus $8,787,000 for the first half of 2001. The Company
benefited from the effects of the lower market interest rate environment that
helped reduce the overall cost of funds and the amount of interest expense for
the first half of 2002. Total interest income was $19,233,000 for the six months
ended June 30, 2002, a decline of $796,000 or 4 percent from $20,029,000 for the
first half of 2001 primarily attributable to the lower interest rate
environment. Interest expense decreased $2,451,000 or 22 percent in the first
six months of 2002 compared with the same period in 2001. Interest expense was
$8,791,000 for the six months of 2002 and $11,242,000 in the same period of
2001. The yield on earning assets declined to 7.68 percent in 2002 from 8.36
percent for the first half of 2001 while the rate on interest-bearing
liabilities was reduced to 3.84 percent in 2002 from 5.11 percent for the six
months ended June 30, 2001. The net interest margin on a tax-equivalent basis
was 4.20 percent for the six months ended June 30, 2002 compared with 3.71
percent for the six-month period of 2001.

Interest income and fees on loans was $11,650,000 in 2002 compared with
$12,771,000 for the six months ended June 30, 2001. The decrease of $1,121,000
or 9 percent was primarily due to the lower interest rate environment in 2002.
Average loan volumes for the first six months were $2,744,000 greater in 2002,
but the Company's yield on its loan portfolio declined to 7.45 percent in 2002
compared with 8.24 percent for the first half of 2001.

Interest income and discount on loan pool participations for the first half of
2002 was $5,354,000 compared with $4,150,000 in the same period of 2001, an
increase of $1,204,000 or 29 percent. The increase was mainly attributable to
the greater amount of loan pools held by the Company in 2002. Loan pools
averaged $102,112,000 for the first half of 2002 compared with $73,361,000 for
the six months ended June 30, 2001. The yield on loan pool participations was
10.57 percent in 2002 and 11.41 percent for the first six months of 2001.

Interest income on investment securities of $2,167,000 was $744,000 lower in
2002 compared with $2,911,000 earned in the first half of 2001 both as a result
of lower interest rates and due to decreased balances. On a tax-equivalent
basis, the yield on the Company's investment portfolio was 5.68 percent for 2002
and was 6.76 percent for the first six months of 2001. Due to market interest
rates, the yields that could be obtained on newly acquired securities were
considerably lower than the yields on those that matured. The average balance of
investment securities was $10,316,000 or 11 percent lower in 2002 than in the
first half of 2001. Securities were sold in the second and third quarters of
2001 with the proceeds reinvested in loan pool participations.

Interest expense on deposits in 2002 totaled $5,928,000 compared with $8,246,000
for the first half of 2001, a decrease of $2,318,000 or 28 percent. The
reduction in market interest rates, a decline in fixed-rate certificates of
deposit, and an increase in lower-rate NOW, savings and money-market accounts
were responsible for the decrease in interest expense. The average rate paid by
the Company on

                                       14

<PAGE>

interest-bearing deposits was 3.34 percent in the first half of 2002 compared
with 4.72 percent for the six months ended June 30, 2001. Average
interest-bearing deposits were $5,498,000 greater in 2002 compared with the
first half of 2001.

Interest expense on borrowed funds decreased $133,000 or 4 percent in 2002 due
to the lower interest rate environment. Interest on borrowed funds totaled
$2,863,000 for the first six months of 2002 compared with $2,996,000 for the
same period of 2001. The average amount of borrowed funds was $12,261,000 higher
for the first half of 2002 as Federal Home Loan Bank advances were utilized to
fund growth in the loan pools. The average rate on borrowed funds was 5.57
percent in 2002 compared with 6.61 percent for the six months ended June 30,
2001.

Provision for Loan Losses

The Company's provision for loan losses was $35,000 greater in 2002 than it was
for the first six months of 2001. Provision for loan losses was $536,000 in the
current year compared with $501,000 for the first half of 2001.

Non-interest Income

Total non-interest income for the six months ended June 30, 2002 was $1,834,000.
This was $159,000 or 8 percent lower than the $1,993,000 earned in the first
half of 2001. Investment security gains realized in the first six months of 2001
were $393,000. No investment security gains were realized in the first half of
2002. Service charges, data processing income and other income were all greater
in 2002. Excluding security gains, non-interest income was $234,000 or 15
percent greater in the first half of 2002 than in the same period of 2001.

Non-interest Expense

Non-interest expense for the first six months of 2002 was $7,346,000 compared
with $7,305,000 for the first half of 2001, an increase of $41,000 or less than
1 percent. Salaries and benefits were $146,000 or 4 percent greater in 2002 due
to higher salary levels and increased health insurance costs. Professional fees
were $287,000 or 46 percent lower in 2002 compared with the first half of 2001
due to the non-recurring costs incurred in 2001 to have an outside consultant
conduct a profitability improvement study. Other operating expenses were
$293,000 or 19 percent greater in 2002 primarily due to the write-down in the
value of property held in other real estate and the settlement of litigation
involving one of the Company's subsidiary banks. Goodwill amortization was
$126,000 for the first six months of 2001, with none incurred in 2002. Core
deposit premium amortization was $32,000 lower in 2002 as a result of the
utilization of the effective-yield method of amortization.

Income Tax Expense

Income tax expense was $1,575,000 for the first half of 2002 compared with
$1,003,000 primarily due to the increased before-tax income earned by the

                                       15

<PAGE>

Company. The effective tax rate was 35.8 percent in 2002 versus 33.7 percent in
the first half of 2001.

FINANCIAL CONDITION

Total assets as of June 30, 2002 were $540,633,000 compared with $545,795,000 as
of December 31, 2001. As of June 30, 2002, the Company had no federal funds sold
and $5,800,000 federal funds purchased compared with $10,650,000 purchased as of
December 31, 2001. The Company's liquidity needs are usually highest in the
second and third quarters of each year due to seasonal loan demand and minimal
deposit growth in the first six months of the year. Federal funds are purchased
on a short-term basis to meet this liquidity need.

Investment Securities

Investment securities available for sale totaled $73,692,000 as of June 30,
2002. This is an increase of $23,486,000 from the December 31, 2001 balance of
$50,206,000 as securities were purchased for the portfolio. Investment
securities classified as held to maturity declined to $17,724,000 as of June 30,
2002, compared with $21,332,000 on December 31, 2001, as the proceeds from
maturities were reinvested in available for sale securities.

Loans

Loan volumes declined in the first half of 2002 to $314,268,000 on June 30,
2002. The $8,413,000 or 3 percent decrease from December 31, 2001 was, in part,
due to the payoff of a large commercial real estate line, continued refinancing
of residential real estate loans into long-term fixed rate secondary market
loans, and a general weakening in economic conditions in the markets served by
the Company. As of June 30, 2002, the Company's loan to deposit ratio (excluding
loan pool investments) was 81.7 percent compared with a year-end 2001 loan to
deposit ratio of 85.2 percent. The decrease in the loan to deposit ratio is
attributable to the decline in loan volume and the increase in deposits since
December 31, 2001. As of June 30, 2002, loans secured by real estate (including
1 to 4 family, multi-family, commercial and agricultural) comprised the largest
category in the portfolio at approximately 71 percent of total loans. Commercial
loans were approximately 12 percent of the portfolio and agricultural loans
remained at approximately 13 percent of total loans. Loans to individuals and
other loans constituted approximately 4 percent of the portfolio.

Loan Pool Participations

As of June 30, 2002, the Company had loan pool participations of $98,509,000, a
decrease of $11,884,000 or 11 percent from the December 31, 2001 balance of
$110,393,000. The reduction in the loan pool participations is primarily due to
collections made in the normal course of business and to the sale of a package
of long-term fixed low-rate loans during the second quarter. The loan pool
investment balance shown as an asset on the Company's Statement of Condition
represents the discounted purchase cost of the loan pool participations. The

                                       16

<PAGE>

Company purchased loan pool packages of $8,707,000 in the second quarter of
2002. A total of $17,104,000 was purchased in the first six months of this year.
During the second quarter of 2001, the Company purchased $28,913,000 in loan
pool participations, which was the year-to-date total for first half of 2001.

Deposits

Total deposits as of June 30, 2002 were $384,819,000 compared with $378,645,000
as of December 31, 2001. Certificates of deposit remain the largest category of
deposits at June 30, 2002 representing approximately 56 percent of total
deposits. Deposits grew 2 percent during the first quarter of 2002, with most of
the increase occurring in savings and certificates of deposit.

Borrowed Funds/Notes Payable

The Company had $5,800,0000 in Federal Funds purchased on June 30, 2002. There
was $10,650,000 in Federal Funds purchased on December 31, 2001. During the
second quarter of 2002 the Company had an average balance of Federal Funds
purchased of $801,000. Federal Funds purchased averaged $1,686,000 for the first
six months of 2002. Advances from the Federal Home Loan Bank totaled $80,234,000
as of June 30, 2002 compared with $91,174,000 as of December 31, 2001. A
$10,000,000 advance that matured late in June was paid off with available funds.
Notes payable decreased to $2,350,000 on June 30, 2002 from $9,200,000 on
December 31, 2001 as the Company paid down its commercial bank line of credit
with the proceeds from its participation in a pooled trust preferred security
issuance.

Trust Preferred Security

On June 27, 2002, the Company obtained $10,000,000 in long-term subordinated
debt from its participation in the issuance of a pooled trust preferred
security. This security is a hybrid capital instrument that is included as Tier
1 capital for regulatory purposes, yet it is non-dilutive to common shareholders
and to return on equity. The trust preferred has a 30-year maturity, does not
require any principal amortization and is callable in five years at par at the
issuer's option. The interest rate is variable based on the 3-month LIBOR rate
(1.86 percent on date of issue) plus 3.65 percent, with the interest payable
quarterly. Proceeds from the pooled trust preferred were used to pay down the
Company's commercial bank line of credit.

Nonperforming Assets

The Company's nonperforming assets totaled $3,998,000 (1.27 percent of total
loans) as of June 30, 2002, compared to $3,670,000 (1.14 percent of total loans)
as of December 31, 2001. Nonperforming assets were $441,000 lower at June 30,
2002 than the total of $4,439,000 on March 31, 2002. All nonperforming asset
totals and related ratios exclude the loan pool participations. The following
table presents the categories of nonperforming assets as of June 30, 2002
compared with December 31, 2001:

                                       17

<PAGE>

                              Nonperforming Assets
                             (dollars in thousands)

                               June 30,         December 31,
                               2002             2001
                               ----             ----

Nonaccrual                     $  2,722         $  2,559
Loans 90 days past due            1,243              926
Other real estate owned              33              185
                               --------         --------
                               $  3,998         $  3,670
                               ========         ========

From December 31, 2001 to June 30, 2002, nonaccrual loans increased $163,000 as
the result of concerns with the quality of an agricultural line of credit. Loans
ninety days past due increased $317,000. Other real estate owned decreased by
$152,000 as property held in this category was reduced to its current market
value. The Company's allowance for loan losses as of June 30, 2002 was
$3,849,000, which was 1.22 percent of total loans as of that date. This compares
with an allowance for loan losses of $3,381,000 as of December 31, 2001, which
was 1.05 percent of total loans. As of June 30, 2002, the allowance for loan
losses was 97.06 percent of nonperforming loans compared with 96.99 percent as
of December 31, 2001. Based on the inherent risk in the loan portfolio,
management believes that as of June 30, 2002, the allowance for loan losses is
adequate. For the three months ended June 30, 2002, the Company's net loan
charge-offs were $27,000 compared with net charge-offs of $124,000 during the
quarter ended June 30, 2001. Net loan charge-offs for the six months ended June
30, 2002 were $68,000 or .04 percent of loans outstanding on an annualized
basis. This compares with net loan charge-offs of $142,000 during the first six
months of 2001.

Capital Resources

Total shareholders' equity was 9.7 percent of total assets as of June 30, 2002
and was 9.3 percent as of December 31, 2001. The Company's Tier 1 Capital Ratio
was 13.6 percent of risk-weighted assets as of June 30, 2002 and was 9.6 percent
as of December 31, 2001, compared to a 4.0 percent regulatory requirement. The
increase in Tier 1 ratio at June 30 is attributable to the addition of the
$10,000,000 trust preferred to regulatory capital. Risk-based capital guidelines
require the classification of assets and some off-balance-sheet items in terms
of credit-risk exposure and the measuring of capital as percentage of the
risk-adjusted asset totals. Tier 1 Capital is the Company's total common
shareholders' equity plus the qualifying trust preferred reduced by goodwill.
Management believes that, as of June 30, 2002, the Company and its subsidiary
banks meet all capital adequacy requirements to which they are subject. As of
that date, all the bank subsidiaries were "well capitalized" under regulatory
prompt corrective action provisions. During the first quarter of 2002, the
Company repurchased 5,000 shares of common stock on the open market in
accordance with the terms of its previously-approved stock repurchase
authorization. No shares were repurchased during the second quarter. During the
second quarter of

                                       18

<PAGE>

2002, a total of 8,560 shares of common stock were issued to employees and
directors of the Company upon their exercise of stock options previously
awarded.

Liquidity

Liquidity management involves meeting the cash flow requirements of depositors
and borrowers. The Company conducts liquidity management on both a daily and
long-term basis; and it adjusts its investments in liquid assets based on
expected loan demand, projected loan maturities and payments, estimated cash
flows from the loan pool participations, expected deposit flows, yields
available on interest-bearing deposits, and the objectives of its
asset/liability management program. The Company had liquid assets (cash and cash
equivalents) of $11,213,000 as of June 30, 2002, compared with $15,837,000 as of
December 31, 2001. Most of the decrease during the period was from the reduction
in federal funds sold. Investment securities classified as available for sale
could be sold to meet liquidity needs if necessary. Additionally, the bank
subsidiaries maintain lines of credit with correspondent banks and the Federal
Home Loan Bank that would allow them to borrow federal funds on a short-term
basis if necessary. The Company also maintains a line of credit with a major
commercial bank that provides liquidity for the purchase of loan pool
participations and other corporate needs. Management believes that the Company
has sufficient liquidity as of June 30, 2002 to meet the needs of borrowers and
depositors.

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 primarily
comprised of interest rate risk arising from its core banking activities of
lending and deposit taking. Interest rate risk is the risk that changes in
market interest rates may adversely affect the Company's net interest income.
Management continually develops and applies strategies to mitigate this risk.
The Company has not experienced any material changes to its market risk position
since December 31, 2001, from that disclosed in the Company's 2001 Form 10-K
Annual Report. Management does not believe that the Company's primary market
risk exposures and how those exposures were managed in the first six months of
2002 changed when compared to 2001.

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. This analysis of the Company's interest
rate risk was presented in the Form 10-K filed by the Company for the year ended
December 31, 2001.

                                       19

<PAGE>

Commitments and Contingencies

In the ordinary course of business, the Company is engaged in various issues
involving litigation. Management believes that none of this litigation is
material to the Company's results of operations.

Critical Accounting Policies

The Company has identified two critical accounting policies and practices
relative to the financial condition and results of operation. These two
accounting policies relate to the allowance for loan losses and to loan pool
accounting.

         The allowance for loan losses is based on management's opinion, and is
adequate to absorb losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
loan portfolio, and management's estimate of probable credit losses. The
allowance for loan loss is established through a provision for loss based on
management's evaluation of the risk inherent in the loan portfolio, the
composition of the portfolio, specific impaired loans, and current economic
conditions. Such evaluation, which includes a review of all loans on which full
collectibility may not be reasonably assured, considers among other matters, the
estimated net realizable value or the fair value of the underlying collateral,
economic conditions, historical loss experience, and other factors that warrant
recognition in providing for an adequate allowance for loan loss.

         The loan pool accounting practice relates to management's opinion that
the investment amount reflected on the Company's financial statements does not
exceed the estimated net realizable value or the fair value of the underlying
collateral securing the purchased loans. In evaluating the purchased loan
portfolio, management takes into consideration many factors, including the
borrowers' current financial situation, the underlying collateral, current
economic conditions, historical collection experience, and other factors
relative to the collection process.

         In the event that management's evaluation of the level of the allowance
for loan losses is inadequate, the Company would need to increase its provision
for loan losses. If the estimated realizable value of the loan pool
participations is understated, the Company's yield on the loan pools would be
reduced.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

With the exception of the historical information contained in this report, the
matters described herein contain forward-looking statements that involve risk
and uncertainties that individually or mutually impact the matters herein
described, including but not limited to financial projections, product demand
and market acceptance, the effect of economic conditions, the impact of
competitive products and pricing, governmental regulations, results of
litigation, technological difficulties and/or other factors outside the control
of the Company, which are detailed from time to time in the Company's SEC
reports. The Company disclaims any intent or obligation to update these
forward-looking statements.

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Part II - Item 4. Submission of Matters to a vote of Security Holders.

The Company's annual meeting of shareholders was held on April 30, 2002. The
record date for determination of shareholders entitled to vote at the meeting
was February 25, 2002. There were 3,872,594 shares outstanding as of that date,
each such share being entitled to one vote. At the shareholders' meeting the
holders of 3,422,298 or 88.37 percent of the outstanding shares were represented
in person or by proxy, which constituted a quorum. The following proposals were
voted on at the meeting:

Proposal I - Election of Directors:

Three directors were to be elected to serve for the specified term or until
their successors shall have been elected and qualified. At the shareholders'
meeting, the individuals received the number of votes set opposite their names:

                                                           VOTE
                                         FOR               WITHHELD
                                         ---               --------

Three-year term (2005):
         Charles S. Howard               3,410,597         11,701
         David A. Meinert                3,405,410         16,888
         James G. Wake                   3,410,426         11,872

Proposal II - Ratification of Auditors' Appointment:

A vote was also taken on the ratification of the appointment of KPMG LLP as
independent auditors of the Company for the fiscal year ending December 31,
2002. The results of the vote were as follows:

                                                           BROKER
         FOR             AGAINST         ABSTAIN           NON-VOTES
         ---             -------         -------           ---------

         3,268,773         6,426         147,098           1

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Part II - Item 6. Exhibits and Reports on Form 8-K.

(a)      The following exhibits and financial statement schedules are filed as
part of this report:

         Exhibits
         --------

         3.1           Articles of Incorporation, as amended through April 30,
                       1998, of Mahaska Investment Company. The Articles of
                       Incorporation, as amended, of Mahaska Investment Company
                       are incorporated by reference to the Company's quarterly
                       report on Form 10-Q for the quarter ended September 30,
                       1998.

         3.2           Bylaws of Mahaska Investment Company. The Amended and
                       Restated Bylaws of Mahaska Investment Company dated July
                       23, 1998, are incorporated by reference to the Company's
                       quarterly report on Form 10-Q for the Quarter ended
                       September 30, 1998.

         10.1          Mahaska Investment Company Employee Stock Ownership Plan
                       & Trust as restated and amended. This Plan & Trust is
                       incorporated by reference to the Company's Annual Report
                       on Form 10-K for the year ended December 31, 1994.

         10.2.1        1993 Stock Incentive Plan. This 1993 Stock Incentive Plan
                       is incorporated by reference to Form S-1 Registration
                       Number 33-81922 of Mahaska Investment Company.

         10.2.2        1996 Stock Incentive Plan. This 1996 Stock Incentive Plan
                       is incorporated by reference to the Company's Annual
                       Report on Form 10-K for the year ended December 31, 1996.

         10.2.3        1998 Stock Incentive Plan. This 1998 Stock Incentive Plan
                       is incorporated by reference to the Company's Annual
                       Report on Form 10-K for the year ended December 31, 1997.

         10.3          States Resources Corp. Loan Participation and Servicing
                       Agreement dated February 5, 1999 between States Resources
                       Corp. and Mahaska Investment Company. This agreement is
                       incorporated herein by reference to the Form 10-K report
                       filed by Mahaska Investment Company for the Year ended
                       December 31, 1999.

         10.5          Amended and Restated Credit Agreement dated June 30, 2000
                       between Mahaska Investment Company and Harris Trust and
                       Savings Bank. This Amended and Restated Credit Agreement
                       is incorporated herein by reference to the Form 10-Q
                       report filed by Mahaska Investment Company for the
                       Quarter ended September 30, 2000.

         10.5.1        First Amendment to Amended and Restated Credit agreement
                       dated June 30, 2001. This amendment is incorporated
                       herein by reference to the Form 10-Q report filed by
                       Mahaska Investment Company for the Quarter ended
                       September 30, 2001.

         11            Computation of Per Share Earnings.

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(b) Reports on Form 8-K: No reports on Form 8-K were required to be filed during
    the three months ended June 30, 2002.

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                              Mahaska Investment Company
                              --------------------------
                                     (Registrant)

                              By: /s/ Charles S. Howard
                                  ---------------------
                                    Charles S. Howard
                                    Chairman, President, Chief Executive Officer

                                    August 9, 2002
                                    --------------
                                    Dated

                              By: /s/ David A. Meinert
                                  --------------------
                                    David A. Meinert
                                    Executive Vice President
                                    and Chief Financial Officer
                                    (Principal Accounting Officer)

                                    August 9, 2002
                                    --------------
                                    Dated

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