FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549



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

For the quarterly period ended March 31, 1999


Commission File No. 0-20050

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

                 DELAWARE                              36-32110283
       (State or other jurisdiction      (I.R.S. Employer Identification No.)
     of incorporation or organization)

                     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 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 _____

      As of April 28, 1999, the registrant had outstanding 3,792,658 shares of
its $5 par value common stock.


                               Page 1 of 14 pages

<PAGE>


                          PART I: FINANCIAL INFORMATION


      The 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: Note to Consolidated Financial Statements
          Schedule 6: Management's Discussion and Analysis of
                      Financial Condition and Results of Operations


                           PART II: OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 

      (a)   Exhibits:

            27 - Financial Data Schedule for the period ended March 31, 1999.

      (b)   No reports on Form 8-K were filed by the Corporation for the quarter
            ending March 31, 1999.



                                   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 13, 1999                      By  
                                           -------------------------------------
                                           Tony J. Sorcic
                                           President & Chief Executive Officer


 Date: May 13, 1999                     By  
                                           -------------------------------------
                                           Todd D. Fanning
                                           Chief Financial Officer


                                        2
<PAGE>


                                                                      Schedule 1

                 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      MARCH 31,       December 31,
                                                                        1999              1998
                                                                    ------------      ------------
<S>                                                                 <C>               <C>         
ASSETS
Cash and due from banks                                             $     15,408      $     31,133
Federal funds sold                                                         6,400            23,000
Loans held for sale, at lower of cost or market                            5,258             5,363
Investment securities:
      Available-for-sale, at fair value                                  112,874           109,530
      Held-to-maturity (fair value of $23,625 and $21,643 at
          March 31, 1999 and December 31, 1998, respectively)             23,415            21,396
                                                                    ------------      ------------
          Total investment securities                                    136,289           130,926
                                                                    ------------      ------------
Loans:
      Gross loans                                                        272,499           265,655
      Less: Unearned interest                                                (32)             (181)
                Allowance for possible loan losses                        (1,803)           (1,800)
                                                                    ------------      ------------
          Net loans                                                      270,664           263,674
                                                                    ------------      ------------

Premises and equipment                                                    11,024            10,627
Interest receivable                                                        4,384             5,604
Goodwill and intangible assets, net of accumulated amortization            4,948             5,023
Other assets                                                               3,562             3,561
                                                                    ------------      ------------

        TOTAL ASSETS                                                $    457,937      $    478,911
                                                                    ============      ============

LIABILITIES
Deposits:
     Demand                                                         $     38,628      $     47,355
     Interest-bearing demand                                              90,481            93,982
     Savings                                                              56,394            54,378
     Time                                                                201,234           212,123
                                                                    ------------      ------------
            Total deposits                                               386,737           407,838

Borrowings                                                                24,215            24,296
Other liabilities                                                          4,326             4,171
                                                                    ------------      ------------
       TOTAL LIABILITIES                                                 415,278           436,305
                                                                    ------------      ------------

STOCKHOLDERS' EQUITY
Common stock:  $5 par value, 7,000,000 shares
     authorized; 4,139,841 issued                                         20,699            20,699
Surplus                                                                    6,312             6,305
Retained earnings                                                         20,417            19,588
Accumulated other comprehensive income, net of tax                           561               862
Less: Cost of 339,683 treasury shares at March 31, 1999
     and 312,061 treasury shares at December 31, 1998                     (5,330)           (4,848)
                                                                    ------------      ------------
       TOTAL STOCKHOLDERS' EQUITY                                         42,659            42,606
                                                                    ------------      ------------
       TOTAL LIABILITIES AND
           STOCKHOLDERS' EQUITY                                     $    457,937      $    478,911
                                                                    ============      ============
</TABLE>


           SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

                                        3
<PAGE>


                                                                      Schedule 2

                 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                            For the Three Months
                                                               Ended March 31
                                                            1999           1998
                                                         ----------     ----------
<S>                                                      <C>            <C>       
INTEREST INCOME:
     Interest and fees on loans                          $    6,011     $    6,124
     Interest and dividends on investment securities          1,852          1,755
     Interest on short-term funds                               119             86
                                                         ----------     ----------
            Total interest income                             7,982          7,965

INTEREST EXPENSE:
     Interest on deposits                                     3,600          3,780
     Interest on borrowings                                     295            253
                                                         ----------     ----------
            Total interest expense                            3,895          4,033
                                                         ----------     ----------
NET INTEREST INCOME                                           4,087          3,932
Provision for possible loan losses                               10             55
                                                         ----------     ----------

NET INTEREST INCOME AFTER PROVISION
     FOR POSSIBLE LOAN LOSSES                                 4,077          3,877

NON-INTEREST INCOME:
     Trust & farm management fees                               345            329
     Service charges on deposit accounts                        364            325
     Other service charges                                      156            118
     Gain on sales of securities                                 11             10
     Loan servicing fees and other charges                       83             75
     Other income                                                69             96
                                                         ----------     ----------
            Total non-interest income                         1,028            953

NON-INTEREST EXPENSE:
     Salaries and employee benefits                           1,888          1,804
     Occupancy                                                  263            251
     Equipment expense                                          291            196
     FDIC/OCC assessments                                        48             46
     Goodwill and intangible assets amortization                117            117
     Data processing                                            131            172
     Other expense                                              841            758
                                                         ----------     ----------
            Total non-interest expense                        3,579          3,344
                                                         ----------     ----------
INCOME BEFORE INCOME TAXES                                    1,526          1,486
Income tax expense                                              391            381
                                                         ----------     ----------
NET INCOME                                               $    1,135     $    1,105
                                                         ==========     ==========


BASIC AND DILUTED EARNINGS PER SHARE:                          0.30           0.28

Weighted average shares outstanding                       3,827,951      4,013,246

Dividends per share                                            0.08           0.07
</TABLE>


           SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

                                       4
<PAGE>


                                                                      Schedule 2

                 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                   (UNAUDITED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                       For the Three Months
                                                                         Ended March 31
                                                                       1999          1998
                                                                     --------      --------
<S>                                                                  <C>           <C>     
Net Income                                                           $  1,135      $  1,105

  Other comprehensive income, net of tax

          Unrealized holding loss arising during the period              (294)          (66)
           Less: Reclassification adjustment for realized gains
                        included in income statement                       (7)           (7)
                                                                     --------      --------

  Other comprehensive income                                             (301)          (73)
                                                                     --------      --------

Comprehensive income                                                 $    834      $  1,032
                                                                     ========      ========
</TABLE>


           SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

                                        5
<PAGE>


                                                                      Schedule 3

                 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)


                                                   For the Three Months
                                                      Ended March 31
                                                   1999           1998
                                                 --------       --------
                                                      (IN THOUSANDS)

Balance, January 1                               $ 42,606       $ 42,668

     Net income                                     1,135          1,105
     Cash dividends                                  (306)          (294)
     Other comprehensive income, net of tax          (301)           (73)
     Purchases of treasury stock                     (486)          (132)
     Sales of treasury stock                           11              9
                                                 --------       --------

Balance, March 31                                $ 42,659       $ 43,283
                                                 ========       ========


           SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

                                        6
<PAGE>


                                                                      Schedule 4

                 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       For the Three Months
                                                                                          Ended March 31
        (IN THOUSANDS)                                                                 1999            1998
                                                                                    ----------      ----------
<S>                                                                                 <C>             <C>       
OPERATING ACTIVITIES:
     Net income                                                                     $    1,135      $    1,105
     Adjustments to reconcile net income to
          net cash provided by operating activities:
              Depreciation                                                                 284             153
              Provision for possible loan losses                                            10              55
              Amortization of goodwill and other intangible assets                         117             117
              Amortization of premiums on investment
                 securities, net of accretion                                              129              41
              Gain on sales of securities, net                                             (11)            (10)
              Loans originated for sale                                                 (5,719)         (5,474)
              Proceeds from sales of loans originated for sale                           5,824           4,870
              Decrease in accrued interest payable                                        (102)            (90)
              Decrease in accrued interest receivable                                    1,220             780
              Increase in other assets                                                     (43)           (233)
              Increase in other liabilities                                                412             381
                                                                                    ----------      ----------
                    NET CASH PROVIDED BY OPERATING ACTIVITIES                            3,256           1,695
                                                                                    ----------      ----------

INVESTING ACTIVITIES:
     Proceeds from sales of investment securities available-for-sale                       985           3,008
     Proceeds from maturities of investment securities available-for-sale               10,016           8,904
     Purchase of investment securities available-for-sale                              (16,153)        (15,476)
     Proceeds from maturities of investment securities held-to-maturity                  7,760             506
     Purchase of investment securities held-to-maturity                                 (8,545)           (830)
     Proceeds from sales of other real estate owned                                          0              45
     Net increase in loans                                                              (7,000)          5,603
     Purchases of premises and equipment                                                  (681)           (142)
                                                                                    ----------      ----------
                    NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES                   (13,618)          1,618
                                                                                    ----------      ----------
FINANCING ACTIVITIES:
     Net decrease in deposits                                                          (21,101)        (11,605)
     Net (decrease) increase in borrowings                                                 (81)          2,877
     Dividends paid                                                                       (306)           (294)
     Purchase of treasury stock                                                           (486)           (132)
     Sale of treasury stock                                                                 11               9
                                                                                    ----------      ----------
                    NET CASH USED FOR FINANCING ACTIVITIES                             (21,963)         (9,145)
                                                                                    ----------      ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                       (32,325)         (5,832)
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER                                       54,133          33,168
                                                                                    ----------      ----------

CASH AND CASH EQUIVALENTS AT MARCH 31                                                   21,808          27,336
                                                                                    ==========      ==========
--------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
        Cash paid during the period for:
                    Interest                                                        $    3,793      $    3,870
                    Income taxes                                                    $      175      $       86

Supplemental disclosures of non-cash flow activities:
              Amounts transferred to other real estate owned                        $       74      $        0
</TABLE>


           SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

                                        7
<PAGE>


                                                                      Schedule 5

                 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
                    Note 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 generally accepted accounting principles 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 financial statements and
notes included in the Registrant's 1998 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.


                                        8
<PAGE>


                                                                      Schedule 6

                 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                 March 31, 1999
                                   (unaudited)

         The following discussion provides information about Princeton National
Bancorp, Inc.'s (PNB) financial condition and results of operations for the
quarter ended March 31, 1999. This discussion should be read in conjunction with
the attached consolidated financial statements and note 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. PNB cautions that such forward-looking
statements involve risks and uncertainties that may cause actual results to
differ materially from those expressed or implied.


RESULTS OF OPERATIONS

         Net income for the first quarter of 1999 was $1,135,000, or basic and
diluted earnings per share of $0.30 as compared to net income of $1,105,000 in
the first quarter of 1998, or basic and diluted earnings per share of $0.28.
This represents an increase of $30,000 ( 2.7%) or $0.02 per share. This increase
is attributable to an improvement in the net interest margin, which more than
offset increases in salary and equipment costs. Annualized return on average
assets and return on average equity were 0.99% and 10.84%, respectively, for the
first quarter of 1999, compared with 1.02% and 10.47% for the first quarter of
1998.

         Net interest income before any provision for loan losses was $4,087,000
for the first quarter of 1999, compared to $3,932,000 for the first quarter of
1998 (an increase of $155,000 or 3.9%). This increase can be attributed to an
increase in average interest-earning assets from $407.5 million at March 31,
1998, to $428.4 million at March 31, 1999. Additionally, the net yield on
interest-earning assets (on a fully taxable equivalent basis) increased from
4.08% for the first three months of 1998 to 4.10% for the first three months of
1999.

         Non-interest income increased by $75,000 (or 7.9%) during the first
quarter of 1999 as compared to the first quarter of 1998 from $953,000 to
$1,028,000. With the exception of other fee income, which decreased from $96,000
for the first quarter of 1998 to $69,000 for the first quarter of 1999, all
categories of non-interest income increased over the same time frame. Most
notably, service charges on deposits increased $39,000


                                        9
<PAGE>


(increasing as the number of accounts grow). Also, trust and farm management
fees increased $16,000, and other service charges increased $38,000, the latter
a result of increases in debit card fee income and brokerage income.

         Non-interest expenses for the first quarter of 1999 were $3,579,000, an
increase of $235,000 (or 7.0%) from the total of $3,344,000 in the first quarter
of 1998. The biggest increase was in the equipment expense category, which
increased from $196,000 in the first quarter of 1998 to $291,000 in the first
quarter of 1999. This increase was the result of depreciation expense on
computer equipment purchased as part of the corporation's technology upgrade,
whereas the previous computer equipment had been fully depreciated. The other
large increase is in salaries and employee benefits due to an 8% increase in
staff from March 31, 1998 to March 31, 1999. This resulted in salaries and
employee benefits increasing by $84,000 (or 4.7%) during the respective periods.


EARNINGS PER SHARE

         Basic income per share is computed by dividing net income by the
weighted average number of shares outstanding which were 3,827,951 and 4,013,246
for the quarters ending March 31, 1999 and 1998, respectively. Diluted earnings
per share is computed by dividing net income by the weighted average number of
shares plus any common stock equivalents. This total was 3,840,901 for the
quarter ending March 31, 1999. For the first quarter of 1998, there was no
potential common stock, therefore diluted earnings per share were the same as
basic income per share.


ANALYSIS OF FINANCIAL CONDITION

         Total assets at March 31, 1999 decreased to $457,937,000 from
$478,911,000 at December 31, 1998 ($21.0 million or 4.4%). This decrease is
attributable mainly to deposit growth at the end of the year followed by a
normal drop in the first three months of the year. Of the total $21.1 million
decrease in total deposits over the first quarter of 1999, only savings deposits
increased (3.7%), while time deposits, demand deposits, and interest-bearing
deposits all decreased (5.1%, 18.4%, and 3.7%, respectively). The investment
balances totaled $136,289,000 at March 31, 1999, compared to $130,926,000 at
December 31, 1998 (an increase of $5.4 million or 4.1%).

         Renewed loan demand, annual renewals, and refinancing activity caused
loans to increase during the first quarter of 1999. Accordingly, loan balances,
net of unearned interest, increased to $275,922,000 at March 31, 1999, compared
to $269,037,000 at December 31, 1998 (an increase of $6.9 million or 2.6%).
Non-performing loans totaled $1,299,000 or 0.47% of net loans at March 31, 1999,
as compared to $1,406,000 or 0.52% of net loans at December 31, 1998.

         During the first three months of 1999, PNB charged off $91,000 of loans
and had recoveries of $84,000. This compares favorably to charge-offs of
$238,000 and recoveries of $99,000 during the first three months of 1998. The
allowance for possible loan losses


                                       10

<PAGE>


is based on factors that include the overall composition of the loan portfolio,
types of loans, past loss experience, loan delinquencies, potential 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, 1999, the balance in the allowance was $1,803,000 which is
138.8% of total non-performing loans, compared with $1,800,000 or 128.0% of
total non-performing loans at December 31, 1998.

         At March 31, 1999, the recorded balance in loans for which impairment
has been recognized in accordance with FASB Statement No. 114 totaled $820,000
(compared to $616,000 at March 31, 1998), all of which related to impaired loans
which do not require a related allowance for possible loan losses as the
carrying value of the loans is less than the discounted present value of
expected future cash flows. Interest recognized on impaired loans (during the
portion of this quarter that they were impaired) is not considered material.
Loans 90 days or more past due and still accruing interest at March 31, 1999
were $29,000, compared to $101,000 at March 31, 1998.


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, 1999, total risk-based capital was 12.71%, compared to 13.68% at
December 31, 1998. The Tier 1 capital ratio decreased from 8.35% at December 31,
1998, to 8.15% at March 31, 1999. Total stockholders' equity to total assets at
March 31, 1999 increased to 9.32% from 8.90% at December 31, 1998.

         The Board of Directors announced on July 20, 1998 that it was
implementing another stock repurchase program whereby up to 5% of its
outstanding shares of common stock might be repurchased in the open market over
the next twelve months. As of March 31, 1999, the Corporation had repurchased
183,250 shares in the new plan at an average cost of $17.36. It is anticipated
that the repurchase program will continue to have a positive impact on future
diluted earnings per share as well as market value.


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, including cash flow from both the repayment of
loans and the securitization of assets, are also considered in determining
whether liquidity is satisfactory. Cash flows provided by operating activities
have been offset by those used for investing and financing activities, resulting
in a net decrease in cash and cash equivalents of $32,325,000 from December 31,
1998 to March 31, 1999. This usage was due to a net decrease in deposits, a net
increase in loans, and an increase in investments (purchases greater than sales
and maturities). For more detailed cash flow information, see PNB's Consolidated
Statement of Cash Flows.


                                       11
<PAGE>


CURRENT EVENTS

         A ruling was received during the third quarter of 1998 on the
subsidiary bank's lawsuit, stemming from the 1995 Trust Department issue,
against Cincinnati Insurance Company. The case was heard in the United States
District Court for the Northern District of Illinois, Eastern Division, in
Chicago, Illinois. The judge ruled in favor of the bank on all issues and
awarded $4,900,000 in damages, pre-judgment interest, post-judgment interest,
and reasonable attorney fees and costs. Cincinnati Insurance Company has filed
an appeal to the ruling. Citizens First National Bank continues to expense legal
fees and if successful, the majority of such expenses would be reimbursed
through the insurance coverage and the court's judgment.


YEAR 2000 COMPLIANCE

         The Corporation through its subsidiary, Citizens First National Bank,
has undertaken an initiative to address the year 2000 issue and has developed a
comprehensive plan to prepare, as appropriate, the Corporation's computer
systems to recognize the date change on January 1, 2000. If not remedied,
potential risks include business interruption, financial loss , reputation loss,
and/or legal liability. An assessment of the readiness of third parties that the
Corporation interfaces with, such as vendors, counter-parties, customers,
payment systems, and others, is ongoing to mitigate the potential risks that
year 2000 poses to the Corporation. The Corporation's objective is to ensure
that all aspects of the year 2000 issue affecting the Corporation, including
those related to the efforts of third parties, will be fully resolved in time.
The Corporation has consistently maintained contingency plans for vital systems
and business processes to protect the Corporation' assets against unplanned
events that would prevent normal operations. The millennium changeover presents
unique risks, some of which would not be effectively addressed by existing
plans. The Corporation is examining these risks and developing additional plans
to mitigate the effect of potential impacts and ensure continuity of operation
throughout the year 2000 and beyond. The use of the existing contingency
planning infrastructure will ensure optimum coverage and reusability of existing
arrangements and responsibility assignments.

         A year 2000 committee, comprised of representatives from all areas of
the subsidiary, has overall responsibility for ensuring that both the technical
and the business risks imposed by the year 2000 issue are addressed. This
committee regularly monitors the progress toward year 2000 compliance and
provides periodic reporting to the subsidiary's Executive Committee and Board of
Directors.

         The process for year 2000 compliance is following four major steps:
inventory, impact assessment, validation, and implementation. The Corporation
plans to substantially complete the implementation of the Corporation's critical
systems by the end of 1998. It is anticipated that the implementation of all
systems will be achieved by June 30, 1999. The Corporation expects that the
principal costs will be those associated with the replacement of non-compliant
computer equipment, which was fully depreciated and scheduled for replacement.
These costs, which will be capitalized and amortized over the equipment's useful
lives, will be met from existing resources. As a result, the Corporation's


                                       12
<PAGE>


management does not anticipate significant cost savings to occur after the year
2000 issue is satisfactorily remedied.

         In total the Corporation expects the cost of solving the year 2000
issue, and regular replacement of equipment, to be approximately $1.3 million,
consisting of the following:

               Estimated capital costs for technology upgrades   $1.2 million
               Estimated testing costs                           $ .1 million
               Total estimated spending                          $1.3 million

         As of March 31, 1999, the subsidiary bank has successfully met all
critical time frames established by federal regulatory agencies. At this point,
Management does not believe there will be a material impact on the corporation's
results of operations, liquidity, or capital resources.


LEGAL PROCEEDINGS

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


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         There has been no material change in market risk since December 31,
1998, as reported in the Corporation's Annual Report on Form 10-K.


EFFECTS OF INFLATION

         The consolidated financial statements and related consolidated
financial data presented herein have been prepared in accordance with generally
accepted accounting principles and practices within the banking industry which
require the measurement of financial position 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.


                                       13