The Henry County Bank 2008 Annual Report

Dear Shareholders and Friends:

The economic storm that occurred in 2008 from the meltdowns of huge nonbank financial institutions, the automotive companies, rising unemployment, and the ongoing decline in the mortgage market created numerous obstacles for community banks. The culmination of all this was in the fourth quarter, which perhaps can be best described as the shake up of Wall Street that created the most devastating jolt to the financial markets since the 1930s. Despite this, Comunibanc Corp. and its wholly-owned subsidiary, The Henry County Bank, concluded the year with positive results. Further, our capital position is strong, supported by sound banking principles directed to protect our position of strength from the past, to the present, and future. There are numerous challenges facing the banking industry and more specifically, The Henry County Bank. Be it short-term or long-term, we must continually adapt to the changes in the economic climate through our internal forward strategic planning which covers all aspects of our operational expectations. Ultimately, since the founding of our Bank in 1936, shareholder value is at the forefront. We have earned your trust along with that of our customers as we have always provided local and traditional services that only a hometown independent community bank like The Henry County Bank can do.

Recently, economist Paul Measki cited in Business Week that community banks are the backbone of lending to small businesses. We can attest to that as our lending officers live here and personally meet with these people to build extended banking relationships. Lending opportunities can be developed by being more creative to accommodate their financial requirements while still maintaining quality lending standards because we understand the community and the small businesses.

With that said, our goal through all the situations that occur continues to be the transformation of The Henry County Bank to a better, stronger community bank with market expansion for growth. We do this cautiously and with due diligence as we acutely recognize the problems that have besieged larger institutions. Again we now have further opportunities to provide commercial lending and complete banking services to the business community. You may recall with the growth of the industrial and retail base over the years in Wood County and its county seat, Bowling Green, we had extended our reach into this market through our Loan Production Office in Bowling Green. Our associates at the Loan Production Office have realized growth in consumer, commercial, and residential mortgage lending. Encompassing all of the mortgage loan activity and our ability to assist homeowners in refinancing their homes with attractive rates, resulted in an excellent increase of 9.6% in the mortgage loan portfolio for 2008. During the same period, total deposits increased 2.28%.

Just as the Federal Reserve acts quickly to changing market conditions, our management team and directors must react decisively to maximize our returns and minimize risk. As unemployment, higher energy costs, reduced personal retirement assets, higher debt levels and more impact our customers, we will continue to work with them to the best of our ability to ease the financial burdens they face. After all, we have built trust through loyal customer service in all economic conditions which is very important to us.

Comunibanc Corp. and its wholly-owned subsidiary, The Henry County Bank, reported consolidated earnings for 2008 of $1,338,657, an increase over 2007 of 29.02%. Earnings per share for 2008 were $1.62, an increase of $0.37 per share earnings over 2007. Our net interest margin ended the year at 3.69%, again up from the previous year margin of 3.26%. Cash dividends paid to our shareholders were $0.64 per share for the year, the same as 2007. As always, we maintain high emphasis on our program of dividend payment and market value, even though this year market values have been erratic and undervalued.

The total assets of the Corporation increased by 1.45% to $212,914,429 on December 31, 2008. The return on average assets for the year increased to .63%, up from .50% in 2007, and the return on average shareholder’s equity increased to 6.53%, compared to 5.49% in 2007. We are pleased with these results even though we dealt with a daunting economic environment which continues to be encountered daily by all of us. The turbulent economy brought the government into the banking industry through several programs specifically designed to assist banks in lending. The programs titled “Trouble Assets Relief Program” (TARP) and “Capital Purchase Program” (CPP) are directed by the U.S. Treasury Department. The Henry County Bank did not participate in these programs as our capital position is strong and there are numerous unknowns surrounding the extent of government’s involvement within the Bank. We have adequate funds to make loans and the marketing tools in place for qualified borrowers.

The Henry County Bank has always maintained principles of realistic and effective lending policies and procedures. Consequently, we have never been involved in originating or investing in sub-prime loans or sub-prime products. Irregardless and despite the vigilant monitoring of our delinquency by our entire lending team, we did have increased losses this year attributed mainly to commercial loans and residential mortgages. The provision for loan losses for 2008 was $765,622. The aggregate allowance for loan losses as of December 31, 2008 is $1,600,000, or 1.32% of loans.

Economic stability and the effects of the Federal stimulus package are difficult to assess at this time. While the country struggles to recover in 2009 from job losses, layoffs, devalued home equity, the volatile stock market, and other negative trends, we will continue to experience challenges in the financial markets and the banking industry. Most of us have been personally impacted by the tightening of credit and the decreased value of equities. We must work harder to ensure the long- term success of our Bank and the overall stability not only of our community, but of our nation, and rest assured, we are doing that every day, just as we have done for over 70 years.

It’s more important than ever to bring new economic development opportunities to our area and further to aggressively support the area’s strong agricultural industry. As the U.S. Route 24 Fort to Port project progresses, we will be more accessible for business and industry development. The Bank works collaboratively with area entities to encourage investment in the Fort to Port corridor.

With the losses in personal assets in the stock market, financial planning is more critical now to reassess and realign your future financial security. HCB Financial Services can provide the investment services and full financial planning needed as you plan for retirement. These services are an integral component of our full banking services for enhancing customer relationships.

As we look at 2009, I believe everyone should understand the uncertainties that envelop all aspects of the economy. Even though we know most of the negatives, and as I have stated before, there still remain opportunities for positive growth. Through the team effort of all we will continue our diligence, aggressive customer development programs, expense controls and strong credit quality. Our management team is focused, our products are first rate and our staff is well-trained and motivated, and we all are attentive to the initiatives set forth for growth of The Henry County Bank. The staff, officers, and directors of the Bank and Corporation have worked together as a cohesive unit to ensure the long-term success of the Bank. The level of dedication is exemplary, and I commend each of them for their continued hard work.

We extend a sincere thank you to our customers and shareholders for your trust, confidence, and patronage. With your support and promotion we will again strive to achieve our goal of success.

Sincerely,

William L. Wendt
President