PNBC Princeton National Bancorp Inc (CE)

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PRINCETON NATIONAL BANCORP, INC.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than Registrant)

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TABLE OF CONTENTS

     Shares of Common Stock of the Company will be voted as specified. If no specification is made, shares will be voted FOR the nominees for director named below and IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES as to any other matters which may properly come before the meeting.

Name and Age at
December 31, 2007		Position, Principal Occupation, Business Experience and Directorship
		Class I Directors — Nominees for Three-Year Terms Expiring in 2011
Donald E. Grubb, 67		Director since 1991. President of Grubb Farms, Inc., a farming operation. Also a member of the Company’s Executive Committee.
Ervin I. Pietsch, 66		Director since 1994. Retired Vice President, Ideal Industries, Inc., a manufacturer of electrical test equipment.
Craig O. Wesner, 66		Director since 1997. Retired General Manager of Ag View FS, Inc., a farm supply cooperative. Also a member of the Company’s Executive Committee.
		Class II Directors — Terms Expire in 2009
Gary C. Bruce, 55		Director since 2001. Owner of Bruce Jewelers. Also a member of the Company’s Audit Committee.
John R. Ernat, 59		Director since 1994. Partner in I. Ernat & Sons, a farming operation.
Thomas M. Longman, 56		Director since 1991. Retired President of DBP, Inc., a supplier of business forms and office products.
Tony J. Sorcic, 54		Director since 1986. President and Chief Executive Officer of the Company since January 1997. Also a member of the Executive Committee. President and Chief Executive Officer of Citizens First National Bank since 1995.
		Class III Directors — Terms Expire in 2010
Daryl Becker, 70		Director since 2002. Owner of Beck Oil Company. Also a member of the Company’s Audit Committee.
Sharon L. Covert, 64		Director since 2001. Secretary/Treasurer of Covert Farms, Inc., a farming operation.
Mark Janko, 52		Director since 2002. Owner and President of Janko Realty and Development, a real estate development company.
Willard Lee, 78		Director since 2005. Retired President of Somonauk FSB Bancorp, Inc. and Farmers State Bank.
Stephen W. Samet, 62		Director since 1986. President and General Manager of WZOE, Inc., a commercial radio broadcasting company. Also a member of the Company’s Audit and Executive Committees.

Board of Directors’ Meetings and Committees

     The Board of Directors held five meetings during 2007. The Board of Directors has an Executive Committee, an Audit Committee, and an ad hoc Nominating Committee. Each director of the Company attended at least 75% of the meetings of the Board of Directors and the Committees on which he or she served. The Board of Directors has determined that each of Messrs. Becker, Bruce, Ernat, Grubb, Janko, Lee, Longman, Pietsch, Samet, and Wesner and Ms. Covert are independent as independence is defined in the NASDAQ’s listing standards, as those standards have been modified or supplemented.

Executive Committee

     The Executive Committee is authorized, to the extent permitted by law, to act on behalf of the Board of Directors of the Company in the interim between meetings of the Board. Directors Donald E. Grubb, Tony J. Sorcic, Stephen W. Samet and Craig O. Wesner are members of the Executive Committee. The Committee did not meet in 2007.

Audit Committee

     The Audit Committee has the responsibility for reviewing the scope of internal and external audit procedures, reviewing the results of internal and external audits conducted with respect to the Company and Citizens Bank and periodically reporting such results to the Board of Directors. Directors Daryl Becker, Gary C. Bruce and Stephen W. Samet are members of the Audit Committee. The Committee met seven times during 2007.

Nominating Committee

     The Board of Directors has an ad hoc Nominating Committee. The Nominating Committee identifies individuals to become board members and selects, or recommends for the Board’s selection, director nominees to be presented for stockholder approval at the annual meeting of stockholders or to fill any vacancies. Directors Daryl Becker, Stephen W. Samet and Craig O. Wesner were members of the ad hoc Nominating Committee. The Nominating Committee met one time during 2007.

     The Board of Directors has adopted a written charter for the Nominating Committee, a copy of which is available on our website at http://www.pnbc-inc.com . When formed, it is anticipated that each of the members of the Nominating Committee will be independent as independence is defined in the National Association of Securities Dealers’ listing standards, as those standards have been modified or supplemented.

     The Nominating Committee’s policy is to consider director candidates recommended by stockholders. Such recommendations must be made pursuant to timely notice in writing to:

Princeton National Bancorp, Inc.
606 South Main Street
Princeton, Illinois 61356
Attention: Chairman

     The Nominating Committee has not established specific, minimum qualifications for recommended nominees or specific qualities or skills for one or more of the directors to possess. The Nominating Committee will use a subjective process for identifying and evaluating nominees for director, based on the information available to, and the subjective judgments of, the members of the Nominating Committee, and the Company’s then current needs. Although the Committee does not believe there would be any difference in the manner in which it evaluates nominees based on whether the nominee is recommended by a stockholder, historically, nominees have been existing directors or business associates of our directors or officers.

Compensation Committee

Stockholder Communications with the Board

     The Board of Directors has a process for stockholders to send communications to the Board of Directors or its Audit Committee, including complaints regarding accounting, internal accounting controls or auditing matters. Communications may be sent to the Board of Directors, its Audit Committee or specific directors by regular mail to the attention of the Board of Directors, its Audit Committee or specific directors at the principal executive office at 606 South Main Street, Princeton, Illinois 61356. All of these communications will be reviewed by our Corporate Secretary (1) to filter out communications that our Corporate Secretary deems are not appropriate for our directors, such as “spam” and communications offering to buy or sell products or services, and (2) to sort and relay the remainder to the appropriate directors. We encourage all of our directors to attend the Annual Meeting of Stockholders, if possible. All of our directors attended last year’s Annual Meeting of Stockholders.

Compensation of Directors

     Each director of the Company who is not also an employee of the Company or an employee or director of Citizens Bank received a $250 fee for each Board meeting attended and a $3,000 retainer. Each director of the Company who is also a director of Citizens Bank and who is not an employee of the Company or Citizens Bank received a $100 fee for each Board meeting of the Company attended in 2007. Each director of the Company, other than Ms. Covert and Messrs. Ernat, Janko and Lee, was also a director of Citizens Bank during 2007. In addition, in 2007, each non-employee director of the Company was awarded a grant of 2,000 stock options under the Princeton National Bancorp, Inc. Stock Option Plans. The options vest over three years at a rate of one-third per year, have an exercise price of $24.84 (the average of the low and high price on grant date) and expire on December 31, 2017.

     During 2007, each director of Citizens Bank who is not also an employee was paid a retainer ($16,500 per annum) plus a fee for each Board and Committee meeting attended. Each director of Citizens Bank who is not also an employee, other than the Chairman of the Board, received a $100 fee for each Citizens Bank Board meeting and a $100 fee for each Committee meeting attended in 2007. The Chairman of the Board of Citizens Bank received a $200 fee for each Board meeting attended and a $150 fee for each Committee meeting attended in 2007. The Chairman of the Audit Committee received a $150 fee for each Audit Committee meeting attended in 2007.

PNBC/CFNB Director Compensation

Compensation Discussion and Analysis

Objectives of Compensation Program

     The primary objective of the compensation program is to attract and retain qualified, energetic staff members who are enthusiastic about the Company’s mission and culture. A further objective is to provide incentives and reward staff members for their contribution to the Company. Also, the compensation program is designed to align management’s compensation with the long-term interests of stockholders.

Base Salary

     Each Executive Officer’s current and prior compensation is considered in setting future compensation. In addition, the Compensation Committee considers the job performance of the Executive Officers and the average salaries, as published by the Illinois Bankers Association, the America’s Community Bankers and Crowe Chizek, of all of those persons holding comparable positions at comparably-sized bank holding companies and banks, as the case may be, in determining each Executive Officer’s base salary. The base salaries of the Executive Officers are targeted at the average base salary levels of the IBA 75 ^th quartile, ACB 75 ^th percentile and Crowe Chizek 3 ^rd quartile of the comparative compensation group.

     Stock price performance has not been a factor in determining annual compensation, because the price of the Company’s stock is subject to a variety of factors outside of our control. There is not an exact formula for allocating between cash and non-cash compensation. Compensation is generally paid as earned.

     Annual Executive Officer compensation consists of a base salary component and an incentive component. It is the Committee’s intention to set total executive cash compensation at an attractive, competitive level to retain a strong, motivated leadership team. The incentive plan is included as part of compensation to align the financial incentives with the interests of the stockholders.

Incentives

     The compensation program is designed to reward staff members for their contribution to the Company. The Executive Officers participate in the incentive compensation plan. Variable compensation is awarded to the Executive Officers based on the performance of the Company and Citizens Bank to maximize achievement of the key corporate strategies/objectives and annual business plan of Citizens Bank. In measuring the Executive Officers’ contributions, the Committee considers numerous factors including the Company’s growth, financial performance and the achievement of key measurement factors established and approved by the Committee. Those measurement factors for 2007 included net income, efficiency ratio, asset growth and individual management-by-objective measures (MBOs). These measurement factors were chosen because of their direct correlation with the interests of stockholders.

     The achievements accomplished determine the percentage payout. In determining the level of payout for the measurement factors, the current year’s budget is used, as well as a target goal and a target plus goal. Depending on the level of goals achieved, the minimum award level is 0% and the maximum level is 35%. A scale is attached to each level indicating the percentage of the payout based on the achieved results. The award for each measurement factor is multiplied by the percentage of weighting in each Officer’s individual MBOs.

Equity Compensation

     Each Executive Officer receives stock option grants under the Company’s stock option plans. All Directors and employees of Citizens Bank are eligible for stock option grants. Beginning in 2007, the accounting treatment for stock options changed as a result of the Statement of Financial Accounting Standards No. 123R. The Company assessed the desirability of granting shares of restricted stock, and concluded stock options are still a desirable form of long-term equity compensation. The original Stock Option Plan was approved by the stockholders of the Company

in 1998, the 2003 Stock Option Plan was approved by the stockholders in 2003, and the 2007 Stock Compensation Plan was approved by stockholders in 2007. In the opinion of the Committee and the Board of Directors, the Company’s stock option plans promote the alignment of management and stockholder interests and result in Executive Officers of the Company being sufficient stockholders to encourage long-term performance and Company growth. The number of stock option grants made to each Executive Officer is awarded on a discretionary basis, rather than formula basis, by the Committee.

     With respect to options granted in 1999 through 2005, each option period is for ten (10) years and granted options are fully-vested. The 2007 grants were awarded as of December 31, 2007. With respect to options granted in 2006 and 2007, each option period is for ten (10) years and granted options become vested over a three-year period.

Retirement Plans

     Citizens Bank maintains a 401(k) & Profit Sharing Plan. Citizens Bank will match 100% of salary reduction contributions up to 3% of compensation, plus 50% of salary reduction contributions in excess of 3%, but not to exceed 5%. Citizens Bank may also contribute a discretionary contribution to the Profit Sharing Plan on an annual basis. The calculation used to determine whether a contribution will be made is based on net income results of Citizens Bank.

Employment Agreements

     Mr. Sorcic has an employment agreement with the Company, effective October 23, 2000, which provides for his full-time employment in his present capacity at a base compensation of $211,172 per year, or such increased amount as the Board of Directors of Citizens Bank may determine, plus fringe and health and welfare benefits. His term of employment is continuously extended so as to have a remaining term of two years, unless terminated sooner as a result of good cause or for good reason (see discussion below). The agreement also provides that Mr. Sorcic shall be eligible to participate in any incentive plans that the Company establishes for its executives.

     Mr. Miller has an employment agreement with the Company, effective January 8, 2003, which provides for his full-time employment in his present capacity at a base compensation of $139,984 per year, or such increased amount as the Board of Directors of Citizens Bank may determine, plus fringe and health and welfare benefits. His term of employment is continuously extended so as to have a remaining term of eighteen months, unless terminated sooner as a result of good cause or for good reason (see discussion below). The agreement also provides that Mr. Miller shall be eligible to participate in any incentive plans that the Company establishes for its executives.

     Descriptions of any potential post-termination payments are disclosed in the section titled Other Potential Post-Employment Payments.

Summary Compensation Table

														Option				Non-Equity		All Other
						Salary				Bonus				Awards				Incentive Plan		Compensation
Name and Principal Position		Year				($) 1				($) 2					($) 3			Compensation		($) 4				Total ($)
(a)		(b)				(c)				(d)				(e)				(f)		(g)				(h)
Tony J. Sorcic			2007			$	304,233			$	74,559			$	12,000			—		$	17,020			$	407,812
President and Chief Executive Officer			2006			$	289,503			$	47,961			$	0			—		$	17,298			$	354,762
James B. Miller			2007			$	160,900			$	35,130			$	1,800					$	12,638			$	210,458
Executive Vice President			2006			$	155,246			$	23,441			$	0			—		$	13,254			$	191,941
Todd D. Fanning			2007			$	132,595			$	34,784			$	1,200					$	10,154			$	178,733
Senior Vice President & CFO/Treasurer			2006			$	111,929			$	20,634			$	0			—		$	9,856			$	142,419
Patrick B. Murray			2007			$	144,212			$	32,461			$	1,200					$	11,083			$	188,956
Senior Vice President – Citizens Financial Advisors			2006			$	134,355			$	26,774			$	0			—		$	10,806			$	171,935
Jacqualyn L. Karlosky			2007			$	93,901			$	21,735			$	1,200					$	8,133			$	124,969
Senior Vice President – Consumer Banking			2006			$	87,681			$	20,933			$	0			—		$	7,937			$	116,551

Grants of Plan Based Award

     The following tables present information about stock options granted to executive officers (of the Company and/or Citizens Bank) in 2007 and information about options held by such officers as of December 31, 2007:

Outstanding Equity Awards at Fiscal Year-End

Option Awards
		Number
		of				Number of Securities
		Securities Underlying				Underlying
		Unexercised Options				Unexercised Options				Option Exercise
		Exercisable				Un-exercisable				Price				Option Expiration
Name		(#)				(#)				($)				Date
(a)		(b)				(c)				(e)				(f)
Tony J. Sorcic			20,000	1						$	28.56				12/31/13
President and Chief Executive Officer			20,000	1						$	28.83				12/31/14
			20,000	1						$	33.25				12/31/15
							20,000	2		$	32.55				12/31/16
							20,000	3		$	24.84				12/31/17
James B. Miller			734	1						$	11.94				12/26/10
Executive Vice President			2,000	1						$	16.21				12/31/11
			4,000	1						$	21.15				12/31/12
			4,000	1						$	28.56				12/31/13
			4,000	1						$	28.83				12/31/14
			3,000	1						$	33.25				12/31/15
							3,000	2		$	32.55				12/31/16
							3,000	3		$	24.84				12/31/17
Todd D. Fanning			533	1						$	28.56				12/31/13
Senior Vice President & CFO/Treasurer			1,200	1						$	28.83				12/31/14
			2,000	1						$	33.25				12/31/15
							2,000	2		$	32.55				12/31/16
							2,000	3		$	24.84				12/31/17
Patrick B. Murray			1,000	1						$	28.83				12/31/14
Senior Vice President – Citizens Financial Advisors			2,000	1						$	33.25				12/31/15
							2,000	2		$	32.55				12/31/16
							2,000	3		$	24.84				12/31/17
Jacqualyn L. Karlosky			2,000	1						$	28.56				12/31/13
Senior Vice President – Consumer Banking			2,000	1						$	28.83				12/31/14
			2,000	1						$	33.25				12/31/15
							2,000	2		$	32.55				12/31/16
							2,000	3		$	24.84				12/31/17

2005 Deferred Compensation Plan

     Mr. Sorcic participates in the Princeton National Bancorp, Inc. Deferred Compensation Plan and the Princeton National Bancorp, Inc. 2005 Deferred Compensation Plan. Except as indicated below, the terms of these plans are substantially identical.

     Under the plans, prior to the beginning of each calendar year, Mr. Sorcic may elect to defer the receipt of all or part of his compensation otherwise payable to him for the forthcoming calendar year. The plans provide that amounts Mr. Sorcic defers are credited with earnings at the prime rate minus one and one-half percent, adjusted annually, as reported in the Wall Street Journal.

     Amounts under the plans are generally payable to Mr. Sorcic upon the earliest of (i) the date his employment terminates; (ii) his death; (iii) his total and permanent disability; or (iv) the date of a change in control of the Company or Citizens First National Bank. Under the 2005 plan, a distribution following Mr. Sorcic’s termination of employment may not occur until 6 months following the date of that termination. In addition, Mr. Sorcic may elect to be paid all or a portion of his plan benefits upon an unforeseeable financial emergency, but only to the extent that the payment is necessary to relieve that emergency.

     Amounts payable under the plans are paid either in a lump sum or ten substantially equal payments. Mr. Sorcic may change the form of benefit or waive the payment of plan accounts upon a change in control and elect to receive payments on the next payment date under the plans, provided that he makes the election in the calendar year preceding and at least 90 days prior to the change in control. However, under the 2005 plan, a change in the form of benefit or a waiver of payment upon a change in control would generally require a five-year delay in the first scheduled payment under the plans.

     Under the plans, the events that are deemed to constitute a change in control are substantially similar to the events that constitute a change in control under the employment agreement between the Company and Mr. Sorcic. See descriptions of potential post-termination payments which are disclosed in the section titled Other Potential Post-Employment Payments.

Non-qualified Deferred Compensation

Executive

Registrant

Aggregate

Aggregate

Contributions

Contributions

Aggregate Earnings

Withdrawals/

Balance

in Last FY

in Last FY

in Last FY

Distributions

at Last FYE

Name

($)

($)

($)

($)

($)

(a)

(b)

(c)

(d)

(e)

(f)

Tony J. Sorcic

President & Chief Executive Officer

$

25,000

1

—

$

8,177

—

$

138,434

Other Potential Post-Employment Payments.

     Our Executive Officers have built the Company into the successful enterprise it is today, and we believe it is important to protect them in the event of a change in control, a termination of the Executive’s employment without cause or good reason, the Executive’s death or the Executive’s disability. Further, it is our belief the interests of stockholders will be best served if the interests of our Senior Management are aligned with them, and providing change in control benefits should eliminate, or at least reduce, the reluctance of Executive Officers to pursue potential change in control transactions that may be in the best interests of stockholders. The cash component of any post-termination payment is paid in a single, lump sum and is based upon a multiple of base salary.

     A post-termination benefit is payable to Mr. Sorcic if, during the term of his employment agreement, the Company or Citizens Bank terminates his employment without cause, Mr. Sorcic terminates his employment for good reason, Mr. Sorcic terminates his employment following a change in control, or the Company or Citizens Bank terminates Mr. Sorcic’s employment within the twenty-four month period following the change in control. Under any of these circumstances, Mr. Sorcic would be entitled to receive a lump sum payment equal to the greater of his monthly salary times twenty-four or the salary payable for the balance of the term of his employment agreement. For the longer of twenty-four months or the period remaining in his employment agreement, Mr. Sorcic also would be entitled to receive all benefits accrued under any incentive and retirement plan of the Company and he and his dependents would continue to be covered by all welfare plans of the Company. In addition, all outstanding stock options would become fully and immediately exercisable. At December 31, 2007, had Mr. Sorcic’s employment with the Company or the Bank terminated under one of the circumstances described above, Mr. Sorcic would have been entitled to receive $639,496 (reflects two years) in base salary and $17,394 representing the present value of continued welfare benefit plan participation described above.

     If Mr. Sorcic dies during the term of his employment agreement, for a period of 12 months from the date of death, the Company would pay to his beneficiary Mr. Sorcic’s base salary, Mr. Sorcic’s spouse and other dependents would continue participation in the Company’s welfare benefit plans on the same terms as they would have been provided if Mr. Sorcic were an active employee and, for the period of twenty-four months following the first anniversary of Mr. Sorcic’s death, Mr. Sorcic’s spouse and other dependents would continue participation in the Company’s welfare benefit plans on the same terms as would have been provided if Mr. Sorcic were a retiree of the Company or the Bank.

     If Mr. Sorcic’s employment terminates due to his disability, the Company will continue to pay his base salary from the date of disability until Mr. Sorcic is eligible to receive benefit payments under the Bank’s disability plan. During the period base salary payments continue, Mr. Sorcic will remain eligible to participate in the Company’s welfare benefit plans. Base salary continuation payments are reduced by disability benefits paid to Mr. Sorcic and cease upon the cessation of disability, except salary will be paid for an additional twelve months if neither the Company nor the Bank offer Mr. Sorcic re-employment in the same position he held prior to his disability.

     A post-termination benefit is payable to Mr. Miller if, during the term of his employment agreement, the Company or Citizens Bank terminates his employment without cause, Mr. Miller terminates his employment for good reason, Mr. Miller terminates his employment following a change in control, or the Company or Citizens Bank terminates Mr. Miller’s employment within the twenty-four month period following the change in control. Under any of these circumstances, Mr. Miller would be entitled to receive a lump sum payment equal to the greater of his monthly salary times eighteen or the salary payable for the balance of the term of his employment agreement. For the longer of eighteen months or the period remaining in his employment agreement, Mr. Miller also would be entitled to receive all benefits accrued under any incentive and retirement plan of the Company and he and his dependents would continue to be covered by all welfare plans of the Company. In addition, all outstanding stock options would become fully and immediately exercisable. At December 31, 2007, had Mr. Miller’s employment with the Company or the Bank terminated under one of the circumstances described above, Mr. Miller would have been entitled to receive $251,199 (reflects eighteen months) in base salary and $5,696 representing the present value of continued welfare benefit plan participation described above.

     If Mr. Miller dies during the term of his employment agreement, for a period of 12 months from the date of death, Mr. Miller’s spouse and other dependents would continue participation in the Company’s welfare benefit plans on the same terms as they would have been provided if Mr. Miller were an active employee and for the period of twenty-four months following the first anniversary of Mr. Miller’s death, Mr. Miller’s spouse and other dependents would continue participation in the Company’s welfare benefit plans on the same terms as would have been provided if Mr. Miller were a retiree of the Company or the Bank.

     If Mr. Miller’s employment terminates due to his disability, the Company will continue to pay his base salary from the date of disability until Mr. Miller is eligible to receive benefit payments under the Bank’s disability plan. During the period base salary payments continue, Mr. Miller will remain eligible to participate in the Company’s welfare benefit plans. Base salary continuation payments are reduced by disability benefits paid to Mr. Miller and cease upon the cessation of disability, except salary will be paid for an additional twelve months if neither the Company nor the Bank offer Mr. Miller re-employment in the same position he held prior to his disability.

     A change in control is deemed to occur (i) upon the acquisition by any individual, entity or group of beneficial ownership of more than 25% of the Company’s voting stock; (ii) the commencement of a tender offer or an exchange offer for more than 20% of the Company’s outstanding voting stock; (iii) upon a merger or consolidation of the Company after which the Company’s stockholders immediately prior to the merger hold less than 25% of the voting stock of the surviving corporation; (iv) upon a transfer of 25% or more of the Company’s voting stock or substantially all of the property of Company, other than to an entity of which Company owns at least 50% of the voting stock; (v) upon a merger or consolidation of the Bank after which the Bank’s stockholders immediately prior to the merger hold less than 25% of the voting stock of the surviving corporation; or (vi) upon a transfer of 25% or more of the Bank’s voting stock or substantially all of the property of the Bank, other than to an entity of which the Bank owns at least 50% of the voting stock.

Compensation Committee Report

     The Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

THE COMPENSATION COMMITTEE
Stephen W. Samet, Chairman		Daryl Becker		Craig O. Wesner

Compensation Committee Interlocks and Insider Participation

     No member of the Compensation Committee is a current or former employee of the Company or any of its subsidiaries. No member of the Compensation Committee had any relationship with the Company which would have required disclosure in this Proxy Statement under the caption “Certain Transactions.” No Executive Officer of the Company served on the compensation committee or as a director of any other entity whose Executive Officer(s) served on the Company’s Compensation Committee or Board.

COMMON STOCK PRICE PERFORMANCE GRAPH

     The following Common Stock price performance graph compares the monthly change in the Company’s cumulative total stockholder returns on its Common Stock, assuming the Common Stock was purchased on December 31, 2002 and sold on December 31, 2007, with the cumulative total return of stocks included in the Russell 3000, SNL Midwest Bank Stock Index and the NASDAQ Bank Index for the same period. The amounts shown assume the reinvestment of dividends.

Princeton National Bancorp, Inc.

     The Company’s Common Stock began trading on the NASDAQ Stock Market under the symbol PNBC on May 8, 1992. On December 31, 2007 and February 29, 2008, the Record Date, the closing prices for the Common Stock as quoted on NASDAQ Online were $24.25 and $27.20, respectively.

AUDIT COMMITTEE REPORT

     On June 28, 2006, the Company replaced KPMG LLP as the independent auditor of the Company with BKD, LLP effective June 28, 2006. The decision to change independent auditors and the appointment of the new independent auditors was approved by the Audit Committee and the Board of Directors of the Company.

     The Audit Report of KPMG LLP on the Company’s financial statements for the fiscal year ended on December 31, 2005 did not contain any adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles.

     During the fiscal year ended December 31, 2005 and through June 28, 2006, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to KPMG LLP’s satisfaction, would have caused them to make reference to the subject matter of the disagreements in its report on the Company’s financial statement for such years. Set forth below is the information concerning fees billed to the Company by BKD, LLP in respect to the services provided for the fiscal year 2006 from June 28, 2006 and concerning fees billed to the Company by KPMG LLP with respect to the services provided for fiscal year 2005 and fiscal year 2006, until June 28, 2006. The Audit Committee of the Board of Directors reviewed and approved such fees and determined the services provided were compatible with maintaining the independence of both KPMG LLP and BKD, LLP.

     The Company’s Audit Committee is currently comprised of three directors (Messrs. Becker, Bruce and Samet). Each of the members of the Audit Committee is independent under the definition contained in Rule 4200(a) (15) of NASDAQ’s listing standards. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is available on our Website at http://www.pnbc-inc.com .

     In connection with the audited consolidated financial statements contained in the Company’s 2007 Annual Report on Form 10-K for the fiscal year ended December 31, 2007, the Audit Committee reviewed and discussed the audited financial statements with management and BKD, LLP. The Audit Committee discussed with BKD, LLP the matters required to be communicated by Statement on Accounting Standards No. 61 (SAS 61) (Codification of Statements on Auditing Standards, AU § 380). The Audit Committee has also received written disclosures from BKD, LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with them their independence.

     Based on the review and discussions, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

THE AUDIT COMMITTEE
Daryl Becker		Gary C. Bruce		Stephen W. Samet

     In accordance with Section 10A(i) of the Exchange Act, before BKD, LLP is engaged to render audit or non-audit services, the engagement is approved by the Audit Committee. None of the audit-related or other services described in the table above were approved by the Audit Committee, pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.

     The Audit Committee of the Board of Directors of the Company considers that the provision of the services referenced above to the Company is compatible with maintaining independence of both BKD, LLP and KPMG LLP. Representatives of BKD, LLP are expected to attend the Annual Meeting and will be available to respond to appropriate questions or to make a statement, if they desire to do so.

AUDIT COMMITTEE FINANCIAL EXPERT

     While the Board of Directors endorses the effectiveness of the Company’s Audit Committee, its membership does not include a director who qualifies for designation as an “audit committee financial expert” – a concept under federal regulation that contemplates such designation only when an audit committee member satisfies all five qualification requirements, such as experience (or “experience actively supervising” others engaged in) preparing, auditing, analyzing or evaluating financial statements presenting a level of accounting complexity comparable to what is encountered in connection with our Company’s financial statements.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Based solely upon its review of Forms 3, 4 and 5 and any amendment thereto furnished to the Company pursuant to Rule 16a-3(e) of the Securities Exchange Act of 1934, as amended, and written representations from the Directors and Executive Officers that no other reports were required, the Company is not aware of any Director, Officer or beneficial holder of 10% of its Common Stock that failed to file any such reports on a timely basis during 2007, except Director Becker filed one report with respect to one transaction 2 days late.

Nomination of Director

     If the notice is regarding the nomination of a person for Director, such stockholder’s notice to the Corporate Secretary of the Company must contain the following information:

     As to each person whom the stockholder proposes to nominate for election as a Director,

	•		name, age, business address and residential address;
	•		principal occupation or employment;
	•		class and number of shares of Company stock beneficially-owned on the date of the notice; and
	•		any other information relating to the nominee that would be required to be disclosed on Schedule 13D under the Securities and Exchange Act of 1934.

     As to the stockholder giving the notice,

	•		name and address of stockholder, and name, business and residential address of any other beneficial stockholders known by the stockholder to support the nominee; and
	•		class and number of shares of Company stock owned by the stockholder on the date of the notice, and the number of shares beneficially-owned by other record or beneficial stockholders known by the stockholder to be supporting the nominee.

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
April 29, 2008
- Please vote, sign, and return immediately -

     The undersigned hereby appoints Messrs. Lawrence DeVore, Roger Swan and John Isaacson, or any of them, as the attorneys and proxies of the undersigned, with full power of substitution, to represent and vote all shares of common stock of Princeton National Bancorp, Inc. (the “Company”), standing in the name of the undersigned at the close of business on February 29, 2008, at the Annual Meeting of Stockholders of the Company to be held at The Galleria Convention Center, 1659 North Main Street, Princeton, Illinois, at 10:00 a.m., on Tuesday, April 29, 2008 or at any adjournment or postponement thereof, with all the powers that the undersigned would possess if personally present, on all matters coming before said meeting, as follows:

(1)		Election of directors
		o I/We vote FOR all nominees listed below (other than any nominee whose name has been lined out).		o I/We WITHHOLD AUTHORITY to vote for all nominees listed below.

Class I Directors
Donald E. Grubb
Ervin I. Pietsch
Craig O. Wesner

             YOU MAY WITHHOLD AUTHORITY TO VOTE FOR ANY OF THE ABOVE-NAMED NOMINEES BY LINING OUT THAT NOMINEE’S NAME.

(3)

In their discretion, upon such other matters as may properly come before the Annual Meeting.

     This proxy when properly executed will be voted in the manner directed herein. If no instructions are indicated, this proxy will be voted “FOR” the election of all nominees named in the Proxy Statement and “FOR” the approval of the proposals described in the Proxy Statement.

     Please vote, date and sign this proxy and return it in the enclosed envelope. When signing as an executor, administrator, trustee, guardian, custodian, corporate officer or in any capacity other than individually, give your full title as such. If stock is held jointly, each joint owner should sign this proxy.

		(Date)
		(Shareholder’s Signature)
		(Capacity, if other than individually)
		(Shareholder’s Signature)
		(Capacity, if other than individually)

The signer hereby revokes all proxies, if any, previously given by the signer to vote at the meeting or any adjournment of the meeting.

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