Exhibit 99.1. Report of Management on
Internal Control over Financial Reporting.

Management
of Princeton National Bancorp, Inc. (PNBC) is responsible for establishing
and maintaining adequate internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
PNBCs internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes those policies and
procedures that:

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| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | - | pertain to
 the maintenance of records that, in reasonable detail, accurately and fairly
 reflect the transactions and dispositions of the assets of PNBC;                                                             | 
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| | - | provide
 reasonable assurance that transactions are recorded as necessary to permit
 preparation of financial statements in accordance with accounting principles
 generally accepted in the United States of America; | 
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| | - | provide
 reasonable assurance that receipts and expenditures of PNBC are being made
 only in accordance with authorization of management and directors of PNBC;
 and                                                   | 
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| | - | provide
 reasonable assurance regarding prevention or timely detection of unauthorized
 acquisition, use or disposition of assets that could have a material effect
 on the consolidated financial statements.         | 

Internal
control over financial reporting includes the controls themselves, monitoring
and internal auditing practices and actions taken to correct deficiencies as
identified.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Management
assessed the effectiveness of PNBCs internal control over financial reporting
as of December 31, 2010. Management based this assessment on criteria for
effective internal control over financial reporting described in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Managements assessment included an
evaluation of the design of PNBCs internal control over financial reporting
and testing of the operational effectiveness of its internal control over
financial reporting. Management reviewed the results of its assessment with the
Audit Committee of the Board of Directors.

Based
on this assessment, management determined that, as of December 31, 2010, PNBC
did not maintain effective internal control over financial reporting due to a
material weakness in the internal controls over financial reporting for the
allowance for loan losses that was identified as discussed below.

During
the audit of the financial statements as of December 31, 2010, BKD, LLP, the
Corporations external public accounting firm identified a control deficiency
related to asset quality and collateral valuation analysis determined to be a
material weakness. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is
a reasonable possibility that a material misstatement of the Corporations
annual or interim financial statements will not be prevented or detected on a
timely basis. During the fourth quarter of 2010 and the first quarter of 2011
management has taken significant action to address this internal control
matter. A detailed explanation of this material weakness and the steps which have
been taken and are in process follows.

The
nature of the material weakness and how it was identified. The material
weakness was identified by our external auditors through their year-end audit
procedures and as a result of the annual examination by the banks primary
regulator, the OCC. The material weakness determination was reached based on
the level of nonperforming loans supported by collateral which had not been
appraised within the previous twelve months. From the population of classified
commercial loans over $700,000, it was noted that $28,481,000, or 54% were
collateralized by property which had not been appraised within the past twelve
months.

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How
the weakness was overcome to ensure proper year-end financial statements.
The Corporation obtained the necessary appraisals, recorded the necessary
charge-offs to the allowance based on the inclusion of the update appraised
values in appropriate impairment analyses, and adjusted the allowance for loan
losses for any specific reserves required due to the identified material
weakness. A review of the December 31, 2010 allowance for loan losses
calculation was performed including a thorough review of collateral adequacy on
all non-performing loans. Management determined the appropriate allowance for
loan losses amount necessary based on generally accepted accounting principles
which resulted in the balance of the allowance for loan losses as of December
31, 2010.

The
extent which the material weakness impacted prior interim periods. Despite
the existence of the above noted item which resulted in the identification of a
material weakness as of December 31, 2010, the majority of the impact on the
recorded balance of the allowance for loan losses is deemed to be due to deterioration
in the values of collateral supporting commercial real estate and commercial
real estate development loans that occurred in the fourth quarter of 2010 and
not in prior interim periods. Therefore, the identified material weakness is
not considered to have a material impact on prior interim periods in 2010.

Material
changes to internal control over financial reporting during the fourth quarter
of 2010 and the first quarter of 2011. In the fourth quarter of 2010, the
Corporation filled a newly created role of Chief Credit Officer and established
a credit administration division to oversee the development, maintenance, and
monitoring of loan policies & procedures. Responsibilities of the credit
administration division that have been created in the fourth quarter of 2010
and the first quarter of 2011 include credit analysis, credit risk management,
loan servicing and administration, collections, and the special assets group,
as well as loan portfolio analysis and the maintenance of the allowance for
loan losses. The functions of the special assets group include loss mitigation
and workout of non-performing loans, liquidation of non-performing assets, and
other responsibilities to accelerate and maximize loan recoveries. As part of
establishing the new credit administration division, the Banks Chief Credit
Officer has identified and engaged experienced personnel to fill key roles
within credit administration in continuing to address the Corporations
identified material weakness.

In
addition to the special assets group, credit risk analytics was created and
staffed to facilitate allowance for loan losses calculations, loan portfolio
monitoring, migration analysis, concentration analysis, and other credit risk
analysis. In conjunction with the special assets group, the credit risk
analytics position is responsible for ensuring that loan level detail is
appropriately maintained relative to problem loan reporting, including current
appraisal documentation, and the identification of non-accrual loans and loans
subject to classification as troubled debt restructurings.

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