10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2006

Commission File Number 0-20050

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

Delaware	36-32110283
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
606 South Main Street Princeton, Illinois	61356-2080
(Address of principal executive offices)	(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock	The Nasdaq
	Stock Market
Preferred Share Purchase Rights

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.	Yes	o	No	x
Indicate by check mark if the registrant is not required to file reports pursuant to Sections 13 or 15(d) of the Act.	Yes	o	No	x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.	Yes	x	No	o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.		o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer		o
Accelerated filer		x
Non-accelerated filer		o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).	Yes	o	No	x

          At February 26, 2007, 3,341,410 shares of Common Stock, $5.00 Par Value, were outstanding, and the aggregate market value of the common stock (based upon the closing representative bid price of the common stock on June 30, 2006 of $32.65, the last business day of the Registrant’s most recently completed second quarter, as reported by NASDAQ) held by nonaffiliates was approximately $110,256,699.

          Determination of stock ownership by nonaffiliates was made solely for the purpose of responding to this requirement and the registrant is not bound by this determination for any other purpose.

          Portions of the following documents are incorporated by reference:

          2007 Notice and Proxy Statement for the Annual Meeting of Stockholders April 24, 2007 (the “Proxy Statement”) - Part III and portions of the Corporation’s 2006 Annual Report (the “Annual Report”) - Part II

Page 1 of 66 pages

PART I

Item 1. Business

          Princeton National Bancorp, Inc. (“PNBC”, the “Corporation”, or the “Company”) is a single-bank holding company which operates in one business segment conducting a full-service commercial banking and trust business through its subsidiary bank, Citizens First National Bank (“Citizens Bank”, “the Bank”, or the “subsidiary bank”). PNBC was incorporated as a Delaware corporation in 1981 in contemplation of the acquisition of all of the outstanding common stock of Citizens Bank and other future acquisitions. At December 31, 2006, the Corporation had consolidated total assets of $1,031,959,000 and stockholders’ equity of $65,355,000.

          PNBC operates the Bank as a community bank with offices located for convenience and with professional, highly-motivated, progressive employees who know the Bank’s customers and provide individualized, quality service. As part of its community banking approach, officers of the Bank actively participate in community organizations. In addition, within certain credit and rate of return parameters, the subsidiary bank strives to meet the lending needs of the communities in which offices are located and invests in local municipal securities.

          Corporate policy, strategy and goals are established by the Board of Directors of PNBC. Pursuant to PNBC’s holding company philosophy, operational and administrative policies for the Bank are also established at the holding company level. Within this framework, the Bank focuses on providing personalized services and quality products to its customers to meet the needs of the communities in which its offices are located. In 2006, the majority of the directors of PNBC also served as the directors of Citizens Bank, which further assists PNBC to directly implement its policies at Citizens Bank.

Acquisition and Expansion Strategy

          PNBC seeks to diversify both its market area and asset base and increase profitability through acquisitions and expansion. PNBC’s goal, as reflected by its acquisition policy, is to expand through the acquisition of established financial service organizations (primarily commercial banks to the extent suitable candidates may be identified) and by expanding into potential high-growth areas. In integrating acquisitions, PNBC focuses on, among other actions, implementing the policies established at Citizens Bank, improving asset quality, the net interest margin, and encouraging community involvement. In November, 2006, PNBC announced it had entered into a branch purchase and assumption agreement to acquire the Plainfield office of HomeStar Bank, Manteno, Illinois. This transaction closed in the first quarter of 2007. Additionally in 2005, PNBC acquired Somonauk FSB Bancorp, Inc. and its subsidiary, Farmers State Bank, with branches in Somonauk, Millbrook, Newark and Sandwich (subsequently merged into Citizens Bank).

          PNBC will also consider establishing branch facilities as a means of expanding its presence into new market areas. PNBC opened new branch facilities in the Peru/LaSalle/Oglesby area in 1994, in Minooka in 1994, Hampshire in 1995, Henry in 1999, Huntley in 2001, Plano in 2005 and Aurora in 2006. Several of these locations, along with the Plainfield office, are located in rapidly growing communities that will provide significant loan and deposit growth opportunities, as well as increased revenue potential.

Citizens First National Bank

          Citizens Bank was organized in 1865 as a national banking association under the National Bank Act. Currently in its one hundred and forty-second year, Citizens Bank has twenty-one offices in seventeen different communities in north central Illinois: Aurora, DePue, Genoa, Hampshire, Henry, Huntley, Millbrook, Minooka, Newark, Oglesby, Peru, Plainfield, Plano, Princeton, Sandwich, Somonauk, and Spring Valley.

          Citizens Bank serves individuals, businesses and governmental bodies in Bureau, DeKalb, Grundy, Kane, Kendall, LaSalle, Marshall, McHenry, Will and contiguous counties. Citizens Bank operates a full-service community commercial bank and trust business that offers a broad range of financial services to customers. Citizens Bank’s services consist primarily of commercial, real estate and agricultural lending, consumer deposit and financial services, and trust, brokerage, insurance, and farm management services.

Commercial, Real Estate, and Agricultural Lending

          Citizens Bank’s commercial loan department provides secured and to a much lesser extent unsecured loans, including real estate loans, to companies and individuals for business purposes and to governmental units within the Bank’s market area. As of December 31, 2006, Citizens Bank had commercial loans of $134.4 million (21.4% of the Bank’s total loan portfolio) and commercial real estate loans of $130.3 million (20.7% of the Bank’s total loan portfolio). Citizens Bank does not have a concentration of commercial loans in any single industry or business, except for loans to the agricultural industry as more fully disclosed below.

          Agricultural and agricultural real estate loans are primarily related to ventures within 30 miles of branch locations. As of December 31, 2006, Citizens Bank had agricultural loans of $83.6 million and agricultural real estate loans of $61.5 million, which represent approximately 13.3% and 9.8%, respectively, of the Bank’s total loan portfolio.

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

          In accordance with its loan policy, Citizens Bank maintains a diversified loan portfolio. As part of its loan policy and community banking approach, Citizens Bank does not buy loan syndications with other lending institutions. In connection with its credit relationships, Citizens Bank encourages commercial and agricultural borrowers to maintain deposit accounts at the Bank.

Personal Financial Services

          The principal consumer services offered by Citizens Bank are demand, savings and time deposit accounts, home mortgage loans, installment loans, and brokerage services.

          One of the strengths of Citizens Bank is the stability of its retail deposit base. This stability is due primarily to the Bank’s service oriented competitive strategy and the economically diverse populations of the counties encompassing the twenty-one banking offices. These locations provide convenience for customers and visibility for Citizens Bank. A variety of marketing strategies are used to attract and retain stable depositors, the most important of which is the officer call program. Nearly all officers of the Bank call on customers and potential customers of the Bank to maintain and develop relationships.

          Citizens Bank is active in consumer and mortgage lending with approximately $120.6 million in home mortgage loans (19.1 % of the Bank’s total loan portfolio) and $56.1 million in consumer installment loans (8.9% of the Bank’s total loan portfolio) as of December 31, 2006. To better serve its retail customers, Citizens Bank is active in the secondary residential mortgage market. As a matter of policy, Citizens Bank does not hold, in portfolio, long term, fixed rate, single-family home mortgage loans, however, the servicing of such loans is maintained. As of December 31, 2006, Citizens Bank had $236.9 million of loans that have been sold, but servicing has been maintained. Management believes customers receive a higher level of quality service with this arrangement.

          Citizens Bank maintains twenty-six automated teller machines. The Bank is a member of NYCE as well as other major nationwide networks such as ACCEL/Exchange, CIRRUS and PLUS. To enhance customer service and convenience, Citizens Bank offers ATM & Debit Cards, which can be used anywhere VISA is accepted, and is viewed as a tremendous benefit to our customers. Citizens Bank also offers an entire host of Internet Banking services including Bill Pay as an additional and convenient alternative delivery mechanism for its product and service line.

          Citizens Bank continues to maintain an intensive sales training program, which includes team coaching, setting goals, measuring results, and reward recognition. Citizens Bank has implemented team goals at each branch which helps to meet bank wide goals, while continuing to focus on quality product referrals and product sales.

Citizens Financial Advisors

          Fiduciary Services undertook several significant affiliations with outside service providers in 2006. The direct management of the 15,000 acreage farmland portfolio was sold and/or outsourced to Hertz Farm Management, Inc. (40% of this portfolio will stay under the oversight of Fiduciary Services since they represent Trust Accounts). The transfer of management will allow a larger more stable management team to service the specific needs of our customers as well as deliver economies of scale that an organization with over 450,000 acres of farmland under management, such as Hertz, can provide.

          Fiduciary Services is also in the process of outsourcing the record keeping responsibilities of many of our medium to large size customer 401(K) programs. BPA – Harbridge, Inc. will deliver the professional record keeping services. This restructuring will allow our employee benefits personnel to utilize their substantial training and retirement plan expertise to meet a greater number of our current customer needs. In addition, the team will develop new business opportunities instead of focusing on mundane data entry services.

          A significant additional change occurred when the CFNB employee 401(K) program was transferred to ADP during 2006. Coordination of the large amount of internal record keeping has resulted in reduced workloads for Fiduciary Services. This reduction provides significant new business development potential in the employee benefits area.

          CFA Brokerage accomplished their final phase of realignment in 2006 with the placement of two new Client Advisors in the Somonauk and Huntley markets. Both Advisors completed the year with very strong performance numbers that will carry forward into subsequent years.

          Fiduciary Services: Fiduciary Services generated approximately $1,467,000 in gross revenue in 2006. This represents a decrease of 8.4% in revenue from 2005 due to the sale of Farm Management, real estate sales potentials and a decrease in estate fees. However, these lower income levels were accompanied with commensurate levels of decreased expenses.

          Investment Services: Brokerage income increased 5.6% from $697,348 in 2005 to $736,358 in 2006. The $39,000 increase in income, once again, occurred through the reassignment of several of the Client Advisors to service the branches under a new coverage model.

Competition

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

Supervision and Regulation

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

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

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

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

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

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

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

          The Bank may declare dividends out of undivided profits, except that until the surplus fund of the Bank is equal to its common capital, no dividend can be declared until one-tenth of the Bank’s net income for the applicable period has been carried to the surplus fund. The Bank, however, cannot declare or pay a dividend, if after making the dividend, the Bank would be undercapitalized. In addition, prior approval of the OCC is required if dividends declared by the Bank in any calendar year will exceed its net income for that year combined with its retained net income for the preceding two years. Under national banking regulations and capital guidelines, as of December 31, 2006, the Bank was authorized to distribute approximately $6,050,000 as dividends without prior approval from the OCC, based on net income for 2006 and retained net income for 2004 and 2005. As of January 1, 2007, retained net income for the prior two years was approximately $5,015,000 and during 2007 the Bank may pay dividends without prior approval from the OCC equal to that amount plus any 2007 net income. Future payments of dividends by the Bank will be dependent on individual regulatory capital requirements and levels of profitability. The ability of the Bank to pay dividends may be further restricted as a result of regulatory policies and guidelines relating to dividend payments and capital adequacy.

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

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

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

          Under the risk-adjusted capital standards, a minimum ratio of qualifying total capital to risk-weighted assets of 8% and of Tier l Capital to risk-weighted assets of 4% is required. The FRB and OCC also have adopted a minimum leverage ratio of Tier 1 Capital to total assets of 3% for banks rated “1” under the Uniform Financial Institutions Rating System or bank holding companies rated “1” under the rating system of bank holding companies. All other banks and bank holding companies must maintain a leverage ratio of 4%. In addition, all banks and bank holding companies are expected to have capital commensurate with the level and nature of all risks to which they are exposed.

          At December 31, 2006, PNBC had a total capital to risk-weighted assets ratio of 9.18%, a Tier 1 capital to risk-based assets ratio of 8.75%, and a leverage ratio of 6.67%. PNBC is classified as adequately capitalized for the first ratio and well-capitalized for the last two ratios. At December 31, 2006, the Bank had a total capital to risk-weighted assets ratio of 10.02%, a Tier 1 capital to risk-weighted assets ratio of 9.59%, and a leverage ratio of 7.31%. The Bank is classified as well-capitalized for all three ratios.

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

          Following the adoption of the FDIRA, the FDIC has the opportunity, through its rulemaking authority, to better price deposit insurance for risk than was previously authorized. The FDIC adopted regulations effective January 1, 2007 that create a new system of risk-based assessments, set assessment rates beginning January 1, 2007 and establish a new insurance assessment system. Under the new regulations there are four risk categories, and each insured institution will be assigned to a risk category based on capital levels and supervisory ratings. Well-capitalized institutions with CAMELS composite ratings of 1 or 2 will be placed in Risk Category I while other institutions will be placed in Risk Categories II, III or IV depending on their capital levels and CAMELS composite ratings. The new regulations also established assessment rates beginning January 1, 2007 with the highest rated institutions, those in Risk Category I, paying premiums of between .05% and .07% of deposits and the lowest rated institutions, those in Risk Category IV, paying premiums of .43% of deposits. The assessment rates may be changed by the FDIC as necessary to maintain the insurance fund at the reserve ratio designated by the FDIC, which currently is 1.25% of insured deposits. The FDIC may set the reserve ratio annually at between 1.15% and 1.50% of insured deposits. Deposit insurance assessments will be collected for a quarter at the end of the next quarter with the first assessments under the new system being collected on June 30, 2007 for insurance coverage for the first quarter of 2007. Assessments will be based on deposit balances at the end of the quarter, except for institutions with $1 billion or more in assets and institutions that become insured on or after January 1, 2007 which will have their assessment base determined using average daily balances of insured deposits.

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

          All FDIC-insured depository institutions must pay a quarterly assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds (commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance Corporation.

          Federal law permits adequately capitalized and adequately managed bank holding companies to acquire banks across state lines, without regard to whether the transaction is prohibited by state law. Any state law relating to the minimum age of target banks (not to exceed five years) or limits on the amount of deposits that may be controlled by a single bank or bank holding company applies. The FRB is not permitted to approve any acquisition if, after the acquisition, the bank holding company would control more than 10% of the deposits of insured depository institutions nationwide or 30% or more of the deposits in the state where the target bank is located. The FRB could approve an acquisition, notwithstanding the 30% limit, if the state waives the limit either by state regulation or order of the appropriate state official.

          Banks are permitted to merge with one another across state lines and thereby create a main bank with branches in separate states. After establishing branches in a state through an interstate merger transaction, a bank can establish and acquire additional branches at any location in the state where any bank involved in the merger could have established or acquired branches under applicable federal or state law. In addition, the laws of some states, including Illinois, permit a bank with its main office in another state to establish de novo branches or to acquire a branch of another bank without acquiring the entire bank. Therefore, if the laws of another state so permit, the Bank could establish a de novo branch or acquire a branch of a bank in such state, even if the laws of such state require a reciprocal provision.

          PNBC does not have current plans to acquire banking organizations located outside the state of Illinois.

          National banks may establish operating subsidiaries to engage in activities in which the bank could engage directly.

          National banks are also authorized by the GLB Act to engage, through “financial subsidiaries,” in activities that are permissible for financial holding companies and activities that the Secretary of the Treasury, in consultation with the FRB, determines is financial in nature or incidental to any such financial activity, except (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments, and (iv) merchant banking. A national bank’s authority to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank be well-managed and well-capitalized (after deducting from capital the bank’s outstanding investment in financial subsidiaries).

          The GLB Act affected many other changes to federal law applicable to PNBC and the Bank. One of these changes was a requirement that financial institutions take steps to protect customers’ “nonpublic personal information.”

Employees

          PNBC presently has no employees. However, certain of the employees and executive officers of Citizens Bank provide their services to PNBC. A monthly fee for these services is paid by PNBC to Citizens Bank. This fee is computed annually and is based upon an average of the number of hours worked during the year.

          As of December 31, 2006, Citizens Bank employed 270 full-time and 66 part-time employees. The Bank offers a variety of employee benefits. Citizens Bank employees are not represented by a union or a collective bargaining agreement, and employee relations are considered to be excellent.

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

          In order to implement PNBC’s community banking philosophy and to promote itself as a community oriented organization, the Bank has a formal officer call program. Nearly every officer of the Bank calls on existing or potential customers and is expected to become actively involved in leadership positions in community organizations. As of December 31, 2006, employees of the Bank participated in approximately 322 community organizations, providing nearly 12,000 hours of community service.

Available Information

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

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

Item 1A. Risk Factors

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

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

          PNBC’s agricultural and agricultural real estate loan portfolio total $145.1 million at December 31, 2006, comprising 23.1% of total loans. The primary risks associated with agricultural loans are weather and borrower’s management. In the event of catastrophic weather conditions, such as severe drought or flooding, these loans would represent a higher risk due to poor crop sales and reduced cash flow that could impact the borrowers’ ability to repay the loan on a timely basis.

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

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

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

          In determining the appropriate level of allowance for loan losses, management considers, among other things, the overall composition of the loan portfolio, types of loans, past loss experience, loan delinquencies, potential substandard and doubtful loans, underlying collateral, and other factors that, in management’s best judgment, deserve evaluation. Although management monitors the allowance monthly and considers it adequate to absorb probable losses at December 31, 2006, if any of the assumptions are incorrect, the allowance may not be sufficient to cover future loan losses. Future adjustments may be necessary to allow for different economic conditions or adverse developments in the loan portfolio. Consequently, a problem with one or more loans could require the Corporation to significantly increase the level of its provision for loan losses resulting in a reduction of earnings.

The Internal Controls of PNBC may not be effective.

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

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

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

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

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

PNBC operates in a highly regulated environment.

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

Item 1B. Unresolved Staff Comments

      None.

Item 2. Properties

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

Item 3. Legal Proceedings

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

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

          No matters were submitted to a vote of the security holders during the fourth quarter of 2006.

Supplemental Item — Executive Officers

          The following table sets forth information regarding the executive officers:

Name	Age	Position
Tony J. Sorcic	53	President & Chief Executive Officer
James B. Miller	51	Executive Vice President & Commercial Banking Officer
Todd D. Fanning	44	Senior Vice President & Chief Financial Officer
Jacqualyn L. Funderberg	46	Senior Vice President – Consumer Banking
Patrick Murray	54	Senior Vice President – Citizens Financial Advisors

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

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

          Todd D. Fanning joined Citizens Bank in 1990 as Assistant Vice President and Controller. He became Vice President & Chief Financial Officer in 1997. Mr. Fanning was named Senior Vice-President & Chief Financial Officer in 2005 and remains in that capacity.

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

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

PART II

Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securtiess

          (a) Since May 15, 1992, PNBC’s Common Stock has been listed on the NASDAQ Stock Market, under the symbol PNBC.

          The table below indicates the high and low bid prices, and the dividends declared per share for PNBC Common Stock during the periods indicated. The prices shown reflect interdealer prices and do not include retail markups, markdowns, or commissions which may not necessarily represent actual transactions.

	Prices				Cash Dividends
	High		Low		Declared
2006
Fourth Quarter	$	33.99	$	32.17	$	.31
Third Quarter		34.00		32.02		.25
Second Quarter		35.45		32.22		.25
First Quarter		34.48		32.65		.24
2005
Fourth Quarter	$	34.00	$	32.50	$	.38
Third Quarter		34.00		30.50		.22
Second Quarter		31.65		29.40		.22
First Quarter		30.99		28.80		.21

          On December 31, 2006, PNBC had 825 registered holders of record of its Common Stock.

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

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

          The following Common Stock price performance graph compares the monthly change in the Corporation’s cumulative total stockholder returns on its Common Stock, assuming the Common Stock was purchased on December 31, 2001 and sold on December 31, 2006, with the cumulative total return of stocks included in the Russell 3000 and the SNL Midwest Bank Stock Index for the same period. The amounts shown assume the reinvestment of dividends.

Princeton National Bancorp, Inc.

	Period Ending
Index	12/31/01	12/31/02	12/31/03	12/31/04	12/31/05	12/31/06
Princeton National Bancorp, Inc.	100.00	136.29	190.57	198.82	237.09	239.55
Russell 3000	100.00	78.46	102.83	115.11	122.16	141.35
SNL Midwest Bank Index	100.00	96.47	123.48	139.34	134.26	155.19

          The Corporation’s Common Stock began trading on the NASDAQ Stock Market under the symbol PNBC on May 8, 1992. On December 31, 2006 and February 26, 2007, the Record Date, the closing bid prices for the Common Stock as quoted on NASDAQ Online were $32.55 and $32.88, respectively.

(c) The following table provides information about purchases of the Corporation’s common stock by the Corporation during the quarter ended December 31, 2006:

Period	(a) Total number of shares purchased	(b) Average price paid per share			(c) Total number of shares purchased as part of a publicly announced plans or programs (1)	(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
10/1/06 – 10/31-06	0		$	0.00	0	65,000
11/1-06 – 11/30-06	15,000		$	33.00	15,000	50,000
12/1-06 – 12/31/06	10,000		$	33.10	10,000	40,000
Total	25,000		$	33.04	25,000	40,000

(1) On April 25, 2006, the Board of Directors approved the repurchase of up to an aggregate of 100,000 shares of common stock pursuant to a repurchase program announced the same day (“the Program”). The expiration date of this Program is April 25, 2007. Unless terminated earlier by resolution of our Board of Directors, the Program will expire on the earlier of such expiration date or when we have repurchased all shares authorized for repurchase under the Program.

Item 6. Selected Financial Data

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

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

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

          The information required by Item 305 of Regulation S-K is contained in the Corporation’s Annual Report on pages 40-42, under the headings “Asset Liability Management” and “Contractual Obligations and Off-Balance Sheet Arrangements”, which information is incorporated herein by reference.

Item 8. Consolidated Financial Statements and Supplementary Data

          Information regarding the Corporation’s consolidated financial statements and supplementary data is included on pages 9-32 and page 43 in the Corporation’s Annual Report, which information is incorporated by reference herein.

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

          Effective June 28, 2006, the Corporation dismissed its independent registered public accounting firm, KPMG LLP, and engaged BKD, LLP as its new independent registered public accounting firm. The decision to change accountants was made after the completion of a competitive bid process and was approved by the Audit Committee of the Board of Directors.

Item 9A. Controls and Procedures

(a)	Disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2006. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Tony J. Sorcic, President and Chief Executive Officer, and Todd D. Fanning, Senior Vice President and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Sorcic and Fanning concluded that, as of the date of their evaluation, our disclosure controls were effective.
(b)	Internal controls. There have not been any significant changes in our internal accounting controls or in other factors during the quarter ended December 31, 2006 that could significantly affect those controls.
	The reports required by Item 308 of Regulation S-K are attached hereto as Exhibits 99.1 and 99.2 respectively, and are incorporated herein by reference.

Item 9B. Other Information

          None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

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

          Information regarding executive officers and directors of the Corporation and the Corporation’s Audit Committee is included in the Corporation’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 24, 2007 (the “Proxy Statement”) under the captions “Proposal 1-Election of Directors” and “Board of Directors’ Meetings and Committees”, which information is incorporated by reference herein.

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

          Information regarding the Corporation’s Code of Ethics is included in the Proxy Statement under the caption “Code of Ethics”, which information is incorporated by reference herein.

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

Item 11. Executive Compensation

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

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

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

Equity Compensation Plan Information
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))
	(a)	(b)			(c)
Equity compensation plans approved by security holders	319,536		$	29.61	12,523
Equity compensation plans not approved by security holders	N/A			N/A	16,189	(1)
Total	319,536		$	29.61	28,712

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

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

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

Item 14. Principal Accountant Fees and Services

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

Item 15. Exhibits and Financial Statement Schedules

(a)(1)	The following is a list of the Financial Statements included in Part II, Item 8 of this report:
		Report of Independent Registered Public Accounting Firm
		Consolidated Balance Sheets as of December 31, 2006 and 2005.
		Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004.
		Consolidated Statements of Comprehensive Income for the years ended December 31, 2006, 2005, and 2004.
		Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2006, 2005, and 2004.
		Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004.
		Notes to Consolidated Financial Statements.
(a)(2)	Financial Statement Schedules
	No consolidated financial statement schedules are required to be included in this Report on Form 10-K.
(a)(3)	Exhibits
	The exhibits filed herewith are listed on the Exhibit Index filed as part of this report on Form 10-K. Each management contract or compensatory plan or arrangement of the Corporation listed on the Exhibit Index is separately identified by an asterisk.

SIGNATURES

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

PRINCETON NATIONAL BANCORP, INC.
By:	/s/ Tony J. Sorcic
	Tony J. Sorcic, President and Chief Executive Officer
Date:  March 15, 2007

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

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

INDEX TO EXHIBITS

Exhibit Number	Exhibit
3.1	Amended and Restated Certificate of Incorporation of Princeton National Bancorp, Inc. (“PNBC”) (incorporated by reference to Exhibit 3.1 to the PNBC Registration Statement on Form S-1(Registration No. 33-46362) (the “S-1 Registration Statement”)).
3.2	By-Laws of PNBC (as amended January 27, 2003) (incorporated by reference to Exhibit 3.2 of the 2002 PNBC Annual Report on Form 10-K).
4.1	Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference from Registration Statement on Form 8-A filed by PNBC on August 1, 2003 (File No. 000-20050)) incorporated by reference to Exhibit 4.1 of the 2004 PNBC Annual Report on Form 10-K).
4.2	Trust Preferred Securities Indenture (incorporated by reference to Exhibit 4.1 to PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
10.1*	Employment Agreement, dated as of January 8, 2003 between PNBC and James B. Miller. (incorporated by reference to Exhibit 10.2 of the 2002 PNBC Annual Report on Form 10-K).
10.2*	Employment Agreement, dated as of October 23, 2000, between PNBC and Tony J. Sorcic (incorporated by reference to Exhibit 10.2 of the 2000 PNBC Annual Report on Form 10-K).
10.3*	Citizens First National Bank Profit Sharing Plan, as amended and restated January1, 1989 (incorporated by reference to Exhibit 10.4 to the S-1 Registration Statement).
10.4*	Citizens First National Bank Defined Contribution Plan and Trust, as amended and restated January 1, 1989 (incorporated by reference to Exhibit 10.5 to the S-1 Registration Statement).
10.5*	Princeton National Bancorp, Inc. Stock Option Plan (incorporated by reference from Schedule 14A filed by PNBC on March 6, 1998).
10.6*	Princeton National Bancorp, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 of the 2001 PNBC Annual Report on Form 10-K).
10.7*	Princeton National Bancorp, Inc. Management Incentive Compensation Plan (incorporated by reference to Exhibit10.7 of the 2001 PNBC Annual Report on Form 10-K).
10.8*	Princeton National Bancorp, Inc. 2003 Stock Option Plan (incorporated by reference from Schedule 14A filed by PNBC on March 19, 2003).
10.9*	Form of Stock Option Agreement (incorporated by reference to Exhibit 10.9 of the 2004 PNBC Annual Report on Form 10-K).
10.10*	Amendment to Stock Option Agreement (incorporated by reference to Exhibit 10.10 of the 2005 PNBC Annual Report on Form 10-K).

10.11	Trust Preferred Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
10.12	Trust Preferred Securities Declaration of Trust (incorporated by reference to Exhibit 10.2 to PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
10.13	Trust Preferred Securities Guarantee Agreement (incorporated by reference to Exhibit 10.3 to PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
13	Portions of 2006 Annual Report to Shareholders.
14	Code of Ethics (incorporated by reference to Exhibit 14 of the 2003 PNBC Annual Report on Form 10-K).
21	Subsidiaries of PNBC.
23.1	Consent of BKD, LLP.
23.2	Consent of KPMG LLP.
31.1	Certification of Tony J. Sorcic required by Rule 13a-14(a).
31.2	Certification of Todd D. Fanning required by Rule 13a-14(a).
32.1	Certification of Tony J. Sorcic required by Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
32.2	Certification of Todd D. Fanning required by Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
99.1	Report of Management on Internal Control Over Financial Reporting
99.2	Report of Independent Registered Public Accounting Firm

* Management contract or compensatory plan.

EX-13

Exhibit 13 to Princeton National Bancorp, Inc. Form 10-K for fiscal year ended December 31, 2006 

EX-21

Exhibit 21

Subsidiary of Princeton National Bancorp, Inc.

Citizens First National Bank Princeton National Bancorp, Inc.
owns 100 percent of the shares
Citizens First National Bank.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Princeton National Bancorp, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-69019, 333-117663, 333-129484 and 333-133448) on Form S-8 of Princeton National Bancorp, Inc. of our reports dated March 2, 2007, with respect to the consolidated balance sheet of Princeton National Bancorp, Inc. and subsidiary as of December 31, 2006, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2006, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of Princeton National Bancorp, Inc.

/s/BKD LLP

Decatur, Illinois

March 2, 2007

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Princeton National Bancorp, Inc

We consent to the incorporation by reference in the Registration Statements (No.’s 333-69019, 333-117663, 333-129484, 333-133448) on Form S-8 of Princeton National Bancorp, Inc. and subsidiary of our report dated March 13, 2006, with respect to the consolidated balance sheet of Princeton National Bancorp, Inc. and subsidiary as of December 31, 2005 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2005, which report appears in the December 31, 2006 annual report on Form 10-K of Princeton National Bancorp, Inc.

/s/ KPMG LLP

Chicago, Illinois

March 15, 2007

EX-31.1

Exhibit 31.1

I, Tony J. Sorcic, certify that:

1.	I have reviewed this annual report on Form 10-K of Princeton National Bancorp, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Tony J. Sorcic
	Tony J. Sorcic
	President & Chief Executive Officer
	March 15, 2007

EX-31.2

Exhibit 31.2

I, Todd D. Fanning, certify that:

1.	I have reviewed this annual report on Form 10-K of Princeton National Bancorp, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Todd D. Fanning
	Todd D. Fanning
	Senior Vice-President & Chief Financial Officer
	March 15, 2007

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Princeton National Bancorp, Inc. (“PNBC”) on Form 10-K for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Tony J. Sorcic, President & Chief Executive Officer of PNBC, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly represents, in all material respects, the financial condition and result of operations of PNBC.

/s/ Tony J. Sorcic

Tony J. Sorcic

President & Chief Executive Officer

March 15, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Princeton National Bancorp, Inc. (“PNBC”) on Form 10-K for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Todd D. Fanning, Vice President & Chief Financial Officer of PNBC, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly represents, in all material respects, the financial condition and result of operations of PNBC.

/s/ Todd D.Fanning

Todd D. Fanning
Senior Vice President & Chief Financial Officer

March 15, 2007

EX-99.1

Exhibit 99.1

Report of Management on Internal Control over Financial Reporting.

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

- pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of PNBC;

- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America;

- provide reasonable assurance that receipts and expenditures of PNBC are being made only in accordance with authorization of management and directors of PNBC; and

- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.

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

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

          Management assessed the effectiveness of PNBC’s internal control over financial reporting as of December 31, 2006. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of PNBC’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Board of Directors.

          Based on this assessment, management determined that, as of December 31, 2006, PNBC maintained effective internal control over financial reporting.

          BKD LLP, the independent registered public accounting firm, that audited and reported on the consolidated financial statements of PNBC included in this report, has issued an attestation report on management’s assessment of internal control over financial reporting as of December 31, 2006.

EX-99.2

Exhibit 99.2

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders
Princeton National Bancorp, Inc.
Princeton, Illinois

We have audited management’s assessment, included in the accompanying Management’s Report, that Princeton National Bancorp, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

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

225 North Water Street, Suite 400     P.O. Box 1580     Decatur, IL 62525-1580     217 429-2411     Fax 217 429-6109

Beyond Your Numbers

In our opinion, management’s assessment that Princeton National Bancorp, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, Princeton National Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Princeton National Bancorp, Inc. and our report dated March 2, 2007 expressed an unqualified opinion thereon.

Decatur, Illinois
March 2, 2007