Investor Relations

Dear Shareholder:

2009 was the second consecutive year of serious difficulty in the financial world here and abroad. While many economists said that a recovery was underway and the recession was over, high bank failure rates continued. Though not a stellar year for us, we feel fortunate that Western Illinois Bancshares made a profit, while many banks did not.

The company had earnings of $909,750 in 2009, compared to a loss in 2008 of $4,666,714. Those earnings compute to $0.90 per share. As you will remember, our large loss in 2008 was caused by the government takeover of Fannie Mae and Freddie Mac making our preferred stock holdings virtually worthless. 2009 earnings were reduced by higher credit expense and FDIC insurance premiums.

During 2009, the total assets of the bank grew from $355.6 million to $373.8 million, a growth rate of 5.12%. Securities owned increased 18%, from $103.5 million to $122.4 and net loans grew from $192.8 million to $198.7 million, or 3.06%. Loan demand decreased during the year and remains lower than in recent times. The good news was that many of our farm customers bolstered their financial positions, reducing their need to borrow.

The bank experienced deposit growth of 8.71%, going from $256.1 million to $278.4 million. Core deposits, consisting of checking, savings, money markets and CD’s less than $100,000, increased from $164.2 million to $183.9 million. This represents growth of $19.7 million, or 12.00%. The core deposit growth allowed us to reduce our reliance on wholesale funding and helped lower interest expense. A key factor in the growth was new deposits in Galesburg and Monmouth.

Stockholders equity increased from $28.3 million to $34.7 million or from $28.17 per share to $34.52 per share. This includes $11.765 million of capital from the Treasury’s Capital Purchase Program. Excluding capital from the U.S. Treasury, the book value was at $22.919 million or $22.81 per share.

Net interest income increased year over year from $7.654 million to $9.403 million. Our net interest margin improved substantially, going from 2.92% to 3.35%. Margins improved as a result of lower deposit interest costs at both the retail and wholesale levels.

Non-interest income, excluding gains and losses on securities, decreased from $2.962 million to $2.033 million. The majority of that decline was due to write-downs on other real estate owned. The service charges on deposit accounts and other fees increased by $89,457, going from $917,030 to $1,006,487. Porter Insurance net income declined from $338,324 to $230,184, as a result of reduced crop insurance revenue.

Non-interest expense increased from $7.307 million to $8.515 million, or 16.53%. Salaries and benefits increased by $240,345, or 5.32%. This increase included the personnel costs for our new branch at Venture Plaza in Monmouth. FDIC insurance premiums went from $72,264 to $693,457, an increase of 959%!

The bank had net charge-offs on loans during the year of $580,149, compared to $1.706 million in 2008. Provisions for loan losses were $1.950 million, resulting in a year-end reserve for loan loss of $3.148 million, or 1.56% of loans. While we continue to see weakness in our loan portfolio, it appears that most problem loans have been identified. Current reserves, plus the reserve additions budgeted for 2010, should cover potential losses.

Our new branches and upgrades to existing facilities greatly improved our market presence in the communities we serve. This trend will continue when our new Aledo building opens this summer. This 2,500 square foot branch will be located at one of the busiest intersections in Mercer County.

Moving forward, we remain focused on our core business and have developed strategic plans for 2010, which call for improving our loans while carefully monitoring capital and liquidity levels. Other than the hours spent preparing for and undergoing audits and examinations, we spend most of our time being proactive in ways that should allow for continued growth and improved profitability.

Bankers nationwide will remain challenged to improve asset quality and profitability as they become burdened with ever-greater government regulation. We feel that larger rural community banks like ours will be able to compete with the big regional and global institutions in terms of product offerings and efficiencies, while far out shining them in terms of service.

Our staff must be complimented on their fine performance during trying times, as should you, our stockholders, for your continued support of our efforts. This is a pivotal time for community banking in this country. While there is a tremendous opportunity to gain market share from the “too big to fail” banks, there is also growing concern of new and harmful regulation. We ask that you strongly support the efforts of community bankers in any contact you have with state and federal legislators.

Western Illinois Bancshares, Inc. and Subsidiary Consolidated Balance Sheets

December 31, 2009 and 2008

Western Illinois Bancshares, Inc. and Subsidiary Consolidated Statement of Income

Year Ended December 31, 2009 and 2008

Board of Directors for Western Illinois Bancshares, Inc.

Augustin S. Hart III, President
Raymond E. Defenbaugh, Vice President
Christopher J. Gavin, Secretary and Treasurer
C. Dean Hennenfent
Dr. John Dooley
Mark J. Sexton
Robert C. Fick
Robert A. Riley
Scott T. Champion

Board of Directors for Midwest Bank of Western Illinois

Augustin S. Hart III, Agri-Business
C. Dean Hennenfent, Agri-Business
Christopher J. Gavin, President and CEO Midwest Bank of Western Illinois
David C. Allison, Retired Monmouth College Professor
Leslie G. Allen, Executive VP and Chief Credit Officer of Midwest Bank of Western Illinois
Michael G. Luna, Owner/Operator of McDonalds
Raymond E. Defenbaugh, Agri-Business
Robert A. Riley, President of Monmouth-Stronghurst Implement
Robert E. Meling, Realtor, Monmouth Farm and Home Realty
Stephen A. Johnson, Dentist

Bank Officers

Employees

Western Illinois Bancshares Inc.

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Porter Insurance Agency, Inc.

Porter Insurance Agency, Inc., is a subsidiary of the Midwest Bank of Western Illinois