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|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, 2007                                          
|                                                                                     
|Commission
 File Number 0-20050                                                      
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|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 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         |   | x |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                |   |                            |   |   |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                   | Non-accelerated filer                          | o | 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
 February 29, 2008, 3,303,447 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, 2007 of
 $27.60, the last business day of the Registrants most recently completed
 second quarter, as reported by NASDAQ) held by nonaffiliates was
 approximately $91,175,137. |                                                |   |                           
|                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                |   |                            |  
|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:                                                                                                                                                                                                                                                                                                                                                |                                                |   |                           
|                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                |   |                            |   |   |  | 
|2008
 Notice and Proxy Statement for the Annual Meeting of Stockholders April 29,
 2008 (the Proxy Statement) - Part III and portions of the Corporations
 2007 Annual Report (the Annual Report) - Part II                                                                                                                                                                                                   |                                                |   |                           

Page 1 of 76 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 commercial banking, trust and investment brokerage 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, 2007, the Corporation had consolidated total assets of
$1,080,702,000 and stockholders equity of $68,607,000.

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 2007, 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, along with the Plainfield office, are located in rapidly growing
communities that will provide significant loan and deposit growth
opportunities, as well as increased revenue potential.

Citizens First National Bank

Citizens
Bank was organized in 1865 as a national banking association under the National
Bank Act. Currently in its one hundred and forty-third 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.

---

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, 2007, Citizens Bank had commercial loans of $168.9 million
(23.4% of the Banks total loan portfolio) and commercial real estate loans of
$160.1 million (22.2% 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 near our
branch locations. As of December 31, 2007, Citizens Bank had agricultural loans
of $85.6 million and agricultural real estate loans of $61.2 million, which
represent approximately 11.8% and 8.5%, respectively, of the Banks total loan
portfolio.

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

In
accordance with its loan policy, Citizens Bank maintains a diversified loan
portfolio. As part of its loan policy and community banking approach, Citizens
Bank does not buy loan syndications with other lending institutions. 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 $127.7
million in home mortgage loans (17.7 % of the Banks total loan portfolio) and
$72.3 million in consumer installment loans (10.0% of the Banks total loan
portfolio) as of December 31, 2007. 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, 2007, Citizens Bank had $268.4 million of loans
that have been sold, but servicing has been maintained. Management believes
customers receive a higher level of quality service with this arrangement.

---

Citizens
Bank maintains twenty-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 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
2007, Citizens Bank continues to focus on making quality product referrals and
sales.

Citizens Financial
Advisors (CFA)

CFA
Fiduciary Services took a significant competitive stride forward in 2007 with
its affiliation with Matrix Settlement and Clearing Services of Denver,
Colorado. Matrix will provide a platform to expand the mutual funds from the
current two prominent fund families, that of Federated and Accessor Funds, to
virtually all funds in the entire industry. This open architecture offering
will allow Fiduciary Services to give its clients a choice of over 36,000
various mutual funds and share classes.

Fiduciary
Services continued to transfer additional duties of the various 401(K) client
businesses to BPA-Harbridge, Inc. (BPA) in 2007. These transfers allowed for
the record keeping responsibilities of nearly $11 million to be professionally
accounted for by BPA. These transferees allowed Fiduciary Services additional
time to obtain new customers while retaining all oversight and control of the
accounts.

During
the year, Fiduciary Services also hired two new Relationship Mangers, both
of which are highly trained with many years of experience. One of the
Relationship Mangers is an Illinois licensed attorney while the other possesses
an MBA from Northwestern University. With the addition of these two new
Relationship Managers, Fiduciary Services has the most competent staff in its
history and is poised for continued future growth.

Fiduciary
Services completed the year with a 2.7% increase in total Income to $1,507,000.
The increase was more significant since it is compared to 2006, which contained
an additional $83,000 in farm management operations that were sold off during
2006.

CFA
Investment Services (Brokerage) experienced excellent results through the
continued entrenchment of the Client Advisors put into service at their
particular branches during the previous year and the continued emphasis of
broad needs-based client consultations. This emphasis allowed the Brokerage
program to increase the percentage of client dollars invested in a wider
variety of products such as separately managed accounts, stocks, bonds, and
mutual funds and away from traditional high-client cost products such as fixed
and variable annuities. Brokerage, after a specific concentration on the
support of customer needs, increased their year over year total income by an
impressive 24.9% to an all-time high of $920,000.

---

Competition

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

Supervision and Regulation

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

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

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

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

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

---

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

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

The Bank
may declare dividends out of undivided profits, except that until the surplus
fund of the Bank is equal to its common capital, no dividend can be declared
until one-tenth of the Banks net income for the applicable period has been
carried to the surplus fund. The Bank, however, cannot declare or pay a
dividend, if after making the dividend, the Bank would be undercapitalized. In
addition, prior approval of the OCC is required if dividends declared by the
Bank in any calendar year will exceed its net income for that year combined
with its retained net income for the preceding two years. Under national
banking regulations and capital guidelines, as of December 31, 2007, the Bank
was authorized to distribute approximately $9,009,000 as dividends without
prior approval from the OCC, based on net income for 2007 and retained net
income for 2005 and 2006. As of January 1, 2008, retained net income for the
prior two years was approximately $7,556,000 and during 2008 the Bank may pay
dividends without prior approval from the OCC equal to that amount plus any
2008 net income. Future payments of dividends by the Bank will be dependent on
individual regulatory capital requirements and levels of profitability. The
ability of the Bank to pay dividends may be further restricted as a result of
regulatory policies and guidelines relating to dividend payments and capital
adequacy.

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

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

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

---

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, 2007, PNBC had a total capital to risk-weighted assets ratio of 8.44%, a
Tier 1 capital to risk-based assets ratio of 8.03%, and a leverage ratio of
6.33%. PNBC is classified as adequately capitalized for the first ratio and
well-capitalized for the last two ratios. At December 31, 2007, the Bank had a
total capital to risk-weighted assets ratio of 10.07%, a Tier 1 capital to
risk-weighted assets ratio of 9.66%, and a leverage ratio of 7.61%. The Bank is
classified as well-capitalized for all three ratios.

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

Following
the adoption of the FDIRA, the FDIC has the opportunity, through its rulemaking
authority, to better price deposit insurance for risk than was previously
authorized. The FDIC adopted regulations effective January 1, 2007 that
create a system of risk-based assessments. Under the regulations there are four
risk categories, and each insured institution will be assigned to a risk
category based on capital levels and supervisory ratings. Well-capitalized
institutions with CAMELS composite ratings of 1 or 2 will be placed in Risk
Category I while other institutions will be placed in Risk Categories II, III
or IV depending on their capital levels and CAMELS composite ratings. Current
assessment rates established by the FDIC provide that the highest rated
institutions, those in Risk Category I, will pay premiums of between .05% and .07%
of deposits and the lowest rated institutions, those in Risk Category IV, will
pay premiums of .43% of deposits. The assessment rates may be changed by the
FDIC as necessary to maintain the insurance fund at the reserve ratio
designated by the FDIC, which currently is 1.25% of insured deposits. The FDIC
may set the reserve ratio annually at between 1.15% and 1.50% of insured
deposits. Deposit insurance assessments 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 for 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.

Effective
November 17, 2006, the FDIC implemented a one-time credit of $4.7 billion to
eligible institutions. The purpose of the credit is to recognize contributions
made by certain institutions to capitalize the Bank Insurance Fund and Savings
Association Insurance Fund, which have now been merged into the Deposit
Insurance Fund. The Bank is an eligible institution and received notice from
the FDIC that its share of the credit is $647,000. This amount is not reflected
in the accompanying financial statements as it represents contingent future
credits against future insurance assessment payments. As such, the timing and
ultimate recoverability of the one-time credit may change. In 2007, FDIC
premium credits received totaled $381,000 against the premium expense, leaving
a remaining credit of $266,000 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.

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.

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, 2007, Citizens Bank employed 272 full-time and 79 part-time
employees. The Bank offers a variety of employee benefits. Citizens Bank
employees are not represented by a union or a collective bargaining agreement,
and employee relations are considered to be excellent.

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

---

In order to
implement PNBCs community banking philosophy and to promote itself as a
community oriented organization, the Bank has a formal officer call program.
Nearly every officer of the Bank calls on existing or potential customers and
is expected to become actively involved in leadership positions in community
organizations. As of December 31, 2007, employees of the Bank participated in
approximately 371 community organizations, providing over 13,600 hours of
community service.

Available Information

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

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

Item 1A. Risk Factors

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

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

PNBCs
agricultural and agricultural real estate loan portfolio total $146.7 million
at December 31, 2007, comprising 20.3% of total loans. The primary risks
associated with agricultural loans are weather and borrowers management. In
the event of catastrophic weather conditions, such as severe drought or
flooding, these loans would represent a higher risk due to poor crop sales and
reduced cash flow that could impact the borrowers ability to repay the loan on
a timely basis.

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

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

---

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

In
determining the appropriate level of allowance for loan losses, management
considers, among other things, the overall composition of the loan portfolio,
types of loans, past loss experience, loan delinquencies, potential substandard
and doubtful loans, underlying collateral, and other factors that, in
managements best judgment, deserve evaluation. Although management monitors
the allowance monthly and considers it adequate to absorb probable losses at
December 31, 2007, if any of the assumptions are incorrect, the allowance may
not be sufficient to cover future loan losses. Future adjustments may be
necessary to allow for different economic conditions or adverse developments in
the loan portfolio. Consequently, a problem with one or more loans could
require the Corporation to significantly increase the level of its provision
for loan losses resulting in a reduction of earnings.

The
Internal Controls of PNBC may not be effective.

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

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

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

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

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

PNBC
operates in a highly regulated environment.

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

Item 1B. Unresolved Staff Comments

None.

---

Item 2. Properties

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

Item 3. Legal Proceedings

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

Item 4. Submission of Matters to a Vote of Security Holders

No matters
were submitted to a vote of the security holders during the fourth quarter of
2007.

Supplemental Item - Executive Officers

The following table sets forth information
regarding the executive officers:

|                      |  |     |  |                                                      
|--------------------- |  | --- |  | -----------------------------------------------------
|Name                  |  | Age |  | Position                                             
|                      |  |     |  |                                                      
|Tony J. Sorcic        |  | 54  |  | President & Chief Executive Officer                  
|James B. Miller       |  | 52  |  | Executive Vice President & Commercial Banking Officer
|Todd D. Fanning       |  | 45  |  | Senior Vice President & Chief Financial Officer      
|Jacqualyn L. Karlosky |  | 47  |  | Senior Vice President  Consumer Banking             
|Patrick Murray        |  | 55  |  | Senior Vice President  Citizens Financial Advisors  

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

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

Todd D.
Fanning joined Citizens Bank in 1990 as Assistant Vice President &
Controller and has been the Chief Financial Officer of PNBC since 1997. Mr.
Fanning currently is the Senior Vice-President & Chief Financial Officer of
Citizens Bank.

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

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

---

PART II

Item 5. Market for Registrants Common Stock,
Related Stockholder Matters and Issuer Purchases of Equity 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 bid prices, and the dividends declared
per share for PNBC Common Stock during the periods indicated. The prices shown
reflect interdealer prices and do not include retail markups, markdowns, or
commissions which may not necessarily represent actual transactions.

|                |  |        |       |     |   |                         |  |   |     | 
|--------------- |  | ------ | ----- | --- | - | ----------------------- |  | - | --- | 
|                |  |        |       |     |   | Cash
Dividends
Declared | 
|                |  | Prices |       |    
|                |  | High   |       | Low |   |                        
|                |  |        |       |     |   |                         | 
|2007            |  |        |       |     |   |                         |  |   |     | 
|Fourth
 Quarter |  | $      | 27.81 |     | $ | 23.04                   |  | $ | .27 | 
|Third
 Quarter  |  |        | 29.07 |     |   | 26.11                   |  |   | .27 | 
|Second
 Quarter |  |        | 31.36 |     |   | 27.58                   |  |   | .27 | 
|First
 Quarter  |  |        | 33.72 |     |   | 30.00                   |  |   | .27 | 
|                |  |        |       |     |   |                         |  |   |     | 
|2006            |  |        |       |     |   |                         |  |   |     | 
|Fourth
 Quarter |  | $      | 33.99 |     | $ | 32.17                   |  | $ | .31 | 
|Third
 Quarter  |  |        | 34.00 |     |   | 32.02                   |  |   | .25 | 
|Second
 Quarter |  |        | 35.45 |     |   | 32.22                   |  |   | .25 | 
|First
 Quarter  |  |        | 34.48 |     |   | 32.65                   |  |   | .24 | 

On
December 31, 2007, PNBC had 805 registered holders of record of its Common
Stock.

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

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

---

COMMON STOCK PRICE PERFORMANCE GRAPH

The
following Common Stock price performance graph compares the monthly change in
the Corporations cumulative total stockholder returns on its Common Stock,
assuming the Common Stock was purchased on December 31, 2002 and sold on
December 31, 2007, with the cumulative total return of stocks included in the
Russell 3000, the NASDAQ Bank Index and the SNL Midwest Bank Stock Index for
the same period. The amounts shown assume the reinvestment of dividends.

(LINE GRAPH)

|                                  |  |               |        |          |  |          |  |          |        |          |  |          |  |  |        |  |  |        | 
|--------------------------------- |  | ------------- | ------ | -------- |  | -------- |  | -------- | ------ | -------- |  | -------- |  |  | ------ |  |  | ------ | 
|                                  |  | Period Ending |       
|                                  |  |               |       
|Index                             |  | 12/31/02      |        | 12/31/03 |  | 12/31/04 |  | 12/31/05 |        | 12/31/06 |  | 12/31/07 | 
|                                  |  |               |        |          |  |          |  |          |        |          |  |          | 
|Princeton
 National Bancorp, Inc. |  |               | 100.00 |          |  | 139.83   |  |          | 145.88 |          |  | 173.96   |  |  | 175.76 |  |  | 135.89 | 
|Russell
 3000                     |  |               | 100.00 |          |  | 131.06   |  |          | 146.71 |          |  | 155.69   |  |  | 180.16 |  |  | 189.42 | 
|SNL
 Midwest Bank Index           |  |               | 100.00 |          |  | 128.00   |  |          | 144.44 |          |  | 139.18   |  |  | 160.87 |  |  | 125.39 | 
|NASDAQ
 Bank                      |  |               | 100.00 |          |  | 129.93   |  |          | 144.21 |          |  | 137.97   |  |  | 153.15 |  |  | 119.35 | 

The
Corporations Common Stock began trading on the NASDAQ Stock Market under the
symbol PNBC on May 8, 1992. On December 31, 2007 and February 29, 2008, the
Record Date, the closing bid prices for the Common Stock as quoted on NASDAQ
Online were $24.25 and $27.20, respectively.

---

(c)
The following table provides information about purchases of the Corporations
common stock by the Corporation during the quarter ended December 31, 2007:

|                    |  |                                        |  |                                    |  |                                                                                                 |       |                                                                                                                        |  |        |  |  |        |  | 
|------------------- |  | -------------------------------------- |  | ---------------------------------- |  | ----------------------------------------------------------------------------------------------- | ----- | ---------------------------------------------------------------------------------------------------------------------- |  | ------ |  |  | ------ |  | 
|Period              |  | (a)
 Total number of
 shares purchased |  | (b)
 Average price paid
 per share |  | (c)
 Total number
 of shares purchased
 as part of a
 publicly announced
 plans or programs (1) |       | (d)
 Maximum number
 (or approximate dollar
 value) of shares that
 may yet be purchased
 under the plans
 or programs | 
|                    |  |                                        |  |                                    |  |                                                                                                 |       |                                                                                                                        | 
|10/1/07
  10/31-07 |  | 0                                      |  |                                    |  | $                                                                                               | 0.00  |                                                                                                                        |  | 0      |  |  | 50,000 |  | 
|11/1-07
  11/30-07 |  | 10,000                                 |  |                                    |  | $                                                                                               | 25.50 |                                                                                                                        |  | 10,000 |  |  | 40,000 |  | 
|12/1-07
  12/31/07 |  | 0                                      |  |                                    |  | $                                                                                               | 0.00  |                                                                                                                        |  | 0      |  |  | 40,000 |  | 
|                    |  |                                        |  |                                    |  |                                                                                                 |       |                                                                                                                        |  |        |  |  |        |  | 
|                   
|Total               |  | 10,000                                 |  |                                    |  | $                                                                                               | 25.50 |                                                                                                                        |  | 10,000 |  |  | 40,000 |  | 

(1)
On April 24, 2007, the Board of Directors approved the repurchase of up to an
aggregate of 50,000 shares of our common stock pursuant to a repurchase program
announced the same day (the Program). The expiration date of this Program is
April 24, 2008. Unless terminated earlier by resolution of our Board of
Directors, the Program will expire on the earlier of such expiration date or
when we have repurchased all shares authorized for repurchase under the
Program.

Item 6. Selected Financial Data

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

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

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

Item 7A. Quantitative and Qualitative
Disclosures about Market Risk

The
information required by Item 305 of Regulation S-K is contained in the
Corporations Annual Report on pages 40-42, under the headings Asset Liability
Management and Contractual Obligations, 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 9-32 and page 43 in the Corporations Annual Report,
which information is incorporated by reference herein.

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

None.

---

Item 9A. Controls and Procedures

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Disclosure
 controls and procedures. We evaluated the effectiveness of the design and
 operation of our disclosure controls and procedures as of December 31, 2007.
 Our disclosure controls and procedures are the controls and other procedures
 that we designed to ensure that we record, process, summarize and report in a
 timely manner the information we must disclose in reports that we file with
 or submit to the SEC. Tony J. Sorcic, President and Chief Executive Officer,
 and Todd D. Fanning, Senior Vice President and Chief Financial Officer,
 reviewed and participated in this evaluation. Based on this evaluation,
 Messrs. Sorcic and Fanning concluded that, as of the date of their
 evaluation, our disclosure controls were effective.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (b) | Internal
 controls. There have not been any significant changes in our internal
 accounting controls or in other factors during the quarter ended December 31,
 2007 that could significantly affect those controls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The reports
 required by Item 308 of Regulation S-K are attached hereto as Exhibits 99.1
 and 99.2 respectively, and are incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and
Corporate Governance

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

Information
regarding executive officers and directors of the Corporation and the
Corporations Audit Committee is included in the Corporations Definitive Proxy
Statement for the Annual Meeting of Stockholders to be held April 29, 2008 (the
Proxy Statement) under the captions Proposal 1-Election of Directors and
Board of Directors Meetings and Committees, which information is
incorporated by reference herein.

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

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

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

---

Item 11. Executive Compensation

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

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

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

Equity Compensation Plan Information

|                                                            |  |                                                                                                |  |                                                                                |  |                                                                                                                                        |  |   |       |  |  |  |  |         |     | 
|----------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----- |  |  |  |  | ------- | --- | 
|Plan Category                                               |  | Number of securities to
 be issued upon exercise
 of outstanding options,
 warrants and rights |  | Weighted-average
 exercise price of
 outstanding options,
 warrants and rights |  | Number of securities
 remaining available for
 future issuance under
 equity compensation
 plans (excluding
 securities in column (a)) | 
|                                                            |  | (a)                                                                                            |  | (b)                                                                            |  | (c)                                                                                                                                    | 
|                                                            |  |                                                                                                |  |                                                                                |  |                                                                                                                                        | 
|Equity
 compensation plans approved by security holders     |  |                                                                                                |  | 404,186                                                                        |  |                                                                                                                                        |  | $ | 28.59 |  |  |  |  | 314,123 |     | 
|Equity
 compensation plans not approved by security holders |  |                                                                                                |  | N/A                                                                            |  |                                                                                                                                        |  |   | N/A   |  |  |  |  | 9,652   | (1) | 
|                                                            |  |                                                                                                |  |                                                                                |  |                                                                                                                                        |  |   |       |  |  |  |  |         |     | 
|Total                                                       |  |                                                                                                |  | 404,186                                                                        |  |                                                                                                                                        |  | $ | 28.59 |  |  |  |  | 28,712  |     | 

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

---

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

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

Item 14. Principal Accountant Fees and
Services

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

Item 15. Exhibits and Financial Statement
Schedules

|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                     
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------
|(a)(1) |  | The
 following is a list of the Financial Statements included in Part II, Item 8
 of this report:                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                 | Report of
 Independent Registered Public Accounting Firm                                                            
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                 | Consolidated
 Balance Sheets as of December 31, 2007 and 2006.                                                      
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                 | Consolidated
 Statements of Income for the years ended 
 December 31, 2007, 2006 and 2005.                          
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                 | Consolidated
 Statements of Changes in Stockholders Equity for the 
 years ended December 31, 2007, 2006, and 2005.
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                 | Consolidated
 Statements of Cash Flows for the years ended 
 December 31, 2007, 2006, and 2005.                     
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                 | Notes to
 Consolidated Financial Statements.                                                                        
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                     
|(a)(2) |  | Financial
 Statement Schedules                                                                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                 | No
 consolidated financial statement schedules are required to be included in
 this Report on Form 10-K.            
|       |  |                                                                                                                                                                                                                                                                 |                                                                                                                     
|(a)(3) |  | Exhibits                                                                                                                                                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                
|       |  | The
 exhibits filed herewith are listed on the Exhibit Index filed as part of this
 report on Form 10-K. Each management contract or compensatory plan or
 arrangement of the Corporation listed on the Exhibit Index is separately
 identified by an asterisk.

---

SIGNATURES

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

| |                                   |                                                       
| | --------------------------------- | ------------------------------------------------------
| | PRINCETON
 NATIONAL BANCORP, INC.
|
| | By:                               | /s/ Tony J. Sorcic                                    
| |                                   |                                                       
| |                                   | Tony J. Sorcic, President and Chief Executive
 Officer
| | Date:
   March 17, 2008          

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

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

---

INDEX TO EXHIBITS

|        |        |                                                                                                                                                                                                                                                                                                     |  | 
|------- | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Exhibit |       
|Number  |        | Exhibit                                                                                                                                                                                                                                                                                             | 
|        |        |                                                                                                                                                                                                                                                                                                     | 
|       
|        | 3.1    | Amended and
  Restated Certificate of Incorporation of Princeton National Bancorp, Inc.
  (PNBC) (incorporated by reference to Exhibit 3.1 to the PNBC Registration
  Statement on Form S-1 (Registration No. 33-46362) (the S-1 Registration
  Statement)).                                   
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 3.2    | By-Laws of
  PNBC (as amended October 22, 2007) (filed herewith).                                                                                                                                                                                                                                  
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 4.1    | Certificate
  of Designation of Series A Junior Participating Preferred Stock (incorporated
  by reference from Registration Statement on Form 8-A filed by PNBC on August
  1, 2003 (File No. 000-20050)) incorporated by reference to Exhibit 4.1 of the
  2004 PNBC Annual Report on Form 10-K).
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 4.2    | Trust
  Preferred Securities Indenture (incorporated by reference to Exhibit 4.1 to
  PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).                                                                                                                                
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.1*  | Employment
  Agreement, dated as of January 8, 2003 between PNBC and James B. Miller.
  (incorporated by reference to Exhibit 10.2 of the 2002 PNBC Annual Report on
  Form 10-K).                                                                                                                 
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.2*  | Employment
  Agreement, dated as of October 23, 2000, between PNBC and Tony J. Sorcic
  (incorporated by reference to Exhibit 10.2 of the 2000 PNBC Annual Report on
  Form 10-K).                                                                                                                 
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.3*  | Citizens
  First National Bank Profit Sharing Plan, as amended and restated January 1,
  1989 (incorporated by reference to Exhibit 10.4 to the S-1 Registration
  Statement).                                                                                                                     
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.4*  | Citizens
  First National Bank Defined Contribution Plan and Trust, as amended and
  restated January 1, 1989 (incorporated by reference to Exhibit 10.5 to the
  S-1 Registration Statement).                                                                                                     
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.5*  | Princeton
  National Bancorp, Inc. Stock Option Plan (incorporated by reference from
  Schedule 14A filed by PNBC on March 6, 1998).                                                                                                                                                               
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.6*  | Princeton
  National Bancorp, Inc. Deferred Compensation Plan (incorporated by reference
  to Exhibit 10.6 of the 2001 PNBC Annual Report on Form 10-K).                                                                                                                                           
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.7*  | Princeton
  National Bancorp, Inc. Management Incentive Compensation Plan (incorporated
  by reference to Exhibit 10.7 of the 2001 PNBC Annual Report on Form 10-K).                                                                                                                               
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.8*  | Princeton
  National Bancorp, Inc. 2003 Stock Option Plan (incorporated by reference from
  Schedule 14A filed by PNBC on March 19, 2003).                                                                                                                                                         
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.9*  | Form of
  Stock Option Agreement (incorporated by reference to Exhibit 10.9 of the 2004
  PNBC Annual Report on Form 10-K).                                                                                                                                                                        
|        |        |                                                                                                                                                                                                                                                                                                    
|        | 10.10* | Amendment to
  Stock Option Agreement (incorporated by reference to Exhibit 10.10 of the
  2005 PNBC Annual Report on Form 10-K).                                                                                                                                                                  

---

| |        |                                                                                                                                                                                  
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.11  | Trust
  Preferred Securities Purchase Agreement (incorporated by reference to Exhibit
  10.1 to PNBC Quarterly Report on Form 10-Q for the quarter ended September
  30, 2005).  
| |        |                                                                                                                                                                                  
| | 10.12  | Trust
  Preferred Securities Declaration of Trust (incorporated by reference to
  Exhibit 10.2 to PNBC Quarterly Report on Form 10-Q for the quarter ended
  September 30, 2005).
| |        |                                                                                                                                                                                  
| | 10.13  | Trust
  Preferred Securities Guarantee Agreement (incorporated by reference to
  Exhibit 10.3 to PNBC Quarterly  Report
  on Form 10-Q for the quarter ended September 30, 2005).
| |        |                                                                                                                                                                                  
| | 10.14* | 2007 Stock
  Compensation Plan (incorporated by reference from Schedule 14A filed by PNBC
  on March 14, 2007).                                                                  
| |        |                                                                                                                                                                                  
| | 13     | Portions of
  2007 Annual Report to Shareholders.                                                                                                                                
| |        |                                                                                                                                                                                  
| | 14     | Code of
  Ethics (incorporated by reference to Exhibit 14 of the 2003 PNBC Annual
  Report on Form 10-K).                                                                        
| |        |                                                                                                                                                                                  
| | 21     | Subsidiaries
  of PNBC.                                                                                                                                                          
| |        |                                                                                                                                                                                  
| | 23.1   | Consent of
  BKD, LLP.                                                                                                                                                           
| |        |                                                                                                                                                                                  
| | 23.2   | Consent of
  KPMG LLP.                                                                                                                                                           
| |        |                                                                                                                                                                                  
| | 31.1   | Certification
  of Tony J. Sorcic required by Rule 13a-14(a).                                                                                                                    
| |        |                                                                                                                                                                                  
| | 31.2   | Certification
  of Todd D. Fanning required by Rule 13a-14(a).                                                                                                                   
| |        |                                                                                                                                                                                  
| | 32.1   | Certification
  of Tony J. Sorcic required by Rule 13a-14(b) and Section 906 of the
  Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                        
| |        |                                                                                                                                                                                  
| | 32.2   | Certification
  of Todd D. Fanning required by Rule 13a-14(b) and Section 906 of the
  Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                       
| |        |                                                                                                                                                                                  
| | 99.1   | Report of
  Management on Internal Control Over Financial Reporting                                                                                                              
| |        |                                                                                                                                                                                  
| | 99.2   | Report of
  Independent Registered Public Accounting Firm                                                                                                                        

*     Management
contract or compensatory plan.

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