The Henry County Bank 2005 Annual Report

Dear Shareholders and Friends:

We are fortunate here in the Northwest corner of Ohio. In Henry County, we experience warm summers and cold winters, but we rarely face the catastrophic weather challenges that have affected other parts of our nation in this past year. Hurricanes, widespread flooding, mudslides, and forest fires are not high risk for residents here. We do experience an occasional tornado, but nowhere near the incidence in other parts of the country. When disasters do occur, our communities and our residents respond generously to friends and neighbors, and The Henry County Bank supports these efforts.

However, we do have our own challenges - ones that our communities must respond to with commitment. Job growth, school funding, household debt, retail strength, and population growth are all areas of concern for our county. The Bank takes a leadership role in focusing on these issues, with the support of business, industry, and local government.

Across Northwest Ohio, the local economy reflected the national trends. Housing starts leveled off, energy prices were up, gas prices topped off at over $3.00 per gallon, and the Federal Reserve continued their position to curb inflation. The prime lending rate has been raised 14 times since June 30, 2004, creating net interest margin pressure for banks stemming from flat yield curves. In spite of this, our mortgage loan rates continued to be attractive, resulting in a mortgage loan portfolio increase for 2005 of 10.1%. Total deposits at the Bank increased 2.6% for 2005, up from 2.0% in 2004.

Comunibanc Corp. and its wholly-owned subsidiary, The Henry County Bank, have produced earnings per share of $1.71 for 2005. While these earnings were below our goal, they reflect the extreme pressure on our margins as the loan portfolio is continually re-pricing, adjusting to the prime lending rate increases. Our net interest margins reflected these pressures, ending 2005 at 3.41%. However, our cash dividends paid to shareholders were at $0.72 per share for 2005, an increase of 5.9% over last year. These results are consistent with the upward trend of market price per share and dividends since 1982, acknowledging stock splits in 1987 and 2000.

The total assets of the Corporation increased by 2.04% to $201,703,229 at December 31, 2005. The 2005 return on average assets was .71% and the return on average shareholders' equity was 8.3%. These rates of return speak to the challenges facing our Bank and our industry in general with moderate home sales, interest rate pressures, competition from traditional and non-traditional lenders, and loan defaults.

Our focus at The Henry County Bank remains on the optimum utilization of deposits through disciplined management of the Bank. Our high standards for loan management minimize our risk factors, even with the record high levels of bankruptcies in Northwest Ohio. Spurred by the changed Federal legislation in 2005, bankruptcy filings were accelerated before the implementation date of the new guidelines in October. The Bank's Credit Analyst and Loan Officers continue to make wise lending decisions, in spite of increased competition from other lenders, and more aggressive lending tactics. The collection department continuously monitors the past due portfolio and is aggressive with delinquent accounts.

The last quarter of 2005 actually reported fewer bankruptcies, but filings are expected to rebound to high levels in a few months. Debtors will experience the impact of higher minimum monthly payments for credit cards, increased winter utility bills, and increases in mortgage loan interest rates. While the Bank's delinquency ratios are higher than we would like, they continue to be within our peer group. Through our lending policies and procedures, guidelines are directed to asset quality and sound credit underwriting. In 2005, we allocated $98,444 to our provision for loan losses. As of December 31, 2005, the total allowance for loan losses is $1,375,000 and reflects the normal risk in our loan portfolio.

As we work towards the completion of our greatly expanded new Main Office, which incorporated our former building, we must acknowledge and thank you, our customers, and also our employees, for your patience during the 2-1/2 years of the construction process. Actually, the planning for this project began back in the mid-1980s as adjacent land to our site was acquired over several years as we planned for a new Main Office to accommodate present and future growth. Simply stated, when the Bank opened in Napoleon in 1970, total assets were approximately $8 million and in 2006 total assets are at $200 million. The old building was inadequate to house and comply with the highly regulated banking operations of today and the coming years. We made a significant investment of over $4 million as well as a commitment to the viability of downtown Napoleon.

We are proud of the beautiful new building and the statement that it makes of our success in the community. The years of design, planning, and construction will culminate by mid-year. Our employees are looking forward to their new surroundings being completed with the latest technology and tools available. We have supported local contractors throughout the construction process, and are grateful to them for their hard work.

The Bank, as anticipated, has increased its overhead costs with the new main office building as the size is 23,00 square feet compared to 7,000 square feet in our previous building. Also, with the past and future growth of our loan portfolio, more administration is required. We have created new positions titled Loan Documentation Coordinator for all loans and Loan Closing Coordinator for consumer and construction loans. In recent years we have expanded our residential and commercial lending programs into the Toledo, Maumee, Perrysburg, and Bowling Green, Ohio areas. Adequate administration for this expansion is uppermost and to solidify and enhance our penetration into that market, we hired an experienced residential and commercial lender to compliment our seasoned and professional lenders. Now we have taken another step to more aggressively pursue that market place as we have recently opened a loan production office Bowling Green, Ohio. The economic factors for this area are consistently strong and we look forward to our opportunities for positive loan production.

The officers of Comunibanc Corp. have been working diligently on long-term planning to positively impact per share earnings. Business expansion is key to our success and in the best interest of our shareholders. The Bank will continue to work with city and county government officials, business and industry leaders to retain existing business and encourage new economic development. Along with the Bank, these entities need to be proactive in indentifying opportunities for growth as the U.S. 24 four lane Fort to Port project is initiated in the near future.

The Board of Directors provides insight and leadership to the Bank, as we focus on meeting the needs of our customers and our shareholders. We thank them for their continued efforts and guidance. We also commend our dedicated associates who take on many responsibilities to minimize costs and embrace our long tradition of excellent customer service.

We are confident that the new building and technology, our prudent investment strategy, and our initiatives to expand our market base will allow the Bank to deliver continued growth and enhanced returns to our shareholders in the years to come, despite uncertain economic conditions.

We thank our customers and our shareholders for your loyal patronage and confidence in The Henry County Bank and Comunibank Corp. With the leadership of our associates, our officers and our directors, we pledge to continue our record of stable growth through strong management and commitment.

Sincerely,

William L. Wendt
President