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Part I:   FINANCIAL INFORMATION

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

Part II:   OTHER INFORMATION

Item 2.   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

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

        The Annual Meeting of Shareholders of Princeton National Bancorp, Inc. was held on April 27, 2004, for the purpose of electing five directors each to serve for a term of three years. Proxies for the meeting were solicited by Management pursuant to Regulation 14A under the Securities Exchange Act of 1934, and there was no solicitation in opposition to Management’s solicitation.

        All five of Management’s nominees for director listed in the proxy statement were elected. The results of the vote were as follows:

        In addition, the following directors’ terms of offices continued after the meeting:

Item 6.   Exhibits and Reports on Form 8-K

SIGNATURES

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

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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 COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands)

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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 2003 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 2003 consolidated financial statements have been reclassified to conform to the 2004 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 June 30, 2004 and December 31, 2003. The balance of intangible assets, net of accumulated amortization, totaled $1,421,000 and $1,525,000 at June 30, 2004 and December 31, 2003, respectively.

        The following table summarizes the Corporation’s intangible assets, which are subject to amortization, as of June 30, 2004 and December 31, 2003.

        Amortization expense totaled $104,000 for the six months ended June 30, 2004 and June 30, 2003, respectively. The amortization expense will be approximately $104,000 for the remainder of 2004 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 June 30, 2004 no impairment had been recorded. Changes in the carrying value of capitalized mortgage servicing rights are summarized as follows:

        The Corporation services loans for others with unpaid principal balances at June 30, 2004 and December 31, 2003 of approximately $142,452,000, and $138,775,000, respectively.

        The following table shows the future estimated amortization expense for mortgage servicing rights based on existing balances as of June 30, 2004. The Corporation’s actual amortization expense in any given period may be significantly different from the estimated amounts displayed depending on the amount of additional servicing rights, changes in mortgage interest rates, actual prepayment speeds, and market conditions.

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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 three and six month periods ended June 30, 2004 and 2003

        The following discussion provides information about Princeton National Bancorp, Inc.’s (“PNBC” or the “Corporation”) financial condition and results of operations for the three and six month periods ended June 30, 2004 and 2003. 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 second quarter of 2004 was $1,909,000, or basic earnings per share of $0.62 (diluted earnings per share of $0.61), as compared to net income of $1,484,000 in the second quarter of 2003, or basic earnings per share of $0.47 (diluted earnings per share of $0.46). This represents an increase of $425,000 (28.6%) or $0.15 per basic and diluted share. This increase is partially attributable to the sale of the subsidiary bank’s credit card portfolio which resulted in an after-tax gain of approximately $285,000. Net income for the first six months of 2004 was $3,550,000, or basic earnings per share of $1.14 (diluted earnings per share of $1.12), as compared to net income of $3,256,000, or basic earnings per share of $1.02 (diluted earnings per share of $1.01) for the first six months of 2003. This represents an increase of $294,000 (9.0%) or $0.12 per basic share and $0.11 per diluted share. This increase is primarily due to the aforementioned sale of the subsidiary bank’s credit card portfolio and an improving net interest margin. The annualized return on average assets and return on average equity were 1.25% and 15.48%, respectively, for the second quarter of 2004, compared with 1.00% and 11.57% for the second quarter of 2003. For the six-month periods, the annualized return on average assets and average equity were 1.17% and 14.07%, respectively for 2004, compared to 1.11% and 12.84%, respectively for 2003.

        Net interest income before provision for loan losses was $5,165,000 for the second quarter of 2004, compared to $3,863,000 for the second quarter of 2003 (an increase of $1,302,000 or 33.7%). This difference is due, in part, to the additional premium amortization of $1,184,000 recorded in the second quarter of 2003 due to accelerated prepayments in the collateralized mortgage obligation (“CMO”) portfolio. The resulting net yield on interest-earning assets (on a fully taxable equivalent basis) increased from 3.10% in the second quarter of 2003 to 3.98% in the second quarter of 2004. Likewise, net interest income after provision for loan losses increased to $9,874,000 for the first six months of 2004 from $8,544,000 for the first six months of 2003 (an increase of $1,330,000 or 15.6%). In addition to the

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accelerated amortization recorded in 2003, the average cost of interest-bearing liabilities has decreased from 2.37% for the first six months of 2003 to 1.79% for the first six months of 2004 resulting in a decrease to interest expense of $1.3 million. For the first six months of 2004, the net yield on interest-earnings assets (on a fully taxable equivalent basis) improved to 3.94% compared to 3.51% for the first six months of 2003.

        PNBC recorded a loan loss provision of $200,000 in the second quarter of 2004 compared to $165,000 in the second quarter of 2003. For the six-month comparable periods, PNBC recorded a loan loss provision of $300,000 in 2004 and $265,000 in 2003. The provision expense recorded each quarter is determined by management’s evaluation of the risk characteristics of the loan portfolio. For the second quarter of 2004, PNBC had net charge-offs of $33,000, compared to net charge-offs of $280,000 for the second quarter of 2003. For the six-month comparable periods, PNBC had net charge-offs of $104,000 in 2004 and net charge-offs of $495,000 in 2003.

        Non-interest income totaled $2,470,000 for the second quarter of 2004, as compared to $2,870,000 in the second quarter of 2003, a decrease of $400,000 (or 13.9%). This a result of the gains on sales of securities from the second quarter of 2003 of $935,000 compared to $0 in the second quarter of 2004. Offsetting the decrease is the sale of the credit card portfolio in the second quarter of 2004 of $465,000, an increase in brokerage fee income of $65,000 (or 48.2%), an increase in trust and farm management fees of $38,000 (or 12.0%), and an increase in service charges on deposit accounts of $43,000 (or 5.8%). Year-to-date in 2004, non-interest income totals $4,509,000 compared to $4,923,000 for the first half of 2003 (a decrease of $414,000 or 8.4%). Gains on sales of securities have decreased from $935,000 to $182,000 over the comparable time frames and there has also been a decrease of $409,000 in mortgage banking income resulting from a significant decrease in the level of loan sales. Again, offsetting these decreases is the gain from the sale of the credit card portfolio and increases in brokerage fee income ($112,000 or 42.1%), trust and farm management fees ($62,000 or 9.7%), and service charges on deposit accounts ($64,000 or 4.4%). Annualized non-interest income as a percentage of total average assets was 1.62% for the second quarter of 2004, compared to 1.92% for the second quarter of 2003. Annualized non-interest income as a percentage of total average assets was 1.48% for the first six months of 2004, compared to 1.66% for the same period in 2003.

        Total non-interest expense for the second quarter of 2004 was $4,839,000, an increase of $310,000 (or 6.8%) from $4,529,000 in the second quarter of 2003. The majority of the increase was in salaries/employee benefits, which increased $224,000 (or 8.8%) due to increases in number of employees and the cost of benefits, and in advertising, which increased $57,000 (or 44.5%) due to expenses relating to the introduction of a new checking account as part of the deposit gathering strategy. Collectively, all other categories of non-interest expense increased $29,000 (or 1.6%). Annualized non-interest expense as a percentage of total average assets was 3.17% for the second quarter of 2004, compared to 3.04% for the second quarter of 2003. Year-to-date non-interest expenses for 2004 were $9,623,000, an increase of $676,000 (or 7.6%) from the $8,947,000 from the first half of 2003. This change is also due to increases in salaries/employee benefits ($455,000 or 9.1%) and advertising ($114,000 or 52.3%). Annualized non-interest expense as a percentage of total average assets was 3.16% for the first six months of 2004, compared to 3.02% for the same period in 2003.

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INCOME TAXES

        Income tax expense totaled $687,000 for the second quarter of 2004, as compared to $555,000 for the second quarter of 2003. The effective tax rate was 26.5% for the three months ended June 30, 2004 compared to 27.2% for the three months ended June 30, 2003. Income tax expense totaled $1,210,000 for the first six months of 2004, as compared to $1,264,000 for the first six months of 2003. The effective tax rate was 25.4% for the six months ended June 30, 2004 compared to 28.0% for the six months ended June 30, 2003. The lower effective tax rates in 2004 are partially due to an increase in the amount of interest income earned from municipal (tax-exempt) securities.

ANALYSIS OF FINANCIAL CONDITION

        Total assets at June 30, 2004 increased to $614,277,000 from $609,737,000 at December 31, 2003 (an increase of $4.5 million or 0.7%). Total deposits at June 30, 2004 decreased to $536,341,000 from $537,817,000 at December 31, 2003 (a decrease of $1.5 million or 0.3%). Comparing categories of deposits at June 30, 2004 to the December 31, 2003 totals, interest-bearing demand deposits increased $3.9 million (or 2.2%) and savings deposits increased $2.9 million (or 5.0%). Conversely, time deposits decreased $5.1 million (or 2.2%) and demand deposits decreased by $3.1 million (or 4.8%). Borrowings, consisting of customer repurchase agreements, notes payable, treasury, tax, and loan (“TT&L”) deposits, federal funds purchased, and Federal Home Loan Bank advances, increased from $16,161,000 at December 31, 2003 to $24,502,000 at June 30, 2004 (an increase of $8.3 million or 51.6%) due to an increase of $9.2 million in federal funds purchased on June 30, 2004. Investment balances totaled $170,219,000 at June 30, 2004, compared to $169,892,000 at December 31, 2003 (an increase of $327,000 or 0.2%).

        Loan balances, net of unearned interest, increased to $388,836,000 at June 30, 2004, compared to $383,053,000 at December 31, 2003 (an increase of $5.8 million or 1.5%). Non-performing loans decreased, totaling $709,000 or 0.18% of net loans at June 30, 2004, as compared to $969,000 or 0.25% of net loans at December 31, 2003.

        For the six months ended June 30, 2004, the subsidiary bank charged off $233,000 of loans and had recoveries of $129,000, compared to charge-offs of $579,000 and recoveries of $84,000 during the six months ended June 30, 2003. 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 June 30, 2004, the allowance was $2,446,000 which is 345.0% of non-performing loans and 0.63% of total loans, compared with $2,250,000 which was 232.2% of non-performing loans and 0.59% of total loans at December 31, 2003.

        At June 30, 2004, impaired loans totaled $188,000 compared to $235,000 at December 31, 2003. Loans 90 days or more past due and still accruing interest at June 30, 2004 were $10,000 compared to $44,000 at December 31, 2003. The balances of non-performing and impaired loans continue to be below industry averages. There is a specific loan loss reserve of $7,000 established for impaired loans as of June 30, 2004 compared to a specific loan loss reserve of $15,000 at December 31, 2003. 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 June 30, 2004.

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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 June 30, 2004 total risk-based capital of PNBC was 11.47%, compared to 11.22% at December 31, 2003. The Tier 1 capital ratio increased from 7.70% at December 31, 2003, to 7.83% at June 30, 2004. Total stockholders’ equity to total assets at June 30, 2004 decreased to 8.19% from 8.34% at December 31, 2003.

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 used in investing activities, offset by those provided by operating and financing activities, resulted in a net decrease in cash and cash equivalents of $4,042,000 from December 31, 2003 to June 30, 2004. This decrease was primarily due to 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 June 30, 2004 commitments to extend credit and standby letters of credit were approximately $106,317,000 and $6,479,000, 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

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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

        In the second quarter of 2004, the Corporation completed the purchase of property in Aurora, Illinois. The construction of the new bank facility will begin in early 2005. Once the Aurora facility is completed, a new bank facility will also be built on the Elburn, Illinois property which was purchased in July of 2003 with an expected completion of 2006.

LEGAL PROCEEDINGS

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        There has been no material change in market risk since December 31, 2003, as reported in PNBC’s 2003 Annual Report on Form 10-K.

IMPACT OF NEW ACCOUNTING STANDARDS

        In December 2003, the FASB issued FASB Interpretation 46, “Consolidation of Variable Interest Entities” (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation 46, “Consolidation of Variable Interest Entities”, which was issued on January 17, 2003. Adoption of this Statement did not have a material effect on the Corporation’s consolidated financial statements.

        In March 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 105, “Application of Accounting Principles to Loan Commitments”, (SAB 105). SAB 105 applies to all registrants that issue loan commitments that relate to the origination of mortgage loans that will be held for sale and applies specifically to loan commitments that are issued after March 31, 2004. 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%.

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

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Schedule 7.   Controls and Procedures

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INDEX TO EXHIBITS

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