UNITED STATES  SECURITIES AND EXCHANGE COMMISSION
Washington 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 September 30, 2005

# Commission File Number 0-20050

---

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

|Delaware(State or other jurisdictionof 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.

Yesx
      Noo

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

Yesx
      Noo

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso
      Nox

As of October 14, 2005, the
registrant had outstanding 3,360,036 shares of its $5 par value common stock.





Page 1 of 226 pages

---

# 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.    Unregistered Sales of Equity Securities and Use of Proceeds

|(a) |  | In July 2005, a trust formed by the Corporation issued $25 million
in trust preferred securities (TPS). LaSalle Bank National Association serves as trustee of the trust. The Corporation
received a total of $25 million in net proceeds in the transaction by the issuance of debentures to the trust, as described in
Note 2 of the Consolidated Financial Statements included elsewhere in this report. The trust sold the TPS in a non-public
offering pursuant to Section 4(2) of the Securities Act of 1933, as amended.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | The following table provides information about purchases of the
Corporations common stock by the Corporation during the quarter ended September 30, 2005:
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|Period           |  | (a) Total number of shares purchased |  | (b) Average price paid per share |  | (c) Total number of shares purchasedas 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
|---------------- |  | ------------------------------------ |  | -------------------------------- |  | ------------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------
|                 |  |                                      |  |                                  |  |                                                                                       |       |                                                                                                                 
|7/1/05  7/31/05 |  |                                      |  | 0                                |  | $                                                                                     | 0.00  |                                                                                                                 
|8/1/05  8/31/05 |  |                                      |  | 5,000                            |  | $                                                                                     | 33.00 |                                                                                                                 
|9/1/05  9/30/05 |  |                                      |  | 12,000                           |  | $                                                                                     | 33.74 |                                                                                                                 
|                 |  |                                      |  |                                  |  |                                                                                       |       |                                                                                                                 
|Total            |  |                                      |  | 17,000                           |  | $                                                                                     | 33.52 |                                                                                                                 
|                 |  |                                      |  |                                  |  |                                                                                       |       |                                                                                                                 

|(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

| |  | 4.1 |  | Trust Preferred Securities Indenture
| |  | --- |  | ------------------------------------

| |  | 10.1 |  | Trust Preferred Securities Purchase Agreement
| |  | ---- |  | ---------------------------------------------

| |  | 10.2 |  | Trust Preferred Securities Declaration of Trust
| |  | ---- |  | -----------------------------------------------

| |  | 10.3 |  | Trust Preferred Securities Guaranty Agreement
| |  | ---- |  | ---------------------------------------------

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

2

---

# 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:   November 8, 2005 | By                              
|                         |                                 
|                        
|Date:   November 8, 2005 | By                              
|                         |                                 

3

---

Schedule 1

PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

|                                                                             | September 30,2005(unaudited) |  | December 31,2004
|---------------------------------------------------------------------------- | ---------------------------- |  | ----------------
|ASSETS                                                                       |                              |  |                 
|Cash and due from banks                                                      |                              |  | $               
|Interest-bearing deposits with financial institutions                        |                              |  |                 
|Federal funds sold                                                           |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|Total cash and cash equivalents                                              |                              |  |                 
|                                                                            
|Loans held for sale, at lower of cost or market                              |                              |  |                 
|                                                                            
|Investment securities:                                                      
|Available-for-sale, at fair value                                            |                              |  |                 
|Held-to-maturity, at amortized cost (fair value of $18,260 and $14,111)      |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|Total investment securities                                                  |                              |  |                 
|                                                                            
|Loans:                                                                      
|Loans, net of unearned interest                                              |                              |  |                 
|Allowance for loan losses                                                    |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|Net loans                                                                    |                              |  |                 
|                                                                            
|Premises and equipment, net of accumulated depreciation                      |                              |  |                 
|Bank-owned life insurance                                                    |                              |  |                 
|Accrued interest receivable                                                  |                              |  |                 
|Goodwill                                                                     |                              |  |                 
|Intangible assets, net of accumulated amortization                           |                              |  |                 
|Other real estate owned                                                      |                              |  |                 
|Other assets                                                                 |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|TOTAL ASSETS                                                                 |                              |  | $               
|                                                                             |                              |  |                 
|                                                                            
|LIABILITIES                                                                 
|Deposits:                                                                    |                              | 
|Demand                                                                       |                              |  | $               
|Interest-bearing demand                                                      |                              |  |                 
|Savings                                                                      |                              |  |                 
|Time                                                                         |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|Total deposits                                                               |                              |  |                 
|                                                                            
|Borrowings:                                                                  |                              | 
|Customer repurchase agreements                                               |                              |  |                 
|Advances from the Federal Home Loan Bank                                     |                              |  |                 
|Interest-bearing demand notes issued to the U.S. Treasury                    |                              |  |                 
|Federal funds purchased                                                      |                              |  |                 
|Trust Preferred securities                                                   |                              |  |                 
|Note payable                                                                 |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|Total borrowings                                                             |                              |  |                 
|                                                                            
|Other liabilities                                                            |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|TOTAL LIABILITIES                                                            |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|STOCKHOLDERS EQUITY                                                         |                              | 
|Common stock: $5 par value, 7,000,000 shares authorized; 4,478,296 issued at
|September 30, 2005 and 4,139,841 issued at December 31, 2004                 |                              |  |                 
|Surplus                                                                      |                              |  |                 
|Retained earnings                                                            |                              |  |                 
|Accumulated other comprehensive (loss) income, net of tax                    |                              |  |                 
|Less: Cost of 1,118,260 and 1,081,841 treasury shares at                    
|September 30, 2005 and December 31, 2004, respectively                       |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|TOTAL STOCKHOLDERS EQUITY                                                   |                              |  |                 
|                                                                             |                              |  |                 
|                                                                            
|TOTAL LIABILITIES AND                                                       
|STOCKHOLDERS' EQUITY                                                         |                              |  | $               
|                                                                             |                              |  |                 

See accompanying notes to consolidated financial statements

4

---

Schedule 2

PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except share data)

|                                                          | For the Three MonthsEnded September 30 |  | For the Nine MonthsEnded September 30
|--------------------------------------------------------- | -------------------------------------- |  | -------------------------------------
|
|Interest income:                                          |                                        |  |                                      
|Interest and fees on loans                                |                                        |  | $                                    
|Interest and dividends on investment securities           |                                        |  |                                      
|Interest on federal funds sold                            |                                        |  |                                      
|Interest on interest-bearing time deposits in other banks |                                        |  |                                      
|                                                          |                                        |  |                                      
|                                                         
|Total interest income                                     |                                        |  |                                      
|                                                         
|Interest expense:                                        
|Interest on deposits                                      |                                        |  |                                      
|Interest on borrowings                                    |                                        |  |                                      
|                                                          |                                        |  |                                      
|                                                         
|Total interest expense                                    |                                        |  |                                      
|                                                          |                                        |  |                                      
|                                                         
|Net interest income                                       |                                        |  |                                      
|Provision for loan losses                                 |                                        |  |                                      
|                                                          |                                        |  |                                      
|                                                         
|Net interest income after provision                      
|for loan losses                                           |                                        |  |                                      
|                                                         
|Non-interest income:                                      |                                        | 
|Trust & farm management fees                              |                                        |  |                                      
|Service charges on deposit accounts                       |                                        |  |                                      
|Other service charges                                     |                                        |  |                                      
|Gain on sales of securities available-for-sale            |                                        |  |                                      
|Gain on sale of loans                                     |                                        |  |                                      
|Brokerage fee income                                      |                                        |  |                                      
|Mortgage banking income                                   |                                        |  |                                      
|Bank-owned life insurance income                          |                                        |  |                                      
|Other operating income                                    |                                        |  |                                      
|                                                          |                                        |  |                                      
|                                                         
|Total non-interest income                                 |                                        |  |                                      
|                                                         
|Non-interest expense:                                    
|Salaries and employee benefits                            |                                        |  |                                      
|Occupancy                                                 |                                        |  |                                      
|Equipment expense                                         |                                        |  |                                      
|Federal insurance assessments                             |                                        |  |                                      
|Intangible assets amortization                            |                                        |  |                                      
|Data processing                                           |                                        |  |                                      
|Advertising                                               |                                        |  |                                      
|Other operating expense                                   |                                        |  |                                      
|                                                          |                                        |  |                                      
|                                                         
|Total non-interest expense                                |                                        |  |                                      
|                                                          |                                        |  |                                      
|                                                         
|Income before income taxes                                |                                        |  |                                      
|Income tax expense                                        |                                        |  |                                      
|                                                          |                                        |  |                                      
|                                                         
|Net income                                                |                                        |  | $                                    
|                                                          |                                        |  |                                      
|                                                         
|Earnings per share:                                       |                                        | 
|Basic                                                     |                                        |  |                                      
|Diluted                                                   |                                        |  |                                      
|                                                         
|Basic weighted average shares outstanding                 |                                        |  |                                      
|Diluted weighted average shares outstanding               |                                        |  |                                      

See accompanying notes to consolidated financial statements

5

---

Schedule 2

PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands)

|                                                                        | For the Three MonthsEnded September 30 |  | For the Nine MonthsEnded September 30
|----------------------------------------------------------------------- | -------------------------------------- |  | -------------------------------------
|
|Net income                                                              |                                        |  | $                                    
|                                                                       
|Other comprehensive income (loss), net of tax                           |                                        | 
|                                                                       
|Unrealized holding gains (losses) arising during the period, net of tax |                                        |  |                                      
|Less: Reclassification adjustment for realized gains on                 |                                        | 
|sales of securities included in net income                              |                                        |  |                                      
|                                                                        |                                        |  |                                      
|                                                                       
|Other comprehensive income (loss)                                       |                                        |  |                                      
|                                                                        |                                        |  |                                      
|                                                                       
|Comprehensive income                                                    |                                        |  | $                                    
|                                                                        |                                        |  |                                      

See accompanying notes to consolidated financial statements

6

---

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

|For the Nine Months Ended
September 30, 2005 |  | Common
Stock |   | Surplus |  | Retained
Earnings |        | Accumulated
Other
Comprehensive
Income (loss)
net of tax effect |   | Treasury
Stock |   | Total
|-------------------------------------------- |  | ------------ | - | ------- |  | ----------------- | ------ | --------------------------------------------------------------- | - | -------------- | - | -----
|                                             |  |              |   |         |  |                   |        |                                                                 |   |                |   |      
|Balance, January 1, 2005                     |  |              | $ | 20,699  |  | $                 | 7,810  |                                                                 | $ | 42,156         |   | $    
|                                            
|Net income                                   |  |              |   |         |  |                   |        |                                                                 |   | 5,439          |   |      
|Sale of 4,290 shares                         |  |             
|of treasury stock                            |  |              |   |         |  |                   | 50     |                                                                 |   |                |   |      
|Purchase of 84,600 shares                    |  |             
|of treasury stock                            |  |              |   |         |  |                   |        |                                                                 |   |                |   |      
|Exercise of stock options and                |  |             
|re-issuance of treasury                      |  |             
|stock (43,891 shares)                        |  |              |   |         |  |                   | 777    |                                                                 |   | (610           | ) |      
|Cash dividends                               |  |             
|($.65 per share)                             |  |              |   |         |  |                   |        |                                                                 |   | (2,059         | ) |      
|Issuance of 338,600 shares                   |  |             
|of common stock                              |  |              |   | 1,693   |  |                   | 8,307  |                                                                 |   |                |   |      
|Other comprehensive loss,                    |  |             
|net of $626 tax effect                       |  |              |   |         |  |                   |        |                                                                 |   |                |   |      
|                                             |  |              |   |         |  |                   |        |                                                                 |   |                |   |      
|                                            
|Balance, September 30, 2005                  |  |              | $ | 22,392  |  | $                 | 16,944 |                                                                 | $ | 44,926         |   | ($   
|                                             |  |              |   |         |  |                   |        |                                                                 |   |                |   |      
|                                            
|                                            
|
|                                            
|Balance, January 1, 2004                     |  |              | $ | 20,699  |  | $                 | 7,020  |                                                                 | $ | 38,726         |   | $    
|                                            
|Net income                                   |  |              |   |         |  |                   |        |                                                                 |   | 5,183          |   |      
|Sale of 3,174 shares                         |  |             
|of treasury stock                            |  |              |   |         |  |                   | 46     |                                                                 |   |                |   |      
|Purchase of 92,000 shares                    |  |             
|of treasury stock                            |  |              |   |         |  |                   |        |                                                                 |   |                |   |      
|Exercise of stock options and                |  |             
|re-issuance of treasury                      |  |             
|stock (29,821 shares)                        |  |              |   |         |  |                   | 610    |                                                                 |   | (475           | ) |      
|Cash dividends                               |  |             
|($.56 per share)                             |  |              |   |         |  |                   |        |                                                                 |   | (1,740         | ) |      
|Other comprehensive loss,                    |  |             
|net of $45 tax effect                        |  |              |   |         |  |                   |        |                                                                 |   |                |   |      
|                                             |  |              |   |         |  |                   |        |                                                                 |   |                |   |      
|                                            
|Balance, September 30, 2004                  |  |              | $ | 20,699  |  | $                 | 7,676  |                                                                 | $ | 41,694         |   | $    
|                                             |  |              |   |         |  |                   |        |                                                                 |   |                |   |      

See accompanying notes to consolidated financial statements

7

---

Schedule 4

PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)
(dollars in thousands)

|                                                                          | For the Nine Months Ended
September 30
|------------------------------------------------------------------------- | --------------------------------------
|
|                                                                          |                                       
|Operating activities:                                                     |                                       
|Net income                                                                |                                       
|Adjustments to reconcile net income to net                                |                                       
|cash provided by operating activities:                                    |                                       
|Depreciation                                                              |                                       
|Provision for loan losses                                                 |                                       
|Amortization of other intangible assets                                   |                                       
|Amortization of premiums on investment                                    |                                       
|securities, net of accretion                                              |                                       
|Gain on securities transactions, net                                      |                                       
|Gain on sale of loans                                                     |                                       
|FHLB stock dividends                                                      |                                       
|Loans originated for sale                                                 |                                       
|Proceeds from sales of loans originated for sale                          |                                       
|Increase in accrued interest payable                                      |                                       
|Increase in accrued interest receivable                                   |                                       
|Increase in other assets                                                  |                                       
|Increase (decrease) in other liabilities                                  |                                       
|                                                                          |                                       
|Net cash provided by operating activities                                 |                                       
|                                                                          |                                       
|Investing activities:                                                     |                                       
|Proceeds from sales of investment securities available-for-sale           |                                       
|Proceeds from maturities of investment securities available-for-sale      |                                       
|Purchase of investment securities available-for-sale                      |                                       
|Proceeds from maturities of investment securities held-to-maturity        |                                       
|Purchase of investment securities held-to-maturity                        |                                       
|Proceeds from sale of credit card loans                                   |                                       
|Net increase in loans                                                     |                                       
|Purchases of premises and equipment                                       |                                       
|Payment related to acquisition, net of cash and cash equivalents acquired |                                       
|                                                                          |                                       
|Net cash used in investing activities                                     |                                       
|                                                                          |                                       
|Financing activities:                                                     |                                       
|Net increase in deposits                                                  |                                       
|Issuance of trust preferred securities                                    |                                       
|Net increase in borrowings                                                |                                       
|Issuance of common stock                                                  |                                       
|Dividends paid                                                            |                                       
|Purchases of treasury stock                                               |                                       
|Exercise of stock options and issuance of treasury stock                  |                                       
|Sales of treasury stock                                                   |                                       
|                                                                          |                                       
|Net cash provided by financing activities                                 |                                       
|                                                                          |                                       
|Increase (decrease) in cash and cash equivalents                          |                                       
|Cash and cash equivalents at beginning of period                          |                                       
|                                                                          |                                       
|Cash and cash equivalents at September 30                                 |                                       
|                                                                          |                                       
|                                                                          |                                       
|Supplemental disclosures of cash flow information:                        |                                       
|Cash paid during the period for:                                          |                                       
|Interest                                                                  |                                       
|Income taxes                                                              |                                       
|Supplemental disclosures of non-cash flow activities:                     |                                       
|Loans transferred to other real estate owned                              |                                       

See accompanying notes to consolidated financial statements

8

---

Schedule 5

PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes 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 Ended
September 30, |  | Nine Months Ended
September 30,
|-------------------------------- | -------------------------------- |  | -------------------------------
|                                 |                                  |  |                                
|
|                                 |                                  |  |                                
|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                          |                                  |  | $                              

9

---

# (2)   ACQUISITION

On July 31, 2005, the
Corporation acquired 100% of the outstanding stock of Somonauk FSB Bancorp, Inc. (Somonauk), a $211.6 million bank
holding company with offices in Somonauk, Newark, Sandwich, Plano and Millbrook, Illinois. The Corporation completed this
acquisition in order to expand its market presence in this area. Somonauk was acquired for a purchase price of $49.6 million;
$39.6 million paid in cash and the remaining $10 million paid in common stock resulting in the issuance of 338,600 shares. In
conjunction with the acquisition, the Corporation issued $25.0 million in trust preferred securities and borrowed $15.0 million in
secured notes. Of the $15.0 million in notes payable, $9.0 million was immediately repaid after the closing of the transaction.

The following unaudited pro
forma condensed combined financial information presents the results of operations of the Corporation had the acquisition taken
place at the beginning of each period:

|(in thousands)             | Nine Months Ended
September 30, 2005 |  | Nine Months Ended
September 30, 2004
|-------------------------- | ------------------------------------ |  | ------------------------------------
|                           |                                      |  |                                     
|Net interest income        |                                      |  | $                                   
|                          
|Provision for loan losses  |                                      |  |                                     
|                          
|Non-interest income        |                                      |  |                                     
|Non-interest expense       |                                      |  |                                     
|                           |                                      |  |                                     
|Income before income taxes |                                      |  |                                     
|Income tax expense         |                                      |  |                                     
|                           |                                      |  |                                     
|Net income                 |                                      |  | $                                   
|                          
|Earnings per share:        |                                      | 
|Basic                      |                                      |  | $                                   
|Diluted                    |                                      |  | $                                   
|                          
|Basic weighted average     |                                      | 
|shares outstanding         |                                      |  |                                     
|                          
|Diluted weighted average   |                                      | 
|shares outstanding         |                                      |  |                                     

The
unaudited pro forma condensed consolidated financial statements do not reflect any
anticipated cost savings and revenue enhancements. Additionally, the Somonauk income
statement for the first six months of 2005 includes merger-related expenses. Accordingly,
the pro forma consolidated financial condition and results of operations of PNBC as of and
after the merger may not be indicative of the results that actually would have occurred if
the merger had been in effect during the periods presented or of the results that may be
attained in the future.

At the time of the
acquisition, the subsidiary bank of Somonauk (Farmers State Bank) was immediately merged into Citizens First National Bank. The
acquisition of Somonauk was accounted for under the purchase method of accounting, and accordingly, the assets and liabilities of
Somonauk were adjusted to their fair market values as of the acquisition date. As of the date of this report, not all fair market
value information has been obtained. Accordingly, the figures contained herein are estimates and will be adjusted to actual when the fair market value information is received. It is anticipated the final figures will not be materially different from the estimated amounts. The operating results
of Somonauk have been consolidated with those of the Corporation from August 1, 2005. Goodwill was recorded in the amount of $19.1
million was recorded along with a core deposit intangible of $6.0 million which is being amortized over a fifteen year period.

10

---

# (3)   GOODWILL AND INTANGIBLE ASSETS

The balance of goodwill, net
of accumulated amortization, totaled $20,416,000 at September 30, 2005 and $1,355,000 at December 31, 2004. The balance of
intangible assets, net of accumulated amortization, totaled $7,126,000 and $1,317,000 at September 30, 2005 and December 31, 2004,
respectively. The following table provides a reconciliation of the purchase price paid for the Somonauk acquisition and the amount
of goodwill recorded:

|                                             |  | 
|-------------------------------------------- |  | 
|Purchase Price                               |  | 
|Less: Somonauk equity                        |  | 
|                                             |  | 
|Recorded Goodwill                            |  | 
|Add: Direct Acquisition Costs                |  | 
|Less Purchase Accounting Adjustments:        |  | 
|Loans                                        |  | 
|CDs                                         |  | 
|FHLB Advances                                |  | 
|Core Deposit Intangible                      |  | 
|                                             |  | 
|                                             |  | 
|Deferred Taxes on purchase accounting        |  | 
|adjustments                                  |  | 
|                                             |  | 
|Resulting Goodwill from Somonauk acquisition |  | 
|                                             |  | 

The following table
summarizes the Corporations intangible assets, which are subject to amortization, as of September 30, 2005 and December 31,
2004.

|                        | 2005 |  | 2004
|----------------------- | ---- |  | ----
|
|                        |      |  |     
|Core deposit intangible |      |  | $   
|Other intangible assets |      |  |     
|                        |      |  |     
|Total                   |      |  | $   
|                        |      |  |     

11

---

Amortization expense totaled
$185,000 for the nine months ended September 30, 2005 and $156,000 for the nine months ended September 30, 2004, respectively. The
amortization expense will be approximately $137,000 for the remainder of 2005.

The Corporation has
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 on a basis similar to the interest
method using an accelerated amortization method and are subject to periodic impairment testing. As of September 30, 2005 no
impairment had been recorded during the year. 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, September 30, 2005      | 
|                                 | 

The
Corporation services loans for others with unpaid principal balances at September 30, 2005
and December 31, 2004 of approximately $197,284,000, and $147,958,000, respectively.

The
following table shows the future estimated amortization expense for mortgage servicing
rights based on existing balances as of September 30, 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.

# 

|Estimated Amortization Expense:              | Amount (in thousands)
|-------------------------------------------- | ---------------------
|                                             |                      
|For the three 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                                   |                      

12

---

# (4)   STOCK BASED COMPENSATION

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 Sept. 30, |  | For the Nine Months Ended Sept. 30,
|---------------------------------------- | ------------------------------------ |  | -----------------------------------
|                                         |                                      |  |                                    
|
|                                        
|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               |                                      |  | (126                               
|                                         |                                      |  |                                    
|Pro forma net income                     |                                      |  | $                                  
|                                         |                                      |  |                                    
|                                        
|Basic Earnings Per Share                 | As Reported                          |  | $                                  
|                                         | Pro Forma                            |  |                                    
|                                        
|Diluted Earnings Per Share               | As Reported                          |  | $                                  
|                                         | Pro Forma                            |  |                                    

13

---

Schedule 6

# PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three and nine months ended September 30, 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 three and nine month periods ended September 30, 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 third
quarter of 2005 was $2,039,000, or basic earnings per share of $0.63 (diluted earnings per share of $0.62), as compared to net
income of $1,633,000 in the second quarter of 2004, or basic earnings per share of $0.53 (diluted earnings per share of $0.52).
This represents an increase of $406,000 (24.9%) or $.10 per basic and diluted share and is primarily attributable to the
acquisition as mentioned in Note 2 of the Notes to Consolidated Financial Statements. Net income for the first nine months of 2005
was $5,439,000, or basic earnings per share of $1.75 (diluted earnings per share of $1.73), as compared to net income of
$5,183,000, or basic earnings per share of $1.67 (diluted earnings per share of $1.64) for the first nine months of 2004. This
represents an increase of $256,000 (4.9%) or $.08 per basic share and $.09 per diluted share and is due to the acquisition of
Somonauk FSB Bancorp, Inc. (Somonauk) which more than offsets the income generated in 2004 from the sale of the
subsidiary banks credit card portfolio ($285,000 after-tax). The annualized return on average assets and return on average
equity were 0.94% and 13.71%, respectively, for the third quarter of 2005, compared with 1.05% and 12.76% for the third quarter of
2004. For the nine-month periods, the annualized return on average assets and return on average equity were 1.00% and 13.34%,
respectively for 2005, compared with 1.13% and 13.63%, respectively for 2004.

Net interest income before
provision for loan losses was $6,526,000 for the third quarter of 2005, compared to $5,204,000 for the third quarter of 2004 (an
increase of $1,322,000 or 25.4%). This improvement is the result of an increase in average interest-earning assets from the
Somonauk acquisition in the third quarter compared to the prior year. As loan growth has continued and increases in the prime rate
over the last twelve months have positively impacted the net interest margin, this improvement has been negatively impacted by
interest rates increasing more rapidly on interest-bearing liabilities.

14

---

Accordingly, the Corporations net interest margin declined to 3.65% in
the third quarter of 2005, a decrease from 3.88% in the second quarter of 2005 and 3.94% in the third quarter of 2004. Net
interest income before provision for loan losses was $17,395,000 for the first nine months of 2005, compared to $15,378,000 for
the first nine months of 2004 (an increase of $2,017,000 or 13.1%). For the nine months ended September 30, 2005, average
interest-earning assets were $660.7 million compared to $557.5 million for the nine months ended September 30, 2004. The resulting
net yield on interest-earning assets (on a fully taxable equivalent basis) decreased from 3.95% in the first three-quarters of
2004 to 3.80% in the first three-quarters of 2005.

PNBC did not record a loan
loss provision in the first nine months of 2005, due to an improving credit environment, compared to a provision of $75,000 in the
third quarter of 2004 and $375,000 for the first nine months of 2004. Although the ratio of non-performing loans to total loans at
September 30, 2005 of 0.44% is up from 0.12% at September 30, 2004, the increase is attributable to a commercial line of credit
being transferred to non-accrual in January 2005. The loan continues to be in a paydown status and paydowns are being received on
the line on a regular basis. The provision expense recorded is determined monthly by managements evaluation of the risk
characteristics of the loan portfolio. For the third quarter of 2005, PNBC had net charge-offs of $6,000, compared to net
recoveries of $22,000 for the third quarter of 2004. For the nine-month comparable periods, PNBC had net charge-offs of $28,000 in
2005 and net charge-offs of $82,000 in 2004.

Non-interest income totaled
$2,295,000 for the third quarter of 2005, as compared to $1,900,000 in the third quarter of 2004, an increase of $395,000 (or
20.8%). This is a result of an increase in service charges on deposit accounts of $91,000 (or 10.8%), a result of the Somonauk
acquisition, as well as increases in other service charges of $79,000 (or 28.4%), brokerage fee income of $77,000 (or 57.0%), and
mortgage banking income of $75,000 (or 61.0%). Annualized non-interest income as a percentage of total average assets decreased to
1.06% for the third quarter of 2005, compared to 1.23% for the same period in 2004. Year-to-date in 2005, non-interest income
totals $6,206,000 compared to $6,409,000 for the first nine months of 2004, a decrease of $203,000 (or 3.2%). The primary reason
for the decrease is the sale of the subsidiary banks credit card portfolio ($465,000) in 2004, coupled with a decrease in
the gains on sales of securities from $182,000 to $50,000 over the comparable time frames. Partially offsetting the decrease was
an increase in trust and farm management fees of $147,000, an increase of 14.1% as assets under management have increased.
Annualized non-interest income as a percentage of total average assets decreased to 1.14% for the first nine months of 2005,
compared to 1.40% for the same period in 2004.

Total non-interest expense
for the third quarter of 2005 was $6,202,000, an increase of $1,315,000 (or 26.9%) from $4,887,000 in the third quarter of 2004.
This increase was seen in all categories and is attributable to the Somonauk acquisition and non-capitalizable acquisition-related
expenditures. Annualized non-interest expense as a percentage of total average assets decreased to 2.86% for the third quarter of
2005, compared to 3.16% for the third quarter of 2004. Year-to-date non-interest expenses for 2005 were $16,497,000, an increase
of $1,987,000 (or 13.7%) from the $14,510,000 for the first nine months of 2004. This increase is also due the acquisition,
particularly in salaries/employee benefits ($1,380,000 or 16.8%) and in equipment expenses of $230,000 (or 19.4%). Annualized
non-interest expense as a percentage of total average assets have decreased to 3.03% for the first nine months of 2005, compared
to 3.17% for the same period in 2004.

15

---

# INCOME TAXES

Income tax expense totaled
$580,000 for the third quarter of 2005, as compared to $509,000 for the third quarter of 2004. The effective tax rate was 22.2%
for the three month period ended September 30, 2005 compared to 23.8% for the three month period ended September 30, 2004. Income
tax expense totaled $1,665,000 for the first nine months of 2005, compared to $1,719,000 for the first nine months of 2004. The
effective tax rate was 23.4% for the nine months ended September 30, 2005 compared to 24.9% for the nine months ended September
30, 2004. The effective tax rate is lower quarter over quarter and year-to-date 2005 versus year-to-date 2004 due to an increase
in the amount of tax-exempt investment securities.

# ANALYSIS OF FINANCIAL CONDITION

Total assets at September 30,
2005 increased to $927,529,000 from $655,738,000 at December 31, 2004 (an increase of $271.8 million or 41.4%), with $211.6
million coming from the Somonauk acquisition. Total deposits at September 30, 2005 increased to $784,170,000 from $573,561,000 at
December 31, 2004 (an increase of $210.6 million or 36.7%). This increase also is due to the acquisition with $181.8 million
attributable to Somonauk. 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 $72,318,000 at September 30, 2005 (an increase of $46.8 million or 183.2%). As mentioned in the Notes to
Consolidated Financial Statements, the Corporation issued $25.0 million in trust preferred securities and also increased notes
payable by $6.0 million. Additionally, customers repurchase agreements increased by $12.0 million in the past nine months, as
interest rates have become more favorable. Investment balances totaled $259,459,000 at September 30, 2005, compared to
$188,809,000 at December 31, 2004 (an increase of $70.7 million or 37.4%) with $82.9 million coming from the Somonauk acquisition.

Loan balances, net of
unearned interest, increased to $565,744,000 at September 30, 2005, compared to $410,044,000 at December 31, 2004 (an increase of
$155.7 million or 38.0%). $115.67 million of this increase is attributable to Somonauk loans with the remaining increase coming
primarily in the commercial and residential real estate areas. Non-performing loans increased to $2,514,000 or 0.44% of net loans
at September 30, 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 is primarily due to one commercial credit, which continues to pay down and
for which management expects no future losses.

# ASSET QUALITY

For the nine months ended
September 30, 2005, the subsidiary bank charged off $171,000 of loans and had recoveries of $143,000, compared to charge-offs of
$315,000 and recoveries of $233,000 during the nine months ended September 30, 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 September 30, 2005, the allowance was $3,336,000
which is 132.7% 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.

16

---

At September 30, 2005,
impaired loans totaled $1,841,000 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 September 30, 2005 was $27,000 and at December 31, 2004 was $0. There was a specific loan loss reserve of
$62,000 established for impaired loans as of September 30, 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 September 30, 2005.

# CAPITAL RESOURCES

In July 2005, a trust formed
by the Corporation issued $25 million in trust preferred securities (TPS). LaSalle Bank National Association serves as
trustee of the trust. The Corporation received a total of $25 million in net proceeds in the transaction by the issuance of
debentures to the trust, as described in Note 2 of the Consolidated Financial Statements included elsewhere in this report. The
trust sold the TPS in a non-public offering pursuant to Section 4(2) of the Securities Act of 1933, as amended. Additionally, the
Corporation issued 338,600 shares of common stock in conjunction with the Somonauk acquisition.

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 September 30, 2005, total risk-based capital of PNBC was 11.19%,
compared to 11.49% at December 31, 2004. The Tier 1 capital ratio decreased from 7.62% at December 31, 2004, to 7.05% at September
30, 2005, which is part of the Corporations long-term capital management plan. Total stockholders equity to total
assets at September 30, 2005 decreased to 6.8% from 8.0% at December 31, 2004. The Corporation continues to be well-capitalized
according to regulatory requirements.

# 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 those used in investing activities, resulted in a net increase in cash and cash equivalents of $4,469,000 from December
31, 2004 to September 30, 2005. This increase was primarily due to a net increase in deposits, the trust preferred issuance, net
increase in borrowings, and the issuance of common stock, offset by the payment related to the acquisition and a net increase in
loans. 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.

17

---

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
September 30, 2005, commitments to extend credit and standby letters of credit were approximately $126,239,000 and $8,528,000,
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

On October 11, 2005 the
Corporation opened a new full-service branch location in Plano, Illinois. Also, the Corporation has begun construction of a new
branch facility in Aurora, Illinois. Construction will continue throughout the remainder of 2005, with an expected opening in the
spring of 2006. Plans to build new full-service bank facility at the Elburn, Illinois property which was purchased in July of
2003, will begin in the fall of 2006.

# 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.

18

---

# IMPACT OF NEW ACCOUNTING STANDARDS

On December 16, 2003, the
American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-3, Accounting for
Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 provides guidance on the accounting for
differences between contractual and expected cash flows from the purchasers initial investment in loans or debt securities
acquired in a transfer, if those differences are attributable, at least in part, to credit quality. Among other things, SOP 03-3:
(1) prohibits the recognition of the excess of contractual cash flows over expected cash flows as an adjustment of yield, loss
accrual, or valuation allowance at the time of purchase; (2) requires that subsequent increases in expected cash flows be
recognized prospectively through an adjustment of yield; and (3) requires the subsequent decreases in cash flows be recognized as
an impairment. In addition, SOP 03-3 prohibits the creation or carrying over of a valuation allowance in the initial accounting of
all loans within it scope that are acquired in a transfer. SOP 03-3 becomes effective for loans or debt securities acquired in
fiscal years beginning after December 15, 2004. The Corporation is currently completing its evaluation of the impact of SOP 03-3
with respect to the Corporations acquisition of Somonauk.

In March 2004, the Emerging
Issues Task Force (EITF) reached a consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments. The EITF reached a consensus on an other-than-temporary impairment model for debt
and equity securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and cost method investments. The new guidance prescribes a three-step process to identify impairment of
investment securities, classify impairment as either temporary or other-than-temporary, and recognize loss in the case of
other-than-temporary impairment of investment securities. In September 2004, FASB issued a proposed FASB Staff Position, FSP EITF
Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. The proposed FSP would provide implementation
guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for
other-than-temporary impairment under paragraph 16 of Issue 03-1. FASB has delayed the effective date for the measurement and
recognition guidance contained in paragraphs 10 through 20 of Issue 03-1. This delay does not suspend the requirement to recognize
other-than-temporary impairments as required by existing authoritative literature. The delay of the effective date for paragraphs
10 through 20 of Issue 03-1 will be superceded concurrent with the final issuance of FSP EITF Issue 03-1-a. The disclosure
guidance in paragraphs 21 and 22 of Issue 03-1 remains effective. The amount of any other-than-temporary impairment that may need
to be recognized in the future will be dependent on market conditions, the occurrence of certain events or changes in
circumstances relative to an investee, and the Corporations intent to hold the impaired investments at the time of the
valuation.

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 SEC guidance. The
Corporation has summarized the pro forma impact of FAS 123R in Note 4 of the Notes to Consolidated Financial Statements, and
anticipates that it will result in a reduction in earnings and earnings per share, beginning with the first quarter of 2006.

In June 2005, the FASB issued
SFAS No. 154, Accounting Changes and Error Corrections  a replacement of APB Opinion No. 20 and FASB Statement No.
3 (FAS 154). FAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle and
also applies to all voluntary changes in accounting principle. FAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The adoption of this statement is not expected to have a material
effect on the Corporations consolidated financial statements.

19

---

# 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.

20

---

# 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 Nine Months Ended
Septmber 30,
|------------------------------------- | --------------------------------------
|
|                                      |                                       
|Net interest income as stated         |                                       
|Tax equivalent adjustment-investments |                                       
|Tax equivalent adjustment-loans       |                                       
|                                      |                                       
|Tax equivalent net interest income    |                                       
|                                      |                                       

21

---

# 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 September 30, 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, Senior Vice-President and Chief
Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Sorcic and Fanning concluded
that, as of the date of their evaluation, our disclosure controls were effective.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | Internal controls.
There have not been any significant changes in our internal accounting controls or in other factors during the quarter ended
September 30, 2005 that could significantly affect those controls.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

---

# INDEX TO EXHIBITS

|ExhibitNumber |  | Exhibit                                                                                                                               
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|             
|4.1           |  | Trust Preferred Securities Indenture                                                                                                  
|             
|10.1          |  | Trust Preferred Securities Purchase Agreement                                                                                         
|             
|10.2          |  | Trust Preferred Securities Declaration of Trust                                                                                       
|             
|10.3          |  | Trust Preferred Securities Guaranty Agreement                                                                                         
|             
|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.

23

---