UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Fiscal Year Ended December 31, 2006

Commission File Number 0-20050

PRINCETON NATIONAL BANCORP, INC.(Exact name of registrant as specified in its charter)

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|Delaware                                                           |  | 36-32110283                             
|                                                                   |  |                                         
|(State
  or other jurisdiction of
  incorporation or organization) |  | (I.R.S.
  Employer
  Identification No.)
|                                                                   |  |                                         
|606
South Main Street
Princeton, Illinois                          |  | 61356-2080                              
|                                                                   |  |                                         
|(Address
  of principal executive offices)                         |  | (Zip
  Code)                            

Registrants telephone number, including area code: (815) 875-4444

Securities registered pursuant to Section 12(b) of the Act:

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|----------------------------------- |  | -----------------------------------------
|Title
of each class                 |  | Name
of each
exchange on
which registered
|                                    |  |                                          
|                                    |  |                                          
|Common
  Stock                      |  | The
  Nasdaq                             
|                                    |  | Stock
  Market                           
|Preferred
  Share
  Purchase Rights |  |                                          

Securities registered pursuant to Section 12(g) of the Act: None

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|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --- | - | -- | -
|Indicate
  by check mark if the registrant is a well-known seasoned issuer, as defined in
  Rule 405 of the Securities Act.                                                                                                                                                                                                                                        | Yes | o | No | x
|                                                                                                                                                                                                                                                                                                                                                                   |     |   |    |  
|Indicate
  by check mark if the registrant is not required to file reports pursuant to
  Sections 13 or 15(d) of the Act.                                                                                                                                                                                                                                          | Yes | o | No | x
|                                                                                                                                                                                                                                                                                                                                                                   |     |   |    |  
|Indicate
  by check mark whether the registrant (1) has filed all reports required to be
  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the registrant was
  required to file such reports), and (2) has been subject to such filing
  requirements for the past 90 days. | Yes | x | No | o
|                                                                                                                                                                                                                                                                                                                                                                   |     |   |    |  
|Indicate
  by check mark if disclosure of delinquent filers pursuant to Item 405 of
  Regulation S-K is not contained herein, and will not be contained, to the
  best of registrants knowledge, in definitive proxy or information statements
  incorporated by reference in Part III of this Form 10-K or any amendment to
  this Form 10-K.                    |     | o |    |  
|                                                                                                                                                                                                                                                                                                                                                                   |     |   |    |  
|Indicate
  by check mark whether the registrant is a large accelerated filer, an
  accelerated filer, or a non-accelerated filer. See definition of accelerated
  filer and large accelerated filer in Rule 12b-2 of the Exchange Act.                                                                                                                           |     |   |    |  
|                                                                                                                                                                                                                                                                                                                                                                   |     |   |    |  
|Large accelerated filer                                                                                                                                                                                                                                                                                                                                            |     | o |    |  
|Accelerated filer                                                                                                                                                                                                                                                                                                                                                  |     | x |    |  
|Non-accelerated filer                                                                                                                                                                                                                                                                                                                                              |     | o |    |  
|                                                                                                                                                                                                                                                                                                                                                                   |     |   |    |  
|Indicate
  by check mark whether the registrant is a shell company (as defined in Rule
  12b-2 of the Exchange Act).                                                                                                                                                                                                                                               | Yes | o | No | x

At
February 26, 2007, 3,341,410 shares of Common Stock, $5.00 Par Value, were
outstanding, and the aggregate market value of the common stock (based upon the
closing representative bid price of the common stock on June 30, 2006 of
$32.65, the last business day of the Registrants most recently completed
second quarter, as reported by NASDAQ) held by nonaffiliates was approximately
$110,256,699.

Determination
of stock ownership by nonaffiliates was made solely for the purpose of
responding to this requirement and the registrant is not bound by this
determination for any other purpose.

Portions
of the following documents are incorporated by reference:

2007
Notice and Proxy Statement for the Annual Meeting of Stockholders April 24,
2007 (the Proxy Statement) - Part III and portions of the Corporations 2006
Annual Report (the Annual Report) - Part II

Page 1 of 66 pages







# PART I

# Item 1. Business

Princeton
National Bancorp, Inc. (PNBC, the Corporation, or the
Company) is a single-bank holding company which operates in one business
segment conducting a full-service commercial banking and trust business through its
subsidiary bank, Citizens First National Bank (Citizens Bank, the
Bank, or the subsidiary bank). PNBC was incorporated as a Delaware
corporation in 1981 in contemplation of the acquisition of all of the outstanding common
stock of Citizens Bank and other future acquisitions. At December 31, 2006, the
Corporation had consolidated total assets of $1,031,959,000 and stockholders equity
of $65,355,000.

PNBC
operates the Bank as a community bank with offices located for convenience and with
professional, highly-motivated, progressive employees who know the Banks customers
and provide individualized, quality service. As part of its community banking approach,
officers of the Bank actively participate in community organizations. In addition, within
certain credit and rate of return parameters, the subsidiary bank strives to meet the
lending needs of the communities in which offices are located and invests in local
municipal securities.

Corporate
policy, strategy and goals are established by the Board of Directors of PNBC. Pursuant to
PNBCs holding company philosophy, operational and administrative policies for the
Bank are also established at the holding company level. Within this framework, the Bank
focuses on providing personalized services and quality products to its customers to meet
the needs of the communities in which its offices are located. In 2006, the majority of
the directors of PNBC also served as the directors of Citizens Bank, which further assists
PNBC to directly implement its policies at Citizens Bank.

# Acquisition and
Expansion Strategy

PNBC
seeks to diversify both its market area and asset base and increase profitability through
acquisitions and expansion. PNBCs goal, as reflected by its acquisition policy, is
to expand through the acquisition of established financial service organizations
(primarily commercial banks to the extent suitable candidates may be identified) and by
expanding into potential high-growth areas. In integrating acquisitions, PNBC focuses on,
among other actions, implementing the policies established at Citizens Bank, improving
asset quality, the net interest margin, and encouraging community involvement. In
November, 2006, PNBC announced it had entered into a branch purchase and assumption
agreement to acquire the Plainfield office of HomeStar Bank, Manteno, Illinois. This
transaction closed in the first quarter of 2007. Additionally in 2005, PNBC acquired
Somonauk FSB Bancorp, Inc. and its subsidiary, Farmers State Bank, with branches in
Somonauk, Millbrook, Newark and Sandwich (subsequently merged into Citizens Bank).

PNBC
will also consider establishing branch facilities as a means of expanding its presence
into new market areas. PNBC opened new branch facilities in the Peru/LaSalle/Oglesby area
in 1994, in Minooka in 1994, Hampshire in 1995, Henry in 1999, Huntley in 2001, Plano in
2005 and Aurora in 2006. Several of these locations, along with the Plainfield office, are
located in rapidly growing communities that will provide significant loan and deposit
growth opportunities, as well as increased revenue potential.

# Citizens First National
Bank

Citizens
Bank was organized in 1865 as a national banking association under the National Bank Act.
Currently in its one hundred and forty-second year, Citizens Bank has twenty-one offices
in seventeen different communities in north central Illinois: Aurora, DePue, Genoa,
Hampshire, Henry, Huntley, Millbrook, Minooka, Newark, Oglesby, Peru, Plainfield, Plano,
Princeton, Sandwich, Somonauk, and Spring Valley.

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Citizens
Bank serves individuals, businesses and governmental bodies in Bureau, DeKalb, Grundy,
Kane, Kendall, LaSalle, Marshall, McHenry, Will and contiguous counties. Citizens Bank
operates a full-service community commercial bank and trust business that offers a broad
range of financial services to customers. Citizens Banks services consist primarily
of commercial, real estate and agricultural lending, consumer deposit and financial
services, and trust, brokerage, insurance, and farm management services.

# Commercial, Real Estate,
and Agricultural Lending

Citizens
Banks commercial loan department provides secured and to a much lesser extent
unsecured loans, including real estate loans, to companies and individuals for business
purposes and to governmental units within the Banks market area. As of December 31,
2006, Citizens Bank had commercial loans of $134.4 million (21.4% of the Banks total
loan portfolio) and commercial real estate loans of $130.3 million (20.7% of the
Banks total loan portfolio). Citizens Bank does not have a concentration of
commercial loans in any single industry or business, except for loans to the agricultural
industry as more fully disclosed below.

Agricultural
and agricultural real estate loans are primarily related to ventures within 30 miles of
branch locations. As of December 31, 2006, Citizens Bank had agricultural loans of $83.6
million and agricultural real estate loans of $61.5 million, which represent approximately
13.3% and 9.8%, respectively, of the Banks total loan portfolio.

Agricultural
loans, many of which are secured by crops, machinery, and real estate, are provided to
finance capital improvements and farm operations as well as acquisitions of livestock and
machinery. The subsidiary banks agricultural loan department has the equivalent of
five lending officers and works closely with all agricultural customers, including
companies and individual farmers, assisting in the preparation of budgets and cash flow
projections for the ensuing crop year. These budgets and cash flow projections are
monitored closely by the Bank during the year. In addition, Citizens Bank works closely
with governmental agencies, including the Farm Service Agency, to assist agricultural
customers in obtaining credit enhancement products, such as loan guaranties.

In
accordance with its loan policy, Citizens Bank maintains a diversified loan portfolio. As
part of its loan policy and community banking approach, Citizens Bank does not buy loan
syndications with other lending institutions. In connection with its credit relationships,
Citizens Bank encourages commercial and agricultural borrowers to maintain deposit
accounts at the Bank.

# Personal Financial
Services

The
principal consumer services offered by Citizens Bank are demand, savings and time deposit
accounts, home mortgage loans, installment loans, and brokerage services.

One
of the strengths of Citizens Bank is the stability of its retail deposit base. This
stability is due primarily to the Banks service oriented competitive strategy and
the economically diverse populations of the counties encompassing the twenty-one banking
offices. These locations provide convenience for customers and visibility for Citizens
Bank. A variety of marketing strategies are used to attract and retain stable depositors,
the most important of which is the officer call program. Nearly all officers of the Bank
call on customers and potential customers of the Bank to maintain and develop
relationships.

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Citizens
Bank is active in consumer and mortgage lending with approximately $120.6 million in home
mortgage loans (19.1 % of the Banks total loan portfolio) and $56.1 million in
consumer installment loans (8.9% of the Banks total loan portfolio) as of December
31, 2006. To better serve its retail customers, Citizens Bank is active in the secondary
residential mortgage market. As a matter of policy, Citizens Bank does not hold, in
portfolio, long term, fixed rate, single-family home mortgage loans, however, the
servicing of such loans is maintained. As of December 31, 2006, Citizens Bank had $236.9
million of loans that have been sold, but servicing has been maintained. Management
believes customers receive a higher level of quality service with this arrangement.

Citizens
Bank maintains twenty-six automated teller machines. The Bank is a member of NYCE as well
as other major nationwide networks such as ACCEL/Exchange, CIRRUS and PLUS. To enhance
customer service and convenience, Citizens Bank offers ATM & Debit Cards, which can be
used anywhere VISA is accepted, and is viewed as a tremendous benefit to our customers.
Citizens Bank also offers an entire host of Internet Banking services including Bill Pay
as an additional and convenient alternative delivery mechanism for its product and service
line.

Citizens
Bank continues to maintain an intensive sales training program, which includes team
coaching, setting goals, measuring results, and reward recognition. Citizens Bank has
implemented team goals at each branch which helps to meet bank wide goals, while
continuing to focus on quality product referrals and product sales.

# Citizens Financial
Advisors

Fiduciary
Services undertook several significant affiliations with outside service providers in
2006. The direct management of the 15,000 acreage farmland portfolio was sold and/or
outsourced to Hertz Farm Management, Inc. (40% of this portfolio will stay under the
oversight of Fiduciary Services since they represent Trust Accounts). The transfer of
management will allow a larger more stable management team to service the specific needs
of our customers as well as deliver economies of scale that an organization with over
450,000 acres of farmland under management, such as Hertz, can provide.

Fiduciary
Services is also in the process of outsourcing the record keeping responsibilities of many
of our medium to large size customer 401(K) programs. BPA  Harbridge, Inc. will
deliver the professional record keeping services. This restructuring will allow our
employee benefits personnel to utilize their substantial training and retirement plan
expertise to meet a greater number of our current customer needs. In addition, the team
will develop new business opportunities instead of focusing on mundane data entry
services.

A
significant additional change occurred when the CFNB employee 401(K) program was
transferred to ADP during 2006. Coordination of the large amount of internal record
keeping has resulted in reduced workloads for Fiduciary Services. This reduction provides
significant new business development potential in the employee benefits area.

CFA
Brokerage accomplished their final phase of realignment in 2006 with the placement of two
new Client Advisors in the Somonauk and Huntley markets. Both Advisors completed the year
with very strong performance numbers that will carry forward into subsequent years.

Fiduciary
Services: Fiduciary Services generated approximately $1,467,000 in gross revenue in
2006. This represents a decrease of 8.4% in revenue from 2005 due to the sale of Farm
Management, real estate sales potentials and a decrease in estate fees. However, these
lower income levels were accompanied with commensurate levels of decreased expenses.

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Investment
Services: Brokerage income increased 5.6% from $697,348 in 2005 to $736,358 in 2006.
The $39,000 increase in income, once again, occurred through the reassignment of several
of the Client Advisors to service the branches under a new coverage model.

# Competition

PNBC
is committed to community banking and to providing quality products and services at
competitive loan rates and deposit pricing in order to remain competitive in its North
Central Illinois market. Citizens Bank competes with both small, locally owned banks, as
well as regional financial institutions which have numerous offices. The Bank competes
with these organizations, as well as with savings and loan associations, credit unions,
mortgage companies, insurance companies and other local financial institutions for
deposits, loans and other business. The principal methods of competition include loan and
deposit pricing, the types and quality of services provided, as well as advertising and
marketing programs.

# Supervision and
Regulation

Bank
holding companies and banks are extensively regulated under federal and state law. The
following information describes certain statutes and regulations affecting PNBC and the
Bank, and such discussion is qualified in its entirety by reference to such statutes and
regulations. Any change in applicable law or regulations may have a material effect on the
business of PNBC and the Bank.

PNBC
is registered as a bank holding company with the Board of Governors of the Federal Reserve
System (the FRB), and is subject to supervision by the FRB under the Bank
Holding Company Act of 1956, as amended (the BHC Act). PNBC is required to
file with the FRB periodic reports and such additional information as the FRB may require
pursuant to the BHC Act. The FRB examines PNBC.

The
BHC Act requires prior FRB approval for, among other things, the acquisition by a bank
holding company of direct or indirect ownership or control of more than 5% of the voting
shares or substantially all the assets of any bank or bank holding company, or for a
merger or consolidation of a bank holding company with another bank holding company. With
certain exceptions, the BHC Act prohibits a bank holding company from acquiring direct or
indirect ownership or control of voting shares of any company which is not a bank or bank
holding company and from engaging directly or indirectly in any activity other than
banking or managing or controlling banks or performing services for its authorized
subsidiaries. A bank holding company may, however, engage in or acquire an interest in a
company that engages in activities which the FRB has determined by regulation or order to
be so closely related to banking or managing or controlling banks as to be a proper
incident thereto.

In
November, 1999, the Gramm-Leach-Bliley Act (GLB Act) was signed into law.
Under the GLB Act, bank holding companies that meet certain standards and elect to become
financial holding companies are permitted to engage in a wider range of
activities than those permitted for bank holding companies, including securities and
insurance activities. Specifically, a bank holding company that elects to become a
financial holding company may engage in any activity that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines is (i) financial in nature or
incidental thereto, or (ii) complementary to any such financial-in-nature activity,
provided that such complementary activity does not pose a substantial risk to the safety
and soundness of depository institutions or the financial system generally. A bank holding
company may elect to become a financial holding company only if each of its depository
institution subsidiaries is well-capitalized, well-managed, and has a Community
Reinvestment Act rating of satisfactory or better at their most recent
examination.

The
GLB Act specifies many activities that are financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or securities;
underwriting and selling insurance; providing financial, investment, or economic advisory
services; underwriting, dealing in, or making a market in securities; and those activities
currently permitted for bank holding companies that are so closely related to banking or
managing or controlling banks, as to be a proper incident thereto.

---



The
GLB Act changed federal laws to facilitate affiliation between banks and entities engaged
in securities and insurance activities. The law also established a system of functional
regulation under which banking activities, securities activities, and insurance activities
conducted by financial holding companies and their subsidiaries and affiliates will be
separately regulated by banking, securities, and insurance regulators, respectively.

PNBC
is a legal entity separate and distinct from the Bank. The major source of PNBCs
revenue is dividends received from the Bank. The right of PNBC to participate as a
stockholder in any distribution of assets of the Bank upon its liquidation or
reorganization or otherwise is subject to the prior claims of creditors of the Bank. The
Bank is subject to claims by creditors for long-term and short-term debt obligations,
including obligations for federal funds purchased and securities sold under repurchase
agreements, as well as deposit liabilities. The Bank is subject to regulation and
examinations by the Office of Comptroller of the Currency (the OCC).

The
Bank may declare dividends out of undivided profits, except that until the surplus fund of
the Bank is equal to its common capital, no dividend can be declared until one-tenth of
the Banks net income for the applicable period has been carried to the surplus fund.
The Bank, however, cannot declare or pay a dividend, if after making the dividend, the
Bank would be undercapitalized. In addition, prior approval of the OCC is required if
dividends declared by the Bank in any calendar year will exceed its net income for that
year combined with its retained net income for the preceding two years. Under national
banking regulations and capital guidelines, as of December 31, 2006, the Bank was
authorized to distribute approximately $6,050,000 as dividends without prior approval from
the OCC, based on net income for 2006 and retained net income for 2004 and 2005. As of
January 1, 2007, retained net income for the prior two years was approximately $5,015,000
and during 2007 the Bank may pay dividends without prior approval from the OCC equal to
that amount plus any 2007 net income. Future payments of dividends by the Bank will be
dependent on individual regulatory capital requirements and levels of profitability. The
ability of the Bank to pay dividends may be further restricted as a result of regulatory
policies and guidelines relating to dividend payments and capital adequacy.

Federal
laws limit certain transactions between the Bank and its affiliates, including PNBC. Such
transactions include loans or extensions of credit by the Bank to PNBC, the purchase of
assets or securities of PNBC, the acceptance of PNBCs securities as collateral for
loans, and the issuance of a guaranty, acceptance or letter of credit on behalf of PNBC.
Transactions of this kind are limited to 10% of the Banks capital and surplus for
transactions with one affiliate, and 20% of the Banks capital and surplus for
transactions with all affiliates. Such transactions are also subject to certain collateral
requirements. These transactions, as well as other transactions between the Bank and PNBC,
must also be on terms substantially the same as, or at least as favorable as, those
prevailing at the time for comparable transactions with nonaffiliated companies or, in the
absence of comparable transactions, on terms, or under circumstances, including credit
standards, that would be offered to, or would apply to, nonaffiliated companies.

FRB
policy requires PNBC to act as a source of financial strength to the Bank and commit
resources to support the Bank. The FRB takes the position that in implementing this
policy, it may require PNBC to provide such support when PNBC otherwise would not consider
itself able to do so.

The
various federal bank regulators, including the FRB and the OCC, have adopted risk-based
capital requirements for assessing bank holding company and bank capital adequacy. These
standards establish minimum capital standards in relation to assets and off-balance sheet
exposures, as adjusted for credit risks. Capital is classified into two tiers. For bank
holding companies, Tier 1 or core capital consists of common
shareholders equity, perpetual preferred stock (subject to certain limitations) and
minority interests in the equity accounts of consolidated subsidiaries, and is reduced by
goodwill and certain other intangible assets (Tier 1 Capital). Tier 2 capital
consists of (subject to certain conditions and limitations) the allowance for possible
credit losses, perpetual preferred stock, hybrid capital instruments,
perpetual debt and mandatory convertible debt securities, and term subordinated debt and
intermediate-term preferred stock (Tier 2 Capital). Total capital is the sum
of Tier 1 Capital and Tier 2 Capital (the latter being limited to 100% of Tier 1 Capital).
Components of Tier 1 and Tier 2 Capital for national banks are similar, but not identical,
to those for holding companies.

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Under
the risk-adjusted capital standards, a minimum ratio of qualifying total capital to
risk-weighted assets of 8% and of Tier l Capital to risk-weighted assets of 4% is
required. The FRB and OCC also have adopted a minimum leverage ratio of Tier 1 Capital to
total assets of 3% for banks rated 1 under the Uniform Financial Institutions
Rating System or bank holding companies rated 1 under the rating system of
bank holding companies. All other banks and bank holding companies must maintain a
leverage ratio of 4%. In addition, all banks and bank holding companies are expected to
have capital commensurate with the level and nature of all risks to which they are
exposed.

At
December 31, 2006, PNBC had a total capital to risk-weighted assets ratio of 9.18%, a Tier
1 capital to risk-based assets ratio of 8.75%, and a leverage ratio of 6.67%. PNBC is
classified as adequately capitalized for the first ratio and well-capitalized for the last
two ratios. At December 31, 2006, the Bank had a total capital to risk-weighted assets
ratio of 10.02%, a Tier 1 capital to risk-weighted assets ratio of 9.59%, and a leverage
ratio of 7.31%. The Bank is classified as well-capitalized for all three ratios.

Currently,
the Banks deposits are insured by the Deposit Insurance Fund, which is administered
by the FDIC. The Deposit Insurance Fund was created by the Federal Deposit Insurance
Reform Act of 2005 (the FDIRA), which merged the Bank Insurance Fund
(BIF) with the Savings Association Insurance Fund (SAIF) during
2006.

Following
the adoption of the FDIRA, the FDIC has the opportunity, through its rulemaking authority,
to better price deposit insurance for risk than was previously authorized. The FDIC
adopted regulations effective January 1, 2007 that create a new system of risk-based
assessments, set assessment rates beginning January 1, 2007 and establish a new
insurance assessment system. Under the new regulations there are four risk categories, and
each insured institution will be assigned to a risk category based on capital levels and
supervisory ratings. Well-capitalized institutions with CAMELS composite ratings of 1 or 2
will be placed in Risk Category I while other institutions will be placed in Risk
Categories II, III or IV depending on their capital levels and CAMELS composite ratings.
The new regulations also established assessment rates beginning January 1, 2007 with
the highest rated institutions, those in Risk Category I, paying premiums of between .05%
and .07% of deposits and the lowest rated institutions, those in Risk Category IV, paying
premiums of .43% of deposits. The assessment rates may be changed by the FDIC as necessary
to maintain the insurance fund at the reserve ratio designated by the FDIC, which
currently is 1.25% of insured deposits. The FDIC may set the reserve ratio annually at
between 1.15% and 1.50% of insured deposits. Deposit insurance assessments will be
collected for a quarter at the end of the next quarter with the first assessments under
the new system being collected on June 30, 2007 for insurance coverage for the first
quarter of 2007. Assessments will be based on deposit balances at the end of the quarter,
except for institutions with $1 billion or more in assets and institutions that become
insured on or after January 1, 2007 which will have their assessment base determined
using average daily balances of insured deposits.

Effective
November 17, 2006, the FDIC implemented a one-time credit of $4.7 billion to eligible
institutions. The purpose of the credit is to recognize contributions made by certain
institutions to capitalize the Bank Insurance Fund and Savings Association Insurance Fund,
which have now been merged into the Deposit Insurance Fund. The Bank is an eligible
institution and received notice from the FDIC that its share of the credit is $647,000.
This amount is not reflected in the accompanying financial statements as it represents
contingent future credits against future insurance assessment payments. As such, the
timing and ultimate recoverability of the one-time credit may change.

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All
FDIC-insured depository institutions must pay a quarterly assessment to provide funds for
the payment of interest on bonds issued by the Financing Corporation, a federal
corporation chartered under the authority of the Federal Housing Finance Board. The bonds
(commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and
Loan Insurance Corporation.

Federal
law permits adequately capitalized and adequately managed bank holding companies to
acquire banks across state lines, without regard to whether the transaction is prohibited
by state law. Any state law relating to the minimum age of target banks (not to exceed
five years) or limits on the amount of deposits that may be controlled by a single bank or
bank holding company applies. The FRB is not permitted to approve any acquisition if,
after the acquisition, the bank holding company would control more than 10% of the
deposits of insured depository institutions nationwide or 30% or more of the deposits in
the state where the target bank is located. The FRB could approve an acquisition,
notwithstanding the 30% limit, if the state waives the limit either by state regulation or
order of the appropriate state official.

Banks
are permitted to merge with one another across state lines and thereby create a main bank
with branches in separate states. After establishing branches in a state through an
interstate merger transaction, a bank can establish and acquire additional branches at any
location in the state where any bank involved in the merger could have established or
acquired branches under applicable federal or state law. In addition, the laws of some
states, including Illinois, permit a bank with its main office in another state to
establish de novo branches or to acquire a branch of another bank without acquiring the
entire bank. Therefore, if the laws of another state so permit, the Bank could establish a
de novo branch or acquire a branch of a bank in such state, even if the laws of such state
require a reciprocal provision.

PNBC
does not have current plans to acquire banking organizations located outside the state of
Illinois.

National
banks may establish operating subsidiaries to engage in activities in which the bank could
engage directly.

National
banks are also authorized by the GLB Act to engage, through financial
subsidiaries, in activities that are permissible for financial holding companies and
activities that the Secretary of the Treasury, in consultation with the FRB, determines is
financial in nature or incidental to any such financial activity, except (i) insurance
underwriting, (ii) real estate development or real estate investment activities (unless
otherwise permitted by law), (iii) insurance company portfolio investments, and (iv)
merchant banking. A national banks authority to invest in a financial subsidiary is
subject to a number of conditions, including, among other things, requirements that the
bank be well-managed and well-capitalized (after deducting from capital the banks
outstanding investment in financial subsidiaries).

The
GLB Act affected many other changes to federal law applicable to PNBC and the Bank. One of
these changes was a requirement that financial institutions take steps to protect
customers nonpublic personal information.

# Employees

PNBC
presently has no employees. However, certain of the employees and executive officers of
Citizens Bank provide their services to PNBC. A monthly fee for these services is paid by
PNBC to Citizens Bank. This fee is computed annually and is based upon an average of the
number of hours worked during the year.

As
of December 31, 2006, Citizens Bank employed 270 full-time and 66 part-time employees. The
Bank offers a variety of employee benefits. Citizens Bank employees are not represented by
a union or a collective bargaining agreement, and employee relations are considered to be
excellent.

---



Citizens
Bank believes one of its strengths is its ability to attract and retain experienced and
well-trained personnel who are knowledgeable of the market areas in which it operates.
Management believes that PNBC generally has an easier time attracting and retaining
quality employees than other banks in North Central Illinois. This is due primarily to its
size and management style, which affords greater opportunities to employees for direct
participation and development of managerial and banking skills.

In
order to implement PNBCs community banking philosophy and to promote itself as a
community oriented organization, the Bank has a formal officer call program. Nearly every
officer of the Bank calls on existing or potential customers and is expected to become
actively involved in leadership positions in community organizations. As of December 31,
2006, employees of the Bank participated in approximately 322 community organizations,
providing nearly 12,000 hours of community service.

# Available Information

Our
Internet address is www.citizens1st.com. There we make available, free of charge,
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and any amendments to those reports, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. Our SEC reports can be
accessed through the investor relations section of our Web site. The information found on
our Web site is not part of this or any other report we file with or furnish to the SEC.

You
may also read and copy materials we file with the SEC at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an internet site (www.sec.gov) that contains reports, proxy statements
and other information that we electronically file with the SEC.

# Item 1A. Risk Factors

An
investment in PNBCs common stock is subject to risks inherent to the
Corporations business. An investor should carefully consider the risks described
below and information contained in this Annual Report on Form 10-K together with all of
the other information incorporated by reference before deciding to purchase PNBC common
stock. The risks and uncertainties described below are not the only ones facing the
Corporation. Additional risks and uncertainties that management is not aware of or focused
on or deems immaterial may arise or become material in the future and affect PNBCs
business. If any of these risks actually occur, PNBCs financial condition and
results of operations could be materially and adversely affected. If this were to happen,
the value of PNBC common stock could decrease significantly.

PNBCs concentration
of agricultural loans is subject to risks that could adversely affect earnings.

PNBCs
agricultural and agricultural real estate loan portfolio total $145.1 million at December
31, 2006, comprising 23.1% of total loans. The primary risks associated with agricultural
loans are weather and borrowers management. In the event of catastrophic weather
conditions, such as severe drought or flooding, these loans would represent a higher risk
due to poor crop sales and reduced cash flow that could impact the borrowers ability
to repay the loan on a timely basis.

Changes in interest rates
could adversely impact the financial condition and results of operations.

PNBCs
ability to make a profit, like that of most financial institutions, substantially depends
upon its net interest income. However, certain assets and liabilities may react
differently to changes in market interest rates. In a period of changing rates, interest
expense may increase at different rates than the interest earned. Accordingly, changes in
interest rates could decrease net interest income.

---



The allowance for loan
losses may not be sufficient to cover actual loan losses decreasing earnings.

In
determining the appropriate level of allowance for loan losses, management considers,
among other things, the overall composition of the loan portfolio, types of loans, past
loss experience, loan delinquencies, potential substandard and doubtful loans, underlying
collateral, and other factors that, in managements best judgment, deserve
evaluation. Although management monitors the allowance monthly and considers it adequate
to absorb probable losses at December 31, 2006, if any of the assumptions are incorrect,
the allowance may not be sufficient to cover future loan losses. Future adjustments may be
necessary to allow for different economic conditions or adverse developments in the loan
portfolio. Consequently, a problem with one or more loans could require the Corporation to
significantly increase the level of its provision for loan losses resulting in a reduction
of earnings.

The Internal Controls of
PNBC may not be effective.

Management
reviews and tests on a quarterly basis its system of internal controls, disclosure
controls and procedures, and corporate governance polices and procedures. Any system of
internal controls, however well designed, is based on certain assumptions and can provide
only reasonable, not absolute, assurances that the objectives of the system are actually
being met. Any failure or circumvention of these controls could have a material adverse
effect on the Corporations financial condition and results of operations.

There is competition
within the PNBC market areas which may limit growth and profitability.

Because
the banking business is highly competitive, PNBC faces significant competition both in
originating loans and attracting deposits. Competition can not only be affected by the
pricing of loans and deposits, but also by the variety of products offered. The ability of
the Corporation to continue to grow in the markets served while effectively managing
interest rate risk is contingent upon being able to operate in this competitive
environment, which ultimately affects the Corporations profitability.

The success of PNBC is
dependent on hiring and retaining key personnel.

PNBCs
performance is largely dependent on the talents and efforts of highly skilled individuals.
The Corporation relies on key personnel to manage and operate its business and the loss of
any of these individuals may adversely affect the Corporations ability to maintain
and/or manage the business effectively. This could have a material adverse effect on the
Corporations financial condition and results of operations.

PNBC operates in a highly
regulated environment.

PNBC
is subject to extensive regulation, supervision and examination. Any changes in the
regulations or applicable laws and the failure of the Corporation to comply with any of
the regulations and laws could have a material adverse effect on the Corporations
financial condition and results of operations.

# Item 1B. Unresolved
Staff Comments

None.

---



# Item 2. Properties

PNBCs
headquarters and Citizens Banks principal offices are located at 606 South Main
Street, Princeton, Illinois. Also located at this address is an annex building completed
in 1990. The two buildings at this location are owned by Citizens Bank and contain
approximately 36,000 square feet of space, all of which is occupied by PNBC and Citizens
Bank. Citizens Bank also has two drive-up facilities in Princeton and branch offices in
Aurora, DePue, Genoa, Hampshire, Henry, Huntley, Millbrook, Minooka, Newark, Oglesby,
Peru, Plainfield, Plano, Sandwich, Somonauk and Spring Valley. Citizens Bank is the owner
of each of these facilities. None of the facilities owned by the Bank are subject to a
mortgage. Additionally, the mortgage banking department of the Bank is located in Spring
Valley in a separate location from the branch office. This location is not owned by the
Bank and is rented by lease agreement. For additional information regarding these
properties, see Footnote 6 of Item 8 of this report.

# Item 3. Legal Proceedings

The
Bank is subject to legal proceedings and claims that arise in the ordinary course of
business. Although management of the Corporation cannot predict the ultimate outcome of
such matters, it believes that the ultimate resolution of these matters will not have a
material adverse effect on the Corporation, the Bank, or the Corporations financial
position, liquidity, and results of operations.

No
matters were submitted to a vote of the security holders during the fourth quarter of
2006.

# Supplemental Item 
Executive Officers

The
following table sets forth information regarding the executive officers:

| |                         |     |  |                                                        
| | ----------------------- | --- |  | -------------------------------------------------------
| | Name                    | Age |  | Position                                               
| |                         |     |  |                                                        
| | Tony J. Sorcic          | 53  |  | President & Chief Executive Officer                    
| | James B. Miller         | 51  |  | Executive Vice President & Commercial Banking
  Officer
| | Todd D. Fanning         | 44  |  | Senior Vice President & Chief Financial Officer        
| | Jacqualyn L. Funderberg | 46  |  | Senior Vice President  Consumer Banking               
| | Patrick Murray          | 54  |  | Senior Vice President  Citizens Financial Advisors    

Tony
J. Sorcic has been President and Chief Executive Officer of PNBC since January, 1997, and
first became a director of PNBC in 1986. He joined Citizens Bank in 1981 as Assistant Vice
President of Operations and became Executive Vice President in 1986. Mr. Sorcic was named
President and Chief Executive Officer of Citizens Bank in 1995.

James
B. Miller joined Citizens Bank in 1979 as an agricultural loan officer and has been the
Executive Vice President of PNBC since 1996. Mr. Miller currently is the Executive Vice
President and Commercial Banking Manager of Citizens Bank.

Todd
D. Fanning joined Citizens Bank in 1990 as Assistant Vice President and Controller. He
became Vice President & Chief Financial Officer in 1997. Mr. Fanning was named Senior
Vice-President & Chief Financial Officer in 2005 and remains in that capacity.

Jacqualyn
L. Funderberg joined Citizens Bank in 1994 as Assistant Vice President & Branch
Manager. Ms. Funderberg became Senior Vice President  Consumer Banking in 2002 and
remains in that capacity.

Patrick
Murray joined Citizens Bank in 2004 as Senior Vice President in charge of Citizens
Financial Advisors and remains in that capacity.

---



PART II

Item 5. Market for Registrants Common Stock, Related Stockholder Matters and
  Issuer Purchases of Equity Securtiess

(a)
Since May 15, 1992, PNBCs Common Stock has been listed on the NASDAQ Stock
Market, under the symbol PNBC.

The
table below indicates the high and low bid prices, and the dividends declared
per share for PNBC Common Stock during the periods indicated. The prices shown
reflect interdealer prices and do not include retail markups, markdowns, or
commissions which may not necessarily represent actual transactions.

|                 |  |        |       |                  |   |          |  |   |     | 
|---------------- |  | ------ | ----- | ---------------- | - | -------- |  | - | --- | 
|                 |  | Prices |       | Cash
  Dividends
|                 |  | High   |       | Low              |   | Declared
|                 |  |        |       |                  |   |         
|2006             |  |        |       |                  |   |          | 
|Fourth
  Quarter |  | $      | 33.99 |                  | $ | 32.17    |  | $ | .31 | 
|Third
  Quarter  |  |        | 34.00 |                  |   | 32.02    |  |   | .25 | 
|Second Quarter   |  |        | 35.45 |                  |   | 32.22    |  |   | .25 | 
|First
  Quarter  |  |        | 34.48 |                  |   | 32.65    |  |   | .24 | 
|                 |  |        |       |                  |   |          |  |   |     | 
|2005             |  |        |       |                  |   |          |  |   |     | 
|Fourth
  Quarter |  | $      | 34.00 |                  | $ | 32.50    |  | $ | .38 | 
|Third
  Quarter  |  |        | 34.00 |                  |   | 30.50    |  |   | .22 | 
|Second
  Quarter |  |        | 31.65 |                  |   | 29.40    |  |   | .22 | 
|First
  Quarter  |  |        | 30.99 |                  |   | 28.80    |  |   | .21 | 

On
December 31, 2006, PNBC had 825 registered holders of record of its Common
Stock.

The
holders of the Common Stock are entitled to receive such dividends as are
declared by the Board of Directors of PNBC, which considers payment of
dividends quarterly. The ability of PNBC to pay dividends is dependent upon
receipt of dividends from the Bank. In determining cash dividends, the Board of
Directors considers the earnings, capital requirements, debt servicing
requirements, financial ratio guidelines established by the Board, the
financial condition of PNBC and other relevant factors. The Banks ability to
pay dividends to PNBC is subject to regulatory restrictions. See Supervision
and Regulation.

PNBC
has paid regular cash dividends on the Common Stock since it commenced
operations in 1982. PNBC currently anticipates that cash dividends comparable
to those that have been paid in the past will continue to be paid in the
future. There can be no assurance, however, that any such dividends will be
paid by PNBC or that such dividends will not be reduced or eliminated in the
future. The timing and amount of dividends will depend upon the earnings,
capital requirements, and financial condition of PNBC and the Bank as well as the
general economic conditions and other relevant factors affecting PNBC and the
Bank. See Managements Discussion and Analysis of Financial Condition and
Results of Operations.

---



The following Common Stock price
performance graph compares the monthly change in the Corporations cumulative total stockholder returns on its Common Stock,
assuming the Common Stock was purchased on December 31, 2001 and sold on December 31, 2006, with the cumulative total return of
stocks included in the Russell 3000 and the SNL Midwest Bank Stock Index for the same period. The amounts shown assume the
reinvestment of dividends.

Princeton National Bancorp, Inc.

(PERFORMANCE GRAPH)

|                                   |  |               |  |          |  |          |  |          |  |          |  |          | 
|---------------------------------- |  | ------------- |  | -------- |  | -------- |  | -------- |  | -------- |  | -------- | 
|                                   |  | Period Ending | 
|                                   |  |               | 
|Index                              |  | 12/31/01      |  | 12/31/02 |  | 12/31/03 |  | 12/31/04 |  | 12/31/05 |  | 12/31/06 | 
|                                   |  |               |  |          |  |          |  |          |  |          |  |          | 
|Princeton National
  Bancorp, Inc. |  | 100.00        |  | 136.29   |  | 190.57   |  | 198.82   |  | 237.09   |  | 239.55   | 
|Russell 3000                       |  | 100.00        |  | 78.46    |  | 102.83   |  | 115.11   |  | 122.16   |  | 141.35   | 
|SNL Midwest Bank Index             |  | 100.00        |  | 96.47    |  | 123.48   |  | 139.34   |  | 134.26   |  | 155.19   | 

The Corporations Common Stock
began trading on the NASDAQ Stock Market under the symbol PNBC on May 8, 1992. On December 31, 2006 and February 26, 2007, the
Record Date, the closing bid prices for the Common Stock as quoted on NASDAQ Online were $32.55 and $32.88,
respectively.

---



| |     |                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | The
  following table provides information about purchases of the Corporations
  common stock by the Corporation during the quarter ended December 31, 2006:

|                   |  |                                      |  |                                  |  |                                                                                            |       |                                                                                                                  |  |        |  |  |        |  | 
|------------------ |  | ------------------------------------ |  | -------------------------------- |  | ------------------------------------------------------------------------------------------ | ----- | ---------------------------------------------------------------------------------------------------------------- |  | ------ |  |  | ------ |  | 
|Period             |  | (a) Total number of
shares purchased |  | (b) Average price paid
per share |  | (c) Total number of
shares purchased as part of a publicly announced plans or programs (1) |       | (d) Maximum number (or
approximate dollar value) of shares that may yet be purchased under the plans
or programs | 
|                   |  |                                      |  |                                  |  |                                                                                            |       |                                                                                                                  | 
|10/1/06  10/31-06 |  | 0                                    |  |                                  |  | $                                                                                          | 0.00  |                                                                                                                  |  | 0      |  |  | 65,000 |  | 
|11/1-06  11/30-06 |  | 15,000                               |  |                                  |  | $                                                                                          | 33.00 |                                                                                                                  |  | 15,000 |  |  | 50,000 |  | 
|12/1-06  12/31/06 |  | 10,000                               |  |                                  |  | $                                                                                          | 33.10 |                                                                                                                  |  | 10,000 |  |  | 40,000 |  | 
|                   |  |                                      |  |                                  |  |                                                                                            |       |                                                                                                                  |  |        |  |  |        |  | 
|                   |  |                                      |  |                                  |  |                                                                                            |       |                                                                                                                  |  |        |  |  |        |  | 
|Total              |  | 25,000                               |  |                                  |  | $                                                                                          | 33.04 |                                                                                                                  |  | 25,000 |  |  | 40,000 |  | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) On April
  25, 2006, the Board of Directors approved the repurchase of up to an
  aggregate of 100,000 shares of common stock pursuant to a repurchase program
  announced the same day (the Program). The expiration date of this Program
  is April 25, 2007. Unless terminated earlier by resolution of our Board of
  Directors, the Program will expire on the earlier of such expiration date or
  when we have repurchased all shares authorized for repurchase under the
  Program.

Item 6. Selected Financial Data

Information
regarding the Corporations selected financial data is included on page 44 of
the Corporations Annual Report, which information is incorporated by reference
herein.

Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations

Information
regarding the Corporations managements discussion and analysis of financial
condition and results of operations is included on pages 33-43 in the
Corporations Annual Report, which information is incorporated by reference
herein.

Item 7A. Quantitative and Qualitative
Disclosures about Market Risk

The
information required by Item 305 of Regulation S-K is contained in the
Corporations Annual Report on pages 40-42, under the headings Asset Liability
Management and Contractual Obligations and Off-Balance Sheet Arrangements,
which information is incorporated herein by reference.

Item 8. Consolidated Financial Statements and
Supplementary Data

Information
regarding the Corporations consolidated financial statements and supplementary
data is included on pages 9-32 and page 43 in the Corporations Annual Report,
which information is incorporated by reference herein.

Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure

Effective
June 28, 2006, the Corporation dismissed its independent registered public
accounting firm, KPMG LLP, and engaged BKD, LLP as its new independent
registered public accounting firm. The decision to change accountants was made
after the completion of a competitive bid process and was approved by the Audit
Committee of the Board of Directors.

---



Item 9A. Controls and Procedures

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Disclosure
  controls and procedures. We evaluated the effectiveness of the design and
  operation of our disclosure controls and procedures as of December 31, 2006.
  Our disclosure controls and procedures are the controls and other procedures
  that we designed to ensure that we record, process, summarize and report in a
  timely manner the information we must disclose in reports that we file with
  or submit to the SEC. Tony J. Sorcic, President and Chief Executive Officer,
  and Todd D. Fanning, Senior Vice President and Chief Financial Officer,
  reviewed and participated in this evaluation. Based on this evaluation,
  Messrs. Sorcic and Fanning concluded that, as of the date of their
  evaluation, our disclosure controls were effective.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (b) | Internal
  controls. There have not been any significant changes in our internal
  accounting controls or in other factors during the quarter ended December 31,
  2006 that could significantly affect those controls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The reports
  required by Item 308 of Regulation S-K are attached hereto as Exhibits 99.1
  and 99.2 respectively, and are incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and
Corporate Governance

Certain
information regarding executive officers of the Corporation is included as a
Supplementary Item at the end of Part I of this Form 10-K.

Information
regarding executive officers and directors of the Corporation and the
Corporations Audit Committee is included in the Corporations Definitive Proxy
Statement for the Annual Meeting of Stockholders to be held April 24, 2007 (the
Proxy Statement) under the captions Proposal 1-Election of Directors and
Board of Directors Meetings and Committees, which information is
incorporated by reference herein.

Information
regarding compliance with Section 16(a) of the Exchange Act is included in the
Proxy Statement under the caption Section 16(a) Beneficial Ownership
Compliance Reporting, which information is incorporated by reference herein.

Information
regarding the Corporations Code of Ethics is included in the Proxy Statement
under the caption Code of Ethics, which information is incorporated by
reference herein.

Information
regarding an Audit Committee Financial Expert is included in the Proxy
Statement under the caption Audit Committee Financial Expert, which
information is incorporated by reference herein.

---



Item 11. Executive Compensation

Information
regarding executive compensation is included in the Proxy Statement under the
captions Board of Directors Meetings and Committees, Compensation of
Directors, Executive Compensation, Compensation Discussion and Analysis,
Compensation Committee Interlocks and Insider Participation and Compensation
Committee Report, which information is incorporated by reference herein.

|         |                                                                                                  
|-------- | -------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and
  Related Stockholders Matters

Information
regarding security ownership is included in the Proxy Statement under the
captions Security Ownership of Directors, Nominees for Director, Most Highly
Compensated Executive Officers and All Directors and Executive Officers as a
Group and Security Ownership of Certain Beneficial Owners, which information
is incorporated by reference herein.

|                                                             |  |                                                                                               |  |                                                                               |  |                                                                                                                                     |       |  |  |        |     | 
|------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- | ----- |  |  | ------ | --- | 
|Equity Compensation Plan Information                         | 
|Plan
  Category                                              |  | Number of securities to be issued upon exercise of
  outstanding options, warrants and rights |  | Weighted-average exercise price of outstanding options,
  warrants and rights |  | Number of securities remaining available for future
  issuance under equity compensation plans (excluding securities in column (a)) |      
|                                                             |  | (a)                                                                                           |  | (b)                                                                           |  | (c)                                                                                                                                 |      
|                                                             |  |                                                                                               |  |                                                                               |  |                                                                                                                                     |      
|                                                             |  |                                                                                               |  |                                                                               |  |                                                                                                                                     |       |  |  |        |     | 
|Equity compensation plans approved by
  security holders     |  | 319,536                                                                                       |  |                                                                               |  | $                                                                                                                                   | 29.61 |  |  | 12,523 |     | 
|                                                             |  |                                                                                               |  |                                                                               |  |                                                                                                                                     |       |  |  |        |     | 
|Equity compensation plans not approved by
  security holders |  | N/A                                                                                           |  |                                                                               |  |                                                                                                                                     | N/A   |  |  | 16,189 | (1) | 
|                                                             |  |                                                                                               |  |                                                                               |  |                                                                                                                                     |       |  |  |        |     | 
|                                                             |  |                                                                                               |  |                                                                               |  |                                                                                                                                     |       |  |  |        |     | 
|Total                                                        |  | 319,536                                                                                       |  |                                                                               |  | $                                                                                                                                   | 29.61 |  |  | 28,712 |     | 

(1)          Represents
shares issuable under the Companys Amended and Restated Employee Stock
Purchase Plan (the ESPP). The ESPP is a broad-based plan which was originally
adopted by the Company in October, 1994 and has been amended and restated to
increase the number of shares issuable under the ESPP to the current maximum of
80,000 shares. Under the ESPP, eligible employees and directors may purchase
PNBC common stock without incurring any brokerage commissions or service
charges using lump sum contributions and/or payroll deductions, in the case of
employees.

---



Item 13. Certain Relationships and Related
Transactions, and Director Independence

Information
regarding relationships and transactions is included in the Proxy Statement
under the captions Certain Transactions and Board of Directors Meetings and
Committees, which information is incorporated by reference herein.

Item 14. Principal Accountant Fees and
Services

Information
regarding principal accountant fees and services is included in the Proxy
Statement under the caption Audit Committee Report, which information is
incorporated by reference herein.

Item 15. Exhibits and Financial Statement
Schedules

|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------
|(a)(1) | The
  following is a list of the Financial Statements included in Part II, Item 8
  of this report:                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|       |                                                                                                                                                                                                                                                                     | Report of
  Independent Registered Public Accounting Firm                                                            
|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|       |                                                                                                                                                                                                                                                                     | Consolidated
  Balance Sheets as of December 31, 2006 and 2005.                                                      
|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|       |                                                                                                                                                                                                                                                                     | Consolidated
  Statements of Income for the years ended 
  December 31, 2006, 2005 and 2004.                         
|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|       |                                                                                                                                                                                                                                                                     | Consolidated
  Statements of Comprehensive Income for the years ended
  December 31, 2006, 2005, and 2004.           
|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|       |                                                                                                                                                                                                                                                                     | Consolidated
  Statements of Changes in Stockholders Equity for the years ended
  December 31, 2006, 2005, and 2004.
|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|       |                                                                                                                                                                                                                                                                     | Consolidated
  Statements of Cash Flows for the years ended
  December 31, 2006, 2005, and 2004.                     
|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|       |                                                                                                                                                                                                                                                                     | Notes to
  Consolidated Financial Statements.                                                                        
|       |                                                                                                                                                                                                                                                                     |                                                                                                                      
|(a)(2) | Financial
  Statement Schedules                                                                                                                                                                                                                                    
|       |                                                                                                                                                                                                                                                                    
|       | No
  consolidated financial statement schedules are required to be included in
  this Report on Form 10-K.                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                    
|(a)(3) | Exhibits                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                    
|       | The
  exhibits filed herewith are listed on the Exhibit Index filed as part of this
  report on Form 10-K. Each management contract or compensatory plan or
  arrangement of the Corporation listed on the Exhibit Index is separately
  identified by an asterisk.

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registration has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

| |                                    |                                                        
| | ---------------------------------- | -------------------------------------------------------
| | PRINCETON
  NATIONAL BANCORP, INC.
| |                                    |                                                        
| | By:                                | /s/ Tony J. Sorcic                                     
| |                                    |                                                        
| |                                    | Tony
  J. Sorcic, President and Chief Executive Officer
| | Date:  March
  15, 2007           

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.

|          |                    |       |                                                      |      | 
|--------- | ------------------ | ----- | ---------------------------------------------------- | ---- | 
|Signature |                    | Title |                                                      | Date
|          |                    |       |                                                      |     
|          |                    |       |                                                      |      | 
|/s/       | Tony J. Sorcic     |       | President
  and Chief Executive Officer and Director |      | 
|          |                    |       | (Principal
  Executive Officer)                      |      | 
|          | Tony
  J. Sorcic   |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       | Todd D. Fanning    |       | Senior
  Vice-President & Chief Financial Officer    |      | 
|          |                    |       | (Principal
  Accounting and Financial Officer)       |      | 
|          | Todd
  D. Fanning  |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       | Craig O. Wesner    |       | Chairman
  of the Board                              |      | 
|          |                    |       |                                                      |      | 
|          | Craig O. Wesner    |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       | Daryl Becker       |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Daryl Becker       |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       | Gary
  C. Bruce    |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Gary
  C. Bruce    |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       |                    |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Sharon
  L. Covert |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       |                    |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | John
  R. Ernat    |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       | Donald E. Grubb    |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Donald E. Grubb    |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       | Mark Janko         |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Mark Janko         |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       |                    |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Willard Lee        |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       |                    |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Thomas M. Longman  |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       |                    |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Ervin I. Pietsch   |       |                                                      |      | 
|          |                    |       |                                                      |      | 
|/s/       | Stephen W. Samet   |       | Director                                             |      | 
|          |                    |       |                                                      |      | 
|          | Stephen W. Samet   |       |                                                      |      | 

---



INDEX TO EXHIBITS

|                  |                                                                                                                                                                                                                                                                                                    
|----------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 
  Number | Exhibit                                                                                                                                                                                                                                                                                            
|                  |                                                                                                                                                                                                                                                                                                    
|                  |                                                                                                                                                                                                                                                                                                    
|3.1               | Amended and
  Restated Certificate of Incorporation of Princeton National Bancorp, Inc.
  (PNBC) (incorporated by reference to Exhibit 3.1 to the PNBC Registration
  Statement on Form S-1(Registration No. 33-46362) (the S-1 Registration
  Statement)).                                    
|                  |                                                                                                                                                                                                                                                                                                    
|3.2               | By-Laws of
  PNBC (as amended January 27, 2003) (incorporated by reference to Exhibit 3.2
  of the 2002 PNBC Annual Report on Form 10-K).                                                                                                                                                          
|                  |                                                                                                                                                                                                                                                                                                    
|4.1               | Certificate
  of Designation of Series A Junior Participating Preferred Stock (incorporated
  by reference from Registration Statement on Form 8-A filed by PNBC on August
  1, 2003 (File No. 000-20050)) incorporated by reference to Exhibit 4.1 of the
  2004 PNBC Annual Report on Form 10-K).
|                  |                                                                                                                                                                                                                                                                                                    
|4.2               | Trust
  Preferred Securities Indenture (incorporated by reference to Exhibit 4.1 to
  PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).                                                                                                                                
|                  |                                                                                                                                                                                                                                                                                                    
|10.1*             | Employment
  Agreement, dated as of January 8, 2003 between PNBC and James B. Miller.
  (incorporated by reference to Exhibit 10.2 of the 2002 PNBC Annual Report on
  Form 10-K).                                                                                                                 
|                  |                                                                                                                                                                                                                                                                                                    
|10.2*             | Employment
  Agreement, dated as of October 23, 2000, between PNBC and Tony J. Sorcic
  (incorporated by reference to Exhibit 10.2 of the 2000 PNBC Annual Report on
  Form 10-K).                                                                                                                 
|                  |                                                                                                                                                                                                                                                                                                    
|10.3*             | Citizens
  First National Bank Profit Sharing Plan, as amended and restated January1,
  1989 (incorporated by reference to Exhibit 10.4 to the S-1 Registration
  Statement).                                                                                                                      
|                  |                                                                                                                                                                                                                                                                                                    
|10.4*             | Citizens
  First National Bank Defined Contribution Plan and Trust, as amended and
  restated January 1, 1989 (incorporated by reference to Exhibit 10.5 to the
  S-1 Registration Statement).                                                                                                     
|                  |                                                                                                                                                                                                                                                                                                    
|10.5*             | Princeton
  National Bancorp, Inc. Stock Option Plan (incorporated by reference from
  Schedule 14A filed by PNBC on March 6, 1998).                                                                                                                                                               
|                  |                                                                                                                                                                                                                                                                                                    
|10.6*             | Princeton
  National Bancorp, Inc. Deferred Compensation Plan (incorporated by reference
  to Exhibit 10.6 of the 2001 PNBC Annual Report on Form 10-K).                                                                                                                                           
|                  |                                                                                                                                                                                                                                                                                                    
|10.7*             | Princeton
  National Bancorp, Inc. Management Incentive Compensation Plan (incorporated
  by reference to Exhibit10.7 of the 2001 PNBC Annual Report on Form 10-K).                                                                                                                                
|                  |                                                                                                                                                                                                                                                                                                    
|10.8*             | Princeton
  National Bancorp, Inc. 2003 Stock Option Plan (incorporated by reference from
  Schedule 14A filed by PNBC on March 19, 2003).                                                                                                                                                         
|                  |                                                                                                                                                                                                                                                                                                    
|10.9*             | Form of
  Stock Option Agreement (incorporated by reference to Exhibit 10.9 of the 2004
  PNBC Annual Report on Form 10-K).                                                                                                                                                                        
|                  |                                                                                                                                                                                                                                                                                                    
|10.10*            | Amendment to
  Stock Option Agreement (incorporated by reference to Exhibit 10.10 of the
  2005 PNBC Annual Report on Form 10-K).                                                                                                                                                                  

---



|      |                                                                                                                                                                                  
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 | Trust
  Preferred Securities Purchase Agreement (incorporated by reference to Exhibit
  10.1 to PNBC Quarterly Report on Form 10-Q for the quarter ended September
  30, 2005).  
|      |                                                                                                                                                                                  
|10.12 | Trust
  Preferred Securities Declaration of Trust (incorporated by reference to
  Exhibit 10.2 to PNBC Quarterly Report on Form 10-Q for the quarter ended September
  30, 2005).
|      |                                                                                                                                                                                  
|10.13 | Trust
  Preferred Securities Guarantee Agreement (incorporated by reference to
  Exhibit 10.3 to PNBC Quarterly Report on Form 10-Q for the quarter ended
  September 30, 2005). 
|      |                                                                                                                                                                                  
|13    | Portions of
  2006 Annual Report to Shareholders.                                                                                                                                
|      |                                                                                                                                                                                  
|14    | Code of
  Ethics (incorporated by reference to Exhibit 14 of the 2003 PNBC Annual
  Report on Form 10-K).                                                                        
|      |                                                                                                                                                                                  
|21    | Subsidiaries
  of PNBC.                                                                                                                                                          
|      |                                                                                                                                                                                  
|23.1  | Consent of
  BKD, LLP.                                                                                                                                                           
|      |                                                                                                                                                                                  
|23.2  | Consent of
  KPMG LLP.                                                                                                                                                           
|      |                                                                                                                                                                                  
|31.1  | Certification
  of Tony J. Sorcic required by Rule 13a-14(a).                                                                                                                    
|      |                                                                                                                                                                                  
|31.2  | Certification
  of Todd D. Fanning required by Rule 13a-14(a).                                                                                                                   
|      |                                                                                                                                                                                  
|32.1  | Certification
  of Tony J. Sorcic required by Rule 13a-14(b) and Section 906 of the
  Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                        
|      |                                                                                                                                                                                  
|32.2  | Certification
  of Todd D. Fanning required by Rule 13a-14(b) and Section 906 of the
  Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                       
|      |                                                                                                                                                                                  
|99.1  | Report of
  Management on Internal Control Over Financial Reporting                                                                                                              
|      |                                                                                                                                                                                  
|99.2  | Report of
  Independent Registered Public Accounting Firm                                                                                                                        

|  |                                            
|- | -------------------------------------------
|* | Management
  contract or compensatory plan.

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