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Schedule 1

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

See accompanying notes to consolidated financial statements

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Schedule 2

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

See accompanying notes to consolidated financial statements

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Schedule 2

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

See accompanying notes to consolidated financial statements

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Schedule 3

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

See accompanying notes to consolidated financial statements

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Schedule 4

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

See accompanying notes to consolidated financial statements

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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 2002 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 2002 consolidated financial statements have been reclassified to conform to the 2003 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):

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(2) GOODWILL AND INTANGIBLE ASSETS

        The balance of goodwill, net of accumulated amortization, totaled $1,355,000 at September 30, 2003 and December 31, 2002. The balance of intangible assets, net of accumulated amortization, totaled $1,576,000 and $1,732,000 at September 30, 2003 and December 31, 2002, respectively.

        The following table summarizes the Corporation’s intangible assets, which are subject to amortization, as of September 30, 2003 and December 31, 2002.

        Amortization expense totaled $52,000 and $156,000 both for the three and nine months ended September 30, 2003 and September 30, 2002, respectively. The amortization expense will be approximately $52,000 for the remainder of 2003 and will be approximately $205,000 for each of the next five years.

        The Corporation’s other intangible assets consist of originated mortgage servicing rights which are included in other assets on the consolidated balance sheets. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income similar to the interest method using an accelerated amortization method and are subject to periodic impairment testing. As of September 30, 2003 no impairment had been recorded. Changes in the carrying value of capitalized mortgage servicing rights are summarized as follows:

        Amortization expense for the mortgage servicing rights asset are based on assumptions made during each reporting period. Such assumptions include, but are not limited to, the current level of interest rates and the forecasted prepayment speeds. Actual amortization expense is also affected by the amount of loans sold with servicing retained.

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        The Corporation services loans for others with unpaid principal balances at September 30, 2003 and December 31, 2002 of approximately $133,444,000, and $94,678,000, respectively.

        The following table shows the future estimated amortization expense for mortgage servicing rights based on existing balances as of September 30, 2003. 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, estimated prepayment speeds, and market conditions.

Estimated Amortization Expense:

(3) STOCK OPTION PLAN

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

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Schedule 6

PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the quarter and nine months ended September 30, 2003 and 2002

        The following discussion provides information about Princeton National Bancorp, Inc.‘s (“PNBC” or the “Corporation”) financial condition and results of operations for the quarter and nine months ended September 30, 2003 and 2002. 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 2003 was $1,709,000, or basic earnings per share of $0.54 (diluted earnings per share of $0.53), as compared to net income of $1,528,000 in the third quarter of 2002, or basic and diluted earnings per share of $0.46. This represents an increase of $181,000 (11.9%) or $.08 per basic share and $.07 per diluted share. An increase in non-interest income along with an improving net interest margin more than offset increases in non-interest expenses causing the increase in net income. Net income for the first nine months of 2003 was $4,966,000, or basic earnings per share of $1.55 (diluted earnings per share of $1.54), compared to net income of $4,629,000, or basic earnings per share of $1.40 (diluted earnings per share of $1.39) for the first nine months of 2002. This represents an increase of $337,000 (or 7.3%) during the first nine months of 2003 over the same period in 2002, and an increase of $.15 per basic and diluted share (or 10.7% and 10.8%, respectively). The increase in net income for the first nine months of 2003 is a result of a 33.8% increase in non-interest income, partially offset by a 6.3% increase in non-interest expense and a lower net interest margin. The annualized return on average assets and return on average equity were 1.13% and 13.50%, respectively, for the third quarter of 2003, compared with 1.05% and 11.82% for the third quarter of 2002. For the nine-month periods, the annualized return on average assets and average equity were 1.12% and 13.06%, respectively for 2003, compared to 1.11% and 12.54%, respectively for 2002.

        Net interest income before provision for loan losses was $4,959,000 for the third quarter of 2003, compared to $4,713,000 for the third quarter of 2002 (an increase of $246,000 or 5.2%). This increase is a result of both an increase in average interest-earning assets and an improving net interest margin. For the three months ended September 30, 2003, average interest-earning assets were $547.7 million compared to $522.5 million for the three months ended September 30, 2002. The resulting net yield on interest-earning assets (on a fully taxable equivalent basis) increased from 3.83% in the third quarter of 2002 to 3.84% in the third quarter of 2003. For the first nine months of 2003, the net yield on interest-earning assets (on a fully

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taxable equivalent basis) decreased to 3.62% from 4.02% for the first nine months of 2002 . This decrease resulted from premium amortization of $1,184,000 recorded in the second quarter of 2003 due to accelerated prepayments in the collateralized mortgage obligation (“CMO”) portfolio causing the yield on taxable investment securities to decrease from 5.07% for the nine months ended September 30, 2002 to 2.43% for the nine months ended September 30, 2003.

        PNBC recorded a loan loss provision of $100,000 in the third quarter of 2003 compared to $50,000 in the third quarter of 2002. For the nine-month comparable periods, PNBC recorded a loan loss provision of $365,000 in 2003 and $425,000 in 2002. The provision expense recorded each quarter is determined by management’s evaluation of the risk characteristics of the loan portfolio. For the third quarter of 2003, PNBC had net charge-offs of $152,000, compared to net charge-offs of $28,000 for the third quarter of 2002. For the nine-month comparable periods, PNBC had net charge-offs of $647,000 in 2003 and net recoveries of $22,000 in 2002.

        Non-interest income totaled $2,258,000 for the third quarter of 2003, as compared to $1,927,000 during the third quarter of 2002, an increase of $331,000 (or 17.2%). This is a result of an increase in mortgage banking income of $444,000 (or 265.9%) due to fee income generated from continued origination/refinancing and subsequent sales and servicing of mortgage loans in the secondary market. Additionally, there was $98,000 in gains on sales of available-for-sale securities in the third quarter of 2002, but none in the third quarter of 2003. Year-to-date in 2003, non-interest income totals $7,434,000 compared to $5,557,000 for the first nine months of 2002 (an increase of $1,877,000 or 33.8%). Mortgage banking income has increased by $1,023,000 in the comparable periods, while gains on sales of securities have increased by $797,000 during the first three quarters of 2003. Other notable increases have been seen in service charges on deposit accounts ($211,000 or 10.4%) and in trust and farm management fees ($60,000 or 6.7%).

        Total non-interest expense for the third quarter of 2003 was $4,728,000, an increase of $110,000 (or 2.4%) from $4,618,000 in the third quarter of 2002. The largest increases was in salaries/employee benefits, which increased $213,000 (or 8.4%) due to increases in commissions from mortgage banking operations as well as increased insurance costs. Collectively, all other categories of non-interest expense decreased $103,000 (or 4.9%). Year-to-date non-interest expenses for 2003 of $13,928,000 have increased $821,000 (or 6.3%) from the year-to-date totals at September 30, 2002. The most notable increases are again in salaries/employee benefits ($596,000 or 8.1%), other operating expense ($169,000 or 6.9%), and in equipment expense, which increased $78,000 (7.0%) due to increased depreciation from the upgrade of bank technology. Additionally impacting other operating expense was the Corporation’s decision to outsource the internal audit function.

INCOME TAXES

        Income tax expense totaled $680,000 for the third quarter of 2003, as compared to $444,000 for the third quarter of 2002. The effective tax rate was 28.5% for the three months ended September 30, 2003 compared to 22.5% for the three months ended September 30, 2002. Income tax expense totaled $1,943,000 for the first nine months of 2003, as compared to $1,647,000 for the same time period of 2002. The effective tax rate was 28.1% for the nine months ended September 30, 2003 compared to 26.2% for the nine months ended September 30, 2002.

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ANALYSIS OF FINANCIAL CONDITION

        Total assets at September 30, 2003 increased to $599,164,000 from $587,375,000 at December 31, 2002 (an increase of $11.8 million or 2.0%). Total deposits at September 30, 2003 increased to $524,384,000 from $511,267,000 at December 31, 2002 (an increase of $13.1 million or 2.6%). As interest rates have decreased, there continues to be a shift to savings and interest-bearing demand deposits (which would include money market and interest checking accounts) away from time deposits. Comparing categories of deposits at September 30, 2003 to the December 31, 2002 totals: interest-bearing demand deposits increased $20.2 million (or 13.0%) and savings deposits increased $4.8 million (or 9.2%). Conversely, time deposits decreased $8.7 million (or 3.5%); and demand deposits decreased by $3.2 million (or 5.4%). Borrowings, consisting of customer repurchase agreements, notes payable, treasury, tax, and loan (“TT&L”) deposits, federal funds purchased, and Federal Home Loan Bank advances, decreased from $19,491,000 at December 31, 2002 to $18,700,000 at September 30, 2003 (a decrease of $791,000 or 4.1%). Investments totaled $163,004,000 at September 30, 2003, compared to $169,318,000 at December 31, 2002 (a decrease of $6.3 million or 3.7%).

        Loan balances, net of unearned interest, increased to $379,267,000 at September 30, 2003, compared to $364,120,000 at December 31, 2002 (an increase of $15.1 million or 4.2%). Non-performing loans totaled $2,839,000 or 0.75% of net loans at September 30, 2003, as compared to $3,820,000 or 1.07% of net loans at December 31, 2002.

        For the nine months ended September 30, 2003, the subsidiary bank charged off $792,000 of loans and had recoveries of $145,000, compared to charge-offs of $391,000 and recoveries of $413,000 during the nine months ended September 30, 2002. 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, 2003, the allowance was $2,378,000 which is 83.8% of non-performing loans and 0.63% of total loans, compared with $2,660,000 which was 69.6% of non-performing loans and 0.73% of total loans at December 31, 2002.

        At September 30, 2003, impaired loans totaled $1,755,000 compared to $2,230,000 at December 31, 2002. Loans 90 days or more past due and still accruing interest at September 30, 2003 were $0, compared to $23,000 at December 31, 2002. The balances of non-performing and impaired loans continue to be below industry averages. There is a specific loan loss reserve of $462,000 established for impaired loans as of September 30, 2003 compared to a specific loan loss reserve of $173,000 at December 31, 2002. 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, 2003.

CAPITAL RESOURCES

        Federal regulations require all financial institutions to evaluate capital adequacy by the risk-based capital method, which makes capital requirements more sensitive to the differences in the level of risk assets. At September 30, 2003 total risk-based capital of PNBC was 11.57%, compared to 11.74% at December 31, 2002. The Tier 1 capital ratio increased from 7.80% at December 31, 2002, to 7.88% at September 30, 2003. Total stockholders’ equity to total assets at September 30, 2003 decreased to 8.60% from 8.70% at December 31, 2002.

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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 $1,686,000 from December 31, 2002 to September 30, 2003. This increase was primarily due to a net increase in deposits and a net decrease in investments, offset by 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.

        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, 2003 commitments to extend credit and standby letters of credit were approximately $94,952,000 and $2,781,000, respectively.

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

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

EXPANSION PLANS

        The Corporation has signed a sales contract for the purchase of property in Aurora, Illinois. The purchase of this property should occur prior to year-end 2003 and construction of the new bank facility will begin in the spring of 2004. Once this facility is completed, a facility will be built on the Elburn, Illinois property which was purchased in July of 2003.

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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, 2002, as reported in PNBC’s 2002 Annual Report on Form 10-K.

NEW ACCOUNTING PRONOUNCEMENTS

        In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” which provides new accounting guidance on when to consolidate a variable interest entity. A variable interest entity exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics associated with owning a controlling financial interest. Those characteristics include the direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights, the obligation to absorb the expected loss of an entity if they occur, and the right to receive the expected residual return of the entity to occur. The Corporation does not expect the adoption of the Interpretation will have any impact on the consolidated financial statements.

        In April 2003, the FASB issued FAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. Adoption of this Statement did not have a material effect on the Corporation’s consolidated financial statements.

        In May 2003, the FASB issued FAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement would require that certain financial instruments with characteristics of both liabilities and equity be classified on the consolidated balance sheet as liabilities. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of this Statement did not have a material effect on the Corporation’s consolidated financial statements.

EFFECTS OF INFLATION

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

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PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY

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

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Schedule 7. Controls and Procedures

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INDEX TO EXHIBITS

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