|                                                                                      |                                                         | EXHIBIT 13.                                 
|------------------------------------------------------------------------------------- | ------------------------------------------------------- | --------------------------------------------
|(KPMG LOGO)
The Board Of Directors and
Stockholders 
Princeton National Bancorp, Inc. | Report of Independent Registered Public Accounting Firm | Portions of 2005Annual Reportto Shareholders

We have audited the
accompanying consolidated balance sheets of Princeton National Bancorp, Inc.
and subsidiary (the Company) as of December 31, 2005 and 2004, and the
related consolidated statements of income, comprehensive income, changes in
stockholders equity, and cash flows for each of the years in the three-year
period ended December 31, 2005. These consolidated financial statements are the
responsibility of the Corporations management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Princeton National Bancorp, Inc.
and subsidiary as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2005 in conformity with U.S. generally accepted accounting
principles.

We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Companys internal control over
financial reporting as of December 31, 2005, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 13,
2006 expressed an unqualified opinion on managements assessment of, and the
effective operation of, internal control over financial reporting.

(KPMG LLP)

Chicago, Illinois 
March 13, 2006

9

---



|                                          
|------------------------------------------
|Consolidated
  Balance Sheets             
|(dollars
  in thousands except share data)

|                                                                                                    |  |             |         |      |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ----------- | ------- | ---- | - | ------- | -
|                                                                                                    |  | December 31 |        
|                                                                                                    |  | 2005        |         | 2004 |  
|                                                                                                    |  |             |         |      |  
|ASSETS                                                                                              |  |             |         |      |   |         |  
|Cash and due from banks                                                                             |  | $           | 23,635  |      | $ | 14,025  |  
|Interest-bearing deposits with financial
institutions                                               |  |             | 110     |      |   | 65      |  
|Federal funds sold                                                                                  |  |             | -0-     |      |   | -0-     |  
|                                                                                                    |  |             |         |      |   |         |  
|Total cash and cash
equivalents                                                                     |  |             | 23,745  |      |   | 14,090  |  
|                                                                                                    |  |             |         |      |   |         |  
|Loans held-for-sale, at lower of
  cost or market                                                   |  |             | 2,587   |      |   | 1,301   |  
|                                                                                                    |  |             |         |      |   |         |  
|Investment securities:                                                                              |  |             |         |      |   |         |  
|Available-for-sale, at fair
value                                                                   |  |             | 235,371 |      |   | 175,129 |  
|Held-to-maturity, at amortized cost
(fair value of $16,274
  and $14,111)                           |  |             | 16,115  |      |   | 13,680  |  
|                                                                                                    |  |             |         |      |   |         |  
|Total investment securities                                                                         |  |             | 251,486 |      |   | 188,809 |  
|                                                                                                    |  |             |         |      |   |         |  
|Loans:                                                                                              |  |             |         |      |   |         |  
|Loans, net of unearned
interest                                                                     |  |             | 581,724 |      |   | 410,044 |  
|Allowance for loan losses                                                                           |  |             | (3,109  | )    |   | (2,524  | )
|                                                                                                    |  |             |         |      |   |         |  
|Net loans                                                                                           |  |             | 578,615 |      |   | 407,520 |  
|                                                                                                    |  |             |         |      |   |         |  
|Premises and equipment, net of accumulated
depreciation                                             |  |             | 26,412  |      |   | 17,924  |  
|Bank-owned life insurance                                                                           |  |             | 20,434  |      |   | 15,870  |  
|Accrued interest receivable                                                                         |  |             | 8,714   |      |   | 5,000   |  
|Goodwill                                                                                            |  |             | 22,665  |      |   | 1,355   |  
|Intangible assets, net of accumulated
amortization                                                  |  |             | 6,843   |      |   | 1,317   |  
|Other real estate owned                                                                             |  |             | 468     |      |   | -0-     |  
|Other assets                                                                                        |  |             | 3,294   |      |   | 2,552   |  
|                                                                                                    |  |             |         |      |   |         |  
|TOTAL ASSETS                                                                                        |  | $           | 945,263 |      | $ | 655,738 |  
|                                                                                                    |  |             |         |      |   |         |  
|                                                                                                    |  |             |         |      |   |         |  
|                                                                                                    |  |             |         |      |   |         |  
|LIABILITIES                                                                                         |  |             |         |      |   |         |  
|Deposits:                                                                                           |  |             |         |      |   |         |  
|Demand                                                                                              |  | $           | 103,622 |      | $ | 75,015  |  
|Interest-bearing demand                                                                             |  |             | 222,675 |      |   | 191,271 |  
|Savings                                                                                             |  |             | 109,491 |      |   | 58,675  |  
|Time                                                                                                |  |             | 362,770 |      |   | 248,600 |  
|                                                                                                    |  |             |         |      |   |         |  
|Total deposits                                                                                      |  |             | 798,558 |      |   | 573,561 |  
|                                                                                                    |  |             |         |      |   |         |  
|Borrowings:                                                                                         |  |             |         |      |   |         |  
|Customer repurchase agreements                                                                      |  |             | 29,375  |      |   | 16,870  |  
|Advances from the Federal Home Loan
Bank                                                            |  |             | 8,346   |      |   | 5,000   |  
|Federal funds purchased                                                                             |  |             | 1,000   |      |   | 1,000   |  
|Interest-bearing demand notes issued to
the U.S. Treasury                                           |  |             | 2,154   |      |   | 1,765   |  
|Trust preferred securities                                                                          |  |             | 25,000  |      |   | -0-     |  
|Note payable                                                                                        |  |             | 6,700   |      |   | 900     |  
|                                                                                                    |  |             |         |      |   |         |  
|Total borrowings                                                                                    |  |             | 72,575  |      |   | 25,535  |  
|                                                                                                    |  |             |         |      |   |         |  
|Other liabilities                                                                                   |  |             | 10,986  |      |   | 4,273   |  
|                                                                                                    |  |             |         |      |   |         |  
|TOTAL LIABILITIES                                                                                   |  |             | 882,119 |      |   | 603,369 |  
|                                                                                                    |  |             |         |      |   |         |  
|                                                                                                    |  |             |         |      |   |         |  
|STOCKHOLDERS EQUITY                                                                                |  |             |         |      |   |         |  
|Common stock: $5 par value, 7,000,000 shares
authorized:                                            |  |             |         |      |   |         |  
|4,478,296 shares issued at December 31, 2005
and                                                    |  |             |         |      |   |         |  
|4,139,841 shares issued at December 31, 2004                                                        |  |             | 22,392  |      |   | 20,699  |  
|Surplus                                                                                             |  |             | 16,968  |      |   | 7,810   |  
|Retained earnings                                                                                   |  |             | 45,786  |      |   | 42,156  |  
|Accumulated other comprehensive (loss) income, net of
tax                                           |  |             | (482    | )    |   | 951     |  
|Less: cost of 1,131,853 and 1,081,841 treasury shares at
  December 31, 2005 and 2004, respectively |  |             | (21,520 | )    |   | (19,247 | )
|                                                                                                    |  |             |         |      |   |         |  
|                                                                                                    |  |             |         |      |   |         |  
|TOTAL STOCKHOLDERS
EQUITY                                                                          |  |             | 63,144  |      |   | 52,369  |  
|                                                                                                    |  |             |         |      |   |         |  
|                                                                                                    |  |             |         |      |   |         |  
|TOTAL LIABILITIES AND
STOCKHOLDERS
  EQUITY                                                        |  | $           | 945,263 |      | $ | 655,738 |  
|                                                                                                    |  |             |         |      |   |         |  
|                                                                                                    |  |             |         |      |   |         |  
|                                                                                                    |  |             |         |      |   |         |  

See
accompanying notes to consolidated financial statements.

10

---



|                                          
|------------------------------------------
|Consolidated
  Statements of Income       
|(dollars
  in thousands except share data)

|                                                          |  |                                   |           |      |   |           |  |   |           | 
|--------------------------------------------------------- |  | --------------------------------- | --------- | ---- | - | --------- |  | - | --------- | 
|                                                          |  | For the
  Years Ended December 31 |          
|                                                          |  | 2005                              |           | 2004 |   | 2003      | 
|                                                          |  |                                   |           |      |   |           | 
|Interest income:                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Interest and fees on loans                                |  | $                                 | 31,339    |      | $ | 23,518    |  | $ | 23,763    | 
|Interest and dividends on investment
securities:          |  |                                   |           |      |   |           |  |   |           | 
|Taxable                                                   |  |                                   | 4,621     |      |   | 3,259     |  |   | 2,919     | 
|Tax-exempt                                                |  |                                   | 3,824     |      |   | 2,888     |  |   | 2,585     | 
|Interest on federal funds sold                            |  |                                   | 120       |      |   | 30        |  |   | 72        | 
|Interest on interest-bearing time
deposits in other banks |  |                                   | 67        |      |   | 24        |  |   | 55        | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Total interest income                                     |  |                                   | 39,971    |      |   | 29,719    |  |   | 29,394    | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                         
|Interest expense:                                         |  |                                   |           |      |   |           |  |   |           | 
|Interest on deposits                                      |  |                                   | 13,787    |      |   | 8,596     |  |   | 10,094    | 
|Interest on borrowings                                    |  |                                   | 1,939     |      |   | 474       |  |   | 417       | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Total interest expense                                    |  |                                   | 15,726    |      |   | 9,070     |  |   | 10,511    | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Net interest income                                       |  |                                   | 24,245    |      |   | 20,649    |  |   | 18,883    | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Provision for loan losses                                 |  |                                   | -0-       |      |   | 375       |  |   | 460       | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Net interest income after provision for
  loan losses     |  |                                   | 24,245    |      |   | 20,274    |  |   | 18,423    | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Non-interest income:                                      |  |                                   |           |      |   |           |  |   |           | 
|Trust & farm management
fees                              |  |                                   | 1,601     |      |   | 1,451     |  |   | 1,280     | 
|Service charges on deposit
accounts                       |  |                                   | 3,448     |      |   | 3,149     |  |   | 3,018     | 
|Other service charges                                     |  |                                   | 1,407     |      |   | 1,165     |  |   | 1,056     | 
|Gain on sales of securities
available-for-sale            |  |                                   | 89        |      |   | 216       |  |   | 1,002     | 
|Gain on sale of credit card
loans                         |  |                                   | 63        |      |   | 465       |  |   | -0-       | 
|Brokerage fee income                                      |  |                                   | 697       |      |   | 607       |  |   | 550       | 
|Mortgage banking income                                   |  |                                   | 780       |      |   | 561       |  |   | 1,287     | 
|Bank-owned life insurance
income                          |  |                                   | 604       |      |   | 555       |  |   | 584       | 
|Other operating income                                    |  |                                   | 151       |      |   | 146       |  |   | 147       | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Total non-interest income                                 |  |                                   | 8,840     |      |   | 8,315     |  |   | 8,924     | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Non-interest expense:                                     |  |                                   |           |      |   |           |  |   |           | 
|Salaries and employee benefits                            |  |                                   | 13,400    |      |   | 11,129    |  |   | 10,324    | 
|Occupancy                                                 |  |                                   | 1,558     |      |   | 1,368     |  |   | 1,237     | 
|Equipment expense                                         |  |                                   | 2,124     |      |   | 1,653     |  |   | 1,624     | 
|Federal insurance assessments                             |  |                                   | 244       |      |   | 229       |  |   | 212       | 
|Intangible assets amortization                            |  |                                   | 324       |      |   | 208       |  |   | 208       | 
|Data processing                                           |  |                                   | 870       |      |   | 747       |  |   | 706       | 
|Advertising                                               |  |                                   | 770       |      |   | 743       |  |   | 449       | 
|Other operating expense                                   |  |                                   | 3,963     |      |   | 3,426     |  |   | 3,463     | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Total non-interest expense                                |  |                                   | 23,253    |      |   | 19,503    |  |   | 18,223    | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Income before income taxes                                |  |                                   | 9,832     |      |   | 9,086     |  |   | 9,124     | 
|Income tax expense                                        |  |                                   | 2,258     |      |   | 2,214     |  |   | 2,521     | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Net income                                                |  | $                                 | 7,574     |      | $ | 6,872     |  | $ | 6,603     | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Earnings per share:                                       |  |                                   |           |      |   |           |  |   |           | 
|Basic                                                     |  | $                                 | 2.39      |      | $ | 2.22      |  | $ | 2.08      | 
|Diluted                                                   |  | $                                 | 2.37      |      | $ | 2.21      |  | $ | 2.05      | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|Basic weighted average shares outstanding                 |  |                                   | 3,174,321 |      |   | 3,088,881 |  |   | 3,181,424 | 
|Diluted weighted average shares outstanding               |  |                                   | 3,201,154 |      |   | 3,116,078 |  |   | 3,220,227 | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 
|                                                          |  |                                   |           |      |   |           |  |   |           | 

See
accompanying notes to consolidated financial statements.

11

---



|                                                 
|-------------------------------------------------
|Consolidated
  Statements of Comprehensive Income
|(dollars
  in thousands)                         

|                                                                                  |  |                                   |        |      |   |       |   |   |       |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | ------ | ---- | - | ----- | - | - | ----- | -
|                                                                                  |  | For the
  Years Ended December 31 |       
|                                                                                  |  | 2005                              |        | 2004 |   | 2003  |  
|                                                                                  |  |                                   |        |      |   |       |  
|Net income                                                                        |  | $                                 | 7,574  |      | $ | 6,872 |   | $ | 6,603 |  
|Other comprehensive loss, net of
tax                                              |  |                                   |        |      |   |       |   |   |       |  
|                                                                                  |  |                                   |        |      |   |       |   |   |       |  
|Unrealized holding losses arising during
the year                                 |  |                                   | (1,378 | )    |   | (192  | ) |   | (329  | )
|Less: Reclassification adjustment for
net realized gains
  included in net income |  |                                   | (55    | )    |   | (132  | ) |   | (614  | )
|                                                                                  |  |                                   |        |      |   |       |   |   |       |  
|Other comprehensive loss                                                          |  |                                   | (1,433 | )    |   | (324  | ) |   | (943  | )
|                                                                                  |  |                                   |        |      |   |       |   |   |       |  
|Comprehensive
  income                                                            |  | $                                 | 6,141  |      | $ | 6,548 |   | $ | 5,660 |  
|                                                                                  |  |                                   |        |      |   |       |   |   |       |  
|                                                                                  |  |                                   |        |      |   |       |   |   |       |  
|                                                                                  |  |                                   |        |      |   |       |   |   |       |  

See accompanying notes to
consolidated financial statements.

|                                                            
|------------------------------------------------------------
|Consolidated
  Statements of Changes in Stockholders Equity
|(dollars
  in thousands except share data)                  

|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  
|----------------------------------------------------------------------------- |  | -------------- | ------ | ------- | - | ------------------- |  | ----------------------------------------------------------------------- | ------ | ---------------- | - | ------ | - | - | ------- | - | - | ------ | -
|                                                                              |  | Common
  Stock |        | Surplus |   | Retained
  Earnings |  | Accumulated
  Other
  Comprehensive
  Income (Loss)
  net of tax effect |        | Treasury
  Stock |   | Total  |  
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |  
|Balance, January 1, 2003                                                      |  | $              | 20,699 |         | $ | 6,612               |  | $                                                                       | 35,255 |                  | $ | 2,218  |   | $ | (13,710 | ) | $ | 51,074 |  
|Net income                                                                    |  |                |        |         |   |                     |  |                                                                         | 6,603  |                  |   |        |   |   |         |   |   | 6,603  |  
|Sale of 5,265 shares of treasury
stock                                        |  |                |        |         |   | 65                  |  |                                                                         |        |                  |   |        |   |   | 70      |   |   | 135    |  
|Purchase of 141,000 shares of treasury
stock                                  |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   | (3,483  | ) |   | (3,483 | )
|Exercise of stock options and
re-issuance of treasury
  stock (26,052 shares) |  |                |        |         |   | 343                 |  |                                                                         | (303   | )                |   |        |   |   | 278     |   |   | 318    |  
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  
|Cash dividends
  ($.89 per share)                                             |  |                |        |         |   |                     |  |                                                                         | (2,829 | )                |   |        |   |   |         |   |   | (2,829 | )
|Other comprehensive loss, net of $596
tax effect                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   | (943   | ) |   |         |   |   | (943   | )
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  
|Balance, December 31, 2003                                                    |  | $              | 20,699 |         | $ | 7,020               |  | $                                                                       | 38,726 |                  | $ | 1,275  |   | $ | (16,845 | ) | $ | 50,875 |  
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  
|Net income                                                                    |  |                |        |         |   |                     |  |                                                                         | 6,872  |                  |   |        |   |   |         |   |   | 6,872  |  
|Sale of 4,176 shares of treasury
stock                                        |  |                |        |         |   | 61                  |  |                                                                         |        |                  |   |        |   |   | 59      |   |   | 120    |  
|Purchase of 100,000 shares of treasury
stock                                  |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   | (2,884  | ) |   | (2,884 | )
|Exercise of stock options and
re-issuance of treasury
  stock (22,936 shares) |  |                |        |         |   | 729                 |  |                                                                         | (476   | )                |   |        |   |   | 423     |   |   | 676    |  
|Cash dividends
  ($.96 per share)                                             |  |                |        |         |   |                     |  |                                                                         | (2,966 | )                |   |        |   |   |         |   |   | (2,966 | )
|Other comprehensive loss, net of $205
tax effect                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   | (324   | ) |   |         |   |   | (324   | )
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  
|Balance, December 31, 2004                                                    |  | $              | 20,699 |         | $ | 7,810               |  | $                                                                       | 42,156 |                  | $ | 951    |   | $ | (19,247 | ) | $ | 52,369 |  
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  
|Net income                                                                    |  |                |        |         |   |                     |  |                                                                         | 7,574  |                  |   |        |   |   |         |   |   | 7,574  |  
|Sale of 6,098 shares of treasury
stock                                        |  |                |        |         |   | 75                  |  |                                                                         |        |                  |   |        |   |   | 115     |   |   | 190    |  
|Purchase of 100,000 shares of treasury
stock                                  |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   | (3,150  | ) |   | (3,150 | )
|Exercise of stock options and
re-issuance of treasury
  stock (43,891 shares) |  |                |        |         |   | 776                 |  |                                                                         | (611   | )                |   |        |   |   | 762     |   |   | 927    |  
|Cash dividends
  ($1.03 per share)                                            |  |                |        |         |   |                     |  |                                                                         | (3,333 | )                |   |        |   |   |         |   |   | (3,333 | )
|Issuance of 338,600 shares of common
stock                                    |  |                | 1,693  |         |   | 8,307               |  |                                                                         |        |                  |   |        |   |   |         |   |   | 10,000 |  
|Other comprehensive loss, net of $906
tax effect                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   | (1,433 | ) |   |         |   |   | (1,433 | )
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  
|Balance, December 31, 2005                                                    |  | $              | 22,392 |         | $ | 16,968              |  | $                                                                       | 45,786 |                  | $ | (482   | ) | $ | (21,520 | ) | $ | 63,144 |  
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  
|                                                                              |  |                |        |         |   |                     |  |                                                                         |        |                  |   |        |   |   |         |   |   |        |  

See accompanying notes to
consolidated financial statements.

12

---



|                                       
|---------------------------------------
|Consolidated
  Statements of Cash Flows
|(dollars
  in thousands)               

|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|----------------------------------------------------------------------------------- |  | --------------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                    |  | For the
  Years Ended December 31 |        
|                                                                                    |  | 2005                              |         | 2004 |   | 2003    |  
|                                                                                    |  |                                   |         |      |   |         |  
|Operating activities:                                                               |  |                                   |         |      |   |         |   |   |         |  
|Net income                                                                          |  | $                                 | 7,574   |      | $ | 6,872   |   | $ | 6,603   |  
|Adjustments to reconcile net income to
net cash provided
  by operating activities: |  |                                   |         |      |   |         |   |   |         |  
|Depreciation                                                                        |  |                                   | 1,589   |      |   | 1,312   |   |   | 1,442   |  
|Provision for loan losses                                                           |  |                                   | -0-     |      |   | 375     |   |   | 460     |  
|Deferred income tax (benefit)
expense                                               |  |                                   | 258     |      |   | (258    | ) |   | 11      |  
|Amortization of intangible
assets                                                   |  |                                   | 324     |      |   | 208     |   |   | 208     |  
|Amortization of premiums on investment
securities, net of
  accretion               |  |                                   | 1,355   |      |   | 1,675   |   |   | 2,719   |  
|Gain on sales of securities
available-for-sale, net                                 |  |                                   | (89     | )    |   | (216    | ) |   | (1,002  | )
|Gain on sale of credit card
loans                                                   |  |                                   | (63     | )    |   | (465    | ) |   | -0-     |  
|Gain on sales of other real estate
owned, net                                       |  |                                   | (29     | )    |   | (293    | ) |   | (22     | )
|FHLB Stock dividends                                                                |  |                                   | (78     | )    |   | (115    | ) |   | (136    | )
|Loans originated for sale                                                           |  |                                   | (40,227 | )    |   | (36,781 | ) |   | (90,594 | )
|Proceeds from sales of loans originated
for sale                                    |  |                                   | 38,941  |      |   | 37,803  |   |   | 95,032  |  
|Increase (decrease) in accrued interest
payable                                     |  |                                   | 1,610   |      |   | 149     |   |   | (755    | )
|(Increase) decrease in accrued interest
receivable                                  |  |                                   | (1,458  | )    |   | (366    | ) |   | 546     |  
|Increase in other assets                                                            |  |                                   | (4,939  | )    |   | (426    | ) |   | (2,142  | )
|Increase (decrease) in other
liabilities                                            |  |                                   | 1,748   |      |   | (545    | ) |   | 671     |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|Net cash provided by operating
activities                                           |  |                                   | 6,516   |      |   | 8,929   |   |   | 13,041  |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|Investing activities:                                                               |  |                                   |         |      |   |         |   |   |         |  
|Proceeds from sales of investment
securities
  available-for-sale                   |  |                                   | 28,446  |      |   | 10,910  |   |   | 12,752  |  
|Proceeds from maturities of investment
securities
  available-for-sale              |  |                                   | 39,366  |      |   | 28,039  |   |   | 81,070  |  
|Purchase of investment securities
available-for-sale                                |  |                                   | (51,831 | )    |   | (60,184 | ) |   | (95,784 | )
|Proceeds from maturities of investment
securities
  held-to-maturity                |  |                                   | 2,658   |      |   | 1,855   |   |   | 1,473   |  
|Purchase of investment securities
held-to-maturity                                  |  |                                   | (1,960  | )    |   | (1,410  | ) |   | (3,205  | )
|Proceeds from sale of credit card
loans                                             |  |                                   | 546     |      |   | 2,585   |   |   | -0-     |  
|Proceeds from sales of other real estate
owned                                      |  |                                   | 97      |      |   | 682     |   |   | 108     |  
|Net increase in loans                                                               |  |                                   | (57,122 | )    |   | (29,212 | ) |   | (26,564 | )
|Purchase of premises and
equipment                                                  |  |                                   | (3,815  | )    |   | (4,572  | ) |   | (2,718  | )
|Payment related to acquisition, net of
cash and cash
  equivalents acquired         |  |                                   | (43,559 | )    |   | -0-     |   |   | -0-     |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|Net cash used in investing
activities                                               |  |                                   | (87,174 | )    |   | (51,307 | ) |   | (32,868 | )
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|Financing activities:                                                               |  |                                   |         |      |   |         |   |   |         |  
|Net increase in deposits                                                            |  |                                   | 43,119  |      |   | 35,734  |   |   | 26,560  |  
|Issuance of trust preferred
securities                                              |  |                                   | 25,000  |      |   | -0-     |   |   | -0-     |  
|Issuance of common stock                                                            |  |                                   | 10,000  |      |   | -0-     |   |   | -0-     |  
|Net increase (decrease) in
borrowings                                               |  |                                   | 17,560  |      |   | 9,374   |   |   | (3,330  | )
|Dividends paid                                                                      |  |                                   | (3,333  | )    |   | (2,966  | ) |   | (2,829  | )
|Purchase of treasury stock                                                          |  |                                   | (3,150  | )    |   | (2,884  | ) |   | (3,483  | )
|Exercise of stock options and issuance
of treasury stock                            |  |                                   | 927     |      |   | 676     |   |   | 318     |  
|Sales of treasury stock                                                             |  |                                   | 190     |      |   | 120     |   |   | 135     |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|Net cash provided by financing
activities                                           |  |                                   | 90,313  |      |   | 40,054  |   |   | 17,371  |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|Increase (decrease) in cash and cash
equivalents                                    |  |                                   | 9,655   |      |   | (2,324  | ) |   | (2,456  | )
|Cash and cash equivalents at beginning of year                                      |  |                                   | 14,090  |      |   | 16,414  |   |   | 18,870  |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|Cash and cash equivalents at end of year                                            |  | $                                 | 23,745  |      | $ | 14,090  |   | $ | 16,414  |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|Cash paid during the year for:                                                      |  |                                   |         |      |   |         |   |   |         |  
|Interest                                                                            |  | $                                 | 14,116  |      | $ | 8,921   |   | $ | 11,266  |  
|Income taxes                                                                        |  | $                                 | 1,861   |      | $ | 2,462   |   | $ | 2,199   |  
|Supplemental disclosure of noncash investing
activities:                            |  |                                   |         |      |   |         |   |   |         |  
|Loans transferred to other real estate
owned                                        |  | $                                 | 78      |      | $ | 32      |   | $ | 863     |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  
|                                                                                    |  |                                   |         |      |   |         |   |   |         |  

See
accompanying notes to consolidated financial statements.

13

---



Notes to Consolidated Financial Statements(dollar
amounts in thousands except share data)

| |                                               | 
| | --------------------------------------------- | 
| | 1. Summary
of Significant Accounting Policies

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  consolidated financial statements have been prepared in conformity with
  accounting principles generally accepted in the United States of America and
  conform with general practices within the banking industry.  A description of the significant
  accounting policies follows:
Basis
  of Consolidation- The
  consolidated financial statements of Princeton National Bancorp, Inc.
  (Corporation or Company) include the accounts of the Corporation and its
  wholly-owned subsidiary, Citizens First National Bank (subsidiary
  bank).  Intercompany accounts and
  transactions have been eliminated in consolidation.  The Corporation, through the subsidiary bank, operates in a
  single segment engaging in general retail and commercial banking.
Use
  of Estimates- In order to
  prepare the Corporations consolidated financial statements in conformity
  with generally accepted accounting principles, management is required to make
  certain estimates that affect the amounts reported in the consolidated
  financial statements and accompanying notes.
  These estimates may differ from actual results.
Investment
  Securities- Investment
  securities which the Corporation has the positive intent and ability to hold
  to maturity are classified as held-to-maturity and recorded at amortized
  cost.  The Corporation does not have a
  trading portfolio.  All other
  investment securities that are not classified as held-to-maturity are
  classified as available-for-sale.
  Investment securities available-for-sale are recorded at fair value,
  with any changes in fair value reflected as a separate component of
  stockholders equity, net of related tax effects.  Gains and losses on the sale of securities are determined using
  the specific identification method. Premiums and discounts on investment
  securities are amortized or accreted over the contractual lives of those
  securities.  The method of
  amortization or accretion results in a constant effective yield on those
  securities (the interest method).  Any
  security for which there has been other than temporary impairment of value is
  written down to its estimated market value through a charge to earnings.
Loans- Loans are stated
  at the principal amount outstanding, net of unearned interest and allowance
  for loan losses.  Interest on
  commercial, real estate, and certain installment loans is credited to
  operations as earned, based upon the principal amount outstanding.  Interest on other installment loans is
  credited to operations using a method which approximates the interest
  method.  Loan origination fees are
  recognized  to income and loan
  origination costs are charged to expense, as incurred. The impact of the cash
  basis of accounting for loan fees and costs is not materially different from
  the deferral basis.
It
  is the subsidiary banks policy to discontinue the accrual of interest on any
  loan when, in the opinion of management, full and timely payment of principal
  and interest is not expected, or principal and interest is due and remains
  unpaid for 90 days or more, unless the loan is both well-secured and in the
  process of collection.  Interest on
  these loans is recorded as income only when the collection of principal has
  been assured and only to the extent interest payments are received.
Impaired
  loans are measured based on current information and events, if it is probable
  that the Corporation will be unable to collect the scheduled payments of
  principal or interest when due according to the contractual terms of the loan
  agreement.  Certain groups of
  small-balance homogeneous loans, which are collectively evaluated for impairment
  and are generally represented by consumer and residential mortgage loans and
  loans held-for-sale, are not analyzed individually for impairment.  The Corporation generally identifies
  impaired loans within the non-accrual and restructured commercial and
  commercial real estate portfolios on an individual loan-by-loan basis.  The measurement of impaired loans is
  generally based on the fair value of the related collateral.
Allowance
  for Loan Losses - The allowance
  for loan losses is increased by provisions charged to operating expense and
  decreased by charge-offs, net of recoveries, and is available to absorb
  probable losses on loans.
The
  allowance is based on factors that include overall composition of the loan
  portfolio, types of loans, past loss experience, loan delinquencies,
  watchlist, substandard and doubtful credits, underlying collateral, and such
  other factors that, in managements best judgment, deserve evaluation in
  estimating loan losses.
In
  addition, various regulatory agencies, as an integral part of their
  examination process, periodically review the subsidiary banks allowance for
  loan losses. Such agencies may require the subsidiary bank to recognize
  additions to the allowance for loan losses based on their judgments of
  information available to them at the time of their examination.
Sales
of First Mortgage Loans and Loan Servicing - The subsidiary bank sells certain
first mortgage loans on a non-recourse basis. The total cost of these loans
is allocated between loans and servicing rights, based on the relative fair
value of each. Loan servicing fees
are recognized to income, and loan servicing costs are charged to expense, as
incurred. Loans held-for-sale are
stated at the lower of aggregate cost or market. Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets.           The Corporation recognizes as a
separate asset the rights to service mortgage loans for others. Mortgage servicing rights are recorded at
the lower of cost or market value and are included in other assets in the
consolidated balance sheets. Mortgage
servicing rights are amortized in proportion to the amount of principal
received on loans serviced. The
amortization of capitalized mortgage servicing rights is reflected in the
consolidated statements of income as a reduction to mortgage banking income.
          Premises and Equipment - Premises and equipment are carried at cost, less
accumulated depreciation.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets, as follows:
buildings, fifteen to forty years; furniture and equipment, three to
fifteen years. The carrying amounts
of assets sold or retired and the related accumulated depreciation are
eliminated from the accounts, and any resulting gains or losses are reflected
in income.
Other
  Real Estate - Other real
  estate represents assets to which the subsidiary bank has acquired legal
  title in satisfaction of indebtedness.
  Such real estate is recorded at the lower of cost or fair market value
  at the date of acquisition, less estimated selling costs.  Any deficiency at the date of transfer is
  charged to the allowance for loan losses.
  Subsequent declines in value, based on changes in market conditions,
  are recorded to expense as incurred.
  Gains or losses on the disposition of other real estate are recorded
  to the income statement in the period in which they are realized.
Income
  Taxes - Deferred tax
  assets and liabilities are recognized for the future tax consequences
  attributable to differences between the financial statement carrying amounts
  of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are
  measured using currently enacted tax rates.
  The effect on deferred tax assets and liabilities of a change in tax
  rates is recognized in income in the period that includes the enactment date.
  Deferred tax assets are recognized subject to managements judgment that
  realization is more likely than not.

14

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash
  Flows - For purposes
  of reporting cash flows, cash and cash equivalents include cash and due from
  banks, interest-bearing deposits in financial institutions and federal funds
  sold.  Generally, federal funds are
  sold or purchased for one-day periods.
Reclassification
  - Certain amounts in
  the 2004 and 2003 consolidated financial statements have been reclassified to
  conform to the 2005 presentation.
Impact
  of New Accounting Standards -  On December 16, 2003, the American
  Institute of Certified Public Accountants (AICPA) issued Statement of
  Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
  Transfer (SOP 03-3).  SOP 03-3
  provides guidance on the accounting for differences between contractual and
  expected cash flows from the purchasers initial investment in loans or debt
  securities acquired in a transfer, if those differences are attributable, at
  least in part, to credit quality.
  Among other things, SOP 03-3: (1) prohibits the recognition of the
  excess of contractual cash flows over expected cash flows as an adjustment of
  yield, loss accrual, or valuation allowance at the time of purchase; (2)
  requires that subsequent increases in expected cash flows be recognized
  prospectively through an adjustment of yield; and (3) requires the subsequent
  decreases in cash flows be recognized as an impairment.  In addition, SOP 03-3 prohibits the
  creation or carrying over of a valuation allowance in the initial accounting
  of all loans within its scope that are acquired in a transfer.  SOP 03-3 becomes effective for loans or
  debt securities acquired in fiscal years beginning after December 15,
  2004.  The Corporation has completed
  its evaluation of the impact of SOP 03-3 with respect to the Corporations
  acquisition of Somonauk FSB Bancorp, Inc. (Somonauk), resulting in a charge
  to the allowance for loan losses of $88.
On
  November 3, 2005, the Financial Accounting Standards Board (FASB) issued
  FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1, The Meaning of
  Other-Than-Temporary Impairment and Its Application to Certain
  Investments.  The FSP provides
  guidance on the determination of other-than-temporary impairment for debt and
  equity securities accounted for under SFAS No. 115, Accounting for Certain
  Investments in Debt and Equity Securities, and cost method investments.  The new guidance prescribes a three-step
  process to identify impairment of investment securities, classify impairment
  as either temporary or other-than-temporary, and recognize loss in the case
  of other-than-temporary impairment of investment securities.  The FSP also requires financial statement
  disclosures for all investments in an unrealized loss position.  The guidance in this FSP shall be applied
  to reporting periods beginning after December 15, 2005, with earlier
  application permitted.  The
  Corporation adopted the provisions of the FSP in January 2006, with no effect
  on the financial statements.
In December 2004, the FASB issued SFAS No. 123
  (Revised 2004) (123R), Share-Based Payment, an amendment of FASB Statements
  No. 123 and 95. SFAS No. 123R will require compensation cost relating to
  share-based payment transactions be recognized in the consolidated financial
  statements, effective for the Corporations fiscal year beginning January 1,
  2006, based on recent SEC guidance.
In
  December 2005, the Corporation modified the stock option awards to
  immediately vest the remaining outstanding awards along with the 2005
  awards.  The pro forma effect of this
  decision along with the reasons this was done are summarized in Note 13 of
  the Notes to Consolidated Financial Statements.
In
  June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
  Corrections  a replacement of APB Opinion No. 20 and FASB Statement No. 3
  (FAS 154).  FAS 154 changes the
  requirements for the accounting for, and reporting of, a change in accounting
  principle and also applies to all voluntary changes in accounting
  principle.  FAS 154 is effective for
  accounting changes and corrections of errors made in fiscal years beginning
  after December 15, 2005. The adoption of this statement is not expected to
  have a material effect on the Corporations consolidated financial
  statements.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 2. Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The
  following table sets forth the computation for basic and diluted earnings per
  share for the years ended December 31, 2005, 2004 and 2003 (in thousands,
  except share data):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                                                            |  |      |           |      |   |           |  |   |           | 
|--------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | 
|                                                                            |  | 2005 |           | 2004 |   | 2003      | 
|                                                                           
|Numerator:                                                                  |  |      |           |      |   |           |  |   |           | 
|Net income                                                                  |  | $    | 7,574     |      | $ | 6,872     |  | $ | 6,603     | 
|Denominator:                                                                |  |      |           |      |   |           |  |   |           | 
|Basic earnings per
  share - weighted average shares outstanding            |  |      | 3,174,321 |      |   | 3,088,881 |  |   | 3,181,424 | 
|Effect of dilutive
  securities - stock options                             |  |      | 26,833    |      |   | 27,197    |  |   | 38,803    | 
|                                                                            |  |      |           |      |   |           |  |   |           | 
|Diluted earnings
  per share - adjusted weighted average shares outstanding |  |      | 3,201,154 |      |   | 3,116,078 |  |   | 3,220,227 | 
|Earnings
  per share:                                                       |  |      |           |      |   |           |  |   |           | 
|Basic                                                                       |  | $    | 2.39      |      | $ | 2.22      |  | $ | 2.08      | 
|Diluted                                                                     |  | $    | 2.37      |      | $ | 2.21      |  | $ | 2.05      | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | 3. Cash
and Due From Banks                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
| | The
  average compensating balances held at correspondent banks during 2005 and
  2004 were $3,469 and $2,543, respectively.
  The subsidiary bank maintains such compensating balances with
  correspondent banks to offset charges for services rendered by those banks.  In addition, the Federal Reserve Bank
  required the subsidiary bank to maintain average balances of approximately
  $929 and $694, for 2005 and 2004, respectively, as reserve requirements.

15

---



Notes to Consolidated Financial Statements(Continued)(dollar amounts
in thousands except share data)

| |                                                                                                                                                                                                                  | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | 4. Investment
Securities                                                                                                                                                                                        
| |                                                                                                                                                                                                                  | 
| | The
  amortized cost, gross unrealized gains, gross unrealized losses, and
  estimated fair value of available-for-sale and held-to-maturity securities by
  major security type at December 31 were as follows:

|                                      |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 
|------------------------------------- |  | ---------------- | ------- | -------------------------- | - | --------------------------- |  | ------------------------ | ------ | - | - | ------- | 
|                                      |  | 2005             |        
|                                      |  | Amortized
  Cost |         | Gross
  Unrealized
  Gains |   | Gross
  Unrealized
  Losses |  | Estimated
  Fair
  Value |       
|                                      |  |                  |         |                            |   |                             |  |                          |       
|Available-for-sale:                   |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 
|United States
  Treasuries            |  | $                | 1,521   |                            | $ | -0-                         |  | $                        | (8     | ) | $ | 1,513   | 
|United States
  Government Agencies   |  |                  | 62,848  |                            |   | 21                          |  |                          | (1,026 | ) |   | 61,843  | 
|State and Municipal                   |  |                  | 91,278  |                            |   | 1,794                       |  |                          | (877   | ) |   | 92,195  | 
|Collateralized
  mortgage obligations |  |                  | 77,167  |                            |   | 30                          |  |                          | (721   | ) |   | 76,476  | 
|Other securities                      |  |                  | 3,344   |                            |   | -0-                         |  |                          | -0-    |   |   | 3,344   | 
|                                      |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 
|Total                                 |  |                  | 236,158 |                            |   | 1,845                       |  |                          | (2,632 | ) |   | 235,371 | 
|                                      |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 
|                                      |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 
|Held-to-maturity:                     |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 
|Commercial Paper                      |  |                  | -0-     |                            |   | -0-                         |  |                          | -0-    |   |   | -0-     | 
|State and Municipal                   |  |                  | 16,115  |                            |   | 259                         |  |                          | (100   | ) |   | 16,274  | 
|                                      |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 
|Total                                 |  |                  | 16,115  |                            |   | 259                         |  |                          | (100   | ) |   | 16,274  | 
|                                      |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 
|Total                                 |  | $                | 252,273 |                            | $ | 2,104                       |  | $                        | (2,732 | ) | $ | 251,645 | 
|                                      |  |                  |         |                            |   |                             |  |                          |        |   |   |         | 

|                                      |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | -------------------- | ------ | - | - | ------- | 
|                                      |  | 2004           |        
|                                      |  | Amortized
Cost |         | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Estimated
Fair
Value |       
|                                      |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|Available-for-sale:                   |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|United States
  Treasuries            |  | $              | -0-     |                        | $ | -0-                     |  | $                    | -0-    |   | $ | -0-     | 
|United States
  Government Agencies   |  |                | 38,920  |                        |   | 53                      |  |                      | (345   | ) |   | 38,628  | 
|State and Municipal                   |  |                | 55,014  |                        |   | 2,400                   |  |                      | (464   | ) |   | 56,950  | 
|Collateralized
  mortgage obligations |  |                | 76,989  |                        |   | 242                     |  |                      | (332   | ) |   | 76,899  | 
|Other securities                      |  |                | 2,652   |                        |   | -0-                     |  |                      | -0-    |   |   | 2,652   | 
|                                      |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|Total                                 |  | $              | 173,575 |                        | $ | 2,695                   |  | $                    | (1,141 | ) | $ | 175,129 | 
|                                      |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|                                      |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|Held-to-maturity:                     |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|Commercial Paper                      |  |                | -0-     |                        |   | -0-                     |  |                      | -0-    |   |   | -0-     | 
|State and Municipal                   |  |                | 13,680  |                        |   | 473                     |  |                      | (42    | ) |   | 14,111  | 
|                                      |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|Total                                 |  |                | 13,680  |                        |   | 473                     |  |                      | (42    | ) |   | 14,111  | 
|                                      |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|Total                                 |  | $              | 187,255 |                        | $ | 3,168                   |  | $                    | (1,183 | ) | $ | 189,240 | 
|                                      |  |                |         |                        |   |                         |  |                      |        |   |   |         | 

| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Maturities
  of investment securities classified as available-for-sale and
  held-to-maturity were as follows at December 31, 2005:

|                                         |  |                  |         |                          |   |         | 
|---------------------------------------- |  | ---------------- | ------- | ------------------------ | - | ------- | 
|                                         |  | Amortized
  Cost |         | Estimated
  Fair
  Value |  
|                                         |  |                  |         |                          |  
|Available-for-sale:                      |  |                  |         |                          |   |         | 
|Due in one year or
  less                |  | $                | 10,604  |                          | $ | 10,518  | 
|Due after one year
  through five years  |  |                  | 51,594  |                          |   | 50,668  | 
|Due after five
  years through ten years |  |                  | 21,077  |                          |   | 21,336  | 
|Due after ten years                      |  |                  | 64,019  |                          |   | 64,735  | 
|                                         |  |                  |         |                          |   |         | 
|                                        
|                                         |  |                  | 147,294 |                          |   | 147,257 | 
|                                         |  |                  |         |                          |   |         | 
|                                        
|Mortgage-backed
  securities             |  |                  | 8,353   |                          |   | 8,294   | 
|Collateralized
  mortgage obligations    |  |                  | 77,167  |                          |   | 76,476  | 
|Other securities                         |  |                  | 3,344   |                          |   | 3,344   | 
|                                         |  |                  |         |                          |   |         | 
|                                        
|                                         |  | $                | 236,158 |                          | $ | 235,371 | 
|                                         |  |                  |         |                          |   |         | 

16

---



|                                         |  |   |        |  |   |        | 
|---------------------------------------- |  | - | ------ |  | - | ------ | 
|Held-to-maturity:                        |  |   |        |  |   |        | 
|Due in one year or
  less                |  | $ | 1,898  |  | $ | 1,894  | 
|Due after one year
  through five years  |  |   | 6,989  |  |   | 6,964  | 
|Due after five
  years through ten years |  |   | 6,101  |  |   | 6,294  | 
|Due after ten years                      |  |   | 1,127  |  |   | 1,122  | 
|                                         |  |   |        |  |   |        | 
|                                        
|                                         |  | $ | 16,115 |  | $ | 16,274 | 
|                                         |  |   |        |  |   |        | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Other
  securities consist of Federal Home Loan Bank and Federal Reserve Bank stock
  held totaling $2,649 and $695 at December 31, 2005, and $1,957 and $695 at
  December 31, 2004, respectively.
Proceeds
  from sales of investment securities available-for-sale during 2005, 2004 and
  2003 were $28,446, $10,910 and $12,752, respectively.  Gross gains of $89 in 2005, $216 in 2004
  and $1,002 in 2003 were realized on those sales.  There were no gross losses from these sales in 2005, 2004 or
  2003. There were no sales of investment securities classified as
  held-to-maturity during 2005, 2004 and 2003.
Securities
  with unrealized losses at December 31, 2005 and 2004 not recognized in income
  are as follows:

|                                      |  |                     |         |                           |   |              |  |                           |        |              |   |                           |  |   |         |  |   |       | 
|------------------------------------- |  | ------------------- | ------- | ------------------------- | - | ------------ |  | ------------------------- | ------ | ------------ | - | ------------------------- |  | - | ------- |  | - | ----- | 
|                                      |  | Less than 12 Months |         | 2005
  12 Months or More  |   | Total        | 
|                                      |  | Fair
  Value        |         | Gross
  Unrealized
  Loss |   | Fair
  Value |  | Gross
  Unrealized
  Loss |        | Fair
  Value |   | Gross
  Unrealized
  Loss | 
|                                      |  |                     |         |                           |   |              |  |                           |        |              |   |                           | 
|United
  States Treasuries            |  | $                   | 1,513   |                           | $ | 8            |  | $                         | -0-    |              | $ | -0-                       |  | $ | 1,513   |  | $ | 8     | 
|United
  States Government Agencies   |  |                     | 35,278  |                           |   | 381          |  |                           | 25,597 |              |   | 645                       |  |   | 60,875  |  |   | 1,026 | 
|State
  and Municipal                 |  |                     | 45,547  |                           |   | 413          |  |                           | 17,361 |              |   | 564                       |  |   | 62,908  |  |   | 977   | 
|Collateralized
  mortgage obligations |  |                     | 42,051  |                           |   | 356          |  |                           | 26,378 |              |   | 365                       |  |   | 68,429  |  |   | 721   | 
|Other
  securities                    |  |                     | -0-     |                           |   | -0-          |  |                           | -0-    |              |   | -0-                       |  |   | -0-     |  |   | -0-   | 
|                                      |  |                     |         |                           |   |              |  |                           |        |              |   |                           |  |   |         |  |   |       | 
|                                     
|Total
  temporarily impaired          |  | $                   | 124,389 |                           | $ | 1,158        |  | $                         | 69,336 |              | $ | 1,574                     |  | $ | 193,725 |  | $ | 2,732 | 
|                                      |  |                     |         |                           |   |              |  |                           |        |              |   |                           |  |   |         |  |   |       | 

|                                      |  |                     |        |                        |   |            |  |                       |        |            |   |                       |  |   |        |  |   |       | 
|------------------------------------- |  | ------------------- | ------ | ---------------------- | - | ---------- |  | --------------------- | ------ | ---------- | - | --------------------- |  | - | ------ |  | - | ----- | 
|                                      |  | Less than 12 Months |        | 2004
12 Months or More |   | Total      | 
|                                      |  | Fair
Value          |        | Gross
Unrealized
Loss  |   | Fair
Value |  | Gross
Unrealized
Loss |        | Fair
Value |   | Gross
Unrealized
Loss | 
|                                      |  |                     |        |                        |   |            |  |                       |        |            |   |                       | 
|                                     
|United
  States Treasuries            |  | $                   | -0-    |                        | $ | -0-        |  | $                     | -0-    |            | $ | -0-                   |  | $ | -0-    |  | $ | -0-   | 
|United
  States Government Agencies   |  |                     | 14,951 |                        |   | 169        |  |                       | 17,991 |            |   | 176                   |  |   | 32,942 |  |   | 345   | 
|State
  and Municipal                 |  |                     | 5,275  |                        |   | 65         |  |                       | 13,999 |            |   | 441                   |  |   | 18,874 |  |   | 506   | 
|Collateralized
  mortgage obligations |  |                     | 29,716 |                        |   | 203        |  |                       | 15,335 |            |   | 129                   |  |   | 45,051 |  |   | 332   | 
|Other
  securities                    |  |                     | -0-    |                        |   | -0-        |  |                       | -0-    |            |   | -0-                   |  |   | -0-    |  |   | -0-   | 
|                                      |  |                     |        |                        |   |            |  |                       |        |            |   |                       |  |   |        |  |   |       | 
|                                     
|Total temporarily
  impaired          |  | $                   | 49,942 |                        | $ | 437        |  | $                     | 46,925 |            | $ | 746                   |  | $ | 96,867 |  | $ | 1,183 | 
|                                      |  |                     |        |                        |   |            |  |                       |        |            |   |                       |  |   |        |  |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There
are 1,182 securities in an unrealized position in the investment portfolio at
December 31, 2005, all due to interest rate changes and not credit events.  These unrealized losses are not considered
other-than-temporary and, therefore, have not been recognized into income,
because the issuer(s) are of high credit quality (99.5% of the securities in
the portfolio are rated AA or higher) and management has the ability and intent
to hold for the foreseeable future.  The
fair value is expected to recover as the investments approach their maturity date
or there is a downward shift in interest rates.

| |                                                                            | 
| | -------------------------------------------------------------------------- | 
| | 5. Loans                                                                   | 
| |                                                                            | 
| | The
  composition of the loan portfolio, as of December 31 was as follows:

|                             |  |      |         |      |   |         | 
|---------------------------- |  | ---- | ------- | ---- | - | ------- | 
|                             |  | 2005 |         | 2004 |  
|                            
|Loans                        |  |      |         |      |   |         | 
|Commercial                   |  | $    | 114,342 |      | $ | 96,390  | 
|Agricultural                 |  |      | 73,884  |      |   | 42,063  | 
|Real estate 
  construction |  |      | 37,286  |      |   | 17,271  | 
|Real estate 
  mortgage     |  |      | 308,138 |      |   | 221,405 | 
|Installment                  |  |      | 48,074  |      |   | 32,915  | 
|                             |  |      |         |      |   |         | 
|                            
|Total                        |  | $    | 581,724 |      | $ | 410,044 | 
|                             |  |      |         |      |   |         | 

17

---



Notes to Consolidated Financial Statements(Continued)(dollar amounts
in thousands except share data)

Changes
in the allowance for loan losses for the years ended December 31 were as
follows:


| |                                            |  |      |       |      |     |       |     |     |        |  
| | ------------------------------------------ |  | ---- | ----- | ---- | --- | ----- | --- | --- | ------ | -
| |                                            |  | 2005 |       | 2004 |     | 2003  |    
|
| | Balance, January 1                         |  | $    | 2,524 |      | $   | 2,250 |     | $   | 2,660  |  
|
| | Provision for loan losses                  |  | -0-  |       |      | 375 |       |     | 460 |       
| | Allowance of bank acquired                 |  |      | 752   |      | -0- |       | -0- |    
| | Loans charged off                          |  |      | (347  | )    |     | (358  | )   |     | (1,078 | )
| | Recoveries of loans previously charged
off |  |      | 180   |      |     | 257   |     |     | 208    |  
| |                                            |  |      |       |      |     |       |     |     |        |  
| |                                            |  |      |       |      |     |       |     |     |        |  
| | Balance, December 31                       |  | $    | 3,109 |      | $   | 2,524 |     | $   | 2,250  |  
| |                                            |  |      |       |      |     |       |     |     |        |  

Non-accrual
loans at December 31, 2005, 2004 and 2003 were $3,822, $328 and $925,
respectively.  Interest income that
would have been recorded on these loans, had they remained current, was
approximately $281, $30 and $53, respectively. Impaired
loans at December 31, 2005, 2004 and 2003 totaled $2,204, $175 and $235,
respectively.  Of these totals, $378,
$60 and $127 of loans had valuation reserves totaling $111, $3 and $15 at
December 31, 2005, 2004 and 2003, respectively.  For the years ended December 31, 2005, 2004 and 2003, the average
recorded investment in impaired loans was approximately $1,581, $194 and
$1,615, respectively.  Interest
recognized on impaired loans during the portion of the year that they were
impaired was not material. The
Corporations subsidiary bank had loans outstanding to directors, executive
officers and to their related interests (related parties) of the Corporation
and its subsidiary of approximately, $4,633, $3,853 and $3,707, at December 31,
2005, 2004 and 2003, respectively.
These loans were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other customers and did not involve more than the normal risk of
collectibility.  A summary of the
activity in 2005 for loans made to directors, executive officers, or principal
holders of common stock or to any associate of such persons for which the
aggregate to any such person exceeds $60 at December 31, 2005 is as follows:


|                           |       |           |  |          |   |                              |  |  |  |   |       |  |  |  |   |       |  | 
|-------------------------- | ----- | --------- |  | -------- | - | ---------------------------- |  |  |  | - | ----- |  |  |  | - | ----- |  | 
|Balance 
  January 1, 2005 |       | Additions |  | Payments |   | Balance 
  December 31, 2005 | 
|                           |       |           |  |          |   |                              | 
|$                          | 3,864 |           |  |          | $ | 9,593                        |  |  |  | $ | 8,824 |  |  |  | $ | 4,633 |  | 

| |                          
| | -------------------------
| | 6. Premises and Equipment

As
of December 31, the components of premises and equipment (at cost), less
accumulated depreciation, were as follows:


| |                                |  |      |        |      |   |        | 
| | ------------------------------ |  | ---- | ------ | ---- | - | ------ | 
| |                                |  | 2005 |        | 2004 |  
|
| | Land                           |  | $    | 7,745  |      | $ | 6,948  | 
| | Buildings                      |  |      | 21,643 |      |   | 15,783 | 
| | Furniture and Equipment        |  |      | 19,444 |      |   | 12,275 | 
| |                                |  |      |        |      |   |        | 
| |                                |  |      |        |      |  
| |                                |  |      | 48,832 |      |   | 35,006 | 
| |                                |  |      |        |      |   |        | 
| | Less: accumulated depreciation |  |      | 22,420 |      |   | 17,082 | 
| |                                |  |      |        |      |   |        | 
| |                                |  |      |        |      |  
| | Total                          |  | $    | 26,412 |      | $ | 17,924 | 
| |                                |  |      |        |      |   |        | 

Depreciation
expense charged to operating expense for 2005, 2004 and 2003 was $1,589, $1,312
and $1,442, respectively.


| |               
| | --------------
| | 7. Acquisition

On
July 31, 2005, the Corporation acquired 100% of the outstanding stock of
Somonauk FSB Bancorp, Inc. (Somonauk), a $211.6 million bank holding company
with offices in Somonauk, Newark, Sandwich, Plano and Millbrook, Illinois.  The Corporation completed this acquisition
in order to expand its market presence in this area.  Somonauk was acquired for a purchase price of $49.6 million;
$39.6 million paid in cash and the remaining $10 million paid in common stock,
resulting in the issuance of 338,600 shares.
In conjunction with the acquisition, the Corporation issued $25.0
million in trust preferred securities and borrowed $15.0 million in secured
notes.  Of the $15.0 million in notes
payable, $9.0 million was immediately repaid after the closing of the
transaction. The
following table represents the unaudited balance sheet for Somonauk as of June
30, 2005, which approximates the balance sheet at the date of acquisition:


|                                |  |   |         |   | 
|------------------------------- |  | - | ------- | - | 
|Assets                          |  |   |         |   | 
|                                |  |   |         |   | 
|                               
|Cash and due from banks         |  | $ | 6,856   |  
|Investment securities           |  |   | 84,135  |  
|Loans, net of unearned interest |  |   | 113,706 |  
|Allowance for loan losses       |  |   | (911    | )
|Premises and equipment, net     |  |   | 3,119   |  
|Other assets                    |  |   | 3,473   |  
|                                |  |   |         |  
|                                |  |   |         |  
|Total Assets                    |  | $ | 210,378 |  
|                                |  |   |         |  

18

---



|                                         |  |   |         |  | 
|---------------------------------------- |  | - | ------- |  | 
|Liabilities & Stockholders Equity       |  |   |         |  | 
|                                         |  |   |         |  | 
|                                        
|Deposits                                 |  | $ | 179,533 | 
|Borrowings                               |  |   | 4,408   | 
|Other liabilities                        |  |   | 2,055   | 
|Stockholders equity                     |  |   | 24,382  | 
|                                         |  |   |         | 
|                                         |  |   |         |  | 
|Total Liabilities &
Stockholders Equity |  | $ | 210,378 | 
|                                         |  |   |         | 

The
following unaudited pro forma condensed combined financial information presents
the results of operations of the Corporation, had the acquisition taken place
at the beginning of each period:


| |                                               |  |                                        |   |                                        |  |  |  |   |           |  | 
| | --------------------------------------------- |  | -------------------------------------- | - | -------------------------------------- |  |  |  | - | --------- |  | 
| |                                               |  | For the Year Ended
  December 31, 2005 |   | For the Year Ended
  December 31, 2004 | 
| |                                               |  |                                        |   |                                        | 
| | Net interest income                           |  |                                        | $ | 27,023                                 |  |  |  | $ | 24,379    |  | 
| | Provision for loan losses                     |  |                                        |   | 126                                    |  |  |  |   | 470       |  | 
| | Non-interest income                           |  |                                        |   | 9,456                                  |  |  |  |   | 9,084     |  | 
| | Non-interest expense                          |  |                                        |   | 27,225                                 |  |  |  |   | 24,242    |  | 
| |                                               |  |                                        |   |                                        |  |  |  |   |           |  | 
| | Income before income taxes                    |  |                                        |   | 9,128                                  |  |  |  |   | 8,751     |  | 
| | Income tax expense                            |  |                                        |   | 2,000                                  |  |  |  |   | 1,657     |  | 
| |                                               |  |                                        |   |                                        |  |  |  |   |           |  | 
| | Net income                                    |  |                                        | $ | 7,128                                  |  |  |  | $ | 7,094     |  | 
| |                                               |  |                                        |   |                                        |  |  |  |   |           |  | 
| | Earnings per share:                           |  |                                        |   |                                        |  |  |  |   |           |  | 
| | Basic                                         |  |                                        | $ | 2.11                                   |  |  |  | $ | 2.07      |  | 
| | Diluted                                       |  |                                        | $ | 2.10                                   |  |  |  | $ | 2.05      |  | 
| | Basic weighted average shares
  outstanding   |  |                                        |   | 3,370,903                              |  |  |  |   | 3,427,481 |  | 
| | Diluted weighted average shares
  outstanding |  |                                        |   | 3,397,736                              |  |  |  |   | 3,454,678 |  | 

The
unaudited pro forma condensed consolidated financial statements do not reflect
any anticipated cost savings and revenue enhancements.  Additionally, the Somonauk income statement
for the first six months of 2005 includes merger-related expenses.  Accordingly, the pro forma results of
operations of PNBC as of and after the merger may not be indicative of the
results that actually would have occurred if the merger had been in effect
during the periods presented or of the results that may be attained in the
future. At
the time of the acquisition, the subsidiary bank of Somonauk (Farmers State
Bank) was immediately merged into Citizens First National Bank.  The acquisition of Somonauk was accounted
for under the purchase method of accounting and, accordingly, the assets and
liabilities of Somonauk were adjusted to their fair market values as of the
acquisition date.   The operating
results of Somonauk have been consolidated with those of the Corporation from
August 1, 2005.  Goodwill was recorded
in the amount of $21.3 million along with a core deposit intangible of $6.0
million which is being amortized on an accelerated basis over a fifteen-year
period.


| |                                    
| | -----------------------------------
| | 8. Goodwill
  and Intangible Assets

The
balance of goodwill, net of accumulated amortization, totaled $22,665 at
December 31, 2005 and $1,355 at December 31, 2004.  The Corporation annually completes an evaluation for impairment
of goodwill and other intangible assets.
No impairment was identified from the Corporations analyses.  The balance of intangible assets, net of
accumulated amortization, totaled $6,843 and $1,317 at December 31, 2005 and
December 31, 2004, respectively.  The
following table provides a reconciliation of the purchase price paid for the
Somonauk acquisition and the amount of goodwill recorded:


|                                                  |  |   |        |   |   |         |  
|------------------------------------------------- |  | - | ------ | - | - | ------- | -
|Purchase Price                                    |  |   |        |   | $ | 49,650  |  
|Less: Somonauk Equity                             |  |   |        |   |   | (24,304 | )
|                                                  |  |   |        |   |   |         |  
|Recorded Goodwill                                 |  |   |        |   |   | 25,346  |  
|Direct Acquisition Costs                          |  |   |        |   |   | 632     |  
|Less Purchase Accounting Adjustments:             |  |   |        |   |   |         |  
|Loans                                             |  | $ | 1,227  |   |   |         |  
|CDs                                              |  |   | (64    | ) |   |         |  
|FHLB Advances                                     |  |   | (72    | ) |   |         |  
|Fixed Assets                                      |  |   | (2,326 | ) |   |         |  
|Mortgage Servicing Rights                         |  |   | (351   | ) |   |         |  
|Core Deposit Intangible                           |  |   | (6,036 | ) |   |         |  
|                                                  |  |   |        |   |   |         |  
|                                                  |  |   |        |   |   | (7,622  | )
|Deferred Taxes on purchase accounting
adjustments |  |   |        |   |   | 2,952   |  
|                                                  |  |   |        |   |   |         |  
|Resulting Goodwill from Somonauk acquisition      |  |   |        |   | $ | 21,308  |  
|                                                  |  |   |        |   |   |         |  

19

---



Notes to Consolidated Financial Statements(Continued)
(dollar amounts in thousands except share data)

The
following table summarizes the Corporations intangible assets, which are
subject to amortization, as of December 31, 2005 and 2004:


| |                         |  |                         |   |                            |  |                         |  |                            |        |   |  |  |   |       |  |  |  |   |        |   | 
| | ----------------------- |  | ----------------------- | - | -------------------------- |  | ----------------------- |  | -------------------------- | ------ | - |  |  | - | ----- |  |  |  | - | ------ | - | 
| |                         |  | 2005                    |   | 2004                       | 
| |                         |  | Gross Carrying
  Amount |   | Accumulated
  Amortization |  | Gross Carrying
  Amount |  | Accumulated
  Amortization |       
| |                         |  |                         |   |                            |  |                         |  |                            |       
| | Core deposit intangible |  |                         | $ | 9,004                      |  |                         |  | $                          | (2,199 | ) |  |  | $ | 2,968 |  |  |  | $ | (1,699 | ) | 
| | Other acquisition costs |  |                         |   | 160                        |  |                         |  |                            | (122   | ) |  |  |   | 160   |  |  |  |   | (112   | ) | 
| |                         |  |                         |   |                            |  |                         |  |                            |        |   |  |  |   |       |  |  |  |   |        |   | 
| |                         |  |                         |   |                            | 
| | Total                   |  |                         | $ | 9,164                      |  |                         |  | $                          | (2,321 | ) |  |  | $ | 3,128 |  |  |  | $ | (1,811 | ) | 
| |                         |  |                         |   |                            |  |                         |  |                            |        |   |  |  |   |       |  |  |  |   |        |   | 

The
following table shows the future estimated amortization expense for the
Corporations intangible assets based on existing balances as of December 31,
2005: Estimated Amortization Expense for the year ended December 31:


|           |  |   |       | 
|---------- |  | - | ----- | 
|2006       |  | $ | 923   | 
|2007       |  |   | 900   | 
|2008       |  |   | 878   | 
|2009       |  |   | 853   | 
|2010       |  |   | 807   | 
|Thereafter |  |   | 2,482 | 

Mortgage
servicing rights, which are included in other assets on the consolidated
balance sheets, are accounted for on an individual loan-by-loan basis.
Accordingly, amortization is recorded in proportion to the amount of principal
payment received on loans serviced.  The
mortgage servicing rights are subject to periodic impairment testing.  During the years ended December 31, 2005,
2004 and 2003 no impairment had been recorded and the recorded value was
determined to approximate the fair market value.  Changes in the carrying value of mortgage servicing rights are
summarized as follows:


| |                                                      |  |      |       |      |     |       |     |   |       |  
| | ---------------------------------------------------- |  | ---- | ----- | ---- | --- | ----- | --- | - | ----- | -
| |                                                      |  | 2005 |       | 2004 |     | 2003  |    
| | Balance, January 1                                   |  | $    | 1,405 |      | $   | 1,334 |     | $ | 970   |  
| | Servicing rights capitalized                         |  |      | 479   |      |     | 380   |     |   | 903   |  
| | Amortization of servicing
rights                     |  |      | (233  | )    |     | (309  | )   |   | (539  | )
| | Mortgage servicing rights resulting from
acquisition |  |      | 351   |      | -0- |       | -0- |  
| | Impairment of servicing rights                       |  | -0-  |       | -0-  |     | -0-   |    
| |                                                      |  |      |       |      |     |       |     |   |       |  
|
| | Balance, December 31                                 |  | $    | 2,002 |      | $   | 1,405 |     | $ | 1,334 |  
| |                                                      |  |      |       |      |     |       |     |   |       |  

The
following table shows the future estimated amortization expense for mortgage
servicing rights, based on existing balances as of December 31, 2005. The
Corporations actual amortization expense in any given period may be
significantly different from the estimated amounts displayed, depending on the
amount of additional mortgage servicing rights, changes in mortgage interest
rates, estimated prepayment speeds and market conditions. Estimated
Amortization Expense for the year ended December 31:


|           |  |   |     | 
|---------- |  | - | --- | 
|2006       |  | $ | 235 | 
|2007       |  |   | 221 | 
|2008       |  |   | 207 | 
|2009       |  |   | 194 | 
|2010       |  |   | 182 | 
|Thereafter |  |   | 963 | 

The
Corporation services loans for others with unpaid principal balances at
December 31, 2005, 2004 and 2003 of approximately $202,042, $147,958 and
$138,775, respectively.


| |            
| | -----------
| | 9. Deposits

As
of December 31, the aggregate amounts of time deposits in denominations of $100
or more and related interest expense were as follows:


| |                               |  |      |         |      |   |        |  |   |        | 
| | ----------------------------- |  | ---- | ------- | ---- | - | ------ |  | - | ------ | 
| |                               |  | 2005 |         | 2004 |   | 2003   | 
| | Amount                        |  | $    | 105,591 |      | $ | 73,114 |  | $ | 45,282 | 
| | Interest expense for the year |  |      | 1,919   |      |   | 992    |  |   | 940    | 

Total
interest expense on deposits for the years ending December 31 was as follows:


| |                         |  |      |        |      |   |       |  |   |        | 
| | ----------------------- |  | ---- | ------ | ---- | - | ----- |  | - | ------ | 
| |                         |  | 2005 |        | 2004 |   | 2003  | 
| | Interest-bearing demand |  | $    | 3,224  |      | $ | 2,029 |  | $ | 2,058  | 
| | Savings                 |  |      | 267    |      |   | 208   |  |   | 304    | 
| | Time                    |  |      | 10,296 |      |   | 6,359 |  |   | 7,732  | 
| |                         |  |      |        |      |   |       |  |   |        | 
|
| | Total                   |  | $    | 13,787 |      | $ | 8,596 |  | $ | 10,094 | 
| |                         |  |      |        |      |   |       |  |   |        | 

20

---



At
December 31, 2005, the scheduled maturities of time deposits are as follows:


|           |  |   |         | 
|---------- |  | - | ------- | 
|2006       |  | $ | 283,702 | 
|2007       |  |   | 55,763  | 
|2008       |  |   | 16,500  | 
|2009       |  |   | 4,315   | 
|2010       |  |   | 2,424   | 
|Thereafter |  |   | 66      | 
|           |  |   |         | 
|           |  |   |         | 
|Total      |  | $ | 362,770 | 
|           |  |   |         | 

| |               
| | --------------
| | 10. Borrowings

As
of December 31, borrowings consisted of the following:


| |                                                           |  |        |        |                           |  |        |      |                           |  |   |        |  |  |  |      |   | 
| | --------------------------------------------------------- |  | ------ | ------ | ------------------------- |  | ------ | ---- | ------------------------- |  | - | ------ |  |  |  | ---- | - | 
| |                                                           |  | 2005   |        | 2004                      | 
| |                                                           |  | Amount |        | Weighted
  Average
  Rate |  | Amount |      | Weighted
  Average
  Rate | 
| |                                                           |  |        |        |                           |  |        |      |                           | 
|
| | Customer repurchase agreements                            |  | $      | 29,375 |                           |  |        | 3.98 | %                         |  | $ | 16,870 |  |  |  | 1.85 | % | 
| | Advances from the Federal Home Loan Bank of Chicago
due:  |  |        |        |                           |  |        |      |                           |  |   |        |  |  |  |      |   | 
| | May 3, 2006                                               |  |        | 1,000  |                           |  |        | 2.65 |                           |  |   | -0-    |  |  |  | n/a  |   | 
| | November 24, 2006                                         |  |        | 400    |                           |  |        | 2.80 |                           |  |   | -0-    |  |  |  | n/a  |   | 
| | February 1, 2008                                          |  |        | 1,000  |                           |  |        | 4.00 |                           |  |   | -0-    |  |  |  | n/a  |   | 
| | February 27, 2008                                         |  |        | 2,500  |                           |  |        | 5.37 |                           |  |   | 2,500  |  |  |  | 5.37 |   | 
| | June 19, 2008                                             |  |        | 2,500  |                           |  |        | 5.44 |                           |  |   | 2,500  |  |  |  | 5.44 |   | 
| | November 2, 2009                                          |  |        | 946    |                           |  |        | 3.84 |                           |  |   | -0-    |  |  |  | n/a  |   | 
| | Federal funds purchased                                   |  |        | 1,000  |                           |  |        | 4.50 |                           |  |   | 1,000  |  |  |  | 2.50 |   | 
| | Interest-bearing demand notes issued to the U.S.
Treasury |  |        | 2,154  |                           |  |        | 3.95 |                           |  |   | 1,765  |  |  |  | 2.03 |   | 
| | Trust preferred securities                                |  |        | 25,000 |                           |  |        | 5.68 |                           |  |   | -0-    |  |  |  | n/a  |   | 
| | Note payable                                              |  |        | 6,700  |                           |  |        | 6.25 |                           |  |   | 900    |  |  |  | 4.25 |   | 
| |                                                           |  |        |        |                           |  |        |      |                           |  |   |        |  |  |  |      |   | 
| |                                                           |  |        |        |                           |  |        |      |                           |  |   |        |  |  |  |      |   | 
| | Total                                                     |  | $      | 72,575 |                           |  |        | 4.85 | %                         |  | $ | 25,535 |  |  |  | 2.67 | % | 
| |                                                           |  |        |        |                           |  |        |      |                           |  |   |        |  |  |  |      |   | 

The
subsidiary bank has adopted a collateral pledge agreement whereby they agreed
to keep on hand at all times, free of all other pledges, liens, and
encumbrances, first mortgages with unpaid principal balances aggregating no
less than 167% of the outstanding secured advances from the Federal Home Loan
Bank of Chicago (FHLB).  All advances
from the FHLB have fixed interest rates.
The advance maturing in February, 2008 has a callable feature which
began in February 2003 and quarterly thereafter.  All stock in the FHLB is also pledged as additional collateral
for these advances. On
July 15, 2005, the Corporation, through its subsidiary PNBC Capital Trust I,
issued trust preferred securities in the amount of $25,000.  These securities were issued to help finance
the acquisition of Somonauk FSB Bancorp, Inc. (see Note 7 of the Notes to
Consolidated Financial Statements). Additionally, these securities have a
maturity of thirty years and a fixed interest rate of 5.68% for the first five
years.  The interest then adjusts to a
floating rate at the three-month LIBOR plus 154 basis points.  While these securities are recorded as a
liability for financial reporting purposes, they qualify as Tier 1 capital for
regulatory purposes.  According to the
provisions of FIN 46(R), Consolidation of Variable Interest Entities, PNBC
Capital Trust I is a variable interest entity which is not required to be
consolidated by the Company. The
Corporation has a note payable with a balance of $6,700 and $900 at December
31, 2005 and 2004, respectively.   The
note payable is a demand note that carries a floating interest rate equal to
the lenders prime rate less one percent (6.25% at December 31, 2005).  The note, which is secured by the capital
stock certificates of the subsidiary bank, has a maturity of July 29, 2006.


| |                 
| | ----------------
| | 11. Income Taxes

Income
tax expense (benefit) consisted of the following:


| |                               |  |         |       |          |   |       |   |   |       | 
| | ----------------------------- |  | ------- | ----- | -------- | - | ----- | - | - | ----- | 
| |                               |  | Current |       | Deferred |   | Total |  
| |                               |  |         |       |          |   |       |  
| | Year ended December 31, 2005: |  |         |       |          |   |       |   |   |       | 
| | Federal                       |  | $       | 1,584 |          | $ | 209   |   | $ | 1,793 | 
| | State                         |  |         | 416   |          |   | 49    |   |   | 465   | 
| |                               |  |         |       |          |   |       |   |   |       | 
| |                               |  |         |       |          |   |       |  
| | Total                         |  | $       | 2,000 |          | $ | 258   |   | $ | 2,258 | 
| |                               |  |         |       |          |   |       |   |   |       | 
| | Year ended December 31, 2004: |  |         |       |          |   |       |   |   |       | 
| | Federal                       |  | $       | 1,915 |          | $ | (200  | ) | $ | 1,715 | 
| | State                         |  |         | 557   |          |   | (58   | ) |   | 499   | 
| |                               |  |         |       |          |   |       |   |   |       | 
| |                               |  |         |       |          |   |       |  
| | Total                         |  | $       | 2,472 |          | $ | (258  | ) | $ | 2,214 | 
| |                               |  |         |       |          |   |       |   |   |       | 
| | Year ended December 31, 2003: |  |         |       |          |   |       |   |   |       | 
| | Federal                       |  | $       | 1,925 |          | $ | 8     |   | $ | 1,933 | 
| | State                         |  |         | 585   |          |   | 3     |   |   | 588   | 
| |                               |  |         |       |          |   |       |   |   |       | 
| |                               |  |         |       |          |   |       |  
| | Total                         |  | $       | 2,510 |          | $ | 11    |   | $ | 2,521 | 

21

---



Notes to Consolidated Financial Statements(Continued)
(dollar amounts in thousands except share data)

| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Income
  tax expense differed from the amounts computed by applying the U.S. Federal
  income tax rate of 34 percent to pretax income as a result of the following
  for the years ended December 31:

| |                                                     |      |   |        |   |      |       |   |   |       |  
| | --------------------------------------------------- | ---- | - | ------ | - | ---- | ----- | - | - | ----- | -
| |                                                     | 2005 |   | 2004   |   | 2003 |      
|
| | Computed expected tax expense                     |      | $ | 3,343  |   | $    | 3,089 |   | $ | 3,102 |  
|
| | Increase (decrease) in income taxes resulting
from: |      |   |        |   |      |       |   |   |       |  
| | Tax-exempt income                                   |      |   | (1,319 | ) |      | (982  | ) |   | (865  | )
| | Non-deductible interest expense                     |      |   | 116    |   |      | 65    |   |   | 67    |  
| | State income taxes, net of federal tax benefit      |      |   | 298    |   |      | 222   |   |   | 358   |  
| | Bank-owned life insurance income                    |      |   | (211   | ) |      | (192  | ) |   | (202  | )
| | Other, net                                          |      |   | 31     |   |      | 12    |   |   | 61    |  
| |                                                     |      |   |        |   |      |       |   |   |       |  
| |                                                     |      | $ | 2,258  |   | $    | 2,214 |   | $ | 2,521 |  
| |                                                     |      |   |        |   |      |       |   |   |       |  

| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  tax effects of temporary differences that give rise to significant portions
  of the deferred tax assets and deferred tax liabilities at December 31, 2005
  and 2004 are presented below:

| |                                                                           |  |      |        |      |      |        |  
| | ------------------------------------------------------------------------- |  | ---- | ------ | ---- | ---- | ------ | -
| |                                                                           |  | 2005 |        | 2004 |     
|
| | Deferred tax assets:                                                      |  |      |        |      |      |        |  
|
| | Deferred compensation                                                     |  | $    | 115    |      | $    | 100    |  
| | Allowance for loan losses                                                 |  |      | 1,241  |      |      | 980    |  
| | Unrealized gain on investment securities
  available-for-sale             |  |      | 305    |      | -0-  |       
| | FAS 106 benefit accrual                                                   |  |      | 137    |      |      | 122    |  
| | Other, net                                                                |  |      | 136    |      |      | 17     |  
| |                                                                           |  |      |        |      |      |        |  
| | Total gross deferred tax assets                                           |  | $    | 1,934  |      |      | 1,219  |  
| |                                                                           |  |      |        |      |      |        |  
| | Deferred tax liabilities:                                                 |  |      |        |      |      |        |  
| | Buildings and equipment, principally due to differences in
  depreciation |  |      | (676   | )    |      | (469   | )
| | Accretion                                                                 |  |      | (171   | )    |      | (47    | )
| | Unrealized gain on investment securities
  available-for-sale             |  | -0-  |        |      | (601 | )     
| | Purchase accounting adjustments                                           |  |      | (2,914 | )    | -0-  |       
| | FHLB Stock dividends                                                      |  |      | (308   | )    |      | (203   | )
| | Mortgage servicing rights                                                 |  |      | (777   | )    |      | (545   | )
| | Prepaid expenses                                                          |  |      | (100   | )    |      | (105   | )
| | Other, net                                                                |  |      | (72    | )    |      | (22    | )
| |                                                                           |  |      |        |      |      |        |  
| | Total gross deferred tax liabilities                                      |  |      | (5,018 | )    |      | (1,992 | )
| |                                                                           |  |      |        |      |      |        |  
| | Net deferred tax liabilities                                              |  | $    | (3,084 | )    | $    | (773   | )
| |                                                                           |  |      |        |      |      |        |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Management
  believes it is more likely than not that the deferred tax assets will be
  realized. Therefore, no valuation allowance has been recorded at December 31,
  2005 and 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 12. Regulatory Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The
  Corporation and its subsidiary bank are subject to various regulatory capital
  requirements administered by the federal banking agencies. Failure to meet
  minimum capital requirements can initiate certain mandatory, and possibly
  additional discretionary, actions by regulators that, if undertaken, could
  have a direct material effect on the Corporations financial statements. Under
  capital adequacy guidelines and the regulatory framework for prompt
  corrective action, the Corporation and its subsidiary bank must meet specific
  capital guidelines that involve quantitative measures of each entitys
  assets, liabilities, and certain off-balance sheet items as calculated under
  regulatory accounting practices. The Corporations and its subsidiary banks
  capital amounts and classifications are also subject to qualitative judgments
  by the regulators about components, risk weightings, and other factors.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Quantitative
  measures established by regulation to ensure capital adequacy require the
  Corporation and its subsidiary bank to maintain minimum amounts and ratios
  (set forth in the table below) of total and Tier 1 capital to risk-weighted
  assets, and of Tier 1 capital to average adjusted assets. As of December 31,
  2005 and 2004, the subsidiary bank is categorized as well-capitalized for all
  three ratios under the regulatory framework, while the Corporation is
  classified as well-capitalized for two ratios and adequately-capitalized for
  one ratio at December 31, 2005 and well-capitalized for all three ratios at
  December 31, 2004.                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The
  most recent notifications, at December 31, 2005 and 2004, from the federal
  banking agencies categorized the subsidiary bank as well-capitalized under
  the regulatory framework for prompt corrective action. To be categorized as
  well-capitalized, the Corporation and the subsidiary bank must maintain total
  risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
  table that follows, at December 31, 2005. Following the Somonauk acquisition,
  the Corporations total risk-based ratio fell below the 10% requirement to be
  well-capitalized. The Corporation does intend to be above this                                                                                                                                                                                                                                                                                                                     

22

---



| |                                                                               
| | ------------------------------------------------------------------------------
| | requirement during 2006, while
  the subsidiary bank remains well-capitalized.

|                                               |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|---------------------------------------------- |  | ------ | ------ | ------------------------------- | ----- | ----------------------------------------------------------------------- | ------ | - | ------ | ----- |  | ------ | - | - | ------ |  |  | ----- | -
|                                               |  | Actual |        | For Capital
  Adequacy Purposes |       | To Be Well-
  Capitalized Under
  Prompt Corrective
  Action Provisions |       
|                                               |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|                                               |  | Amount |        |                                 | Ratio |                                                                         | Amount |   |        | Ratio |  | Amount |   |   | Ratio  | 
|                                               |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|As of December 31, 2005:                       |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|                                               |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Total Capital (to risk-weighted assets):       |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Princeton National Bancorp,
Inc.               |  | $      | 62,115 |                                 |       | 9.76                                                                    | %      | $ | 50,916 |       |  | 8.00   | % | $ | 63,645 |  |  | 10.00 | %
|Citizens First National
Bank                   |  |        | 65,187 |                                 |       | 10.23                                                                   | %      |   | 50,912 |       |  | 8.00   | % |   | 63,639 |  |  | 10.00 | %
|                                               |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Tier 1 Capital (to risk-weighted
assets):      |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Princeton National Bancorp,
Inc.               |  | $      | 58,918 |                                 |       | 9.26                                                                    | %      | $ | 25,458 |       |  | 4.00   | % | $ | 38,187 |  |  | 6.00  | %
|Citizens First National
Bank                   |  |        | 61,990 |                                 |       | 9.74                                                                    | %      |   | 25,456 |       |  | 4.00   | % |   | 38,184 |  |  | 6.00  | %
|                                               |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Tier 1 Capital (to average adjusted
  assets): |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Princeton National Bancorp,
Inc.               |  | $      | 58,918 |                                 |       | 7.83                                                                    | %      | $ | 30,098 |       |  | 4.00   | % | $ | 37,623 |  |  | 5.00  | %
|Citizens First National
Bank                   |  |        | 61,990 |                                 |       | 8.24                                                                    | %      |   | 30,091 |       |  | 4.00   | % |   | 37,613 |  |  | 5.00  | %
|                                               |  |        |        |                                 |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  

|                                             |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|-------------------------------------------- |  | ------ | ------ | --------------------------------- | ----- | ----------------------------------------------------------------------- | ------ | - | ------ | ----- |  | ------ | - | - | ------ |  |  | ----- | -
|                                             |  | Actual |        | For Capital
  Adequacy
  Purposes |       | To Be Well-
  Capitalized Under
  Prompt Corrective
  Action Provisions |       
|                                             |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|                                             |  | Amount |        |                                   | Ratio |                                                                         | Amount |   |        | Ratio |  | Amount |   |   | Ratio  | 
|                                             |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|As of December 31, 2004:                     |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|                                             |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Total Capital (to risk-weighted assets):     |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Princeton National Bancorp, Inc.             |  | $      | 51,130 |                                   |       | 11.49                                                                   | %      | $ | 35,555 |       |  | 8.00   | % | $ | 44,444 |  |  | 10.00 | %
|Citizens First National Bank                 |  |        | 50,841 |                                   |       | 11.43                                                                   | %      |   | 35,552 |       |  | 8.00   | % |   | 44,440 |  |  | 10.00 | %
|                                             |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Tier 1 Capital (to risk-weighted assets):    |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Princeton National Bancorp, Inc.             |  | $      | 48,606 |                                   |       | 10.94                                                                   | %      | $ | 17,778 |       |  | 4.00   | % | $ | 26,666 |  |  | 6.00  | %
|Citizens First National Bank                 |  |        | 48,317 |                                   |       | 10.87                                                                   | %      |   | 17,776 |       |  | 4.00   | % |   | 26,664 |  |  | 6.00  | %
|                                             |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Tier 1 Capital (to average adjusted assets): |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  
|Princeton National Bancorp, Inc.             |  | $      | 48,606 |                                   |       | 7.88                                                                    | %      | $ | 24,675 |       |  | 4.00   | % | $ | 30,844 |  |  | 5.00  | %
|Citizens First National Bank                 |  |        | 48,317 |                                   |       | 7.83                                                                    | %      |   | 24,673 |       |  | 4.00   | % |   | 30,841 |  |  | 5.00  | %
|                                             |  |        |        |                                   |       |                                                                         |        |   |        |       |  |        |   |   |        |  |  |       |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 13. Employee, Officer and Director Benefit
  Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
  subsidiary bank has a defined contribution investment 401(k) plan. Under this
  plan, in 2005, employees may elect to contribute, on a tax-deferred basis, up
  to a maximum of $14. In addition, the subsidiary bank will match employees
  contributions up to three percent of each employees salary and match 50% of
  the next two percent contributed. The subsidiary banks contribution to the
  defined contribution investment 401(k) plan for 2005, 2004 and 2003 was $319,
  $268 and $251, respectively.                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
  subsidiary bank also has an employee stock purchase program in which the
  employee contributes through payroll deductions. These amounts are pooled and
  used to purchase shares of the Corporations common stock on a quarterly
  basis at the opening bid price on the last business day of the quarter.                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
  subsidiary bank also has a profit sharing plan. Annual contributions to the
  subsidiary banks plan are based on a formula. The total contribution is at
  the discretion of the Board of Directors. The cost of the profit sharing plan
  charged to operating expense was $357 in 2005, $280 in 2004 and $275 in 2003.                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Additionally,
  the Corporation has a non-qualified stock option plan for the benefit of
  employees and directors of the subsidiary bank, as well as directors of the
  Corporation. The Corporation applies APB Opinion 25, Accounting for Stock
  Issued to Employees, and related interpretations in accounting for its stock
  option plan. No compensation cost has been recognized for its stock option
  plans as all stock options were granted at fair value. The fair value of each
  option grant was estimated using the Black-Scholes option-pricing model. The
  following assumptions were used in estimating the fair value for options
  granted in 2005, 2004 and 2003:

|                               |  |  |        |   |        |      |         |  |      |  
|------------------------------ |  |  | ------ | - | ------ | ---- | ------- |  | ---- | -
|                               |  |  | 2005   |   |        | 2004 |         |  | 2003 |  
|                               |  |  |        |   |        |      |        
|Dividend yield                 |  |  | 3.10   | % |        | 2.62 | %       |  | 2.25 | %
|Risk-free interest rate        |  |  | 4.37   | % |        | 4.67 | %       |  | 4.25 | %
|Weighted average expected life |  |  | 3 yrs. |   | 7 yrs. |      | 10 yrs.
|Expected volatility            |  |  | .270   |   |        | .520 |         |  | .437 |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | However,
with the adoption of Financial Accounting Standards Board Statement No. 123R
(FASB 123R) effective January 1, 2006, the Company will be required to record
future compensation expense rather than disclose the effect pro forma as has
been done previously. Therefore, the decision to accelerate the vesting of
these options, which the Company believes is in the best interests of the
shareholders, was made to reduce expense in

23

---



Notes to Consolidated Financial Statements(Continued)
(dollar amounts in thousands except share data)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2006 and subsequent years.
  Accordingly, on December 20, 2005, the Company announced that the Personnel
  Policy and Salary Committee of the Board of Directors approved the
  accelerated vesting of all outstanding unvested stock options to purchase
  shares of common stock of PNBC granted through the Companys non-qualified
  stock option plan. The unvested options relate to awards granted in 2003 and
  2004 to directors and officers of the Company. All of the unvested options
  were in the money at the date vesting was accelerated, in a range from $4.42
  to $22.06 per share. These was no compensation cost recognized in the
  financial statements from the vesting decision. By accelerating the vesting
  of these options, the Company estimates approximately $925 of future
  compensation expense will be eliminated. Options to purchase 142,133 shares
  of PNBC common stock, which otherwise would have vested from time to time
  over the next two years, became immediately exercisable as a result of this
  decision. The remaining terms for each of the options granted remain the
  same. This acceleration became effective as of December 31, 2005.
  Additionally, the Company announced the stock option award for 2005 of 80,700
  shares was granted with full vesting. This decision was made to eliminate
  additional future compensation expense of approximately $163 for each of the
  next three years, beginning in 2006.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The
  number of shares of common stock authorized under the stock option plans are
  502,500. The option exercise price must be at least 100% of the fair market
  value of the common stock on the date of grant, and the option term cannot
  exceed ten years. A summary of the stock option activity and related
  information follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                              |  |                                 |         |                             |   |        |  |                            |         |        |   |                            |       |   |         |       |   |       | 
|--------------------------------------------- |  | ------------------------------- | ------- | --------------------------- | - | ------ |  | -------------------------- | ------- | ------ | - | -------------------------- | ----- | - | ------- | ----- | - | ----- | 
|                                              |  | For the Years Ended December 31 |        
|                                              |  | 2005                            |         | 2004                        |   | 2003   | 
|                                              |  | Shares                          |         | Average 
  Exercise
  Price |   | Shares |  | Average
  Exercise
  Price |         | Shares |   | Average
  Exercise
  Price |      
|                                              |  |                                 |         |                             |   |        |  |                            |         |        |   |                            |      
|Balance, January 1                            |  |                                 | 271,184 |                             | $ | 24.10  |  |                            | 228,585 |        | $ | 21.09                      |       |   | 186,483 |       | $ | 16.86 | 
|Granted                                       |  |                                 | 80,700  |                             |   | 33.25  |  |                            | 74,400  |        |   | 28.83                      |       |   | 72,400  |       |   | 28.56 | 
|Exercised                                     |  |                                 | 45,164  |                             |   | 17.26  |  |                            | 31,801  |        |   | 13.50                      |       |   | 27,248  |       |   | 12.71 | 
|Forfeited                                     |  |                                 | 4,002   |                             |   | 27.46  |  | -0-                        |         | n/a    |   |                            | 3,050 |   |         | 14.99 |  
|                                              |  |                                 |         |                             |   |        |  |                            |         |        |   |                            |       |   |         |       |   |       | 
|Balance, December 31                          |  |                                 | 302,718 |                             | $ | 27.52  |  |                            | 271,184 |        | $ | 24.10                      |       |   | 228,585 |       | $ | 21.09 | 
|                                              |  |                                 |         |                             |   |        |  |                            |         |        |   |                            |       |   |         |       |   |       | 
|Options exercisable                           |  |                                 | 302,718 |                             |   |        |  |                            | 125,017 |        |   |                            |       |   | 91,228  |       |   |       | 
|Fair value of options granted during the year |  | $                               | 6.07    |                             |   |        |  | $                          | 13.03   |        |   |                            |       | $ | 12.73   |       |   |       | 
|Average exercise price                        |  | $                               | 27.52   |                             |   |        |  | $                          | 20.12   |        |   |                            |       | $ | 15.96   |       |   |       | 

| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Had
  the Corporation determined the compensation cost based on the fair value at
  grant date for its stock options under FAS 123, the Corporations net income
  and earnings per share would have been as summarized below:

|                           |  |  |             |  |                                 |       |      |   |       |  |   |       | 
|-------------------------- |  |  | ----------- |  | ------------------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|                           |  |  |             |  | For the Years Ended December 31 |      
|                           |  |  |             |  | 2005                            |       | 2004 |   | 2003  | 
|                           |  |  |             |  |                                 |       |      |   |       | 
|Net Income                 |  |  | As Reported |  | $                               | 7,574 |      | $ | 6,872 |  | $ | 6,603 | 
|                           |  |  | Pro Forma   |  |                                 | 6,707 |      |   | 6,473 |  |   | 6,363 | 
|Basic Earnings Per Share   |  |  | As Reported |  | $                               | 2.39  |      | $ | 2.22  |  | $ | 2.08  | 
|                           |  |  | Pro Forma   |  |                                 | 2.11  |      |   | 2.10  |  |   | 2.00  | 
|Diluted Earnings Per Share |  |  | As Reported |  | $                               | 2.37  |      | $ | 2.21  |  | $ | 2.05  | 
|                           |  |  | Pro Forma   |  |                                 | 2.10  |      |   | 2.08  |  |   | 1.98  | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 14. Pension and Other Post-Retirement
  Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The
  Corporation does not have a defined benefit pension plan. The Corporation
  does have a defined contribution investment plan which is discussed in
  footnote 13 (Employee, Officer, and Director Benefit Plans). The
  Corporation offers its retirees the opportunity to continue benefits in the
  subsidiary banks Employee Health Benefit Plan, provided the retiree agrees
  to pay a portion of their monthly premiums. The Corporations level of
  contribution is based upon an age and service formula and will provide
  benefits to active participants until age 65. The Corporation uses a December
  31 measurement date for its plans.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The
  components of the 2005, 2004 and 2003 net periodic post-retirement benefit
  cost are shown below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                                                                       |  |      |     |      |     |      |     |    |     | 
|---------------------------------------------------------------------- |  | ---- | --- | ---- | --- | ---- | --- | -- | --- | 
|                                                                       |  | 2005 |     | 2004 |     | 2003 |    
|                                                                      
|Service cost                                                           |  | $    | 61  |      | $   | 51   |     | $  | 39  | 
|Interest cost                                                          |  |      | 66  |      |     | 48   |     |    | 38  | 
|Amortization of transition obligation                                  |  |      | 16  |      | -0- |      | -0- |   
|Amortization of prior service cost                                     |  | -0-  |     |      | 30  |      |     | 16 |    
|Amortization of net (gain) loss                                        |  |      | 31  |      | -0- |      | -0- |   
|                                                                       |  |      |     |      |     |      |     |   
|                                                                      
|Net periodic post-retirement benefit cost                              |  | $    | 174 |      | $   | 129  |     | $  | 93  | 
|                                                                       |  |      |     |      |     |      |     |    |     | 
|Increase in minimum liability included in other
  comprehensive income |  | $    | -0- |      | $   | -0-  |     | $  | -0- | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As
  of December 31, 2005, 2004 and 2003, the accumulated post-retirement benefit
  obligation totaled $1,150, $800 and $537, respectively. For measurement
  purposes, a 7% annual rate of increase in the cost of covered benefits
  (health care cost trend rate) was assumed for 2005, 2004 and 2003 and the
  rate was further assumed to decline to 5% after three years. The weighted
  average discount rate and rate of compensation increase used in

24

---



| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | determining the accumulated
  post-retirement benefit obligation were 6.0%, 6.0% and 7.0%, respectively, at
  December 31, 2005, 2004 and 2003.                                                                                
| |                                                                                                                                                                                                                                
| | Assumed
  health care cost trend rates have a significant effect on the amounts
  reported for the health care plans. A one-percentage point change in assumed
  health care cost trend rates would have the following effects:

|                                                          |  |                                |     |                                |   |       | 
|--------------------------------------------------------- |  | ------------------------------ | --- | ------------------------------ | - | ----- | 
|                                                          |  | 1-Percentage-
  Point Increase |     | 1-Percentage-
  Point Decrease |  
|Effect on total of service and
  interest cost components |  | $                              | 19  |                                | $ | (16)  | 
|                                                         
|Effect on post-retirement benefit
  obligation            |  |                                | 117 |                                |   | (101) | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 15. Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Statement
  of Financial Accounting Standards No. 107 (FAS 107), Disclosures about
  Fair Value of Financial Instruments, requires all entities to disclose the
  estimated fair value of their financial instrument assets and liabilities.
  For the Corporation, as for most financial institutions, the majority of its
  assets and liabilities are considered financial instruments as defined in FAS
  107. Many of the Corporations financial instruments, however, lack an available
  trading market as characterized by a willing buyer and willing seller
  engaging in an exchange transaction. It is also the Corporations general
  practice and intent to hold its financial instruments to maturity and to not
  engage in trading or sales activities except for loans held-for-sale and
  available-for-sale securities. Therefore, significant estimations and
  assumptions, as well as present value calculations, were used by the
  Corporation for the purposes of this disclosure.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Estimated
  fair values have been determined by the Corporation using the best available
  data and an estimation methodology suitable for each category of financial
  instruments. For those loans and deposits with floating interest rates, it is
  presumed that estimated fair values generally approximate the recorded book
  balances. The estimation methodologies used, the estimated fair values and
  the recorded book balances at December 31, 2005 and 2004, were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| |  |                                                     |                  |   |              |  |                  |         |              |   |         |  |   |         | 
| |  | --------------------------------------------------- | ---------------- | - | ------------ |  | ---------------- | ------- | ------------ | - | ------- |  | - | ------- | 
| |  |                                                     | 2005             |   | 2004         | 
| |  |                                                     |                  |   |              | 
| |  |                                                     | Carrying
  Value |   | Fair
  Value |  | Carrying
  Value |         | Fair
  Value |  
| |  |                                                     |                  |   |              |  |                  |         |              |  
| |  | Financial Assets:                                   |                  |   |              |  |                  |         |              |   |         |  |   |         | 
| |  | Cash and due from banks                             |                  | $ | 23,635       |  | $                | 23,635  |              | $ | 14,025  |  | $ | 14,025  | 
| |  | Interest-bearing deposits in financial
institutions |                  |   | 110          |  |                  | 110     |              |   | 65      |  |   | 65      | 
| |  | Investment securities                               |                  |   | 251,486      |  |                  | 251,645 |              |   | 188,809 |  |   | 189,240 | 
| |  | Loans, net                                          |                  |   | 581,202      |  |                  | 579,789 |              |   | 408,821 |  |   | 406,942 | 
| |  | Accrued interest receivable                         |                  |   | 8,714        |  |                  | 8,714   |              |   | 5,000   |  |   | 5,000   | 
| |  |                                                     |                  |   |              |  |                  |         |              |   |         |  |   |         | 
| |  | Total Financial Assets                              |                  | $ | 865,147      |  | $                | 863,893 |              | $ | 616,720 |  | $ | 615,272 | 
| |  |                                                     |                  |   |              |  |                  |         |              |   |         |  |   |         | 
| |  | Financial Liabilities:                              |                  |   |              |  |                  |         |              |   |         |  |   |         | 
| |  | Non-interest-bearing demand deposits                |                  | $ | 103,622      |  | $                | 103,622 |              | $ | 75,015  |  | $ | 75,015  | 
| |  | Interest-bearing deposits                           |                  |   | 694,936      |  |                  | 694,936 |              |   | 498,546 |  |   | 499,075 | 
| |  | Borrowings                                          |                  |   | 72,575       |  |                  | 71,383  |              |   | 25,535  |  |   | 25,696  | 
| |  | Accrued interest payable                            |                  |   | 3,097        |  |                  | 3,097   |              |   | 1,547   |  |   | 1,547   | 
| |  |                                                     |                  |   |              |  |                  |         |              |   |         |  |   |         | 
| |  | Total Financial Liabilities                         |                  | $ | 874,230      |  | $                | 873,038 |              | $ | 600,643 |  | $ | 601,333 | 
| |  |                                                     |                  |   |              |  |                  |         |              |   |         |  |   |         | 
| |  |                                                     |                  |   |              |  |                  |         |              |   |         |  |   |         | 

| |                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial
  instruments actively traded in a secondary market have been valued using
  quoted available market prices. Cash and due from banks, interest-bearing
  time deposits in other banks, federal funds sold, loans held-for-sale and
  interest receivable are valued at book value, which approximates fair value.
| |                                                                                                                                                                                                                                                                                                                            
| | Financial
  liability instruments with stated maturities have been valued using a present
  value discounted cash flow analysis with a discount rate approximating
  current market for similar liabilities. Interest payable is valued at book
  value, which approximates fair value.                                    
| |                                                                                                                                                                                                                                                                                                                            
| | Financial
  instrument liabilities with no stated maturities have an estimated fair value
  equal to both the amount payable on demand and the recorded book balance.                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                            
| | The
  net loan portfolio has been valued using a present value discounted cash
  flow. The discount rate used in these calculations is the current rate at
  which similar loans would be made to borrowers with similar credit ratings,
  same remaining maturities, and assumed prepayment risk.                         
| |                                                                                                                                                                                                                                                                                                                            
| | Changes
  in assumptions or estimation methodologies may have a material effect on
  these estimated fair values.                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                            
| | The
  Corporations remaining assets and liabilities, which are not considered financial
  instruments, have not been valued differently than                                                                                                                                                                              

25

---



Notes to Consolidated Financial Statements(Continued)(dollar amounts in thousands except
share data)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | has been customary with
  historical cost accounting. No disclosure of the relationship value of the
  Corporations core deposit base is required by FAS 107.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Fair
  value estimates are based on existing balance sheet financial instruments,
  without attempting to estimate the value of anticipated future business and
  the value of assets and liabilities that are not considered financial instruments.
  For example, the subsidiary bank has a large trust department that
  contributes net fee income annually. The trust department is not considered a
  financial instrument, and its value has not been incorporated into the fair
  value estimates. Other significant assets and liabilities that are not
  considered financial assets or liabilities include the mortgage banking
  operation, brokerage network, deferred taxes, premises and equipment, and
  goodwill. In addition, the tax ramifications related to the realization of
  the unrealized gains and losses can have a significant effect on fair value
  estimates and have not been considered in the estimates.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Management
  believes that reasonable comparability between financial institutions may not
  be likely, due to the wide range of permitted valuation techniques and
  numerous estimates which must be made, given the absence of active secondary
  markets for many of the financial instruments. This lack of uniform valuation
  methodologies also introduces a greater degree of subjectivity to these
  estimated fair values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 16. Undistributed Earnings of Subsidiary Bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | National
  banking regulations and capital guidelines limit the amount of dividends that
  may be paid by banks. At December 31, 2005, the subsidiary bank had $3,492
  available for dividends. Additionally, according to the guidelines, at
  January 1, 2006, the subsidiary bank had $2,489 available for dividends.
  Future dividend payments by the subsidiary bank would be dependent upon
  individual regulatory capital requirements and levels of profitability. Since
  the Corporation is a legal entity, separate and distinct from the bank, the
  dividends of the Corporation are not subject to such bank regulatory
  guidelines.                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 17. Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | In
  the normal course of business to meet the financing needs of its customers,
  the subsidiary bank is party to financial instruments with off-balance sheet
  risk. These financial instruments include commitments to extend credit and
  standby letters of credit. These instruments involve, to varying degrees,
  elements of credit and interest rate risk in excess of the amount recognized
  in the consolidated balance sheets. The contract amounts of those instruments
  reflect the extent of involvement the subsidiary bank has in particular
  classes of financial instruments.                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
  subsidiary banks exposure to credit loss in the event of non-performance by
  the other party to the financial instrument for commitments to extend credit
  and standby letters of credit is represented by the contractual notional
  amount of those instruments. The subsidiary bank uses the same credit
  policies in making commitments and conditional obligations as they do for
  on-balance-sheet instruments. At December 31, 2005, commitments to extend
  credit and standby letters of credit were approximately $118,128 and $8,564,
  respectively.                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Commitments
  to extend credit are agreements to lend to a customer as long as there is no
  violation of any condition established in the contract. Commitments generally
  have fixed expiration dates or other termination clauses and may require
  payment of a fee. Since many of the commitments are expected to expire
  without being drawn upon, the total commitment amounts do not necessarily
  represent future cash requirements. The subsidiary bank evaluates each
  customers creditworthiness on a case-by-case basis. The amount of collateral
  obtained, if deemed necessary, by the subsidiary bank upon extension of
  credit is based on managements credit evaluation of the counterparty.
  Collateral held varies, but may include real estate, accounts receivable,
  inventory, property, plant and equipment, and income-producing properties.                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Standby
  letters of credit are conditional commitments issued by the subsidiary bank
  to guarantee the performance of a customer to a third party. The credit risk
  involved in issuing standby letters of credit is essentially the same as that
  involved in extending loan facilities to customers. The subsidiary bank
  secures the standby letters of credit with the same collateral used to secure
  the loan. The maximum amount of credit that would be extended under standby
  letters of credit is equal to the off-balance sheet contract amount. At
  December 31, 2005, the standby letters of credit have terms that expire in
  one year or less.                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | There
  are various claims pending against the Corporations subsidiary bank, arising
  in the normal course of business. Management believes, based upon
  consultation with counsel, that liabilities arising from these proceedings,
  if any, will not be material to the Corporations financial position or
  results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

26

---



18.
Condensed Financial Information of Princeton National Bancorp, Inc.

The
following condensed financial statements are presented for the Corporation on a
stand alone basis:

Condensed Balance Sheets

| |                                                           |  |               |         |      |   |         |  
| | --------------------------------------------------------- |  | ------------- | ------- | ---- | - | ------- | -
| |                                                           |  | December
  31 |        
| |                                                           |  | 2005          |         | 2004 |  
|
| | Assets                                                    |  |               |         |      |   |         |  
| | Cash                                                      |  | $             | 1,487   |      | $ | 115     |  
| | Interest-bearing deposits in subsidiary bank              |  |               | 2,594   |      |   | 578     |  
| | Other assets                                              |  |               | 1,074   |      |   | 749     |  
| | Investment in subsidiary bank                             |  |               | 91,057  |      |   | 51,914  |  
| |                                                           |  |               |         |      |   |         |  
|
| | Total assets                                              |  |               | 96,212  |      |   | 53,356  |  
| |                                                           |  |               |         |      |   |         |  
|
| | Liabilities                                               |  |               |         |      |   |         |  
| | Borrowings                                                |  | $             | 31,700  |      | $ | 900     |  
| | Other liabilities                                         |  |               | 1,368   |      |   | 87      |  
| |                                                           |  |               |         |      |   |         |  
|
| | Total liabilities                                         |  |               | 33,068  |      |   | 987     |  
| |                                                           |  |               |         |      |   |         |  
|
| | Stockholders Equity                                      |  |               |         |      |   |         |  
| | Common stock                                              |  |               | 22,392  |      |   | 20,699  |  
| | Surplus                                                   |  |               | 16,968  |      |   | 7,810   |  
| | Retained earnings                                         |  |               | 45,786  |      |   | 42,156  |  
| | Accumulated other comprehensive (loss) income, net of
tax |  |               | (482    | )    |   | 951     |  
| | Less: Cost of treasury shares                             |  |               | (21,520 | )    |   | (19,247 | )
| |                                                           |  |               |         |      |   |         |  
|
| | Total stockholders equity                                |  |               | 63,144  |      |   | 52,369  |  
| |                                                           |  |               |         |      |   |         |  
|
| | Total liabilities and stockholders
equity                |  | $             | 96,212  |      | $ | 53,356  |  
| |                                                           |  |               |         |      |   |         |  

Condensed Statements of Income

| |                                                                                    |  |                                   |       |      |   |       |   |   |       |  
| | ---------------------------------------------------------------------------------- |  | --------------------------------- | ----- | ---- | - | ----- | - | - | ----- | -
| |                                                                                    |  | For the
  Years Ended December 31 |      
| |                                                                                    |  | 2005                              |       | 2004 |   | 2003  |  
|
| | Income                                                                             |  |                                   |       |      |   |       |   |   |       |  
| | Dividends received from
  subsidiary bank                                          |  | $                                 | 6,800 |      | $ | 6,000 |   | $ | 5,800 |  
| | Interest income                                                                    |  |                                   | 22    |      |   | 14    |   |   | 19    |  
| | Other income                                                                       |  |                                   | 24    |      |   | 21    |   |   | 75    |  
| |                                                                                    |  |                                   |       |      |   |       |   |   |       |  
|
| | Total income                                                                       |  |                                   | 6,846 |      |   | 6,035 |   |   | 5,894 |  
| |                                                                                    |  |                                   |       |      |   |       |   |   |       |  
| | Expenses                                                                           |  |                                   |       |      |   |       |   |   |       |  
| | Interest expense                                                                   |  |                                   | 817   |      |   | 31    |   |   | 40    |  
| | Amortization and
  depreciation                                                    |  |                                   | 7     |      |   | 7     |   |   | 7     |  
| | Other expenses                                                                     |  |                                   | 248   |      |   | 241   |   |   | 251   |  
| |                                                                                    |  |                                   |       |      |   |       |   |   |       |  
| | Total expenses                                                                     |  |                                   | 1,072 |      |   | 279   |   |   | 298   |  
| |                                                                                    |  |                                   |       |      |   |       |   |   |       |  
| | Income before income taxes
  and equity in undistributed income of subsidiary bank |  |                                   | 5,774 |      |   | 5,756 |   |   | 5,596 |  
| | Applicable income tax
  benefit                                                    |  |                                   | (346  | )    |   | (81   | ) |   | (4    | )
| |                                                                                    |  |                                   |       |      |   |       |   |   |       |  
| | Income before equity in
  undistributed income of subsidiary bank                  |  |                                   | 6,120 |      |   | 5,837 |   |   | 5,600 |  
| | Equity in undistributed
  income of subsidiary bank                                |  |                                   | 1,454 |      |   | 1,035 |   |   | 1,003 |  
| |                                                                                    |  |                                   |       |      |   |       |   |   |       |  
| | Net income                                                                         |  | $                                 | 7,574 |      | $ | 6,872 |   | $ | 6,603 |  
| |                                                                                    |  |                                   |       |      |   |       |   |   |       |  

27

---



Notes to Consolidated Financial Statements(Continued)(dollar amounts in
thousands except share data)

Condensed Statements of Cash Flows

| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
| | ----------------------------------------------------------------------------------- |  | --------------------------------- | ------- | ---- | - | ------ | - | - | ------ | -
| |                                                                                     |  | For the
  Years Ended December 31 |        
| |                                                                                     |  | 2005                              |         | 2004 |   | 2003   |  
| | Operating activities:                                                               |  |                                   |         |      |   |        |   |   |        |  
| | Net income                                                                          |  | $                                 | 7,574   |      | $ | 6,872  |   | $ | 6,603  |  
|
| | Adjustments to reconcile net income to net cash
provided by operating
  activities: |  |                                   |         |      |   |        |   |   |        |  
|
| | Equity in undistributed income of subsidiary
bank                                   |  |                                   | (1,454  | )    |   | (1,035 | ) |   | (1,003 | )
| | Amortization of other intangible
assets                                             |  |                                   | 7       |      |   | 7      |   |   | 7      |  
| | Decrease (increase) in other assets                                                 |  |                                   | 4,105   |      |   | (546   | ) |   | 213    |  
| | Increase (decrease) in other
liabilities                                            |  |                                   | 1,281   |      |   | (250   | ) |   | 117    |  
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
|
| | Net
  cash provided by operating activities                                         |  |                                   | 11,513  |      |   | 5,048  |   |   | 5,937  |  
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
|
| | Investing Activities:                                                               |  |                                   |         |      |   |        |   |   |        |  
| | Payment related to acquisition, net of cash and
cash equivalents acquired           |  |                                   | (43,559 | )    |   | -0-    |   |   | -0-    |  
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
| | Net
  cash used in investing activities                                             |  |                                   | (43,559 | )    |   | -0-    |   |   | -0-    |  
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
| | Financing activities:                                                               |  |                                   |         |      |   |        |   |   |        |  
| | Net increase (decrease) in borrowings                                               |  |                                   | 5,800   |      |   | (150   | ) |   | (250   | )
| | Issuance of trust preferred securities                                              |  |                                   | 25,000  |      |   | -0-    |   |   | -0-    |  
| | Sale of treasury stock                                                              |  |                                   | 190     |      |   | 120    |   |   | 135    |  
| | Purchase of treasury stock                                                          |  |                                   | (3,150  | )    |   | (2,884 | ) |   | (3,483 | )
| | Exercise of stock options and issuance of
treasury stock                            |  |                                   | 927     |      |   | 676    |   |   | 318    |  
| | Dividends paid                                                                      |  |                                   | (3,333  | )    |   | (2,966 | ) |   | (2,829 | )
| | Issuance of common stock                                                            |  |                                   | 10,000  |      |   | -0-    |   |   | -0-    |  
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
|
| | Net
  cash used by financing activities                                             |  |                                   | 35,434  |      |   | (5,204 | ) |   | (6,109 | )
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
|
| | Increase (decrease) in cash and cash equivalents                                    |  |                                   | 3,388   |      |   | (156   | ) |   | (172   | )
| | Cash and cash equivalents at beginning of year                                      |  |                                   | 693     |      |   | 849    |   |   | 1,021  |  
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  
| | Cash and cash equivalents at end of year                                            |  | $                                 | 4,081   |      | $ | 693    |   | $ | 849    |  
| |                                                                                     |  |                                   |         |      |   |        |   |   |        |  

28

---



Managements
Discussion and Analysis of 
Financial Condition and Results of Operations(dollar
amounts in thousands except share data)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  following discussion and analysis provides information about the Companys
  financial condition and results of operations for the years ended December
  31, 2005, 2004 and 2003. This discussion and analysis should be read in
  conjunction with Selected Statistical Data, and the Companys Consolidated
  Financial Statements and the Notes thereto included in this report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Overview                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 2005
  was highlighted by the Companys successful completion of the acquisition of
  Somonauk FSB Bancorp, Inc. (Somonauk), which added approximately $210
  million in total assets and additional full-service banking locations in
  Somonauk, Sandwich (County Line Road), Newark, Millbrook and Plano. These
  locations are a perfect fit to the Companys expanding presence in this
  area, along with the Aurora location set to open in 2006 and a future
  location in Elburn. The Company continued the trend of improving earnings
  performance as net income increased 10.2% to another record level of $7,574.
  Additionally, the return on average equity was 13.43% in 2005, which is
  relatively consistent with the level set in 2004 of 13.46%. The earnings per
  share figure, on a diluted basis, improved by 7.2% from $2.21 in 2004 to
  $2.37 in 2005. The Companys total assets have now reached $945.3 million, an
  increase of $289.5 million (or 44.2%) in the past twelve months.                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The
  Company continued its plan to manage capital balances through stock repurchases
  and increased dividend payments, the goal of which is to improve long-term
  shareholder return, as measured by return on average equity and earnings per
  share. During 2005, the Company repurchased 100,000 shares of its common
  stock at a total cost of $3,150. Since 1997, the Company has repurchased
  1,234,271 shares of common stock through repurchase programs. Additionally,
  the Company paid dividends of $1.03 per share for a total of $3,333,
  representing increases of $.07 per share (or 7.3%) and $367 (or 12.4%),
  respectively, during the past year. PNBC increased the quarterly dividend
  three times in 2005, while also paying a special dividend for the fifth
  consecutive year. The Company issued an additional 338,600 shares of common
  stock totaling $10 million as part of the financing of the Somonauk
  acquisition. Total stockholders equity increased by $10.8 million (or 20.6%)
  to $63,144 at December 31, 2005, compared to $52,369 at December 31, 2004.

|     |  |                      |         |                  |  |                      |   |                  |        |              |  |                  |   |   |       |  |  |       |  
|---- |  | -------------------- | ------- | ---------------- |  | -------------------- | - | ---------------- | ------ | ------------ |  | ---------------- | - | - | ----- |  |  | ----- | -
|     |  | Assets at
  Year-End |         | Percent
  Change |  | Equity at
  Year-End |   | Percent
  Change |        | Net
  Income |  | Percent
  Change |  
|     |  |                      |         |                  |  |                      |   |                  |        |              |  |                  |  
|    
|2005 |  | $                    | 945,263 |                  |  | 44.15                | % | $                | 63,144 |              |  | 20.58            | % | $ | 7,574 |  |  | 10.22 | %
|2004 |  |                      | 655,738 |                  |  | 7.54                 |   |                  | 52,369 |              |  | 2.94             |   |   | 6,872 |  |  | 4.07  |  
|2003 |  |                      | 609,737 |                  |  | 3.81                 |   |                  | 50,875 |              |  | (0.39            | ) |   | 6,603 |  |  | 7.65  |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Analysis
  of Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Net
  Income. Net income
  for 2005 increased $702 (or 10.2%) to $7,574 (or $2.39 basic earnings per
  share and $2.37 diluted earnings per share), from $6,872 (or $2.22 basic
  earnings per share and $2.21 diluted earnings per share) in 2004. This
  increase is due to growth in the Companys balance sheet, not only from the
  acquisition of Somonauk, but from internal growth as well. Average
  interest-earning assets increased from $566.2 million in 2004 to $705.6
  million during 2005, which generated an additional $4.0 million in net
  interest income. For a more detailed review of the net interest margin,
  non-interest income and non-interest expense, refer to those sections
  contained in this Managements Discussion and Analysis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Net
  income for 2004 increased $269 (or 4.1%) to $6,872 (or $2.22 basic earnings
  per share and $2.21 diluted earnings per share), from $6,603 (or $2.08 basic
  earnings per share and $2.05 diluted earnings per share) in 2003. This
  increase is due to an improvement in the net interest margin from 3.69% in
  2003 to 3.92% in 2004, as well as growth in average interest-earning assets
  of $18.4 million during 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Net
  Interest Income.
  During 2005, net interest income, on a taxable equivalent basis, increased
  significantly to $26,292 from $22,165 in 2004, representing an improvement of
  $4.1 million (or 18.6%). This enhancement is attributable to an increase in
  average interest-earning assets during 2005 from $566,178 in 2004 to
  $705,605, growth of $139.4 million (or 24.6%). The acquisition of Somonauk
  accounts for the majority of this increase, but the Company also had organic
  growth of nearly 8%. The average interest rate earned on these assets
  increased from 5.52% in 2004 to 5.95% in 2005. Although the Company has been
  asset-sensitive for most of the year, as interest rates increased rapidly in
  2005 (there were eight 25 basis point increases to the prime lending rate),
  the rates paid for maturing deposits had more room to increase than those on
  loans and investments, causing compression to the net yield. Accordingly, the
  net yield on interest-earning assets decreased from 3.92% in 2004 to 3.73% in
  2005. Additionally, the Company issued $25,000 of trust preferred securities
  and increased the balance of an outstanding note payable by $5,800 to help
  finance the acquisition of Somonauk. The interest expense incurred from the
  additional debt decreased the net yield by approximately nine basis points.
  During the past year, there was also an increase in the interest-bearing
  liabilities from $499,055 in 2004 to $638,716 in 2005 (which includes the
  previously mentioned debt), an increase of $139.7 million (or 28.0%). The
  average rate paid on these liabilities increased from 1.82% in 2004 to 2.46%
  in 2005.

29

---



Managements Discussion and Analysis ofFinancial
Condition and Results of Operations(Continued)
(dollar amounts in thousands except share data)

| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 following table sets forth details of average balances, interest income and
 expense, and resulting rates for the past three years, reported on a taxable
 equivalent basis using a tax rate of 34%:

| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | ---------------------------------------------------------- |  | -------------------------------- | ------- | -------- | - | ------------ |  | ---------------- | ---- | -------- | - | ------------ |  | ---------------- | ------ | -------- |  | ------------ | - | - | ------- |  | - | ------ |  |  | ---- | -
| |                                                            |  | For the Years Ending December 31 |        
| |                                                            |  |                                  |        
| |                                                            |  | 2005                             |         | 2004     |   | 2003         | 
| |                                                            |  |                                  |         |          |   |              | 
| |                                                            |  | Average
 Balance                 |         | Interest |   | Yield/
 Cost |  | Average
 Balance |      | Interest |   | Yield/
 Cost |  | Average
 Balance |        | Interest |  | Yield/
 Cost |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |  
|
| | Average Interest-Earning Assets                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Interest-bearing deposits                                  |  | $                                | 2,044   |          | $ | 67           |  |                  | 3.26 | %        | $ | 1,668        |  | $                | 24     |          |  | 1.43         | % | $ | 5,482   |  | $ | 55     |  |  | 1.00 | %
| | Taxable investment securities                              |  |                                  | 131,913 |          |   | 4,621        |  |                  | 3.50 |          |   | 107,358      |  |                  | 3,259  |          |  | 3.04         |   |   | 110,164 |  |   | 2,919  |  |  | 2.65 |  
| | Tax-exempt investment securities (a)                       |  |                                  | 86,039  |          |   | 5,794        |  |                  | 6.73 |          |   | 64,453       |  |                  | 4,376  |          |  | 6.79         |   |   | 56,170  |  |   | 3,917  |  |  | 6.97 |  
| | Federal funds sold                                         |  |                                  | 3,162   |          |   | 120          |  |                  | 3.79 |          |   | 1,944        |  |                  | 30     |          |  | 1.53         |   |   | 6,511   |  |   | 72     |  |  | 1.10 |  
| | Net loans (a) (b)                                          |  |                                  | 482,448 |          |   | 31,417       |  |                  | 6.51 |          |   | 390,755      |  |                  | 23,546 |          |  | 6.03         |   |   | 369,469 |  |   | 23,778 |  |  | 6.44 |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
|
| | Total interest-earning assets                              |  |                                  | 705,606 |          |   | 42,019       |  |                  | 5.95 |          |   | 566,178      |  |                  | 31,235 |          |  | 5.52         |   |   | 547,796 |  |   | 30,741 |  |  | 5.61 |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Average non-interest-earning assets                        |  |                                  | 76,561  |          |   |              |  |                  |      |          |   | 53,508       |  |                  |        |          |  |              |   |   | 50,478  |  |   |        |  |  |      |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Total average assets                                       |  | $                                | 782,167 |          |   |              |  |                  |      |          | $ | 619,686      |  |                  |        |          |  |              |   | $ | 598,274 |  |   |        |  |  |      |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Average Interest-Bearing Liabilities                       |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Interest-bearing demand deposits                           |  | $                                | 209,903 |          |   | 3,224        |  |                  | 1.54 | %        | $ | 184,585      |  |                  | 2,029  |          |  | 1.10         | % | $ | 168,053 |  |   | 2,058  |  |  | 1.22 | %
| | Savings deposits                                           |  |                                  | 86,771  |          |   | 267          |  |                  | 0.31 |          |   | 59,506       |  |                  | 208    |          |  | 0.35         |   |   | 55,786  |  |   | 304    |  |  | 0.54 |  
| | Time deposits                                              |  |                                  | 294,642 |          |   | 10,296       |  |                  | 3.49 |          |   | 235,556      |  |                  | 6,359  |          |  | 2.70         |   |   | 243,156 |  |   | 7,732  |  |  | 3.18 |  
| | Interest-bearing demand notes issued to the U.S.
Treasury  |  |                                  | 759     |          |   | 23           |  |                  | 3.07 |          |   | 690          |  |                  | 8      |          |  | 1.14         |   |   | 821     |  |   | 8      |  |  | 0.91 |  
| | Federal funds purchased and customer repurchase
agreements |  |                                  | 24,844  |          |   | 756          |  |                  | 3.04 |          |   | 12,689       |  |                  | 147    |          |  | 1.16         |   |   | 9,658   |  |   | 64     |  |  | 0.66 |  
| | Advances from Federal Home Loan Bank                       |  |                                  | 6,728   |          |   | 342          |  |                  | 5.09 |          |   | 5,027        |  |                  | 288    |          |  | 5.74         |   |   | 5,523   |  |   | 305    |  |  | 5.53 |  
| | Trust preferred securities                                 |  |                                  | 11,644  |          |   | 621          |  |                  | 5.33 |          |   | -0-          |  |                  | -0-    |          |  | n/a          |   |   | -0-     |  |   | -0-    |  |  | n/a  |  
| | Note payable                                               |  |                                  | 3,424   |          |   | 196          |  |                  | 5.73 |          |   | 1,002        |  |                  | 31     |          |  | 3.07         |   |   | 1,204   |  |   | 40     |  |  | 3.33 |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Total interest-bearing
liabilities                         |  |                                  | 638,715 |          |   | 15,725       |  |                  | 2.46 |          |   | 499,055      |  |                  | 9,070  |          |  | 1.82         |   |   | 484,201 |  |   | 10,511 |  |  | 2.17 |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Net yield on average interest-earning assets               |  |                                  |         |          | $ | 26,294       |  |                  | 3.73 | %        |   |              |  | $                | 22,165 |          |  | 3.92         | % |   |         |  | $ | 20,230 |  |  | 3.69 | %
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Average non-interest-bearing liabilities                   |  |                                  | 87,037  |          |   |              |  |                  |      |          |   | 69,592       |  |                  |        |          |  |              |   |   | 63,304  |  |   |        |  |  |      |  
| | Average stockholders equity                               |  |                                  | 56,415  |          |   |              |  |                  |      |          |   | 51,039       |  |                  |        |          |  |              |   |   | 50,769  |  |   |        |  |  |      |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  
| | Total average liabilities and stockholders
equity         |  | $                                | 782,167 |          |   |              |  |                  |      |          | $ | 619,686      |  |                  |        |          |  |              |   | $ | 598,274 |  |   |        |  |  |      |  
| |                                                            |  |                                  |         |          |   |              |  |                  |      |          |   |              |  |                  |        |          |  |              |   |   |         |  |   |        |  |  |      |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                        
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Interest
 income on non-taxable investment securities and non-taxable loans includes
 the effects of taxable equivalent adjustments, using a tax rate of 34% in
 adjusting interest on tax-exempt securities and tax-exempt loans to a taxable
 equivalent basis. The amount of taxable equivalent adjustments were $2,048 in
 2005, $1,516 in 2004 and $1,347 in 2003.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                        
| | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Includes
 $26 in 2005, $55 in 2004 and $341 in 2003 attributable to interest from
 non-accrual loans.                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                        
| | In
 2004, net interest income, on a taxable equivalent basis, increased to
 $22,165 from $20,230 in 2003, an increase of $1.9 million (or 9.6%). This
 increase is due mostly to an increase in average interest-earning assets
 during 2004 from $547,796 in 2003 to $566,178, an increase of $18,382 (or
 3.4%). This increase offfset the decline in the average interest rate earned
 on these assets from 5.61% in 2003 to 5.52% in 2004. During 2004, there was
 also an increase in the interest-bearing liabilities from $484,201 in 2003 to
 $499,055 in 2004, an increase of $14,854 (or 3.1%). The average rate paid on
 these liabilities, however, decreased from 2.17% in 2003 to 1.82% in 2004. As
 a result, the net yield on interest-earning assets increased from 3.69% in
 2003 to 3.92% in 2004.

30

---



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 following table describes changes in net interest income attributable to
 changes in the volume of interest-earning assets and interest-bearing
 liabilities compared to changes in interest rates:

| |                                                               |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  
| | ------------------------------------------------------------- |  | ---------------------- | ----- | --------------------- | - | --------------------- | - | --------- | ------ | ------- | - | ----- | - | --------- | ------ | ------- | - | ------ | - | - | ----- | - | - | ------ | - | - | ------ | -
| |                                                               |  | Year ended December 31 |      
| |                                                               |  |                        |      
| |                                                               |  | 2005 compared to 2004  |       | 2004 compared to 2003 |   | 2003 compared to 2002 |  
| |                                                               |  | Volume(a)              |       | Rate(a)               |   | Net                   |   | Volume(a) |        | Rate(a) |   | Net   |   | Volume(a) |        | Rate(a) |   | Net    |  
| |                                                               |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |  
| | Interest from interest-earning assets                         |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  
| |                                                               |  |                        |       |                       |   |                       |  
| | Interest-bearing time deposits                                |  | $                      | 9     |                       | $ | 34                    |   | $         | 43     |         | $ | (46   | ) | $         | 15     |         | $ | (31    | ) | $ | (4    | ) | $ | (30    | ) | $ | (34    | )
| | Taxable investment securities                                 |  |                        | 803   |                       |   | 559                   |   |           | 1,362  |         |   | (80   | ) |           | 420    |         |   | 340    |   |   | 186   |   |   | (2,414 | ) |   | (2,228 | )
| | Tax-exempt investment securities (b)                          |  |                        | 1,460 |                       |   | (42                   | ) |           | 1,418  |         |   | 569   |   |           | (110   | )       |   | 459    |   |   | 383   |   |   | (213   | ) |   | 170    |  
| | Federal funds sold                                            |  |                        | 32    |                       |   | 58                    |   |           | 90     |         |   | (60   | ) |           | 18     |         |   | (42    | ) |   | (28   | ) |   | (32    | ) |   | (60    | )
| | Net loans (c)                                                 |  |                        | 5,748 |                       |   | 2,123                 |   |           | 7,871  |         |   | 1,326 |   |           | (1,558 | )       |   | (232   | ) |   | 1,578 |   |   | (2,651 | ) |   | (1,073 | )
| |                                                               |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  
| | Total income from interest-earning
assets                     |  |                        | 8,052 |                       |   | 2,732                 |   |           | 10,784 |         |   | 1,709 |   |           | (1,215 | )       |   | 494    |   |   | 2,115 |   |   | (5,340 | ) |   | (3,225 | )
| |                                                               |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  
| | Expense of interest-bearing liabilities                       |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  
| |                                                               |  |                        |       |                       |   |                       |  
| | Interest-bearing demand deposits                              |  |                        | 334   |                       |   | 861                   |   |           | 1,195  |         |   | 192   |   |           | (221   | )       |   | (29    | ) |   | 544   |   |   | (852   | ) |   | (308   | )
| | Savings deposits                                              |  |                        | 90    |                       |   | (31                   | ) |           | 59     |         |   | 17    |   |           | (113   | )       |   | (96    | ) |   | 19    |   |   | (366   | ) |   | (347   | )
| | Time deposits                                                 |  |                        | 1,830 |                       |   | 2,107                 |   |           | 3,937  |         |   | (223  | ) |           | (1,150 | )       |   | (1,373 | ) |   | (388  | ) |   | (1,893 | ) |   | (2,281 | )
| | Interest-bearing demand notes issued to
the U.S. Treasury     |  |                        | 1     |                       |   | 14                    |   |           | 15     |         |   | (2    | ) |           | 2      |         |   | -0-    |   |   | (3    | ) |   | (5     | ) |   | (8     | )
| | Federal funds purchased and securities repurchase
 agreements |  |                        | 255   |                       |   | 354                   |   |           | 609    |         |   | 28    |   |           | 55     |         |   | 83     |   |   | (9    | ) |   | (44    | ) |   | (53    | )
| | Advances from Federal Home Loan Bank                          |  |                        | 92    |                       |   | (38                   | ) |           | 54     |         |   | (28   | ) |           | 11     |         |   | (17    | ) |   | (35   | ) |   | (1     | ) |   | (36    | )
| | Trust preferred securities                                    |  |                        | 621   |                       |   | -0-                   |   |           | 621    |         |   | -0-   |   |           | -0-    |         |   | -0-    |   |   | -0-   |   |   | -0-    |   |   | -0-    |  
| | Note payable                                                  |  |                        | 106   |                       |   | 59                    |   |           | 165    |         |   | (6    | ) |           | (3     | )       |   | (9     | ) |   | (9    | ) |   | (6     | ) |   | (15    | )
| |                                                               |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  
| |                                                               |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  
| | Total expense from interest- bearing
liabilities              |  |                        | 3,329 |                       |   | 3,326                 |   |           | 6,655  |         |   | (22   | ) |           | (1,419 | )       |   | (1,441 | ) |   | 119   |   |   | (3,167 | ) |   | (3,048 | )
| |                                                               |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  
| |                                                               |  |                        |       |                       |   |                       |  
| | Net difference                                                |  | $                      | 4,723 |                       | $ | (594                  | ) | $         | 4,129  |         | $ | 1,731 |   | $         | 204    |         | $ | 1,935  |   | $ | 1,996 |   | $ | (2,173 | ) | $ | (177   | )
| |                                                               |  |                        |       |                       |   |                       |   |           |        |         |   |       |   |           |        |         |   |        |   |   |       |   |   |        |   |   |        |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | The
 change in interest due both to rate and volume has been allocated equally.                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                 
| | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Interest income
 on non-taxable investment securities and non-taxable loans includes the
 effects of taxable-equivalent adjustments using a tax rate of 34% in
 adjusting interest on tax-exempt securities and tax-exempt loans to a
 taxable-equivalent basis. The amount of taxable-equivalent adjustments were
 $2,048 in 2005, $1,516 in 2004 and $1,347 in 2003.          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                 
| | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Includes
 loan fees of $774 in 2005, $596 in 2004, and $742 in 2003. Interest income on
 loans includes the effect of tax equivalent adjustments for non-taxable loans
 using a tax rate of 34% in adjusting interest on tax-exempt loans to a
 taxable-equivalent basis. Includes non-accrual loans, with year-end balances
 of $3,822 in 2005, $328 in 2004, and $925 in 2003.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                 
| | Non-interest income.
Total non-interest
 income of $8,840 in 2005 represents an increase of $525 (or 6.3%) from the
 2004 total of $8,315. With an increase in the customer base from the
 acquisition, the service charge categories accounted for the majority of the
 growth, as service charges on deposits increased $299 (or 9.5%) and other
 service charges increased $242 (or 20.8%). Citizens Financial Advisors, a
 department of the subsidiary bank combining trust, insurance, and brokerage
 services, had growth in the number of clients served, assets under
 management, and profits from farmland sales. As a result, trust and farm
 management fees increased by $150 (or 10.3%) and brokerage fee income
 increased by $90 (or 14.8%). Mortgage banking income also grew in 2005,
 improving $219 (or 39.0%) as the Companys serviced loan portfolio grew from
 $148.0 million at December 31, 2004 to $202.0 million at December 31, 2005.
 Offsetting these increases was a lower amount of net gains received from
 sales of investment securities of $127 (from $216 in 2004 to $89 in 2005) and
 the Companys recording of a gain from the sale of the subsidiary banks
 credit card portfolio acquired from Somonauk of $63 in 2005, compared to $465
 from the sale of the Companys credit card portfolio in 2004. The following
 table provides non-interest income by category, total non-interest income,
 and non-interest income to average total assets for the periods indicated:

31

---



Management's Discussion and Analysis
of
Financial Condition and Results of Operations (Continued)
(dollar amounts in thousands except share data)

|                                                 |  |                                 |       |      |   |       |   |   |       |  
|------------------------------------------------ |  | ------------------------------- | ----- | ---- | - | ----- | - | - | ----- | -
|                                                 |  | For the Years ended December 31 |      
|                                                 |  |                                 |      
|                                                 |  | 2005                            |       | 2004 |   | 2003  |  
|                                                 |  |                                 |       |      |   |       |  
|Trust and farm management fees                   |  | $                               | 1,601 |      | $ | 1,451 |   | $ | 1,280 |  
|Service charges on deposit
  accounts            |  |                                 | 3,448 |      |   | 3,149 |   |   | 3,018 |  
|Other service charges                            |  |                                 | 1,407 |      |   | 1,165 |   |   | 1,056 |  
|Gain on sales of securities
  available-for-sale |  |                                 | 89    |      |   | 216   |   |   | 1,002 |  
|Gain on sale of credit card loans                |  |                                 | 63    |      |   | 465   |   |   | -0-   |  
|Brokerage fee income                             |  |                                 | 697   |      |   | 607   |   |   | 550   |  
|Mortgage banking income                          |  |                                 | 780   |      |   | 561   |   |   | 1,287 |  
|Bank-owned life insurance income                 |  |                                 | 604   |      |   | 555   |   |   | 584   |  
|Other operating income                           |  |                                 | 151   |      |   | 146   |   |   | 147   |  
|                                                 |  |                                 |       |      |   |       |   |   |       |  
|Total non-interest income                        |  | $                               | 8,840 |      | $ | 8,315 |   | $ | 8,924 |  
|                                                 |  |                                 |       |      |   |       |   |   |       |  
|                                                 |  |                                 |       |      |   |       |   |   |       |  
|Non-interest income to average
  total assets    |  |                                 | 1.13  | %    |   | 1.34  | % |   | 1.49  | %

Total
non-interest income of $8,315 in 2004 represents a decrease of $609 (or 6.8%)
from the 2003 total of $8,924.  The
primary reason was a decrease in income from mortgage banking operations to
$561 from $1,287 in 2003, a decrease of $726 (or 56.4%) due to a decline in the
level of refinancing activity from the low rate environment of 2003.  Additionally, the Company recorded $216 in
net gains from the sale of investment securities in 2004, compared to $1,002 in
2003.  Offsetting these decreases, were
improvements in trust and farm management fees of $171 (or 13.4%), service
charges on deposit accounts of $131 (or 4.3%) and other service charges of $109
(or 10.3%).  Also, the Company recorded
a gain from the sale of the subsidiary banks credit card portfolio of $465 in
2004.

Non-interest Expense. Total non-interest
expense increased to $23,253 in 2005 from $19,503 in 2004 (an increase of $3,750
or 19.2%).  All categories of
non-interest expense saw increases, primarily due to the acquisition of
Somonauk, which increased the number of employees and facilities.  The majority of the increase was in salaries
and benefits, which increased $2,271 (or 20.4%) during the past year as the
number of full-time equivalent employees increased from 225 at December 31,
2004 to 290 at December 31, 2005 (an increase of 65 or 28.9%).  In addition, the categories of equipment
expense and occupancy expense increased by $471 (or 28.5%) and $190 (or 13.9%),
respectively, from 2005 to 2004.
However, as a percentage of average total assets, non-interest expense
decreased to 2.97% in 2005, compared to 3.15% in 2004.  The following table provides non-interest
expense, and non-interest expense to average total assets for the periods
indicated.

|                                             |  |                                 |        |      |   |        |   |   |        |  
|-------------------------------------------- |  | ------------------------------- | ------ | ---- | - | ------ | - | - | ------ | -
|                                             |  | For the Years ended December 31 |       
|                                             |  |                                 |       
|                                             |  | 2005                            |        | 2004 |   | 2003   |  
|                                             |  |                                 |        |      |   |        |  
|Salaries and employee benefits               |  | $                               | 13,400 |      | $ | 11,129 |   | $ | 10,324 |  
|Occupancy                                    |  |                                 | 1,558  |      |   | 1,368  |   |   | 1,237  |  
|Equipment expense                            |  |                                 | 2,124  |      |   | 1,653  |   |   | 1,624  |  
|Federal insurance assessments                |  |                                 | 244    |      |   | 229    |   |   | 212    |  
|Intangible assets amortization               |  |                                 | 324    |      |   | 208    |   |   | 208    |  
|Data processing                              |  |                                 | 870    |      |   | 747    |   |   | 706    |  
|Advertising                                  |  |                                 | 770    |      |   | 743    |   |   | 449    |  
|Postage                                      |  |                                 | 431    |      |   | 401    |   |   | 391    |  
|Property taxes                               |  |                                 | 414    |      |   | 382    |   |   | 316    |  
|Supplies                                     |  |                                 | 378    |      |   | 290    |   |   | 254    |  
|Other real estate owned income               |  |                                 | (21    | )    |   | (171   | ) |   | (1     | )
|Other operating expense                      |  |                                 | 2,761  |      |   | 2,524  |   |   | 2,503  |  
|                                             |  |                                 |        |      |   |        |   |   |        |  
|                                             |  |                                 |        |      |   |        |  
|Total non-interest expense                   |  | $                               | 23,253 |      | $ | 19,503 |   | $ | 18,223 |  
|                                             |  |                                 |        |      |   |        |   |   |        |  
|                                             |  |                                 |        |      |   |        |   |   |        |  
|Non-interest expense to average total assets |  |                                 | 2.97   | %    |   | 3.15   | % |   | 3.05   | %

Total
non-interest expense increased to $19,503 in 2004 from $18,223 in 2003 (an
increase of $1,280 or 7.0%).  As a
percentage of average total assets, non-interest expense increased to 3.15% in
2004, compared to 3.05% in 2003.  The
majority of the increase was in salaries and benefits, which increased $805 (or
7.8%) during the past year.  This increase
is a result of normal salary increases and increased employee benefit expenses.  The Company also incurred additional
advertising expenses, resulting from the promotion of the subsidiary banks
Absolutely Free Checking account product.
This is reflected in advertising expenses, which increased $294 (or
65.5%) in 2004 compared to 2003.

Income taxes. Income tax expense totaled
$2,258 in 2005, $2,214 in 2004 and $2,521 in 2003.  The effective tax rates were 23.0%, 24.4% and 27.6% for the
respective years then ended.  The lower
effective tax rate in 2005 was primarily due to an increase in the amount of
interest income earned from municipal (tax-exempt) securities.

32

---



Analysis of Financial Condition

Loans. The Company's loan portfolio
largely
reflects the profile of the communities in which it operates.  The Company essentially offers four types of
loans: agricultural, commercial, real estate and consumer installment.  The Company has no foreign loans.  The following table
summarizes the Company's
loan portfolio:

|                      |  |             |         |            |  |        |   |            |         |        |  |             |   |        |         |             |  |        |   |             |         |  |  |       |   |   |         |  |  |       |  
|--------------------- |  | ----------- | ------- | ---------- |  | ------ | - | ---------- | ------- | ------ |  | ----------- | - | ------ | ------- | ----------- |  | ------ | - | ----------- | ------- |  |  | ----- | - | - | ------- |  |  | ----- | -
|                      |  | December 31 |        
|                      |  |             |        
|                      |  | 2005        |         | 2004       |  | 2003   |   | 2002       |         | 2001   | 
|                      |  | Amount      |         | % of Total |  | Amount |   | % of Total |         | Amount |  | % of  Total |   | Amount |         | % of  Total |  | Amount |   | % of  Total |        
|                      |  |             |         |            |  |        |   |            |         |        |  |             |   |        |         |             |  |        |   |             |        
|                     
|Agricultural          |  | $           | 73,884  |            |  | 12.7   | % | $          | 42,063  |        |  | 10.3        | % | $      | 42,954  |             |  | 11.2   | % | $           | 38,656  |  |  | 10.8  | % | $ | 37,282  |  |  | 11.2  | %
|Commercial            |  |             | 114,342 |            |  | 19.7   |   |            | 96,390  |        |  | 23.5        |   |        | 80,711  |             |  | 21.1   |   |             | 73,169  |  |  | 20.5  |   |   | 56,137  |  |  | 16.9  |  
|Real Estate           |  |             |         |            |  |        |   |            |         |        |  |             |   |        |         |             |  |        |   |             |         |  |  |       |   |   |         |  |  |       |  
|1-4 family residences |  |             | 138,959 |            |  | 23.9   |   |            | 76,644  |        |  | 18.7        |   |        | 66,070  |             |  | 17.2   |   |             | 62,265  |  |  | 17.4  |   |   | 64,011  |  |  | 19.2  |  
|Agricultural          |  |             | 56,069  |            |  | 9.6    |   |            | 39,688  |        |  | 9.7         |   |        | 38,683  |             |  | 10.1   |   |             | 35,806  |  |  | 10.0  |   |   | 37,354  |  |  | 11.2  |  
|Construction          |  |             | 37,286  |            |  | 6.4    |   |            | 17,271  |        |  | 4.2         |   |        | 13,302  |             |  | 3.5    |   |             | 10,223  |  |  | 2.9   |   |   | 10,069  |  |  | 3.0   |  
|Commercial            |  |             | 113,110 |            |  | 19.4   |   |            | 105,073 |        |  | 25.6        |   |        | 107,672 |             |  | 28.1   |   |             | 101,353 |  |  | 28.4  |   |   | 87,746  |  |  | 26.3  |  
|                      |  |             |         |            |  |        |   |            |         |        |  |             |   |        |         |             |  |        |   |             |         |  |  |       |   |   |         |  |  |       |  
|Real Estate Total     |  |             | 345,424 |            |  | 59.3   |   |            | 238,676 |        |  | 58.2        |   |        | 225,727 |             |  | 58.9   |   |             | 209,647 |  |  | 58.7  |   |   | 199,180 |  |  | 59.7  |  
|Installment           |  |             | 48,074  |            |  | 8.3    |   |            | 32,915  |        |  | 8.0         |   |        | 33,661  |             |  | 8.8    |   |             | 35,887  |  |  | 10.0  |   |   | 40,800  |  |  | 12.2  |  
|                      |  |             |         |            |  |        |   |            |         |        |  |             |   |        |         |             |  |        |   |             |         |  |  |       |   |   |         |  |  |       |  
|Total loans           |  | $           | 581,724 |            |  | 100.0  | % | $          | 410,044 |        |  | 100.0       | % | $      | 383,053 |             |  | 100.0  | % | $           | 357,359 |  |  | 100.0 | % | $ | 333,399 |  |  | 100.0 | %
|                      |  |             |         |            |  |        |   |            |         |        |  |             |   |        |         |             |  |        |   |             |         |  |  |       |   |   |         |  |  |       |  
|                     
|Total assets          |  | $           | 945,263 |            |  |        |   | $          | 655,738 |        |  |             |   | $      | 609,737 |             |  |        |   | $           | 587,375 |  |  |       |   | $ | 555,325 |  |  |       |  
|Loans to total assets |  |             |         |            |  | 61.6   | % |            |         |        |  | 62.5        | % |        |         |             |  | 62.8   | % |             |         |  |  | 60.8  | % |   |         |  |  | 60.0  | %

Total
loans increased $171.8 million (or 41.9%) in 2005 as compared to an increase of
$27.0 million (7.0%) in 2004.
Approximately $113.8 million of this increase comes from the Somonauk
acquisition.  The remaining increase of
approximately $58.0 million reflects business expansion in growth markets
served by the subsidiary bank in 2005 as well as expansion of relationship
banking in all markets.            Commercial
loans increased $18.0 million (or 18.7%) in 2005, which compares to an increase
of $15.7 million (or 19.4%) in 2004.
Approximately $5.5 million of this increase comes from the Somonauk
acquisition.  Building relationships
with commercial businesses has been the largest component of loan growth in
recent years.  Increases occurred in
both higher growth areas and established markets served by the subsidiary
bank.   Competition for high-quality
commercial and agricultural customers remains strong.

Loans
to agricultural operations increased $31.8 million (or 75.5%) in 2005, which
compares to a decrease of $0.9 million (or 2.1%) in 2004. Approximately $26.0
million of this increase comes from the Somonauk acquisition.  Short-term agricultural loans are seasonal
in nature, with paydowns from grain sales occurring near the end of each
year.  Much of the Companys market area
received below normal rainfall during the 2005 growing season. This correspondingly
caused yields to be below average for most corn and soybean producers.  Costs of farm inputs are heavily influenced
by oil prices.  The sharp increase in
oil prices increased costs of Ag producers in the second half of 2005.  The combination of these factors reduced
production agriculture cash flow in 2005.
This cash flow stress was somewhat mitigated, from a risk standpoint, by
crop insurance and continued increases in farmland values. The
highly-experienced agricultural staff continues to effectively manage risk in
this portfolio.  Agricultural loans, as
a percentage of total loans, were 12.7% at year-end 2005, compared to 10.3% at
year-end 2004.

Real
estate loans increased $106.7 million (or 44.7%) in 2005 compared to an
increase of $12.9 million (or 5.7%) in 2004.
Approximately $70.3 million of this increase comes from the Somonauk
acquisition.  The Somonauk real estate
portfolio was comprised primarily of residential and agricultural real estate
loans.  Organic real estate loan growth
was focused primarily on residential and construction loans.  Adjustable rate mortgages are generally held
in the subsidiary banks portfolio, while fixed rate residential real estate
loans of more than 5 years are generally sold into the secondary market.  The Company retains the servicing of these
sold loans, maintaining the local relationship with customers and generating
servicing fee income.  Total home
mortgage closings were over $85 million in 2005.

Consumer
installment loans increased $15.2 million (or 46.2%) in 2005 from 2004.  This follows a decrease of $0.7 million (or
2.2%) in 2004. Approximately $11.9 million of this increase comes from the
Somonauk acquisition.  Organic growth of
$3.3 million was primarily in home equity loans.  Home equity loans increased $5.5 million in 2005 and comprised
47% of the installment total.

Although
the risk of non-payment for any reason exists with respect to all loans,
certain other more specific risks are associated with each type of loan. The
primary risks associated with commercial loans are quality of the borrower's
management and the impact of national and regional economic factors. With
respect to agricultural loans, the primary risk factors are weather and, like
commercial loans, the quality of the borrower's management.  Risks associated with real estate loans
include concentrations of loans in a loan type, such as commercial or
agricultural, and fluctuating land values.
Installment loans also have risks associated with concentrations of
loans in a single type of loan.  Installment
loans additionally carry the risk of a borrowers unemployment as a result of
deteriorating economic conditions.

The
Company's strategy with respect to addressing and managing these types of
risks, whether loan demand is weak or strong, is for the subsidiary bank to
follow its conservative loan policies and underwriting practices, which include
(i) granting loans on a sound and collectible basis, (ii) investing funds
profitably for the benefit of the stockholders and the protection of depositors,
(iii) serving the legitimate needs of the community and the subsidiary banks
general market area while obtaining a balance between maximum yield and minimum
risk, (iv) ensuring that primary and secondary sources of repayment are
adequate in relation to the amount of the loan, (v) administering loan policies
through a Directors' Loan Committee and Officer  approvals,  (vi)
developing and maintaining adequate diversification of the loan portfolio as a
whole and of the loans within each loan category, and (vii) ensuring that each
loan is properly documented and, if appropriate, secured or guaranteed by
government agencies, and that insurance coverage is adequate, especially with
respect to certain agricultural loans, because of the risk of poor weather.

33

---



Managements Discussion and Analysis of
Financial Condition and Results of Operations(Continued)(dollar amounts
in thousands except share data)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Non-performing
  Loans and Other Real Estate Owned.Non-performing loans
  amounted to .66% of total loans at year-end 2005 compared to .08% at year-end
  2004. Problem credits are closely monitored by the lending staff and an
  independent loan review staff provides further assistance in identifying
  problem situations. Loans over 90 days past due are normally either charged
  off or, if well-secured and in the process of collection, placed on a
  non-accrual status. Problem credits have a life cycle. They either improve or
  they move through a workout/liquidation process. The workout process often
  includes non-accrual status. In 2005, more of the Companys problem credits
  were in this category. The allowance for possible loan losses was 81.3% and
  769.5% of non-performing loans at year-end 2005 and 2004, respectively. The
  Company does not have any significant concentration of commercial real estate
  loans or commitments in areas which are experiencing deteriorating economic
  conditions. Given the noted increases in non-accrual dollars and classified
  assets in the fourth quarter of 2005, management assessed the situation of specific
  non-performing credits and opted not to increase the allowance for loan
  losses, due to the historical performance of the overall loan portfolio, the
  strong collateral values and the fact all substandard credits being closely
  monitored on a monthly basis. Total other real estate owned as of December
  31, 2005 was $468. The Company had $0 in other real estate owned as of
  December 31, 2004. The following table provides information on the Companys
  non-performing loans since 2001:

| |                                                                  |  |             |       |      |   |      |   |      |      |      |   |       |   |   |       |  
| | ---------------------------------------------------------------- |  | ----------- | ----- | ---- | - | ---- | - | ---- | ---- | ---- | - | ----- | - | - | ----- | -
| |                                                                  |  | December 31 |      
| |                                                                  |  |             |      
| |                                                                  |  | 2005        |       | 2004 |   | 2003 |   | 2002 |      | 2001 |  
| |                                                                  |  |             |       |      |   |      |   |      |      |      |   |       |   |   |       |  
| | Non-accrual                                                      |  | $           | 3,822 |      | $ | 328  |   | $    | 925  |      | $ | 3,797 |   | $ | 5,676 |  
| | 90 days past due and accruing                                    |  |             | 3     |      |   | -0-  |   |      | 44   |      |   | 23    |   |   | 42    |  
| | Restructured                                                     |  |             | -0-   |      |   | -0-  |   |      | -0-  |      |   | -0-   |   |   | -0-   |  
| |                                                                  |  |             |       |      |   |      |   |      |      |      |   |       |   |   |       |  
|
| | Total non-performing loans                                       |  | $           | 3,825 |      | $ | 328  |   | $    | 969  |      | $ | 3,820 |   | $ | 5,718 |  
| |                                                                  |  |             |       |      |   |      |   |      |      |      |   |       |   |   |       |  
| | Non-performing loans to total loans (net of unearned
  interest) |  |             | 0.66  | %    |   | 0.08 | % |      | 0.25 | %    |   | 1.07  | % |   | 1.72  | %

| |                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As
  of December 31, 2005 and 2004, loans about which the Companys management had
  serious doubts as to the ability of borrowers to comply with loan repayment
  terms not carried as non-performing loans totaled approximately $554 (or .09%
  of the total loan portfolio), and $555 (or .13% of the total loan portfolio),
  respectively.
| |                                                                                                                                                                                                                                                                                                                                                 
| | Allowance
  for Loan Losses.The allowance shown in the following table
  represents the allowance available to absorb losses within the entire
  portfolio:                                                                                                                                                                                     

| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| | ------------------------------------------------------------------------------------ |  | ------------------------------- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | -
| |                                                                                      |  | For the Years Ended December 31 |        
| |                                                                                      |  |                                 |        
| |                                                                                      |  | 2005                            |         | 2004 |   | 2003    |   | 2002 |         | 2001 |  
| | Amount of loans outstanding at end of year (net of
  unearned interest)              |  | $                               | 581,812 |      | $ | 410,044 |   | $    | 383,053 |      | $ | 357,359 |   | $ | 333,399 |  
| | Average amount of loans outstanding for the year (net of
  unearned interest)        |  | $                               | 483,187 |      | $ | 390,198 |   | $    | 368,949 |      | $ | 344,490 |   | $ | 343,175 |  
| | Allowance for loan losses at beginning of year                                       |  | $                               | 2,524   |      | $ | 2,250   |   | $    | 2,660   |      | $ | 2,300   |   | $ | 2,660   |  
| | Allowance of bank acquired                                                           |  |                                 | 752     |      |   | -0-     |   |      | -0-     |      |   | -0-     |   |   | -0-     |  
| | Charge-offs:                                                                         |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| | Agricultural                                                                         |  |                                 | -0-     |      |   | -0-     |   |      | 106     |      |   | 5       |   |   | -0-     |  
| | Commercial                                                                           |  |                                 | 85      |      |   | 54      |   |      | 479     |      |   | 338     |   |   | 726     |  
| | Real estate-mortgage                                                                 |  |                                 | 10      |      |   | 3       |   |      | 45      |      |   | 2       |   |   | 29      |  
| | Installment                                                                          |  |                                 | 252     |      |   | 301     |   |      | 448     |      |   | 389     |   |   | 723     |  
| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |  
| | Total charge-offs                                                                    |  |                                 | 347     |      |   | 358     |   |      | 1,078   |      |   | 734     |   |   | 1,478   |  
| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| | Recoveries:                                                                          |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| | Agricultural                                                                         |  |                                 | -0-     |      |   | -0-     |   |      | -0-     |      |   | -0-     |   |   | -0-     |  
| | Commercial                                                                           |  |                                 | 2       |      |   | 54      |   |      | 6       |      |   | 185     |   |   | 4       |  
| | Real estate-mortgage                                                                 |  |                                 | -0-     |      |   | 4       |   |      | 4       |      |   | 30      |   |   | -0-     |  
| | Installment                                                                          |  |                                 | 178     |      |   | 199     |   |      | 198     |      |   | 236     |   |   | 319     |  
| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| | Total recoveries                                                                     |  |                                 | 180     |      |   | 257     |   |      | 208     |      |   | 451     |   |   | 323     |  
| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| | Net loans charged off                                                                |  |                                 | 167     |      |   | 101     |   |      | 870     |      |   | 283     |   |   | 1,155   |  
| | Provision for loan losses                                                            |  |                                 | -0-     |      |   | 375     |   |      | 460     |      |   | 643     |   |   | 795     |  
| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |  
| | Allowance for loan losses at end of year                                             |  | $                               | 3,109   |      | $ | 2,524   |   | $    | 2,250   |      | $ | 2,660   |   | $ | 2,300   |  
| |                                                                                      |  |                                 |         |      |   |         |   |      |         |      |   |         |   |   |         |  
| | Net loans charged off to average loans                                               |  |                                 | 0.03    | %    |   | 0.03    | % |      | 0.24    | %    |   | 0.08    | % |   | 0.34    | %
| | Allowance for loan losses to non-performing
loans                                    |  |                                 | 81.28   | %    |   | 769.51  | % |      | 232.20  | %    |   | 69.63   | % |   | 40.22   | %
| | Allowance for loan losses to total loans at end of year
  (net of unearned interest) |  |                                 | 0.53    | %    |   | 0.62    | % |      | 0.59    | %    |   | 0.74    | % |   | 0.69    | %

34

---



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  allowance for loan losses is considered by management to be a critical
  accounting policy. The allowance for loan losses is increased by provisions
  charged to operating expense and decreased by charge-offs, net of recoveries,
  and is available to absorb probable losses on loans. The allowance is based
  on factors that include the overall composition of the loan portfolio, types
  of loans, past loss experience, loan delinquencies, potential substandard and
  doubtful loans, underlying collateral, and such other factors that, in
  managements best judgment, deserve evaluation in estimating loan losses. The
  adequacy of the allowance for loan losses is monitored monthly during the
  ongoing, systematic review of the loan portfolio by the loan review staff of
  the audit department of the subsidiary bank. The results of these reviews are
  reported to the Board of Directors of the subsidiary bank on a monthly basis.
  Monitoring and addressing problem loan situations are primarily the
  responsibility of the subsidiary banks staff, management and its Board of
  Directors.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | More
  specifically, the Company calculates the appropriate level of the allowance
  for loan losses on a monthly basis using historical charge-offs for each loan
  type, substandard loans, and losses with respect to specific loans. In
  addition to managements assessment of the portfolio, the Company and the
  subsidiary bank are examined periodically by regulatory agencies. Such
  agencies review the procedures and policies followed by management of the
  subsidiary bank in establishing the allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Net
  charge-offs were .03% of average total loans in 2005. The allowance for loan
  losses at year-end 2005 was $3,109, 0.53% of total loans, net of unearned
  interest, and 81.28% of non-performing loans. Non-performing loans are
  comprised of credits that management believes will not result in significant
  losses to the Company. There were $111 in specific loan loss reserves for the
  non-performing or impaired loans as of December 31, 2005. Management
  considers the allowance for loan losses adequate to absorb probable losses as
  of December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Investment Securities. The objectives of
  the investment portfolio are to provide the subsidiary bank with a source of
  earnings and liquidity. The following table provides information on the book
  value of investment securities as of the dates indicated:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                       |  |             |         |      |   |         | 
| | ------------------------------------- |  | ----------- | ------- | ---- | - | ------- | 
| |                                       |  | December 31 |        
| |                                       |  |             |        
| |                                       |  | 2005        |         | 2004 |  
| | U.S. Treasuries                       |  | $           | 1,513   |      | $ | -0-     | 
| | U.S. Government Agencies              |  |             | 61,843  |      |   | 38,628  | 
| | State and Municipal                   |  |             | 108,310 |      |   | 70,630  | 
| | Collateralized mortgage
  obligations |  |             | 76,476  |      |   | 76,899  | 
| | Other securities                      |  |             | 3,344   |      |   | 2,652   | 
| |                                       |  |             |         |      |   |         | 
| |                                       |  |             |         |      |  
| | Total                                 |  | $           | 251,486 |      | $ | 188,809 | 
| |                                       |  |             |         |      |   |         | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Total
  investment securities increased by $62.7 million during 2005 to $251.5
  million at December 31, 2005. Investments increased by approximately $82.8
  million as a result of the Somonauk acquisition. Total investment balances
  were $275.5 million as of August 31, 2005. As loan demand continued to be
  strong throughout the remaining four months of 2005, deposit pricing
  increased dramatically. Many investments that matured over this time period
  were used to meet liquidity demands rather than being re-invested.
  Additionally, some securities were sold during the fourth quarter to better
  position the portfolio. Overall, the yield on taxable investment securities
  improved from 3.04% in 2004, to 3.50% in 2005, while the taxable equivalent
  yield on tax-exempt securities decreased from 6.79% in 2004 to 6.73% in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Total
  investment securities increased by $18.9 million to $188.8 million at
  December 31, 2004. This increase was fueled by the influx of new deposits and
  a slower increase in loan demand. Based on favorable interest rate spreads
  and the demand for pledging, the following securities were added to the
  portfolio in 2004: U.S. Government Agencies in the amount of $4.8 million,
  municipal issues in the amount of $7.2 million and CMOs totaling $8.8
  million. The yield on taxable investment securities improved to 3.04% in
  2004, from 2.65% in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Deposits. Total deposits increased in
  2005 by approximately $225 million, a 39% increase over 2004. During 2005,
  the Company attracted new core deposits totaling $32.3 million and added
  $192.7 million from the Somonauk acquisition. Time deposits represented an
  increase of $114.2 million, a 46% increase over the prior year, largely due
  to customers continuing their prior year trend of beginning to invest in term
  accounts rather than liquid accounts, as well as the Somonauk acquisition
  (approximately $74.4 million). Interest-bearing demand accounts increased
  $31.4 million, a 16% increase over 2004. Non-interest bearing demand accounts
  showed an increase of $28.6 million. Regular savings accounts represented an
  increase of approximately $50.8 million, which is an increase of 86.6% over
  prior year. The increases in savings accounts results were due to the
  acquisition (approximately $20.9 million) and an increase in our passbook IRA
  portfolio of $27.3 million as a result of further developing customer
  relationships and customers investing their retirement funds in secure
  investments. The average rate for overall deposits increased .49% in 2005,
  primarily as a result of lower rate certificates maturing and repricing.
  Also, liquid account pricing stayed relatively flat, with the exception of
  the portfolio of $56.6 million in money market investments being offered at
  slightly higher rates.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Over
  the last three years, the subsidiary bank has seen overall deposits increase
  56.2%. The increase in consumer deposits reflects our continued focus on investing
  in offices in high-growth areas and continued focus of officers calling on
  customers and potential customers through our officer call program to develop
  deposit relationships. This growth also reflects the well-trained staff that
  looks to assist customers by identifying needs and providing sound solutions.
  There continues to be considerable interest in the alternative delivery
  mechanisms, such as ATMs, Internet Banking with Bill Payment and Telebanker
  as convenient means for customers to better manage their money, maximize
  return, and have peace of mind by dealing safely and securely with only one
  financial institution. Due to the diversity within our various market areas,
  such delivery mechanisms will continue to position us well for the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The
  following table sets forth the classification of deposits with year-end
  balances and the average rates paid for the periods indicated:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                             |  |                                 |         |      |  |         |   |      |         |         |  |      |   |   |         |  |  |      |  
| | --------------------------- |  | ------------------------------- | ------- | ---- |  | ------- | - | ---- | ------- | ------- |  | ---- | - | - | ------- |  |  | ---- | -
| |                             |  | For the Years Ended December 31 |        
| |                             |  |                                 |        
| |                             |  | 2005                            |         | 2004 |  | 2003    |  
| |                             |  | Balance                         |         | Rate |  | Balance |   | Rate |         | Balance |  | Rate |  
| |                             |  |                                 |         |      |  |         |   |      |         |         |  |      |  
| | Non-interest bearing demand |  | $                               | 103,622 |      |  | n/a     |   | $    | 75,015  |         |  | n/a  |   | $ | 65,418  |  |  | n/a  |  
| | Interest-bearing demand     |  |                                 | 222,675 |      |  | 1.54    | % |      | 191,271 |         |  | 1.10 | % |   | 179,805 |  |  | 1.22 | %
| | Savings                     |  |                                 | 109,491 |      |  | 0.31    |   |      | 58,675  |         |  | 0.35 |   |   | 57,151  |  |  | 0.54 |  
| | Time deposits               |  |                                 | 362,770 |      |  | 3.49    |   |      | 248,600 |         |  | 2.70 |   |   | 235,453 |  |  | 3.18 |  
| |                             |  |                                 |         |      |  |         |   |      |         |         |  |      |   |   |         |  |  |      |  
| |                             |  |                                 |        
| | Total                       |  | $                               | 798,558 |      |  | 2.06    | % | $    | 573,561 |         |  | 1.57 | % | $ | 537,827 |  |  | 1.86 | %
| |                             |  |                                 |         |      |  |         |   |      |         |         |  |      |   |   |         |  |  |      |  

35

---



|                                                         
|---------------------------------------------------------
|Managements
Discussion and Analysis of                  
|Financial
Condition and Results of Operations (Continued)
|(dollar amounts in thousands
except share data)          

The
following table summarizes time deposits in amounts of $100 or more by time
remaining until maturity as of December 31, 2005. These time deposits are made
by individuals, corporations and public entities: Three months or less

$
34,520Over three months through six
  months


22,697Over six months through one year


29,742Over one year


18,632Total

$
105,591 Liquidity. Liquidity is measured by a
financial institutions ability to raise funds through deposits, borrowed
funds, capital, or the sale of assets. Additional sources of liquidity,
including cash flow from both the repayment of loans and the securitization of
assets, are also considered in determining whether liquidity is satisfactory.
The funds are used to meet deposit withdrawals, maintain reserve requirements,
fund loans, purchase treasury shares, and operate the organization. Liquidity
is achieved through growth of core funds (defined as core deposits, 50% of
non-public entity certificates of deposit over $100, and repurchase agreements
issued to commercial customers) and liquid assets, and accessibility to the
money and capital markets. The Company and the subsidiary bank have access to
short-term funds through their correspondent banks, as well as access to the
Federal Home Loan Bank of Chicago, which can provide longer-term funds to help
meet liquidity needs. The
ratio of temporary investments and other short-term available funds (those
investments maturing within one year plus twelve months projected payments on
mortgage-backed securities and collateralized mortgage obligations, and cash
and due from banks balances) to volatile liabilities (50% of non-public entity
certificates of deposit over $100, repurchase agreements issued to public
entities, Treasury tax and loan deposits, short-term borrowings from banks, and
deposits of public entities) was 38.9% at December 31, 2005 and 44.1% at
December 31, 2004. Core deposits (demand deposits, interest-bearing checking
accounts, total savings, and certificates of deposit less than $100, were 88.2%
of total deposits at December 31, 2005 and 86.9% of total deposits at December
31, 2004. Money market accounts of approximately $113.8 million at December 31,
2005 are classified by the Company as core deposits. In
2005, the Company experienced a net increase of $9.7 million in cash and cash
equivalents. Investing activities (consisting mostly of a net increase in loans
of $57.1 million and the net purchase of Somonauk FSB Bancorp, Inc. of $43.6
million) used $87.2 million of the Companys funds. Financing activities,
consisting of a net increase in deposits of $43.1 million, the issuance of
trust preferred securities of $25.0 million, the issuance of common stock of
$10.0 million, and a net increase in borrowings of $17.6 million offset by
treasury stock purchases of $3.2 million, and dividend payments of $3.3
million, provided the Company with $90.3 million. Additionally, operating
activities provided the Company with $6.5 million. Cash and cash equivalents of
$23.7 million at December 31, 2005, along with established lines of credit, are
deemed more than adequate to meet short-term liquidity needs. In
2004, the Company experienced a net decrease of $2.3 million in cash and cash
equivalents. Investing activities (consisting of a net increase in loans of
$27.1 million, a net increase in investments of $20.8 million and purchases of
premises and equipment of $4.6 million) used $51.8 million of the Companys
funds. Financing activities, consisting of a net increase in deposits of $35.7
million and a net increase in borrowings of $9.4 million offset by treasury
stock purchases of $2.9 million, and dividend payments of $3.0 million,
provided the Company with $40.1 million. Additionally, operating activities
provided the Company with $9.4 million. The long-term liquidity needs of the Company
will be driven by the necessity to grow and change in the marketplace to meet
the needs of its customers and to offset strategies of its competitors. The
Companys equity base, coupled with common stock available for issuance and a
low level of debt, provide several options for future financing. Asset-Liability Management. The Company
actively manages its assets and liabilities through coordinating the levels of
interest rate sensitive assets and liabilities to minimize changes in net interest
income, despite changes in market interest rates. The Company defines interest
rate sensitive assets and liabilities as any instruments that can be repriced
within 180 days, either because the instrument will mature during the period or
because it carries a variable interest rate. Changes in net interest income
occur when interest rates on loans and investments change in a different time
period from changes in interest rates on liabilities, or when the mix and
volume of earning assets and interest-bearing liabilities change. The interest
rate sensitivity gap represents the dollar amount of difference between rate
sensitive assets and rate sensitive liabilities within a given time period
(GAP). A GAP ratio is determined by dividing rate sensitive assets by rate
sensitive liabilities. A ratio of 1.0 indicates a perfectly matched position,
in which case the effect on net interest income due to interest rate movements
would be zero. The
Companys strategy with respect to asset-liability management is to maximize
net interest income while limiting the Companys exposure to risks associated
with volatile interest rates. The subsidiary banks Funds Management Committee
is responsible for monitoring the GAP position. As a general rule, the
subsidiary banks policy is to maintain GAP as a percent of total assets within
a range from +20% to -20% in any given time period. Based on the simulation of
various rising or falling interest rate scenarios in comparison to one
considered to be the most likely interest rate scenario, management seeks to
operate with net interest income within a range of +10% to -10% of budgeted net
interest income during any twelve-month period. The Company also performs an
interest rate risk analysis, on a monthly basis, on the assets and liabilities
of the subsidiary bank. This analysis applies an immediate shift in interest
rates of up to +300 basis points and -300 basis points to the assets and
liabilities to determine the impact on the net interest income and net income
of the subsidiary bank, when compared to a flat rate scenario. This analysis
also does not take into account any other balance sheet management plans that
may be implemented should such rapid interest rate movement occur. For the
December 31, 2004 analysis, the down 200 and 300 basis point analyses were not
meaningful, given the low interest rate environment at that time. The
following table shows the estimated changes to net interest income from the
base scenario as of December 31, 2005 and 2004: Change in

Estimated Net Interest IncomeInterest Rate

2005

% of change

2004

% of change300 basis point rise

$
35,382



2.39
%

$
25,127



6.68
%200 basis point rise


35,263



2.04



24,536



4.17100 basis point rise


34,996



1.27



23,796



1.03Base scenario


34,557







23,554



100 basis point decline


34,044



-1.48



21,441



-8.97200 basis point decline


33,398



-3.35



n/a



300 basis point decline


32,623



-5.60



n/a






36

---



Contractual Obligations and Off-Balance
Sheet
Arrangements. As disclosed in the Notes to Consolidated Financial
Statements, the Company has certain obligations and commitments to make future
payments under contracts. At December 31, 2005, the aggregate contracted
obligations (excluding bank deposits) and commercial commitments are as
follows:  Total

Less Than
  1 Year

1-3 Years

3-5 Years

Over 5
  YearsContractual Obligations:Customer repurchase
arrangements

$
29,375

$
29,375

$
-0-

$
-0-

$
-0-Advances from the Federal Home Loan
Bank


8,346


1,400


6,000


946


-0-Federal funds purchased


1,000


1,000


-0-


-0-


-0-Interest-bearing demand notes issued to
the U.S. Treasury


2,154


2,154


-0-


-0-


-0-Trust preferred securities


25,000


-0-


-0-


-0-


25,000Note payable


6,700


6,700


-0-


-0-


-0-Total

$
72,575

$
40,629

$
6,000

$
946

$
25,000Off-Balance Sheet Arrangements:Commitments to lend

$
118,128

$
118,128

$
-0-

$
-0-

$
-0-Standby letters of credit


8,564


8,564


-0-


-0-


-0-Total

$
126,692

$
126,692

$
-0-

$
-0-

$
-0-  December 31, 20050-3 mo.

4-12 mo.

1-3 yrs.

over 3 yrs.

TotalInterest-earning assets:Interest-bearing deposits

$
110

$
-0-

$
-0-

$
-0-

$
110Taxable investment securities


12,756


19,997


62,237


48,186


143,176Tax-exempt investment
securities


782


2,063


6,401


99,064


108,310Loans


203,833


135,999


131,950


112,529


584,311Total rate sensitive assets
(RSA)

$
217,481

$
158,059

$
200,588

$
259,779

$
835,907Interest-bearing liabilities:Interest-bearing demand
deposits

$
222,675

$
-0-

$
-0-

$
-0-

$
222,675Savings deposits


109,491


-0-


-0-


-0-


109,491Time deposits


98,358


185,344


72,263


6,805


362,770Customer repurchase agreements


29,375


-0-


-0-


-0-


29,375Advances from Federal Home Loan
Bank


-0-


1,400


6,000


946


8,346Federal funds purchased


1,000


-0-


-0-


-0-


1,000Interest-bearing demand notes issued to
the U.S. Treasury


2,154


-0-


-0-


-0-


2,154Trust preferred securities


-0-


-0-


-0-


25,000


25,000Note payable


6,700


-0-


-0-


-0-


6,700Total rate sensitive liabilities
(RSL)

$
469,753

$
186,744

$
78,263

$
32,751

$
767,511Interest rate sensitivity GAP (RSA less RSL)

$
(252,272
)
$
(28,685
)
$
122,325

$
227,028Cumulative GAP

$
(252,272
)
$
(280,957
)
$
(158,632
)
$
68,396RSA/RSL


46.30
%

84.64
%

256.30
%

793.19
%Cumulative RSA/RSL


46.30
%

57.20
%

78.41
%

108.91
% In
the table above, interest-bearing demand deposits and savings deposits are
included as rate sensitive in the amounts reflected in the 0-3 month time
frame, as such interest-bearing liabilities are subject to immediate
withdrawal. Management
of the Company considers $54.4 million (one-half) of the interest-bearing
checking account balances and $56.9 million (one-half) of the money market
account balances (both being the components of interest-bearing demand
deposits) and all savings deposits as core, or non-rate sensitive deposits,
primarily since interest-bearing demand and savings deposits historically have
not been rate sensitive. As a general rule, the subsidiary banks policy is to
maintain RSA as a percent of RSL within a range of +70% to +120% within a
six-month time period.


37

---



Managements Discussion and Analysis of
Financial Condition and Results of Operations(Continued)(dollar amounts
in thousands except share data)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At
  December 31, 2005, savings deposits totaled approximately $109.5
  million.  If that amount, the $54.4
  million of interest-bearing checking account balances and $56.9 million in
  money market account balances reflected in the 0-3 month time frame are
  adjusted to exclude these amounts (consistent with the consideration
  mentioned in the paragraph above), rate sensitive liabilities would be
  approximately $249.0 million reducing the negative gap to approximately $31.4
  million.  RSA as a percent of RSL
  would be 87.4%.  Adjusting the
  cumulative GAP and GAP ratio for the 4-12 month time frame would result in a
  negative cumulative GAP and GAP ratio of $60.2 million, and 86.2%,
  respectively.                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Effects
  of Inflation.  The consolidated
  financial statements and related consolidated financial data presented herein
  have been prepared in accordance with
  accounting principles generally accepted in the United States of
  America and practices within the banking industry which require the
  measurement of financial condition and operating results in terms of
  historical dollars without considering the changes in the relative purchasing
  power of money over time due to inflation.
  Unlike most industrial companies, virtually all the assets and
  liabilities of a financial institution are monetary in nature.  As a result, interest rates have a more
  significant impact on a financial institutions performance than the effects
  of general levels of inflation.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Investment
  Maturities and Yields. The following table sets forth the contractual
  maturities of investment securities at December 31, 2005, and the taxable
  equivalent yields of such securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                                     |  |                       |        |                                       |  |                        |   |                              |        |        |  |       |   |        |         |  |       |      |   |   |       |  |  |   | 
| | ----------------------------------- |  | --------------------- | ------ | ------------------------------------- |  | ---------------------- | - | ---------------------------- | ------ | ------ |  | ----- | - | ------ | ------- |  | ----- | ---- | - | - | ----- |  |  | - | 
| |                                     |  | Due within
  one year |        | Due after one but
  within five years |  | Due after
  five years |   | Other
  (no stated maturity) |       
| |                                     |  |                       |        |                                       |  |                        |   |                              |       
| |                                     |  | Amount                |        | Yield                                 |  | Amount                 |   | Yield                        |        | Amount |  | Yield |   | Amount |         |  | Yield |     
| | U.S. Government Treasuries          |  | $                     | 495    |                                       |  | 3.92                   | % | $                            | 1,025  |        |  | 3.93  | % | $      | -0-     |  |       |     |   | $ | -0-   |  |  |  | 
| |                                     |  |                       |        |                                       |  |                        |   |                              |       
| | U.S. Government Agencies            |  |                       | 12,219 |                                       |  | 2.98                   |   |                              | 46,178 |        |  | 3.83  |   |        | 4,452   |  |       | 4.99 | % |   | -0-   |  |  |  | 
| |                                     |  |                       |        |                                       |  |                        |   |                              |       
| | State and Municipal                 |  |                       | 2,974  |                                       |  | 3.96                   |   |                              | 11,836 |        |  | 5.33  |   |        | 92,583  |  |       | 6.84 |   |   | -0-   |  |  |  | 
| |                                     |  |                       |        |                                       |  |                        |   |                              |       
| | Collateralized mortgage obligations |  |                       | -0-    |                                       |  |                       |   |                              | 940    |        |  | 3.55  |   |        | 76,076  |  |       | 3.92 |   |   | 151   |  |  |  | 
| |                                     |  |                       |        |                                       |  |                        |   |                              |       
| | Other (no stated maturity)          |  |                       | -0-    |                                       |  |                       |   |                              | -0-    |        |  |      |   |        | -0-     |  |       |     |   |   | 3,344 |  |  |  | 
| |                                     |  |                       |        |                                       |  |                        |   |                              |        |        |  |       |   |        |         |  |       |      |   |   |       |  |  |   | 
| |                                     |  |                       |        |                                       |  |                        |   |                              |       
| | Total                               |  | $                     | 15,688 |                                       |  | 3.20                   | % | $                            | 59,979 |        |  | 4.12  | % | $      | 173,111 |  |       | 5.51 | % | $ | 3,344 |  |  |  | 
| |                                     |  |                       |        |                                       |  |                        |   |                              |        |        |  |       |   |        |         |  |       |      |   |   |       |  |  |   | 

| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Loan Maturities. The following table sets
  forth scheduled loan repayments on agricultural, commercial and real estate
  construction loans at December 31, 2005:

| |                          |  |                       |   |                                       |  |                        |  |             |        |       |  |  |   |       |  |  |  |   |       |  |  |   |         | 
| | ------------------------ |  | --------------------- | - | ------------------------------------- |  | ---------------------- |  | ----------- | ------ | ----- |  |  | - | ----- |  |  |  | - | ----- |  |  | - | ------- | 
| |                          |  | Due within
  one year |   | Due after one but
  within five years |  | Due after
  five years |  | Non-accrual |        | Total | 
| |                          |  |                       |   |                                       |  |                        |  |             |        |       | 
| | Agricultural             |  |                       | $ | 66,643                                |  |                        |  | $           | 6,997  |       |  |  | $ | 244   |  |  |  | $ | -0-   |  |  | $ | 73,884  | 
| |                          |  |                       |   |                                       |  |                        |  |             |        |       | 
| | Commercial               |  |                       |   | 88,492                                |  |                        |  |             | 22,787 |       |  |  |   | 1,121 |  |  |  |   | 2,017 |  |  |   | 114,417 | 
| |                          |  |                       |   |                                       |  |                        |  |             |        |       | 
| | Real Estate-Construction |  |                       |   | 32,758                                |  |                        |  |             | 4,528  |       |  |  |   | -0-   |  |  |  |   | -0-   |  |  |   | 37,286  | 
| |                          |  |                       |   |                                       |  |                        |  |             |        |       |  |  |   |       |  |  |  |   |       |  |  |   |         | 
| |                          |  |                       |   |                                       |  |                        |  |             |        |       | 
| | Total                    |  |                       | $ | 187,893                               |  |                        |  | $           | 34,312 |       |  |  | $ | 1,365 |  |  |  | $ | 2,017 |  |  | $ | 225,587 | 
| |                          |  |                       |   |                                       |  |                        |  |             |        |       |  |  |   |       |  |  |  |   |       |  |  |   |         | 

| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Of
  the loans shown above, the following table sets forth loans due after one
  year which have predetermined (fixed) interest rates or adjustable (variable)
  interest rates at December 31, 2005:

| |                    |  |            |   |               |  |       |  |   |       |  |  |   |        | 
| | ------------------ |  | ---------- | - | ------------- |  | ----- |  | - | ----- |  |  | - | ------ | 
| |                    |  | Fixed rate |   | Variable rate |  | Total | 
| |                    |  |            |   |               |  |       | 
| | Due after one year |  |            | $ | 25,805        |  |       |  | $ | 9,872 |  |  | $ | 35,677 | 

| |                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Allocation of Allowance for Loan
Losses. The subsidiary bank has allocated the
  allowance for loan losses to provide for the possibility of losses being
  incurred within the categories of loans set forth in the table below.  The allocation of the allowance and the
  ratio of loans within each category to total loans at December 31 are as
  follows:

|                     |  |                    |   |                                                            |  |                    |       |                                                            |  |                    |   |                                                            |  |                    |       |                                                            |  |                    |   |                                                            |  |  |       |   |  |  |   |       |  |  |       |   |  |  |   |       |  |  |       |   | 
|-------------------- |  | ------------------ | - | ---------------------------------------------------------- |  | ------------------ | ----- | ---------------------------------------------------------- |  | ------------------ | - | ---------------------------------------------------------- |  | ------------------ | ----- | ---------------------------------------------------------- |  | ------------------ | - | ---------------------------------------------------------- |  |  | ----- | - |  |  | - | ----- |  |  | ----- | - |  |  | - | ----- |  |  | ----- | - | 
|                     |  | December 31        |  
|                     |  |                    |  
|                     |  | 2005               |   | 2004                                                       |  | 2003               |       | 2002                                                       |  | 2001               |  
|                     |  | Allowance
  amount |   | Percent
  of loans
  in each
  category
  to total
  loans |  | Allowance
  amount |       | Percent
  of loans
  in each
  category
  to total
  loans |  | Allowance
  amount |   | Percent
  of loans
  in each
  category
  to total
  loans |  | Allowance
  amount |       | Percent
  of loans
  in each
  category
  to total
  loans |  | Allowance
  amount |   | Percent
  of loans
  in each
  category
  to total
  loans | 
|                     |  |                    |   |                                                            |  |                    |       |                                                            |  |                    |   |                                                            |  |                    |       |                                                            |  |                    |   |                                                            | 
|Agricultural         |  |                    | $ | 1,011                                                      |  |                    | 12.7  | %                                                          |  |                    | $ | 656                                                        |  |                    | 10.3  | %                                                          |  |                    | $ | 687                                                        |  |  | 11.2  | % |  |  | $ | 706   |  |  | 10.8  | % |  |  | $ | 466   |  |  | 11.2  | % | 
|                     |  |                    |  
|Commercial           |  |                    |   | 890                                                        |  |                    | 19.7  |                                                            |  |                    |   | 770                                                        |  |                    | 23.5  |                                                            |  |                    |   | 692                                                        |  |  | 21.1  |   |  |  |   | 972   |  |  | 20.5  |   |  |  |   | 537   |  |  | 16.9  |   | 
|                     |  |                    |  
|Real estate-mortgage |  |                    |   | 420                                                        |  |                    | 59.3  |                                                            |  |                    |   | 193                                                        |  |                    | 58.2  |                                                            |  |                    |   | 178                                                        |  |  | 58.9  |   |  |  |   | 222   |  |  | 58.7  |   |  |  |   | 361   |  |  | 59.7  |   | 
|                     |  |                    |  
|Installment          |  |                    |   | 484                                                        |  |                    | 8.3   |                                                            |  |                    |   | 359                                                        |  |                    | 8.0   |                                                            |  |                    |   | 466                                                        |  |  | 8.8   |   |  |  |   | 549   |  |  | 10.0  |   |  |  |   | 645   |  |  | 12.2  |   | 
|                     |  |                    |  
|Unallocated          |  |                    |   | 304                                                        |  |                    | n/a   |                                                            |  |                    |   | 546                                                        |  |                    | n/a   |                                                            |  |                    |   | 227                                                        |  |  | n/a   |   |  |  |   | 211   |  |  | n/a   |   |  |  |   | 291   |  |  | n/a   |   | 
|                     |  |                    |   |                                                            |  |                    |       |                                                            |  |                    |   |                                                            |  |                    |       |                                                            |  |                    |   |                                                            |  |  |       |   |  |  |   |       |  |  |       |   |  |  |   |       |  |  |       |   | 
|                     |  |                    |  
|Total                |  |                    | $ | 3,109                                                      |  |                    | 100.0 | %                                                          |  |                    | $ | 2,524                                                      |  |                    | 100.0 | %                                                          |  |                    | $ | 2,250                                                      |  |  | 100.0 | % |  |  | $ | 2,660 |  |  | 100.0 | % |  |  | $ | 2,300 |  |  | 100.0 | % | 
|                     |  |                    |   |                                                            |  |                    |       |                                                            |  |                    |   |                                                            |  |                    |       |                                                            |  |                    |   |                                                            |  |  |       |   |  |  |   |       |  |  |       |   |  |  |   |       |  |  |       |   | 

38

---



Quarterly Results of Operations(dollars in thousands except share
data)

| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  following table sets forth certain unaudited income and expense and share
  data on a quarterly basis for the three-month periods indicated:

| |                                                     |  |                              |       |         |   |         |  |         |        |  |   |        | 
| | --------------------------------------------------- |  | ---------------------------- | ----- | ------- | - | ------- |  | ------- | ------ |  | - | ------ | 
| |                                                     |  | Year Ended December 31, 2005 |      
| |                                                     |  |                              |      
| |                                                     |  | 1st Qtr                      |       | 2nd Qtr |   | 3rd Qtr |  | 4th Qtr |       
| |                                                     |  |                              |      
| | Interest income                                     |  | $                            | 7,998 |         | $ | 8,503   |  | $       | 11,065 |  | $ | 12,406 | 
| | Interest expense                                    |  |                              | 2,623 |         |   | 3,008   |  |         | 4,539  |  |   | 5,556  | 
| |                                                     |  |                              |       |         |   |         |  |         |        |  |   |        | 
| |                                                     |  |                              |      
| | Net interest income                                 |  |                              | 5,375 |         |   | 5,495   |  |         | 6,526  |  |   | 6,850  | 
| | Provision for loan losses                           |  |                              | -0-   |         |   | -0-     |  |         | -0-    |  |   | -0-    | 
| |                                                     |  |                              |       |         |   |         |  |         |        |  |   |        | 
| |                                                     |  |                              |      
| | Net interest income after provision for loan
losses |  |                              | 5,375 |         |   | 5,495   |  |         | 6,526  |  |   | 6,850  | 
| | Non-interest income                                 |  |                              | 1,875 |         |   | 2,037   |  |         | 2,295  |  |   | 2,634  | 
| | Non-interest expense                                |  |                              | 4,997 |         |   | 5,299   |  |         | 6,202  |  |   | 6,756  | 
| |                                                     |  |                              |       |         |   |         |  |         |        |  |   |        | 
| |                                                     |  |                              |      
| | Income before income taxes                          |  |                              | 2,253 |         |   | 2,233   |  |         | 2,619  |  |   | 2,728  | 
| | Income tax expense                                  |  |                              | 545   |         |   | 540     |  |         | 580    |  |   | 593    | 
| |                                                     |  |                              |       |         |   |         |  |         |        |  |   |        | 
| |                                                     |  |                              |      
| | Net income                                          |  | $                            | 1,708 |         | $ | 1,693   |  | $       | 2,039  |  | $ | 2,135  | 
| |                                                     |  |                              |       |         |   |         |  |         |        |  |   |        | 
| |                                                     |  |                              |      
| | Earnings per share:                                 |  |                              |       |         |   |         |  |         |        |  |   |        | 
| | Basic                                               |  | $                            | 0.56  |         | $ | 0.56    |  | $       | 0.63   |  | $ | 0.64   | 
| | Diluted                                             |  | $                            | 0.55  |         | $ | 0.55    |  | $       | 0.62   |  | $ | 0.63   | 
| |                                                     |  |                              |      
| | Cash dividends declared per share                   |  | $                            | 0.21  |         | $ | 0.22    |  | $       | 0.22   |  | $ | 0.38   | 

| |                                                     |  |                              |       |         |   |         |  |         |       |  |   |       | 
| | --------------------------------------------------- |  | ---------------------------- | ----- | ------- | - | ------- |  | ------- | ----- |  | - | ----- | 
| |                                                     |  | Year Ended December 31, 2004 |      
| |                                                     |  |                              |      
| |                                                     |  | 1st Qtr                      |       | 2nd Qtr |   | 3rd Qtr |  | 4th Qtr |      
| |                                                     |  |                              |      
| | Interest income                                     |  | $                            | 7,244 |         | $ | 7,299   |  | $       | 7,434 |  | $ | 7,742 | 
| | Interest expense                                    |  |                              | 2,235 |         |   | 2,134   |  |         | 2,230 |  |   | 2,471 | 
| |                                                     |  |                              |       |         |   |         |  |         |       |  |   |       | 
| |                                                     |  |                              |      
| | Net interest income                                 |  |                              | 5,009 |         |   | 5,165   |  |         | 5,204 |  |   | 5,271 | 
| | Provision for loan losses                           |  |                              | 100   |         |   | 200     |  |         | 75    |  |   | -0-   | 
| |                                                     |  |                              |       |         |   |         |  |         |       |  |   |       | 
| |                                                     |  |                              |      
| | Net interest income after provision for loan
losses |  |                              | 4,909 |         |   | 4,965   |  |         | 5,129 |  |   | 5,271 | 
| |                                                     |  |                              |      
| | Non-interest income                                 |  |                              | 2,039 |         |   | 2,470   |  |         | 1,900 |  |   | 1,906 | 
| | Non-interest expense                                |  |                              | 4,784 |         |   | 4,839   |  |         | 4,887 |  |   | 4,993 | 
| |                                                     |  |                              |       |         |   |         |  |         |       |  |   |       | 
| |                                                     |  |                              |      
| | Income before income taxes                          |  |                              | 2,164 |         |   | 2,596   |  |         | 2,142 |  |   | 2,184 | 
| | Income tax expense                                  |  |                              | 523   |         |   | 687     |  |         | 509   |  |   | 495   | 
| |                                                     |  |                              |       |         |   |         |  |         |       |  |   |       | 
| |                                                     |  |                              |      
| | Net income                                          |  | $                            | 1,641 |         | $ | 1,909   |  | $       | 1,633 |  | $ | 1,689 | 
| |                                                     |  |                              |       |         |   |         |  |         |       |  |   |       | 
| |                                                     |  |                              |      
| | Earnings per share:                                 |  |                              |       |         |   |         |  |         |       |  |   |       | 
| | Basic                                               |  | $                            | 0.53  |         | $ | 0.62    |  | $       | 0.53  |  | $ | 0.55  | 
| | Diluted                                             |  | $                            | 0.52  |         | $ | 0.61    |  | $       | 0.52  |  | $ | 0.55  | 
| |                                                     |  |                              |      
| | Cash dividends declared per share                   |  | $                            | 0.18  |         | $ | 0.19    |  | $       | 0.19  |  | $ | 0.40  | 

39

---



Selected
Consolidated Financial Information(dollars in thousands except share data)

For the Years Ended December 312005

2004

2003

2002

2001Summary of IncomeInterest income

$
39,971

$
29,719

$
29,394

$
32,669

$
35,724Interest expense


15,726


9,070


10,511


13,559


18,266Net interest income


24,245


20,649


18,883


19,110


17,458Provision for loan
losses


-0-


375


460


643


795Non-interest income


8,840


8,315


9,408


7,563


7,307Non-interest expense


23,253


19,503


18,707


17,692


16,561Income before income
taxes


9,832


9,086


9,124


8,338


7,409Income tax expense


2,258


2,214


2,521


2,204


2,002Net income


7,574


6,872


6,603


6,134


5,407Per Share DataBasic earnings per
share

$
2.39

$
2.22

$
2.08

$
1.87

$
1.62Diluted earnings per
share


2.37


2.21


2.05


1.86


1.62Book value (at end of
period)


18.87


17.13


16.29


15.79


14.38Cash dividends
declared


1.03


0.96


0.89


0.85


0.73Dividend payout ratio


44.0
%

43.2
%

42.8
%

45.3
%

45.0
%Selected Balances (at end of
year)Total assets

$
945,263

$
655,738

$
609,737

$
587,375

$
555,325Earning assets


852,286


616,089


571,965


542,450


509,494Investments


251,486


188,809


169,892


169,318


144,660Gross loans


584,311


411,345


385,376


364,120


341,889Allowance for loan
losses


3,109


2,524


2,250


2,660


2,300Deposits


798,558


573,561


537,827


511,267


481,738Borrowings


72,575


25,535


16,161


19,491


20,595Stockholders
equity


63,144


52,369


50,875


51,074


47,500Selected Financial RatiosNet income to average
stockholders equity


13.43
%

13.46
%

13.01
%

12.37
%

11.60
%Net income to average
assets


0.97


1.11


1.10


1.08


1.02Average stockholders
equity to average assets


7.21


8.24


8.49


8.75


8.83Average earning assets to
average assets


90.21


91.37


91.56


92.62


92.12Non-performing loans to total
loans at end of year (net of unearned
  interest)


0.66


0.08


0.25


1.07


1.72Tier 1 capital to average
adjusted assets


7.83


7.88


7.70


7.80


8.10Risk-based capital to
risk-adjusted assets


9.76


11.49


11.22


11.74


12.29Net loans charged-off to
average loans


0.03


0.03


0.24


0.08


0.34Allowance for loan losses to
total loans at end of year (net of
  unearned interest)


0.53


0.62


0.59


0.74


0.69Average interest-bearing
deposits to average deposits


88.29


88.10


88.96


89.51


89.47Average non-interest-bearing
deposits to average deposits


11.71


11.90


11.04


10.49


10.53


40

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