UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, 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, 2009

Commission File Number 0-20050

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

|                                          |  |                     
|----------------------------------------- |  | --------------------
|Delaware                                  |  | 36-32110283         
|                                          |  |                     
|(State
 or other jurisdiction of          |  | (I.R.S.
 Employer   
|incorporation
 or organization)           |  | 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:

|                    |  |                                              
|------------------- |  | ---------------------------------------------
|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

|                                                                                                                                                                                                                                                                                                                                                                                                 |     |   |    |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --- | - | -- | -
|Indicate by check mark if
 the registrant is a well-known season 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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter)
during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files). | Yes | o | 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, a
 non-accelerated filer, or a smaller reporting company. See the definitions of
 large accelerated filer, accelerated filer and smaller reporting
 company in Rule 12b-2 of the Exchange Act. (Check one):                                                                             |     |   |    |  

| |                                                |   |                            |  |   |  | 
| | ---------------------------------------------- | - | -------------------------- |  | - |  | 
| | Large accelerated filer                        | o | Accelerated
 filer         |  | o |  | 
| |                                                |   |                            |  |   |  | 
| | Non-accelerated filer                          | x | Smaller
 reporting company |  | o |  | 
| | (do not check if a smaller
 reporting company) |   |                            |  |   | 
| |                                                |   |                            |  |   |  | 

|                                                                                                                                                                                                                                                                                                                                                                                                          |     |   |    |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | - | -- | -
|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 March 22, 2010, 3,306,369 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, 2009 of $14.60, the last business day of the Registrants most recently
completed second quarter, as reported by NASDAQ) held by nonaffiliates was
approximately $48,272,987. |     |   |    |  
|                                                                                                                                                                                                                                                                                                                                                                                                          |     |   |    |  
|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:                                                                                                                                                                                                                                                                                                                                       |     |   |    |  
|                                                                                                                                                                                                                                                                                                                                                                                                          |     |   |    |  
|2010 Notice and Proxy Statement for the Annual Meeting of
Stockholders April 27, 2010 (the Proxy Statement) - Part III and portions of
the Corporations 2009 Annual Report (the Annual Report) - Part II                                                                                                                                                                                             |     |   |    |  

Page 1 of 80 pages





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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 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, 2009, the Corporation had consolidated
total assets of $1,260,730,000 and stockholders equity of $74,660,000.

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 2009, 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 2007, PNBC acquired the Plainfield office of HomeStar Bank and 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 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-fifth 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, 2009, Citizens Bank had commercial loans of $244 million (30.6%
of the Banks total loan portfolio) and commercial real estate loans of $198.9
million (24.9% 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, 2009, Citizens Bank had
agricultural loans of $76.9 million and agricultural real estate loans of $61.0
million, which represent approximately 9.6% and 7.6%, 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 agricultural loan department,
which has the equivalent of five lending officers, works closely with all
agricultural customers (including companies and individual farmers) and assists
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. Citizens Bank had syndicated loans with other lending institutions
totaling $39 million at December 31, 2009 (4.9% of the Banks total loan
portfolio). Citizens Bank does buy and sell loan participations with other
community banks. 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.

Citizens
Bank is active in consumer and mortgage lending with approximately $123.4
million in home mortgage loans (15.4% of the Banks total loan portfolio) and
$69.7 million in consumer installment

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loans (8.7% of
the Banks total loan portfolio) as of December 31, 2009. 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,
2009, Citizens Bank had $363.9 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 does not
originate sub-prime loans.

Citizens
Bank maintains twenty-five automated teller machines. The Bank is a member of
ACCEL/Exchange and NYCE as well as other major nationwide networks such as,
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 Online Banking, Mobile
Banking and 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. In 2009, Citizens Bank continued to
focus on making quality product referrals and sales.

Citizens Financial Advisors (CFA)

Fiduciary
and Investment Services departments both faced significant growth challenges
due to the general nervousness of investing in the markets during 2009.
Although the Dow Jones Industrial Average increased 18.8%, from 8776 to 10428
during the December 31, 2008 to December 31, 2009 time frame, Fiduciary
Services grew only 7.2% in Assets Under Management (AUM). This outcome is due
to the fact that many of our self-directed investor accounts, concerned with
the perception of free falling equity markets, transferred their holdings, in
many cases against our recommendations, into the bond markets. As the equity
markets rebounded throughout the year, many of these accounts did not share in
that growth.

In
addition, Fiduciary Services suffered from the adverse effect of the
distribution of nearly $16 million in AUM to beneficiaries, a 8.5% decline, due
to the passing of trust clients. Next to the markets collapse, this personal
and business negative outcome has been the most significant unfortunate effect
to the portfolio in the departments history. This single factor also caused
the overall AUM to decline year-over-year by 6.8% to finish the year at
$171,429,000. Considering Fiduciary Services earns the majority of its income
from fees assessed against AUM, the annual income goal was not attained.

On
the other hand, Investment Services had an outstanding year in AUM growth. The
assets grew from a low of $81.7 million at the end of February to an all time
department high of $113.9 million by year end. This fact, however, since
Investment Services earns its income from commissions generated on new invested
dollars and not fees charged against AUM, masks a shift during the year by our
clients to the purchase of fixed rate assets that earn lower commissions.

Due
to these factors, Fiduciary and Investment Services results were 14.2% below
budgeted income for the year 2009. Numerous specific new business development
plans have been implemented for 2010 to grow both the AUM of Fiduciary Services
and the product sales of Investment Services. These tactics are designed to
take advantage of the continued business environment improvements expected in
the near and long-term future of the economy.

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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 FRB, 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. PNBC has not elected to
be treated as a financial holding company.

5

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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 the 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, 2009, the Bank
was authorized to distribute $0 as dividends without prior approval from the
OCC, based on net income for 2009 and retained net income for 2007 and 2008. As
of January 1, 2010, retained net income for the prior two years was $0 and
during 2010 the Bank will need prior approval from the OCC to pay dividends.
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-

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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.

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, 2009, PNBC had a total capital to risk-weighted assets ratio of
11.50%, a Tier 1 capital to risk-based assets ratio of 10.25%, and a leverage
ratio of 7.48%. PNBC is classified as adequately capitalized for the first
ratio and well-capitalized for the last two ratios. At December 31, 2009, the
Bank had a total capital to risk-weighted assets ratio of 11.25%, a Tier 1
capital to risk-weighted assets ratio of 10.00%, and a leverage ratio of 7.30%.
The Bank is classified as well-capitalized for all three ratios.

The Banks
deposits are insured by the Deposit Insurance Fund, which is administered by
the Federal Deposit Insurance Corporation (the FDIC). As an FDIC-insured
institution, the Bank is required to pay deposit insurance premium assessments
to the Deposit Insurance Fund pursuant to a risk-based assessment system.
Deposit accounts are generally insured up to a maximum of $100,000 per
separately insured depositor and up to a maximum of $250,000 for self-directed
retirement accounts. Effective October 3, 2008, the Emergency Economic
Stabilization Act of 2008 (EESA) raised the basic limit on federal deposit
insurance coverage from $100,000 to $250,000 per depositor. This increase is
effective on a temporary basis until December 31, 2013.

Under the
FDICs risk-based assessment regulations there are four risk categories, and
each insured institution is assigned to a risk category based on capital levels
and supervisory ratings. Well-capitalized institutions with CAMELS composite
ratings of 1 or 2 are placed in Risk Category I while other institutions are
placed in Risk Categories II, III or IV depending on their capital levels and
CAMELS composite ratings. The assessment rates may be changed by the FDIC as
necessary to maintain the insurance fund at the reserve ratio designated by the
FDIC. The FDIC may set the reserve ratio annually at between 1.15% and 1.50% of
insured deposits. Deposit insurance assessments are collected for a quarter at
the end of the next quarter. Assessments are based on deposit balances at the
end of the quarter, except institutions with $1 billion or more in assets and
institutions that become insured on or after January 1, 2007 will have their
assessment base determined using average daily balances of insured deposits.

Due to a
decrease in the reserve ratio of the Deposit Insurance Fund, on October 7,
2008, the FDIC established a restoration plan to restore the reserve ratio to
at least 1.15% within five years (the FDIC has extended this time to eight
years). On December 16, 2008, the FDIC adopted and issued a final rule
increasing the rates banks pay for deposit insurance uniformly by 7 basis
points (annualized) effective January 1, 2009. Under the final rule, risk-based
rates for the first quarter 2009 varied between 12 and 50 basis points
depending on an institutions risk category. On February 27, 2009, the FDIC
adopted a final rule amending the way that the assessment system differentiates
for risk and setting new assessment rates beginning with the second quarter of
2009. As of April 1, 2009, for the highest rated institutions, those in Risk
Category I, the initial base assessment rate was between 12 and 16 basis points
and for the lowest rated institutions, those in Risk Category IV, the initial
base assessment rate was 45 basis points. The final rule modified the means to
determine a Risk Category I institutions initial base assessment rate. It also
provided for the following adjustments to an institutions assessment rate: (1)
a decrease for long-term unsecured debt, including most senior and subordinated
debt and, for small institutions, a portion of Tier 1 capital; (2) an increase
for secured liabilities above a threshold amount; and (3) for institutions in
risk categories other than Risk Category I, an increase for brokered deposits
above a threshold amount. After applying these

7

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adjustments, for the highest rated institutions, those in Risk Category
I, the total base assessment rate is between 7 and 24 basis points and for the
lowest rated institutions, those in Risk Category IV, the total base assessment
rate is between 40 and 77.5 basis points.

On
May 22, 2009, the FDIC imposed a special assessment of five basis points on
each FDIC-insured depository institutions assets, minus its Tier 1 capital, as
of June 30, 2009. The special assessment was collected on September 30, 2009,
and the Bank paid an additional assessment of $588,000.

On
November 12, 2009, the FDIC adopted a final rule that required insured
institutions to prepay on December 31, 2009, estimated quarterly risk-based
assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012.
For purposes of calculating the prepayment amount, the institutions third
quarter 2009 assessment base was increased quarterly at a five percent annual
growth rate through the end of 2012. On September 29, 2009, the FDIC also
increased annual assessment rates uniformly by three basis points beginning
January 1, 2011. On December 31, 2009, the Bank prepaid estimated assessments
of $6.3 million.

On November
21, 2008, the FDIC adopted final regulations implementing the Temporary
Liquidity Guarantee Program (TLGP) pursuant to which depository institutions
could elect to participate. Pursuant to the TLGP, the FDIC will (i) guarantee,
through the earlier of maturity or June 30, 2012, certain newly issued senior
unsecured debt issued by participating institutions on or after October 14,
2008 and before October 31, 2009 (the Debt Guarantee), and (ii) provide full
FDIC deposit insurance coverage for non-interest bearing deposit transaction
accounts regardless of dollar amount for an additional fee assessment by the
FDIC (the Transaction Account Guarantee). These accounts are mainly
payment-processing accounts, such as business payroll accounts. The Transaction
Account Guarantee was to expire on December 31, 2009; however, has been
extended to June 30, 2010 for those participating institutions that do not opt
out. Participating institutions are assessed a surcharge on the portion of
eligible accounts that exceeds the general limit on deposit insurance coverage.

Coverage
under the TLGP was available to any eligible institution that did not elect to
opt out of the TLGP on or before December 5, 2008. The Bank opted out of the
Transaction Account Guarantee portion of the TLGP. PNBC and the Bank did not
opt out of the Debt Guarantee program, but did not issue any debt under the
Debt Guarantee program.

Effective
November 17, 2006, the FDIC implemented a one-time credit of $4.7 billion to
eligible institutions. The Bank was an eligible institution and received notice
from the FDIC that its share of the credit is $647,000. This amount was not
reflected in the accompanying financial statements as it represented contingent
future credits against future insurance assessment payments. In 2008 and 2007,
FDIC premium credits received totaled $266,000 and $381,000, respectively,
against the premium expense, leaving no remaining credit as of December 31,
2008, to offset future premium expense.

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.

8

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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 are 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.

Pursuant to
EESA, the U.S. Department of the Treasury (the Treasury) has the authority to
among other things, purchase up to $700 billion of mortgages, mortgage-backed
securities and certain other financial instruments from financial institutions
for the purpose of stabilizing and providing liquidity to the U.S. financial
markets. Pursuant to its authority under EESA, the Treasury created the
Troubled Asset Relief Program (TARP) Capital Purchase Program (CPP) under
which the Treasury was authorized to invest in non-voting, senior preferred
stock of U.S. banks and savings associations or their holding companies.

PNBC
elected to participate in the CPP and on January 23, 2009, PNBC completed the
sale of $25.1 million of preferred stock to the Treasury. PNBC issued and sold
(1) 25,083 shares of Fixed Rate Cumulative Perpetual Preferred Stock Series B,
with a liquidation preference of $1,000 per share (the Series B Preferred
Shares), and (2) a ten-year warrant (the Warrant) to purchase up to 155,025
shares of the PNBCs common stock (Common Stock) at an exercise price of
$24.27 per share, or an aggregate purchase price of $3.8 million in cash.
Cumulative dividends on the Series B Preferred Shares will accrue at a rate of
5% per annum for the first five years, and at a rate of 9% per annum
thereafter.

The
securities purchase agreement, dated January 23, 2009 (the Purchase
Agreement), between PNBC and the Treasury, pursuant to which the Series B
Preferred Shares and the Warrant were sold, limits the payment of dividends on
the Common Stock to the current quarterly cash dividend of $0.28 per share,
limits PNBCs ability to repurchase its Common Stock, and subjects PNBC to
certain of the executive compensation limitations included in the EESA.

The
restrictions on stock repurchases are in effect until the earlier to occur of
January 23, 2012 (the third anniversary of the issuance of the Series B
Preferred Shares to the Treasury) or the date on

9

---



which the Company has redeemed all of the Series B Preferred Shares
issued or the date on which the Treasury has transferred all of the Series B
Preferred Shares to third parties not affiliated with the Treasury The terms of
the Series B Preferred Shares, as amended by the American Recovery and
Reinvestment Act of 2009 (ARRA), provide that the Series B Preferred Shares,
may be redeemed by PNBC, in whole or in part, upon approval of the Treasury and
PNBCs primary banking regulators.

As a
condition to the closing of the transaction, each of PNBCs senior executive
officers (as defined in the Purchase Agreement) executed a waiver voluntarily
waiving any claim against the Treasury or PNBC for any changes to their
compensation or benefits, as required to comply with the regulations issued by
the Treasury under the TARP CPP. The senior executive officers also
acknowledged that the regulations may require modification of the compensation,
bonus, incentive and other benefit plans, arrangements and policies and
agreements (including so-called golden parachute agreements) as they relate
to the period the Treasury holds any securities of PNBC acquired through the
CPP.

ARRA
was enacted on February 17, 2009. Among other things, ARRA sets forth
additional limits on executive compensation at all financial institutions
receiving federal funds under any program, including the TARP CPP, both
retroactively and prospectively. The executive compensation restrictions in
ARRA include, among others: limits on compensation incentives, prohibitions on
Golden Parachute Payments to certain employees, the establishment by publicly
registered TARP CPP recipients of a board compensation committee comprised
entirely of independent directors for the purpose of reviewing employee
compensation plans, and the requirement of a non-binding vote on executive pay
packages at each annual shareholder meeting until the government funds are
repaid.

On
October 22, 2009, the Federal Reserve issued proposed guidance for structuring
incentive compensation arrangements at all financial institutions. The guidance
does not set forth any formulas or pay caps, but sets forth certain principles
which companies would be required to follow with respect to employees and
groups of employees that may expose the institution to material amounts of
risk.

On March
15, 2010 the Bank entered into a written agreement (the Agreement) with the
OCC. The Agreement sets forth the Banks commitments to: (i) review and take
action as necessary regarding its allowance for loan and lease losses; (ii)
improve the Banks asset quality through the development of workout plans for
criticized assets and the assessment of credit risk; and (iii) revise the
Banks credit risk rating management information system. The Bank has taken
steps to address the issues raised in the Agreement and intends to fully comply
with the requirements set forth in the Agreement.

Employees

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

As
of December 31, 2009, Citizens Bank employed 283 full-time and 85 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.

10

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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, 2009, officers and employees of the Bank
participated in approximately 515 community organizations, providing over
17,085 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.

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, 2009, 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.

A sustained weakness
or weakening in business and economic conditions generally or specifically in
the markets in which we do business could adversely affect our business and
operating results.

11

---



Our
business could be adversely affected to the extent that weaknesses in business
and economic conditions have direct or indirect impacts on us or on our
customers and counterparties. These conditions could lead, for example, to one
or more of the following:

|  |                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A decrease
 in the demand for loans and other products and services offered by us;                                                                                                  
|  |                                                                                                                                                                                     
| | A decrease
 in customer savings generally and in the demand for savings and investment
 products offered by us; and                                                                 
|  |                                                                                                                                                                                     
| | An increase
 in the number of customers and counterparties who become delinquent, file for
 protection under bankruptcy laws, or default on their loans or other
 obligations to us.

An
increase in the number of delinquencies, bankruptcies or defaults could result
in a higher level of nonperforming assets, net charge-offs, provision for
credit losses, and valuation adjustments on loans held for sale.

If the Bank or
holding company were unable to borrow funds through access to capital markets,
we may not be able to meet the cash flow requirements of our depositors,
creditors, and borrowers, or the operating cash needed to fund corporate
expansion and other corporate activities.

Liquidity
is the ability to meet cash flow needs on a timely basis at a reasonable cost.
The liquidity of the Bank is used to make loans and leases and to repay deposit
liabilities as they become due or are demanded by customers. Liquidity policies
and limits are established by the subsidiary banks Funds Management Committee
and approved annually by the Board of Directors. The Funds Management Committee
regularly monitors the overall liquidity position of the Bank and the parent
company to ensure that various alternative strategies exist to cover
unanticipated events that could affect liquidity. The Funds Management
Committee also establishes policies and monitors guidelines to diversify the
Banks wholesale funding sources to avoid concentrations in any one market
source. Wholesale funding sources include Federal funds purchased; securities
sold under repurchase agreements; non-core deposits; and medium- and long-term
debt. The Bank is also a member of the Federal Home Loan Bank of Chicago
(FHLB), which provides funding through advances to members that are
collateralized with mortgage-related assets.

We
maintain a portfolio of securities that can be used as a secondary source of
liquidity. There are other sources of liquidity available to us should they be
needed. These sources include the sale or securitization of loans, the ability
to acquire additional national market, non-core deposits, issuance of
additional collateralized borrowings such as FHLB advances, the issuance of
debt securities, and the issuance of preferred or common securities in public
or private transactions. The Bank also can apply to borrow from the Federal
Reserves discount window.

Starting
in the middle of 2007, there has been significant turmoil and volatility in
worldwide financial markets which is, at present, ongoing. These conditions
have resulted in a disruption in the liquidity of financial markets, and could
directly impact us to the extent we need to access capital markets to raise
funds to support our business and overall liquidity position. This situation
could affect the cost of such funds or our ability to raise such funds. If we
were unable to access any of these funding sources when needed, we might be
unable to meet customers needs, which could adversely impact our financial
condition, results of operations, cash flows, and level of
regulatory-qualifying capital.

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

PNBCs
commercial and commercial real estate loan portfolio total $443.0 million at
December 31, 2009, comprising 55.5% of total loans. The primary risks
associated with commercial loans are quality of the borrowers management and
the impact of national and local economic factors.

12

---



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 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

13

---



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.

Item 4. Reserved

Supplemental Item - Executive Officers

The
following table sets forth information regarding the executive officers:

|                       |  |     |  |                                                       
|---------------------- |  | --- |  | ------------------------------------------------------
|Name                   |  | Age |  | Position                                              
|Thomas D.
 Ogaard      |  | 53  |  | President
 & Chief Executive Officer                  
|Todd D.
 Fanning       |  | 47  |  | Executive
 Vice President & COO / CFO                 
|James B.
 Miller       |  | 54  |  | Executive
 Vice President & Commercial Banking Officer
|Jacqualyn L.
 Karlosky |  | 49  |  | Senior Vice
 President  Consumer Banking             
|Patrick
 Murray        |  | 57  |  | Senior Vice
 President  Citizens Financial Advisors  

Thomas
D. Ogaard has been President and Chief Executive Officer of PNBC since February
2, 2010, and was appointed to the Board of Directors of PNBC and Citizens Bank
on September 25, 2009. He joined Citizens Bank on August 31, 2009.

Todd
D. Fanning joined Citizens Bank in 1990 as Assistant Vice President &
Controller and has been the Chief Financial Officer of PNBC since 1997. He was
appointed to the Board of Directors of PNBC and Citizens Bank on February 2,
2010. Mr. Fanning currently is the Executive Vice-President & Chief
Operating Officer/Chief Financial Officer of Citizens Bank.

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.

Jacqualyn
L. Karlosky joined Citizens Bank in 1994 as Assistant Vice President &
Branch Manager. Ms. Karlosky 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.

14

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PART II

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

(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 sales prices, and the dividends declared
per share for PNBC Common Stock during the periods indicated.

|                |  |      |        |     |                        |       |  |   |     | 
|--------------- |  | ---- | ------ | --- | ---------------------- | ----- |  | - | --- | 
|                |  |      | Prices |     | CashDividends Declared |      
|                |  |      |        |    
|                |  | High |        | Low |                        |      
|                |  |      |        |     |                        |       | 
|2009            |  |      |        |     |                        |       | 
|Fourth Quarter  |  | $    | 15.99  |     | $                      | 9.70  |  | $ | .14 | 
|Third
 Quarter  |  |      | 18.94  |     |                        | 13.39 |  |   | .14 | 
|Second
 Quarter |  |      | 15.75  |     |                        | 13.49 |  |   | .14 | 
|First
 Quarter  |  |      | 23.06  |     |                        | 12.30 |  |   | .28 | 
|                |  |      |        |     |                        |       |  |   |     | 
|2008            |  |      |        |     |                        |       |  |   |     | 
|Fourth
 Quarter |  | $    | 26.00  |     | $                      | 22.05 |  | $ | .28 | 
|Third
 Quarter  |  |      | 28.95  |     |                        | 24.78 |  |   | .28 | 
|Second
 Quarter |  |      | 29.75  |     |                        | 26.00 |  |   | .28 | 
|First
 Quarter  |  |      | 29.73  |     |                        | 23.56 |  |   | .28 | 

On
December 31, 2009, PNBC had 769 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
paid regular cash dividends on the Common Stock since it commenced operations
in 1982 through 2009. The Company suspended its dividend in the first quarter
of 2010. There can be no assurance when dividends will be
resumed by PNBC. 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.

15

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| |     |                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | The
 following table provides information about purchases of the Corporations
 common stock by the Corporation during the quarter ended December 31, 2009:

|                   |  |                                     |   |                                 |  |                                                                                                |      |                                                                                                                       |  |  |   |  |  |   | 
|------------------ |  | ----------------------------------- | - | ------------------------------- |  | ---------------------------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------------------- |  |  | - |  |  | - | 
|Period             |  | (a) Total number ofshares purchased |   | (b) Average price paidper 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 | 
|                   |  |                                     |   |                                 |  |                                                                                                |      |                                                                                                                       |  |  |   | 
|10/1/09  10/31-09 |  |                                     | 0 |                                 |  | $                                                                                              | 0.00 |                                                                                                                       |  |  | 0 |  |  | 0 | 
|11/1-09  11/30-09 |  |                                     | 0 |                                 |  | $                                                                                              | 0.00 |                                                                                                                       |  |  | 0 |  |  | 0 | 
|12/1-09  12/31/09 |  |                                     | 0 |                                 |  | $                                                                                              | 0.00 |                                                                                                                       |  |  | 0 |  |  | 0 | 
|                   |  |                                     |   |                                 |  |                                                                                                |      |                                                                                                                       |  |  |   |  |  |   | 
|Total              |  |                                     | 0 |                                 |  | $                                                                                              | 0.00 |                                                                                                                       |  |  | 0 |  |  | 0 | 

(1)
The Company does not currently have a stock repurchase plan in place.

The
performance graph required by item 201(e) of Regulation S-K is incorporated by
reference from Page 50 of the Corporations Annual Report.

Item 6. Selected Financial Data

Information
regarding the Corporations selected financial data is included on page 48 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 36-46 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 44-46, under the headings Asset Liability
Management and Contractual Obligations, Commercial Commitments 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 10-35 and page 47 in the Corporations Annual Report,
which information is incorporated by reference herein.

16

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

None.

Item 9A(T). 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, 2009.
 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. Thomas D. Ogaard, President and Chief Executive
 Officer, and Todd D. Fanning, Executive Vice President and Chief Financial Officer,
 reviewed and participated in this evaluation. Based on this evaluation,
 Messrs. Ogaard and Fanning concluded that, as of the date of their
 evaluation, our disclosure controls were effective.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (b) | The report required by Item
308(T) of Regulation S-K is attached hereto as Exhibit 99.1 and is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | This annual report does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial reporting.  Managements
report was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules
of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.                                                                                                                                                                                                                                                                                                                                          

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 27, 2010 (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.

17

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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
 (a) |  | Weighted-average
 exercise price of
 outstanding options,
 warrants and rights
 (b) |  | Number of securities
 remaining available for
 future issuance under
 equity compensation
 plans (excluding
 securities in column (a))
 (c) | 
|                                                            |  |                                                                                                     |  |                                                                                     |  |                                                                                                                                             | 
|Equity compensation
 plans approved by security holders     |  |                                                                                                     |  | 523,211                                                                             |  |                                                                                                                                             |  | $ | 25.53 |  |  |  |  | 103,648 |     | 
|Equity
 compensation plans not approved by security holders |  |                                                                                                     |  | N/A                                                                                 |  |                                                                                                                                             |  |   | N/A   |  |  |  |  | 16,430  | (1) | 
|                                                            |  |                                                                                                     |  |                                                                                     |  |                                                                                                                                             |  |   |       |  |  |  |  |         |     | 
|Total                                                       |  |                                                                                                     |  | 523,211                                                                             |  |                                                                                                                                             |  | $ | 25.53 |  |  |  |  | 120,078 |     | 

(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
100,000 shares. Under the ESPP, eligible employees and directors may purchase
PNBC common stock without

18

---



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, 2009 and 2008.                                                     
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                    
|       |  |                                                                                                                                                                                                                                                                 | Consolidated
 Statements of Income for the years endedDecember 31,
 2009, 2008 and 2007.                           
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                    
|       |  |                                                                                                                                                                                                                                                                 | Consolidated
 Statements of Changes in Stockholders Equity for the years ended December
 31, 2009, 2008, and 2007.
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                    
|       |  |                                                                                                                                                                                                                                                                 | Consolidated
 Statements of Cash Flows for the years ended December 31,
 2009, 2008, and 2007.                     
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                    
|       |  |                                                                                                                                                                                                                                                                 | 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.

19

---



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/ Thomas D. Ogaard                                    
| |                                   |                                                         
| |                                   | Thomas D.
 Ogaard, President and Chief Executive Officer
| | Date:                             | March 25,
 2010                                         

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

20

---



INDEX TO EXHIBITS

|                   |        |                                                                                                                                                                                                                              |  | 
|------------------ | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Exhibit
    Number |        | Exhibit                                                                                                                                                                                                                      | 
|                   |        |                                                                                                                                                                                                                              | 
|                   | 3.1    | Amended and Restated
 Certificate of Incorporation of Princeton National Bancorp, Inc. (PNBC)
 (incorporated by reference from Exhibit 4.1 to the PNBC Registration
 Statement on Form S-3 (Registration No. 333-157451)).
|                   |        |                                                                                                                                                                                                                             
|                   | 3.2    | By-Laws of PNBC
 (incorporated by reference from Exhibit 3.2 of the 2007 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)).                    
|                   |        |                                                                                                                                                                                                                             
|                   | 4.2    | Certificate of
 Designations of Series B Preferred Stock (incorporated by reference from
 Exhibit 3.1 to Form 8-K filed on January 27, 2009).                                                                               
|                   |        |                                                                                                                                                                                                                             
|                   | 4.3    | Trust Preferred Securities
 Indenture (incorporated by reference from Exhibit 4.1 from PNBC Quarterly
 Report on Form 10-Q for the quarter ended September 30, 2005).                                                       
|                   |        |                                                                                                                                                                                                                             
|                   | 4.4    | Warrant to purchase up to
 155,025 shares of Common Stock issued January 23, 2009 (incorporated by
 reference from Exhibit 4.1 to the Form 8-K filed on January 29, 2009).                                                  
|                   |        |                                                                                                                                                                                                                             
|                   | 10.1*  | Employment Agreement,
 dated as of December 15, 2008 between PNBC and James B. Miller (incorporated
 by reference from the Form 8-K filed by PNBC on December 19, 2008).                                                    
|                   |        |                                                                                                                                                                                                                             
|                   | 10.2*  | Employment Agreement,
 dated as of January 25, 2010, between PNBC and Thomas D. Ogaard (incorporated
 by reference from the Form 8-K filed by PNBC on January 29, 2010).                                                    
|                   |        |                                                                                                                                                                                                                             
|                   | 10.3*  | Citizens First National
 Bank Profit Sharing Plan, as amended and restated January 1, 1989
 (incorporated by reference from Exhibit 10.4 to the S-1 Registration
 Statement (33-46362)).                                    
|                   |        |                                                                                                                                                                                                                             
|                   | 10.4*  | Citizens First National
 Bank Defined Contribution Plan and Trust, as amended and restated January 1,
 1989 (incorporated by reference from 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 from
 Exhibit 10.6 of the 2001 PNBC Annual Report on Form 10-K).                                                                    
|                   |        |                                                                                                                                                                                                                             
|                   | 10.7*  | Princeton National
 Bancorp, Inc. 2005 Deferred Compensation Plan, as amended (incorporated by
 reference from Form 8-K filed on December 19, 2008).                                                                        
|                   |        |                                                                                                                                                                                                                             
|                   | 10.8*  | Princeton National
 Bancorp, Inc. Management Incentive Compensation Plan (incorporated by
 reference from Exhibit 10.7 of the 2001 PNBC Annual Report on Form 10-K).                                                        
|                   |        |                                                                                                                                                                                                                             
|                   | 10.9*  | Princeton National
 Bancorp, Inc. 2003 Stock Option Plan (incorporated by reference from Schedule
 14A filed by PNBC on March 19, 2003).                                                                                    
|                   |        |                                                                                                                                                                                                                             
|                   | 10.10* | Form of Stock Option
 Agreement (incorporated by reference from Exhibit 10.9 of the 2004 PNBC
 Annual Report on Form 10-K).                                                                                                 

21

---



| |        |                                                                                                                                                                                
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.11* | Amendment to Stock Option
 Agreement (incorporated by reference from Exhibit 10.10 of the 2005 PNBC
 Annual Report on Form 10-K).                                              
| |        |                                                                                                                                                                                
| | 10.12  | Trust Preferred Securities
 Purchase Agreement (incorporated by reference from Exhibit 10.1 to PNBC
 Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).  
| |        |                                                                                                                                                                                
| | 10.13  | Trust Preferred Securities
 Declaration of Trust (incorporated by reference from Exhibit 10.2 to PNBC
 Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
| |        |                                                                                                                                                                                
| | 10.14  | Trust Preferred Securities
 Guarantee Agreement (incorporated by reference from Exhibit 10.3 to PNBC
 Quarterly Report on Form 10-Q for the quarter ended September 30, 2005). 
| |        |                                                                                                                                                                                
| | 10.15* | 2007 Stock Compensation
 Plan (incorporated by reference from Schedule 14A filed by PNBC on March 14,
 2007).                                                                  
| |        |                                                                                                                                                                                
| | 10.16  | Letter Agreement with U.S.
 Treasury dated January 23, 2009 including Securities Purchase Agreement
 (incorporated by reference from Form 8-K filed on January 29, 2009).      
| |        |                                                                                                                                                                                
| | 10.17  | Form of Waiver of Senior
 Executive Officers (incorporated by reference from Exhibit 10.2 to Form 8-K
 filed on January 29, 2009).                                             
| |        |                                                                                                                                                                                
| | 10.18  | Form of Omnibus Amendment
 Agreement (incorporated by reference from Exhibit 10.3 to Form 8-K filed on January 29, 2009).                                                      
| |        |                                                                                                                                                                                
| | 13     | Portions of 2009 Annual Report
 to Shareholders.                                                                                                                               
| |        |                                                                                                                                                                                
| | 14     | Code of Ethics
 (incorporated by reference from Exhibit 14 of the 2003 PNBC Annual Report on
 Form 10-K).                                                                      
| |        |                                                                                                                                                                                
| | 21     | Subsidiaries of PNBC.                                                                                                                                                          
| |        |                                                                                                                                                                                
| | 23.1   | Consent of BKD, LLP.                                                                                                                                                           
| |        |                                                                                                                                                                                
| | 31.1   | Certification of Thomas D.
 Ogaard required by Rule 13a-14(a).                                                                                                                 
| |        |                                                                                                                                                                                
| | 31.2   | Certification of Todd D.
 Fanning required by Rule 13a-14(a).                                                                                                                  
| |        |                                                                                                                                                                                
| | 32.1   | Certification of Thomas D.
 Ogaard 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   | 31 C.F.R. Section 30.15
 Certification of Thomas D. Ogaard.                                                                                                                    
| |        |                                                                                                                                                                                
| | 99.3   | 31 C.F.R. Section 30.15
 Certification of Todd D. Fanning.                                                                                                                     

*   Management
contract or compensatory plan.

22

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