UNITED STATES  SECURITIES AND
EXCHANGE COMMISSIONWashington D.C. 20549

---

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March
31, 2005

Commission File Number
0-20050

---

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

|Delaware(State or other jurisdiction
 of incorporation or organization) | 36-3210283(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------- | ----------------------------------------------

606 S. Main Street, Princeton, IL
61356 (Address of principal executive offices and Zip Code)

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

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

| | Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
| | ---------------------------------------------------------------------------------------------------------------------

| | Yes X No
| | --------

| | As
of April 18, 2005, the registrant had outstanding 3,041,613 shares of its $5 par value
common stock.
| | -------------------------------------------------------------------------------------------------------

Page 1 of 23 pages

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Part I: FINANCIAL INFORMATION

The unaudited consolidated financial
statements of Princeton  National Bancorp,  Inc. and Subsidiary and managements
discussion  and analysis of financial  condition and results of  operations  are
presented in the schedules as follows:

| | Schedule 1: Consolidated Balance Sheets
Schedule 2: Consolidated Statements of Income and Comprehensive Income
Schedule 3: Consolidated Statements of Stockholders Equity
Schedule  4:  Consolidated  Statements  of  Cash  Flows
Schedule  5:  Notes  to Consolidated  Financial  Statements
Schedule  6:  Managements  Discussion  and Analysis of Financial Condition and Results of Operations
Schedule 7: Controls and Procedures
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Part II: OTHER INFORMATION

|Item 2.      (c) |  | Unregistered Sales of Equity
Securities and Use of ProceedsThe
following table provides information about purchases of the Corporation's common stock by
the Corporation during the quarter ended March 31, 2005:
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 |  | (d) Maximum number (or approximate dollar value) of shares that
may yet be purchased under the plans or programs
|---------------- |  | ------------------------------------ |  | -------------------------------- |  | -------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------
|                 |  |                                      |  |                                  |  |                                                                                        |  |                                                                                                                 
|1/1/05 -1/31/05  |  |                                      |  | 0                                |  | $ 0.00                                                                                 |  |                                                                                                                 
|2/1/05 -2/28/05  |  |                                      |  | 0                                |  | $ 0.00                                                                                 |  |                                                                                                                 
|3/1/05 - 3/31/05 |  |                                      |  | 35,100                           |  | $30.62                                                                                 |  |                                                                                                                 
|                 |  |                                      |  |                                  |  |                                                                                        |  |                                                                                                                 
|Total            |  |                                      |  | 35,100                           |  | $30.62                                                                                 |  |                                                                                                                 
|                 |  |                                      |  |                                  |  |                                                                                        |  |                                                                                                                 

|(1) |  | We
purchased an aggregate of 35,100 shares of our common stock pursuant to the repurchase
program that we announced on January 24, 2005 (the Program).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Our
Board of  Directors  approved  the  repurchase  by us of up to an  aggregate  of
100,000 shares of our common stock pursuant to the Program.  The expiration date
of this Program is January 24, 2006. 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.  Exhibits

| |  | 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 |  | Certificaton
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 |  | Certificaton
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.
| |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

SIGNATURES

Pursuant to the requirements of the
Securities  Exchange Act of 1934,  the registrant has duly caused this report to
be  signed  on  its  behalf  by  the  undersigned   thereunto  duly  authorized.

|                   | PRINCETON NATIONAL BANCORP, INC.
|------------------ | --------------------------------
|                   |                                 
|Date: May 10, 2005 | By                              
|                   |                                 
|                   |                                 
|Date: May 10, 2005 | By                              
|                   |                                 

2

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|PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY                         |  |  |   | Schedule 1
|----------------------------------------------------------------------- |  |  | - | ----------
|
|
|
|                                                                        |  |  |   |           
|ASSETS                                                                  |  |  |   |           
|Cash and due from banks                                                 |  |  | $ | 11,023    
|Interest-bearing deposits with financial institutions                   |  |  |   | 57        
|                                                                        |  |  |   |           
|                                                                       
|Total cash and cash equivalents                                         |  |  |   | 11,080    
|                                                                       
|Loans held for sale, at lower of cost or market                         |  |  |   | 2,176     
|                                                                       
|Investment securities:                                                  |  | 
|Available-for-sale, at fair value                                       |  |  |   | 169,248   
|Held-to-maturity, at amortized cost (fair value of $14,537 and $14,111) |  |  |   | 14,342    
|                                                                        |  |  |   |           
|                                                                       
|Total investment securities                                             |  |  |   | 183,590   
|                                                                       
|Loans:                                                                  |  | 
|Loans, net of unearned interest                                         |  |  |   | 423,189   
|Allowance for loan losses                                               |  |  |   | (2,513    
|                                                                        |  |  |   |           
|                                                                       
|Net loans                                                               |  |  |   | 420,676   
|                                                                       
|Premises and equipment, net of accumulated depreciation                 |  |  |   | 18,037    
|Bank-owned life insurance                                               |  |  |   | 16,148    
|Accrued interest receivable                                             |  |  |   | 4,244     
|Goodwill                                                                |  |  |   | 1,355     
|Intangible assets, net of accumulated amortization                      |  |  |   | 1,421     
|Other real estate owned                                                 |  |  |   | 0         
|Other assets                                                            |  |  |   | 2,600     
|                                                                        |  |  |   |           
|                                                                       
|TOTAL ASSETS                                                            |  |  | $ | 661,327   
|                                                                        |  |  |   |           
|                                                                       
|LIABILITIES                                                             |  | 
|Deposits:                                                               |  | 
|Demand                                                                  |  |  | $ | 72,744    
|Interest-bearing demand                                                 |  |  |   | 187,934   
|Savings                                                                 |  |  |   | 61,615    
|Time                                                                    |  |  |   | 256,864   
|                                                                        |  |  |   |           
|                                                                       
|Total deposits                                                          |  |  |   | 579,157   
|                                                                       
|Borrowings:                                                             |  | 
|Customer repurchase agreements                                          |  |  |   | 13,328    
|Advances from the Federal Home Loan Bank                                |  |  |   | 5,000     
|Interest-bearing demand notes issued to the U.S. Treasury               |  |  |   | 1,446     
|Federal funds purchased                                                 |  |  |   | 6,100     
|Note payable                                                            |  |  |   | 841       
|                                                                        |  |  |   |           
|                                                                       
|Total borrowings                                                        |  |  |   | 26,715    
|                                                                       
|Other liabilities                                                       |  |  |   | 3,816     
|                                                                        |  |  |   |           
|TOTAL LIABILITIES                                                       |  |  |   | 609,688   
|                                                                        |  |  |   |           
|                                                                       
|STOCKHOLDERS EQUITY                                                    |  | 
|Common stock:  $5 par value, 7,000,000 shares                           |  | 
|authorized; 4,139,841 issued                                            |  |  |   | 20,699    
|Surplus                                                                 |  |  |   | 8,138     
|Retained earnings                                                       |  |  |   | 43,009    
|Accumulated other comprehensive (loss) income, net of tax               |  |  |   | (161      
|Less:  Cost of 1,098,228 and 1,081,841 treasury shares at               |  | 
|March 31, 2005 and December 31, 2004, respectively                      |  |  |   | (20,046   
|                                                                        |  |  |   |           
|                                                                       
|TOTAL STOCKHOLDERS EQUITY                                              |  |  |   | 51,639    
|                                                                        |  |  |   |           
|                                                                       
|TOTAL LIABILITIES AND                                                   |  | 
|STOCKHOLDERS EQUITY                                                    |  |  | $ | 661,327   
|                                                                        |  |  |   |           

See accompanying notes to
consolidated financial statements

3

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|PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY           |  |  |   | Schedule 2
|--------------------------------------------------------- |  |  | - | ----------
|
|
|
|                                                          |  |  |   |           
|Interest income:                                          |  |  |   |           
|Interest and fees on loans                                |  |  | $ | 6,291     
|Interest and dividends on investment securities           |  |  |   | 1,705     
|Interest on federal funds sold                            |  |  |   | 1         
|Interest on interest-bearing time deposits in other banks |  |  |   | 1         
|                                                          |  |  |   |           
|                                                         
|Total interest income                                     |  |  |   | 7,998     
|                                                         
|Interest expense:                                         |  | 
|Interest on deposits                                      |  |  |   | 2,441     
|Interest on borrowings                                    |  |  |   | 182       
|                                                          |  |  |   |           
|                                                         
|Total interest expense                                    |  |  |   | 2,623     
|                                                          |  |  |   |           
|                                                         
|Net interest income                                       |  |  |   | 5,375     
|Provision for loan losses                                 |  |  |   | 0         
|                                                          |  |  |   |           
|                                                         
|Net interest income after provision                       |  | 
|for loan losses                                           |  |  |   | 5,375     
|                                                         
|Non-interest income:                                      |  | 
|Trust & farm management fees                              |  |  |   | 397       
|Service charges on deposit accounts                       |  |  |   | 708       
|Other service charges                                     |  |  |   | 262       
|Gain on sales of securities available-for-sale            |  |  |   | 20        
|Brokerage fee income                                      |  |  |   | 160       
|Mortgage banking income                                   |  |  |   | 131       
|Bank-owned life insurance income                          |  |  |   | 139       
|Other operating income                                    |  |  |   | 58        
|                                                          |  |  |   |           
|                                                         
|Total non-interest income                                 |  |  |   | 1,875     
|                                                         
|Non-interest expense:                                     |  | 
|Salaries and employee benefits                            |  |  |   | 2,954     
|Occupancy                                                 |  |  |   | 342       
|Equipment expense                                         |  |  |   | 465       
|Federal insurance assessments                             |  |  |   | 58        
|Intangible assets amortization                            |  |  |   | 52        
|Data processing                                           |  |  |   | 194       
|Advertising                                               |  |  |   | 156       
|Other operating expense                                   |  |  |   | 776       
|                                                          |  |  |   |           
|                                                         
|Total non-interest expense                                |  |  |   | 4,997     
|                                                          |  |  |   |           
|                                                         
|Income before income taxes                                |  |  |   | 2,253     
|Income tax expense                                        |  |  |   | 545       
|                                                          |  |  |   |           
|                                                         
|Net income                                                |  |  | $ | 1,708     
|                                                          |  |  |   |           
|                                                         
|Earnings per share:                                       |  | 
|Basic                                                     |  |  |   | 0.56      
|Diluted                                                   |  |  |   | 0.55      
|                                                         
|Basic weighted average shares outstanding                 |  |  |   | 3,055,021 
|Diluted weighted average shares outstanding               |  |  |   | 3,081,018 

See accompanying notes to
consolidated financial statements4

---

|PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY             |  |  |   | Schedule 2
|----------------------------------------------------------- |  |  | - | ----------
|
|                                                           
|
|
|Net income                                                  |  |  | $ | 1,708     
|                                                           
|Other comprehensive income (loss), net of tax               |  | 
|                                                           
|Unrealized holding gains (losses) arising during the period |  |  |   | (1,100    
|Less:  Reclassification adjustment for realized gains on    |  | 
|sales of securities included in net income                  |  |  |   | (12       
|                                                            |  |  |   |           
|                                                           
|Other comprehensive income (loss)                           |  |  |   | (1,112    
|                                                            |  |  |   |           
|                                                           
|Comprehensive income                                        |  |  | $ | 596       
|                                                            |  |  |   |           

See accompanying notes to
consolidated financial statements5

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PRINCETON NATIONAL BANCORP, INC. AND
SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY(Unaudited)(dollars in thousands except per share data)

|                              |  | Accumulated
OtherComprehensive
|----------------------------- |  | ------------------------------
|
|                              |  |                               
|Balance, January 1, 2005      |  |                               
|                             
|Net income                    |  |                               
|Sale of 2,348 shares          |  |                               
|of treasury stock             |  |                               
|Purchase of 35,100 shares     |  |                               
|of treasury stock             |  |                               
|Exercise of stock options and |  |                               
|re-issuance of treasury       |  |                               
|stock (16,365 shares)         |  |                               
|Cash dividends                |  |                               
|($.21 per share)              |  |                               
|Other comprehensive loss,     |  |                               
|net of $703 tax effect        |  |                               
|                              |  |                               
|                             
|Balance, March 31, 2005       |  |                               
|                              |  |                               
|                             
|For the Three Months Ended    |  |                               
|March 31, 2004                |  |                               
|                             
|Balance, January 1, 2004      |  |                               
|                             
|Net income                    |  |                               
|Sale of 1,099 shares          |  |                               
|of treasury stock             |  |                               
|Purchase of 37,000 shares     |  |                               
|of treasury stock             |  |                               
|Exercise of stock options and |  |                               
|re-issuance of treasury       |  |                               
|stock (28,568 shares)         |  |                               
|Cash dividends                |  |                               
|($.18 per share)              |  |                               
|Other comprehensive income,   |  |                               
|net of $266 tax effect        |  |                               
|                              |  |                               
|                             
|Balance, March 31, 2004       |  |                               
|                              |  |                               

See accompanying notes to
consolidated financial statements

6

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|PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY                      |  |  |   | Schedule 4
|-------------------------------------------------------------------- |  |  | - | ----------
|
|
|
|Operating activities:                                                |  |  |   |           
|Net income                                                           |  |  | $ | 1,708     
|Adjustments to reconcile net income to net                           |  | 
|cash provided by operating activities:                               |  | 
|Depreciation                                                         |  |  |   | 336       
|Provision for loan losses                                            |  |  |   | 0         
|Amortization of other intangible assets                              |  |  |   | 52        
|Amortization of premiums on investment                               |  | 
|securities, net of accretion                                         |  |  |   | 387       
|Gain on securities transactions, net                                 |  |  |   | (20       
|FHLB stock dividends                                                 |  |  |   | (27       
|Loans originated for sale                                            |  |  |   | (7,903    
|Proceeds from sales of loans originated for sale                     |  |  |   | 7,028     
|Increase in accrued interest payable                                 |  |  |   | 151       
|Decrease in accrued interest receivable                              |  |  |   | 756       
|Increase in other assets                                             |  |  |   | (482      
|Increase (decrease) in other liabilities                             |  |  |   | 95        
|                                                                     |  |  |   |           
|                                                                    
|Net cash provided by operating activities                            |  |  |   | 2,081     
|                                                                     |  |  |   |           
|Investing activities:                                                |  | 
|Proceeds from sales of investment securities available-for-sale      |  |  |   | 1,106     
|Proceeds from maturities of investment securities available-for-sale |  |  |   | 8,344     
|Purchase of investment securities available-for-sale                 |  |  |   | (5,726    
|Proceeds from maturities of investment securities held-to-maturity   |  |  |   | 35        
|Purchase of investment securities held-to-maturity                   |  |  |   | (695      
|Net increase in loans                                                |  |  |   | (13,156   
|Purchases of premises and equipment                                  |  |  |   | (449      
|                                                                     |  |  |   |           
|                                                                    
|Net cash used in investing activities                                |  |  |   | (10,541   
|                                                                     |  |  |   |           
|Financing activities:                                                |  | 
|Net increase in deposits                                             |  |  |   | 5,596     
|Net increase (decrease) in borrowings                                |  |  |   | 1,180     
|Dividends paid                                                       |  |  |   | (642      
|Purchases of treasury stock                                          |  |  |   | (1,075    
|Exercise of stock options and issuance of treasury stock             |  |  |   | 322       
|Sales of treasury stock                                              |  |  |   | 69        
|                                                                     |  |  |   |           
|                                                                    
|Net cash provided by (used in) financing activities                  |  |  |   | 5,450     
|                                                                     |  |  |   |           
|                                                                    
|Decrease in cash and cash equivalents                                |  |  |   | (3,010    
|Cash and cash equivalents at beginning of period                     |  |  |   | 14,090    
|                                                                     |  |  |   |           
|                                                                    
|Cash and cash equivalents at March 31                                |  |  | $ | 11,080    
|                                                                     |  |  |   |           
|                                                                     | 
|Supplemental disclosures of cash flow information:                   |  | 
|Cash paid during the period for:                                     |  | 
|Interest                                                             |  |  | $ | 2,472     
|Income taxes                                                         |  |  | $ | 125       
|                                                                    
|Supplemental disclosures of non-cash flow activities:                |  | 
|Loans transferred to other real estate owned                         |  |  | $ | 0         

See accompanying notes to
consolidated financial statements

7

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Schedule 5

PRINCETON NATIONAL
BANCORP, INC. AND SUBSIDIARYNotes to Consolidated
Financial Statements(Unaudited)

The accompanying unaudited
consolidated financial statements have been prepared in accordance with the instructions
to Form 10-Q and do not include all of the information required by accounting principles
generally accepted in the United States of America for complete financial statements and
related footnote disclosures. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered for a fair presentation of the results for
the interim period have been included. For further information, refer to the consolidated
financial statements and notes included in the Registrants 2004 Annual Report on
Form 10-K. Results of operations for interim periods are not necessarily indicative of the
results that may be expected for the year. Certain amounts in the 2004 consolidated
financial statements have been reclassified to conform to the 2005 presentation.

# (1)  EARNINGS PER SHARE
CALCULATION

The
following table sets forth the computation of basic and diluted earnings per share for the
periods indicated (in thousands, except share data):

|                                 |  | Three Months EndedMarch 31,
|-------------------------------- |  | ---------------------------
|
|Numerator:                       |  |                            
|Net income                       |  |                            
|                                
|Denominator:                     |  |                            
|Basic earnings per share-        |  |                            
|weighted average shares          |  |                            
|                                
|Effect of dilutive securities-   |  |                            
|stock options                    |  |                            
|                                 |  |                            
|                                
|Diluted earnings per share-      |  |                            
|adjusted weighted average shares |  |                            
|                                
|Net income per share:            |  |                            
|                                
|Basic                            |  |                            
|Diluted                          |  |                            

8

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# (2)  GOODWILL AND
INTANGIBLE ASSETS

The
balance of goodwill, net of accumulated amortization, totaled $1,355,000 at March 31, 2005
and December 31, 2004. The balance of intangible assets, net of accumulated amortization,
totaled $1,421,000 and $1,317,000 at March 31, 2005 and December 31, 2004, respectively.

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

|                        |  | 2005 |   | 2004 
|----------------------- |  | ---- | - | -----
|
|                        |  |      |   |      
|Core deposit intangible |  |      | $ | 2,968
|Other intangible assets |  |      |   | 316  
|                        |  |      |   |      
|Total                   |  |      | $ | 3,284
|                        |  |      |   |      

Amortization
expense totaled $52,000 for the three months ended March 31, 2005 and March 31, 2004,
respectively. The amortization expense will be approximately $156,000 for the remainder of
2005 and will be approximately $205,000 for each of the next five years.

The
Corporations other intangible assets consist of originated mortgage servicing rights
which are included in other assets on the consolidated balance sheets. Mortgage servicing
rights are amortized in proportion to, and over the period of, estimated net servicing
income similar to the interest method using an accelerated amortization method and are
subject to periodic impairment testing. As of March 31, 2005 no impairment had been
recorded. Changes in the carrying value of capitalized mortgage servicing rights are
summarized as follows:

|(in thousands)                   | 
|-------------------------------- | 
|                                
|Balance, January 1, 2005         | 
|Servicing rights capitalized     | 
|Amortization of servicing rights | 
|Impairment of servicing rights   | 
|                                 | 
|Balance, March 31, 2005          | 
|                                 | 

The
Corporation services loans for others with unpaid principal balances at March 31, 2005 and
December 31, 2004 of approximately $145,685,000, and $147,958,000, respectively.

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

9

---

# Estimated Amortization
Expense:

|                                            |  | Amount (in thousands)
|------------------------------------------- |  | ---------------------
|
|For the nine months ended December 31, 2005 |  |                      
|For the year ended December 31, 2006        |  |                      
|For the year ended December 31, 2007        |  |                      
|For the year ended December 31, 2008        |  |                      
|For the year ended December 31, 2009        |  |                      
|For the year ended December 31, 2010        |  |                      
|Thereafter                                  |  |                      

# (3)  STOCK OPTION PLAN

The
Corporation accounts for the stock-based compensation plan under APB Opinion No. 25. For
the stock option program, no compensation cost is recognized in connection with the
granting of stock options with an exercise price equal to the fair market value of the
stock on the date of the grant. In accordance with the disclosure requirements of FAS 123,
as amended by FAS 148, the following table provides the pro forma effect on net income and
earnings per share if the fair value method of accounting for stock-based compensation had
been used for all awards:

|                                            |  | For the Three Months Ended March 31,
|------------------------------------------- |  | ------------------------------------
|                                            |  |                                     
|
|                                           
|Net Income as reported                      |  |                                     
|Deduct: Stock-based compensation, net of    |  |                                     
|tax, that would have been reported          |  |                                     
|if the fair value based method had          |  |                                     
|been applied to all awards                  |  |                                     
|                                            |  |                                     
|Pro forma net income                        |  |                                     
|                                            |  |                                     
|Basic Earnings Per Share        As Reported |  |                                     
|Pro Forma                                   |  |                                     
|                                           
|Diluted Earnings Per Share     As Reported  |  |                                     
|Pro Forma                                   |  |                                     

10

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Schedule 6

# PRINCETON
NATIONAL BANCORP, INC. AND SUBSIDIARYMANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONSFor
the three months ended March 31, 2005 and 2004

The
following discussion provides information about Princeton National Bancorp, Inc.s
(PNBC or the Corporation) financial condition and results of
operations for the quarters ended March 31, 2005 and 2004. This discussion should be read
in conjunction with the attached consolidated financial statements and notes thereto.
Certain statements in this report constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, but not limited to those statements that include the
words believes, expects, anticipates,
estimates, or similar expressions. PNBC cautions that such forward-looking
statements involve risks and uncertainties that may cause actual results to differ
materially from those expressed or implied. Such risks and uncertainties include potential
change in interest rates, competitive factors in the financial services industry, general
economic conditions, the effect of new legislation, and other risks detailed in documents
filed by the Corporation with the Securities and Exchange Commission from time to time.

# RESULTS OF OPERATIONS

Net
income for the first quarter of 2005 was $1,708,000, or basic earnings per share of $0.56
(diluted earnings per share of $0.55), as compared to net income of $1,641,000 in the
first quarter of 2004, or basic earnings per share of $0.53 (diluted earnings per share of
$0.52). This represents an increase of $67,000 (4.1%) or $.03 per basic and diluted share.
The increase in net income is due to an improving net interest margin, coupled with an
increase in average interest-earning assets. This increase more than offset a decrease in
the amount of non-interest income and an increase in non-interest expenses. The annualized
return on average assets and return on average equity were 1.06% and 13.24%, respectively,
for the first quarter of 2005, compared with 1.09% and 12.95% for the first quarter of
2004.

Net
interest income before provision for loan losses was $5,375,000 for the first quarter of
2005, compared to $5,009,000 for the first quarter of 2004 (an increase of $366,000 or
7.3%). This increase is a result of an increase in average interest-earning assets of
$41.7 million over the past twelve months. For the three months ended March 31, 2005,
average interest-earning assets were $595.6 million compared to $553.9 million for the
three months ended March 31, 2004. The resulting net yield on interest-earning assets (on
a fully taxable equivalent basis) increased from 3.90% in the first quarter of 2004 to
3.94% in the first quarter of 2005.

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PNBC
did not record a loan loss provision in the first quarter of 2005, due to a low amount of
non-performing loans and the low amount of net charge-offs in the quarter, compared to a
provision of $100,000 in the first quarter of 2004. The provision expense recorded each
quarter is determined by managements evaluation of the risk characteristics of the
loan portfolio. For the first quarter of 2005, PNBC had net charge-offs of $11,000,
compared to net charge-offs of $71,000 for the first quarter of 2004.

Non-interest
income totaled $1,875,000 for the first quarter of 2005, as compared to $2,039,000 in the
first quarter of 2004, a decrease of $164,000 (or 8.0%). This is a result of a decrease in
the amount of gains recorded from the sales of securities available-for-sale of $162,000
from $182,000 for the first three months of 2004 to $20,000 for the first three months of
2005. Partially offsetting the decrease in security gains was an increase in trust and
farm management fees of $51,000, an increase of 14.7%. Annualized non-interest income as a
percentage of total average assets decreased to 1.15% for the first three months of 2005,
compared to 1.34% for the same period in 2004.

Total
non-interest expense for the first quarter of 2005 was $4,997,000, an increase of $213,000
(or 4.5%) from $4,784,000 in the first quarter of 2004. This increase is attributable to
salaries/employee benefits, which increased $262,000 (or 9.7%). Collectively, all other
categories of non-interest expense decreased $49,000 (or 2.3%). Annualized non-interest
expense as a percentage of total average assets also decreased to 3.06% for the first
three months of 2005, compared to 3.15% for the same period in 2004.

# INCOME TAXES

Income
tax expense totaled $545,000 for the first quarter of 2005, as compared to $523,000 for
the first quarter of 2004. The effective tax rate was 24.2% for both the three month
period ended March 31, 2005 and the three month period ended March 31, 2004.

# ANALYSIS OF FINANCIAL
CONDITION

Total
assets at March 31, 2005 increased to $661,327,000 from $655,738,000 at December 31, 2004
(an increase of $5.6 million or 0.9%). Total deposits at March 31, 2005 increased to
$579,157,000 from $573,561,000 at December 31, 2004 (an increase of $5.6 million or 1.0%).
Comparing categories of deposits at March 31, 2005 to the December 31, 2004 totals, time
deposits increased by $8.3 million (or 3.3%) and savings deposits increased $2.9 million
(or 5.0%). Conversely, interest-bearing demand deposits decreased $3.3 million (or 1.7%)
and demand deposits decreased $2.3 million (or 3.0%). Borrowings, consisting of customer
repurchase agreements, notes payable, treasury, tax, and loan (TT&L)
deposits, federal funds purchased, and Federal Home Loan Bank advances, increased from
$25,535,000 at December 31, 2004 to $26,715,000 at March 31, 2005 (an increase of $1.2
million or 4.6%). Investment balances totaled $183,590,000 at March 31, 2005, compared to
$188,809,000 at December 31, 2004 (a decrease of $5.2 million or 2.8%).

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Loan
balances, net of unearned interest, increased to $423,189,000 at March 31, 2005, compared
to $410,044,000 at December 31, 2004 (an increase of $13.1 million or 3.2%). This increase
was in the commercial and residential real estate areas. Non-performing loans increased to
$2,005,000 or 0.47% of net loans at March 31, 2005, as compared to $328,000 or 0.08% of
net loans at December 31, 2004. Although non-performing loans increased from the low level
at December 31, 2004, this increase was attributable to one commercial credit, which
continues to pay down and for which management expects no future losses.

# ASSET QUALITY

For
the three months ended March 31, 2005, the subsidiary bank charged off $59,000 of loans
and had recoveries of $48,000, compared to charge-offs of $152,000 and recoveries of
$81,000 during the three months ended March 31, 2004. The allowance for loan losses is
based on factors that include the overall composition of the loan portfolio, types of
loans, underlying collateral, past loss experience, loan delinquencies, substandard and
doubtful credits, and such other factors that, in managements reasonable judgment,
warrant consideration. The adequacy of the allowance is monitored monthly. At March 31,
2005, the allowance was $2,513,000 which is 125.3% of non-performing loans and 0.59% of
total loans, compared with $2,524,000 which was 769.5% of non-performing loans and 0.62%
of total loans at December 31, 2004.

At
March 31, 2005, impaired loans totaled $1,887,000 compared to $175,000 at December 31,
2004, this increase is also attributable to the aforementioned commercial credit in
non-performing loans. The total amount of loans ninety days or more past due and still
accruing interest at March 31, 2005 and December 31, 2004 was $0. The balances of
non-performing and impaired loans continue to be well below industry averages. There was
no specific loan loss reserve established for impaired loans as of March 31, 2005 compared
to a specific loan loss reserve of $3,000 at December 31, 2004. PNBCs management
analyzes the allowance for loan losses monthly and believes the current level of allowance
is adequate to meet probable losses as of March 31, 2005.

# CAPITAL RESOURCES

Federal
regulations require all financial institutions to evaluate capital adequacy by the
risk-based capital method, which makes capital requirements more sensitive to the
differences in the level of risk assets. At March 31, 2005 total risk-based capital of
PNBC was 11.18%, compared to 11.49% at December 31, 2004. The Tier 1 capital ratio
decreased from 7.62% at December 31, 2004, to 7.51% at March 31, 2005. Total
stockholders equity to total assets at March 31, 2005 decreased to 7.81% from 7.99%
at December 31, 2004.

# LIQUIDITY

Liquidity
is measured by a financial institutions ability to raise funds through deposits,
borrowed funds, capital, or the sale of assets. Additional sources of liquidity include
cash flow from the repayment of loans and the maturity of investment securities. Major
uses of cash include the origination of loans and purchase of investment securities. Cash
flows provided by operating and financing activities, offset by

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those used in investing activities,
resulted in a net decrease in cash and cash equivalents of $3,010,000 from December 31,
2004 to March 31, 2005. This decrease was primarily due to a net increase in loans, offset
by a net increase in deposits and a net increase in the investment portfolio. For more
detailed information, see PNBCs Consolidated Statements of Cash Flows.

# FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK

The
subsidiary bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the consolidated balance sheets. The contract amounts
of those instruments reflect the extent of involvement the subsidiary bank has in
particular classes of financial instruments.

The
subsidiary banks exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those instruments.
The subsidiary bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. At March 31, 2005 commitments to
extend credit and standby letters of credit were approximately $103,722,000 and
$3,635,000, respectively.

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The subsidiary bank evaluates each
customers creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary, by the subsidiary bank upon extension of credit is based on
managements credit evaluation of the counter party. Collateral held varies, but may
include real estate, accounts receivable, inventory, property, plant and equipment, and
income-producing properties.

Standby
letters of credit are conditional commitments issued by the subsidiary bank to guarantee
the performance of a customer to a third party. The credit risk involved in issuing
standby letters of credit is essentially the same as that involved in extending loan
facilities to customers. The subsidiary bank secures the standby letters of credit with
the same collateral used to secure the loan.

# EXPANSION PLANS

The
Company is finalizing the construction plans for the facility in Aurora, Illinois.
Construction of the facility will begin in the second quarter of 2005, with the facility
opening in winter of 2005/2006. Once the Aurora facility is completed, a new bank facility
will be built on the Elburn, Illinois property which was purchased in July of 2003.

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# ACQUISITION

On
February 22, 2005, the Company announced the acquisition of Somonauk FSB Bancorp, Inc.
(Somonauk). Somonauk has full-service locations in Somonauk, Sandwich, Newark
and Millbrook, Illinois with an additional location being constructed in Plano, Illinois.
These locations will compliment the existing PNB locations and expand the Companys
presence in high-growth markets. Total assets of Somonauk FSB Bancorp, Inc. were $210.2
million at December 31, 2004. Once the acquisition is completed, it is anticipated the
Companys assets will total approximately $890 million. The registration statement on
Form S-4 for the acquisition has been filed with the SEC, the appropriate regulatory
approvals have been applied for and it is anticipated the closing will take place on or
about July 31, 2005.

# LEGAL PROCEEDINGS

There
are various claims pending against PNBCs subsidiary bank, arising in the normal
course of business. Management believes, based upon consultation with legal counsel, that
liabilities arising from these proceedings, if any, will not be material to PNBCs
financial condition.

# QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There
has been no material change in market risk since December 31, 2004, as reported in
PNBCs 2004 Annual Report on Form 10-K.

# IMPACT OF NEW ACCOUNTING
STANDARDS

In
September 2004, the FASB issued Staff Position No. EITF 03-1-1 which delayed the effective
date for the measurement recognition guidance contained in the Emerging Issues Task Force
(EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, which was effective for fiscal years ending
after December 15, 2003. Until new guidance is issued, companies must continue to comply
with the disclosure requirements of EITF 03-1 and all relevant measurement and recognition
requirements of other accounting literature. EITF 03-1 requires certain quantitative
disclosures for debt and marketable equity securities classified as available-for-sale or
held-to-maturity under SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, that are impaired at the balance sheet date, but for which an
other-than-temporary impairment has not been recognized. The Corporation will complete its
evaluation of the impact upon issuance of final guidance from the FASB.

In
December 2004, the FASB issued SFAS No. 123 (Revised 2004) (123R), Share-Based
Payment, an amendment of FASB Statements No. 123 and 95. SFAS No. 123R will require
compensation cost relating to share-based payment transactions be recognized in the
consolidated financial statements, effective for the Corporations fiscal year
beginning January 1, 2006 based on recent

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SEC guidance. The Corporation has not
yet completed its evaluation of the standard, but anticipates that it will result in a
reduction in earnings and earnings per share, beginning with the first quarter of 2006.

# EFFECTS OF INFLATION

The
consolidated financial statements and related consolidated financial data presented herein
have been prepared in accordance with accounting principles generally accepted in the
United States of America and practices within the banking industry which require the
measurement of financial condition and operating results in terms of historical dollars,
without considering the changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a more
significant impact on a financial institutions performance than the effects of
general levels of inflation.

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# PRINCETON NATIONAL
BANCORP, INC. AND SUBSIDIARY

The
following table sets forth (in thousands) details of average balances, interest income
and expense, and resulting annualized yields/costs for the Corporation for the periods
indicated, reported on a fully taxable equivalent basis, using a tax rate of 34%.

|                                             |  | 
|-------------------------------------------- |  | 
|
|
|
|Average Interest-Earning Assets              |  | 
|                                            
|Interest-bearing deposits                    |  | 
|Taxable investment securities                |  | 
|Tax-exempt investment securities             |  | 
|Federal funds sold                           |  | 
|Net loans                                    |  | 
|                                             |  | 
|                                            
|Total interest-earning assets                |  | 
|                                             |  | 
|                                            
|Average non-interest earning assets          |  | 
|                                             |  | 
|                                            
|Total average assets                         |  | 
|                                             |  | 
|Average Interest-Bearing Liabilities         |  | 
|                                            
|Interest-bearing demand deposits             |  | 
|Savings deposits                             |  | 
|Time deposits                                |  | 
|Interest-bearing demand notes                |  | 
|issued to the U.S. Treasury                  |  | 
|Federal funds purchased and                  |  | 
|securities repurchase agreements             |  | 
|Advances from Federal Home Loan Bank         |  | 
|Borrowings                                   |  | 
|                                             |  | 
|                                            
|Total interest-bearing liabilities           |  | 
|                                             |  | 
|                                            
|Net yield on average interest-earning assets |  | 
|                                             |  | 
|                                            
|Average non-interest-bearing liabilities     |  | 
|                                            
|Average stockholders equity                 |  | 
|                                             |  | 
|Total average liabilities and                |  | 
|stockholders' equity                         |  | 
|                                             |  | 

The
following table reconciles tax-equivalent net interest income (as shown above) to net
interest income as reported on the Consolidated Statements of Income.

|                                      |  | For the Three Months Ended
March 31,
|------------------------------------- |  | ------------------------------------
|
|Net interest income as stated         |  |                                     
|Tax equivalent adjustment-investments |  |                                     
|Tax equivalent adjustment-loans       |  |                                     
|                                      |  |                                     
|                                     
|Tax equivalent net interest income    |  |                                     
|                                      |  |                                     

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# Schedule 7. 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 March 31, 2005. 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,  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 March 31, 2005 that could
significantly affect those controls.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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INDEX TO EXHIBITS

|ExhibitNumber |  | Exhibit
|------------- |  | -------

|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.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

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