The Henry County Bank 2010 Annual Report

Dear Shareholders and Friends:

There has been much talk of a return to civility - in politics, in business and in daily communication with associates and family. Recently to further support this initiative there has been a new National Institution to promote civility commissioned at the University of Arizona. However, the culture to be courteous is not new to The Henry County Bank as it is our nature to always greet our customers cordially and with respect when they walk through our doors or we receive a telephone call. This has been our tradition since 1936, but also our practice every day since the Bank first opened in the communities of Henry County.

As this is business as usual for Comunibanc Corp. and its wholly-owned subsidiary, The Henry County Bank so is the solid reporting that we do in the Annual Report and in the documents that we submit to our auditors and banking regulators. Our returns are positive, and accurately reported to our shareholders. We are proud to report that our consolidated net earnings for 2010 are $2,154,085, which represents an increase of 24.0% from 2009. Earnings per share for 2010 were $2.60, an increase of $0.50 per share earnings over the prior year.

Challenges for all community banks will further increase with the new Dodd-Frank Financial Reform and Consumer Protection Act. The consequences of the cost of compliance and the final impact to your Bank are yet unknown. While all banks experience this, the onus for smaller banking systems is that it is more costly to implement. Our associates have taken on more responsibilities to keep our operating costs from growing dramatically, and the results have been positive to date. However, at some point, the bucket of new regulations will overflow, and more personnel may be needed.

The tenuous economic environment and related factors contributed to a decrease in our net interest margin from 4.01% in 2009 to 3.92% in 2010. Total dividends per share of $0.68 were paid to shareholders in 2010, an increase of 4.62 % over 2009. These results reflect the positive impact of striving to always improve through diligence and vigilance to all banking operations. I have discussed before on numerous occasions that I believe the market price per share of Comunibanc Corp. is undervalued, which I feel is a direct reflection in general of the financial discord on Wall Street. However in recent months the market price per share has gradually elevated, as of this writing to $23.70 compared to $12.99 one year ago. We are optimistic the market will continue to recognize our strength as an independent community bank as well as an excellent platform for higher long term market value in the future.

Even as our budget is challenged to absorb the increased costs associated with compliance to new and as yet unwritten regulations of the Dodd-Frank Financial Reform law passed in 2010, the Bank is sound. Total assets as of December 31, 2010, remained stable at $228,590,947 compared to year end 2009 at $228,164,048. The return on average assets for 2010 increased to .93%, from .79% in 2009. Return on average shareholders’ equity in 2010 was 9.25%, up from 8.02% in 2009, and 6.53% in 2008, an encouraging trend.

The mortgage loan portfolio for commercial and residential loans increased 8.3% over 2009. The total loan portfolio increased by 1.9% in 2010. Deposits were up 3.0%. These results are very positive, especially in light of the increased regulations and tighter parameters for creditworthy borrowers. Our ability to provide mortgage loans to customers who qualify remains unchanged. We work diligently through various mortgage loan programs to provide the loan format that best fits the financial ability of the customer.

Foreclosures in the state of Ohio and across the nation are expected to be elevated again in 2011 as homeowners deal with unemployment, high credit card debt, and increased medical insurance, food and fuel costs. Declining home values and tightened credit standards for refinancing have further added to the pressure. In Henry County, foreclosures were down in 2010 at 161 from an all-time high in 2009 of 181. Unfortunately we continue to have customers that are impacted by the economic environment and our mortgage lenders are attentive in communicating with customers whose loans are in a high risk category to evaluate all lending programs available to the loan customer to avoid this possible conclusion.

Loan losses are to be expected in these difficult times, and we again experienced losses across the spectrum in our loan portfolio. With our loan grading systems and loan monitoring, we have provided a $651,932 provision for loan losses during 2010, bringing the aggregate allowance to $1,985,000 or 1.54% of total loans at December 31, 2010. There is always risk associated with lending and ultimately there could be a loss which is again the cost of doing business. On a positive note, mortgage rates have never been a better value, as they have and continue to be near historically low levels. This greatly assists to fulfill the American dream of home ownership. Over the years we have given this opportunity to a great number of families.

With spring approaching there are signs that our local economy appears to be strengthening as unemployment rates have moderately declined since the beginning of 2010 in Northwest Ohio counties. Several economic development projects are expected to begin in 2011. A new entity to the area is Ruralogic, Inc. They provide information technology (IT) support to various companies for systems programming, development functions and an array of other technology applications. Although headquartered in Bryan, Ohio other facilities are planned to open this year in Napoleon and Archbold. When all locations are completed the company is expected to employ approximately 600 technicians. In addition, the commitment by Ruralogic, Inc. is bringing government grant funds to our communities.

A resurgence in automotive manufacturing in the area is now happening, and many employees have been called back from extended layoffs. Interest in the area as a transportation hub is enhanced by the CSX terminal and the anticipated completion of the Fort to Port U.S. 24 project. Many industrial sites are being looked at and seriously considered by manufacturers from outside the region. Expansions by Railtech International and Campbell Soup Company’s venture into solar generation of energy are important to Napoleon and Northwest Ohio. The Henry County Bank collaborates with these efforts to bring new opportunities to our region and is an active participant whenever possible.

The agricultural community has been strong with healthy harvests and strong gains in the market price for corn, soybeans and other farm commodities. The Bank is a resource for farmers who reinvest profits into expanding their business with land acquisitions and capital investment. Several local farmers have taken advantage of our FarmerMac program for financing agricultural products through the farm loan specialists at The Henry County Bank. This program allows for local financing with long-term fixed-rate mortgages, without penalties for prepayment. This type of loan is more stable and flexible for our farmers who otherwise could face volatility from interest rates and other operating uncertainty.

The loan production office in Bowling Green continues to progress in all of our lending programs available to individuals and businesses in Wood County, as we continue to further enhance opportunities for growth. We are pleased with the loan activity generated and the expansion of our Wood County customer base as the area has experienced much success in economic growth over the last decade.

Our forecasting for 2011 outlines stable growth for the Bank, as a reflection of better economic times, according to a recent survey consumer confidence is improving as retailers have seen increased sales. The stock market recently topped 12,000 fueling more confidence. Again, we are cautious in our planning, as economic change can be brisk when one considers all the variables that factor into the economic environment be it local, national or global. We have positioned the Bank appropriately to respond accordingly as a vital component of strength in the community fabric resulting in continued enhancement to the investment of our shareholders.

The success that we accomplished for 2010 is representative in part of the dedication of our Directors for the guidance of our community bank and to the Officers and Associates who provide the leadership and teamwork to meet the day-to-day challenges. We thank them all for their contributions in 2010. We also are most appreciative to our shareholders and customers for the past and continued support.

Thank you all for your efforts in 2010 as we look forward to the accomplishments in 2011.

Sincerely,

William L. Wendt
President