The Henry County Bank 2009 Annual Report

Dear Shareholders and Friends:

When 2009 began, we knew that there would be significant changes to the banking industry due to the economic impact of the failures of certain Wall Street financial institutions. As the year progressed, bankers and consumers alike understood that these were undoubtedly the worst financial conditions since the 1930’s depression. The Federal government acted to avert further collapse of markets here, while other governments around the world responded to global conditions. The ramifications of the past two years will be with us for a long time, and the challenges and costs of new regulations, new fees, and variable market conditions impact Comunibanc Corp. and its wholly-owned subsidiary, The Henry County Bank, and all banking entities, significantly.

Adaptivity to market conditions is paramount for continued growth of The Henry County Bank. We successfully navigated 2009 with continuous strategic planning, maintaining our course of adherence to our core business values, as we addressed the unprecedented economic issues and their impact on our earnings. Even in these challenging times, we have maintained our position of strength, and ended the year with positive results. Ultimately, the investment by our Shareholders and its value is of prime concern to us, as it has been since 1936, when our independent, hometown community bank was founded.

Even with the challenges of the current economy and increased payments to the Federal Deposit Insurance Corporation (FDIC) for insurance premiums, we are pleased to report positive returns for the year. Comunibanc Corp. and its wholly-owned subsidiary, The Henry County Bank, reported consolidated net earnings for 2009 of $1,737,356, an increase from 2008 of 29.78%. Earnings per share for 2009 were $2.10, an increase of $0.48 per share earnings over the prior year. Also up from 2008 was our net interest margin, increasing from 3.26% in 2008 to 4.01% in 2009. Shareholders were paid total dividends of $0.65 per share in 2009, an increase of 1.56% over 2008. As I have stated in times past, dividend payment and market value are uppermost in our over-all strategy. However, we continue to have a chaotic and undervalued market value which is a reflection of the total economic environment.

Thanks to the diligence and teamwork of our Staff, Officers, and Board of Directors, the total assets of the Corporation increased by a significant 7.16%, to $228,164,048 as of December 31, 2009. The return on average assets for 2009 increased to .79%, up from .63% in 2008. The return on average shareholder’s equity also continued to improve, reaching 8.02% in 2009, compared to 6.53% in 2008 and 5.49% in 2007.

With low interest rates and incentives for first-time homebuyers, responsive customer servicing of refinancings, and aggressive marketing, our mortgage loan portfolio for commercial and residential lending increased by 8.5% over 2008. The total loan portfolio increased by 4.6%. Our deposits increased by 5.3% as consumers became more concerned with saving and investors turned from the declining stock market.

We now see many mega banks and other financial entities attempting to muddy the waters as they are adopting the slogan “Community Bank” as a marketing tool. They know the marketing value of a community bank and are aggressively pursuing to change the perception of whom and what they represent to the public. I would like to point out a few of the differences of a TRUE Community Bank, as is The Henry County Bank: personalized service; flexibility to meet customer’s needs; local decisions made right here, around the Boardroom table, or sometimes the kitchen table as our lenders meet at the convenience of our customer; integral part and leadership role for economic growth; numerous monetary contributions and funding for organizations, various entities and community programs, along with the volunteering by our Staff, Officers, and Directors on many different organizations and community activities. As our advertising states, “The Henry County Bank, here for the Community.”

There are those who have always been very financially stable but now are dealing with unprecedented obstacles. Decreased housing values, layoffs, lower retail business earnings, and underperforming equities have made their financial situation critical. We have the ability to respond to their needs with flexibility, creativity, and with understanding. We have not sacrificed our commitment to our relationships and strive to accommodate the financial needs of our customer, as always. In addition, we offer full access to financial services for family, education, and retirement planning through HCB Financial Services, to assist our customers in meeting their financial goals.

The unemployment rates in Northwest Ohio counties have been 3 - 4% higher than the state average for 2009. Consequently, delinquencies, bankruptcies, and defaults on residential and commercial mortgage loans continue to plaque our industry and your bank. Again for 2009, as in 2008, we did have losses across the spectrum in our loan portfolio even though we diligently monitored all delinquent activity. The banking business is very much about risk taking, and when assets are at risk, losses are to be expected. The measuring of that risk is very essential in these economic times to maintain adequate reserves to absorb losses in the normal course of lending. Through the ongoing “Loan Review” and “Loan Grading Systems” of our loan portfolio, we allocated $705,840 to our provision for loan losses in 2009. As of December 31, 2009, the aggregate allowance for loan losses is $1,750,000 or 1.38% of loans.

The Henry County Bank remains focused on being the core business engine as YOUR COMMUNITY BANK. We have money to lend to qualified borrowers and we make decisions prudently to positively impact our customers and the communities we serve. While we are not responsible for the current economic turmoil, we have always worked with our customers and small businesses in both good and difficult times, and will continue to do so. We have never wavered in our commitment to assist in rejuvenating our retail business community to rebound from the current economic struggles.

As I have eluded to, all financial institutions are NOT community banks despite their claims. In our case it can be said that a complete banking relationship with The Henry County Bank can positively impact the local economy and will assist in the growth and stability of our communities. One example of local dollars along with community collaboration that can bring success is exemplified by the recent announcement of a $400,000 Ohio Department of Development grant approved for funding improvements to the downtown business district in Napoleon. We congratulate Napoleon Alive, Inc. and city officials for their efforts. The Bank will be working with these entities, businesses, and individuals in funding additional renovations and improvements to enhance downtown vitality and ambience.

You may recall that in April 2006 we opened a loan production office in Bowling Green Ohio. Our long range plans included to expand to a full service banking office. In 2007 a branch application was presented to the regulators and was approved in November 2007. However, in late 2008 the developer of the new building where we were to be located postponed the project due to economic concerns. Although our plans for the full service banking office are temporarily delayed, we are pleased with the continued growth in loan activity at our loan production office and will use this office to continue further promotion and expansion in Bowling Green and Wood County.

What is ahead for 2010? It would be nice to think all of the issues and challenges we faced in 2009 are behind us, but we all know that many are still here today with more yet to come. In that regard we continue to transform the Bank to meet the challenges that we face everyday. We maintain our focus toward new goals, new products, new services, and new opportunities to better serve our customers. These are key components for strong shareholder returns. Collaboratively, the Staff, Officers, and Directors are attentive to remaining true to our core business values as a COMMUNITY BANK, directed to the long-term success of the Bank. With pride, I applaud their commendable efforts and level of dedication.

I thank you for your support, trust, and patronage in these difficult times, and your confidence in the continued success of the Bank in 2010.

Sincerely,

William L. Wendt
President