Princeton National Bancorp, Inc. Surpasses First Quarter 2009 Net Income

PRINCETON, IL--(Marketwire - July 27, 2009) - Princeton National Bancorp, Inc. PNBC, the holding company of Citizens First National Bank, today reported results of operations and financial condition for the second quarter of 2009.

President & CEO Tony J. Sorcic stated, "The Company is very pleased with the second quarter operating results. Net income increased 64.2%, despite an increase in FDIC premiums and credit costs. Additionally, net interest income increased 2.8% and non-interest income increased 44.2% compared to first quarter results."

Mr. Sorcic concluded, "Princeton National Bancorp, Inc. has made significant progress. During a time when many companies are experiencing a shrinking of their balance sheet and negative income results, the Company continues to grow and generate positive earnings. In comparing June 30, 2009 to June 30, 2008, total deposits increased $151.9 million, total loans increased $19.5 million, year-to-date net interest income increased $1.753 million and non-interest income increased $415,000. While many banks experienced a compression in their net interest margin, the Company experienced a 4 basis point increase resulting in a net interest margin of 3.48%. Although non-interest expense increased $2.4 million, the majority of the increase is in the categories of federal deposit insurance assessments which rose $1.4 million and other real estate expenses which increased $387,000. The Board of Directors and Management are pleased with the results generated during the first six months of 2009."

In review of the June 30, 2009 consolidated statements of income, net income was $1,898,000 for the second quarter, or $.48 per common share, compared to $1,156,000 or $.28 per common share for the first quarter of 2009 and $2,020,000 or $.61 per common share for the second quarter of 2008. Net-interest income for the second quarter of 2009 (before provision) was $8,629,000 and non-interest income was $3,731,000, compared to $8,395,000 and $2,588,000, respectively, for the first quarter of 2009 and $7,817,000 and $2,751,000, respectively, for the second quarter of 2008. Return on average equity was 7.77% for the second quarter 2009, compared to 5.14% for the first quarter 2009 and 11.71% for the second quarter of 2008.

Total assets ended the quarter at $1.258 billion, up 3.5% from $1.215 billion at March 31, 2009 and 8.2% from $1.163 billion at December 31, 2008. Princeton National Bancorp, Inc. experienced a $9.0 million and $25.1 million decrease in total loans as of June 30, 2009 in comparison to March 31, 2009 and December 31, 2008, respectively (primarily due to a decrease in the residential real estate category as variable rate loans were refinanced into fixed rate loans and sold in the secondary market and a general slowdown in the economy, along with seasonal agricultural paydowns).

Non-performing loans totaled $22.0 million as of June 30, 2009 and represents a 33.8% decrease from March 31, 2009 and a 33.3% decrease from December 31, 2008. An $11.0 million commercial loan was transferred into OREO. This was a participation loan with a correspondent bank, who had started foreclosure proceedings. Based on the anticipated value of the collateral, the Subsidiary Bank decided to purchase the correspondent's interest and continue with the foreclosure. Transferring the property into OREO moves the Subsidiary Bank one step closer to a resolution. At the end of the second quarter, specific loss provisions for individual credits totaled $1.530 million, compared to $818,000 at December 31, 2008. The Subsidiary Bank staff will continue to work with borrowers to resolve problem loan situations and to work through the challenging remediation cycle for real estate and construction-related credits. Recognizing this, and reflective of current conditions, the level of loan loss provisioning has increased, bringing the level of reserves to .80% of total loans, an increase from .64% at December 31, 2008. The loan loss provision taken in the second quarter totaled $1,465,000 versus $1,170,000 in the first quarter and $450,000 in the second quarter of 2008. Citizens First National Bank evaluates the risk characteristics of the loan portfolio on a monthly basis and believes the loan loss reserve was adequate to cover possible losses as of June 30, 2009.

At the July Board of Directors' meeting, the Board of Directors declared a $.14 per common share dividend payable August 25, 2009 to those shareholders of record as of August 7, 2009.

On February 27, 2009, the FDIC announced it had adopted an interim rule to impose an emergency special assessment on June 30, 2009 which will be collected on September 30, 2009. It was anticipated the amount of the emergency special assessment on the Subsidiary Bank would be 16 basis points or $1.6 million. On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis point emergency special assessment on an institution's assets minus Tier 1 capital. This emergency special assessment equates to a one-time cost of $600,000, significantly lower than originally anticipated. This amount has been accrued for by the Company and is reflected in non-interest expense. The FDIC also increased the risk-based assessment to 14 basis points, versus 7 basis points previously. Accordingly, the new assessment rates increased the quarterly federal deposit insurance expense by approximately $200,000 (for both the first and second quarters of 2009).

The Subsidiary Bank retains servicing of residential mortgages sold into the secondary market for which fees are earned. During the first quarter, the Company recorded a pre-tax charge of $556,419 to earnings due to the decrease in the value of existing mortgage servicing rights as mortgage interest rates had declined. There was no charge taken in the second quarter.

The Company's solid capital base and ability to generate core earnings continue to be an advantage as we work through the current credit cycle. The Subsidiary Bank has been providing financial solutions to meet the financial needs of its customers since 1865. Princeton National Bancorp, Inc. and Citizens First National Bank will be in a position to benefit as conditions improve.

The price of PNBC stock closed at $14.60 on June 30, 2009, compared to $14.00 on March 31, 2009 and $22.14 on December 31, 2008. The decrease in stock price from year-end 2008 is reflective of the banking industry as a whole. Financial stocks continue to be impacted by poor earnings reports by many institutions, due to the current credit cycle. Princeton National Bancorp, Inc. has reported positive quarterly earnings for fifty-seven consecutive quarters!

For detailed financial information, please refer to the attached June 30, 2009 financial statements for Princeton National Bancorp, Inc. You may also visit our website at www.pnbc-inc.com to obtain financial information, as well as press releases, stock prices and information on the Company.

The Company offers shareholders the opportunity to participate in the Princeton National Bancorp, Inc. Dividend Reinvestment and Stock Purchase Plan. The Company also offers electronic direct deposit of dividends. To obtain information about the stock purchase plan or electronic direct deposit, please contact us at 815-875-4445, extension 650.

Princeton National Bancorp, Inc. is the parent holding company of Citizens First National Bank, a $1.258 billion community bank with strategic locations in 8 counties in northern Illinois. The Company is well-positioned in the high growth counties of Will, Kendall, Kane, Grundy, DeKalb and LaSalle plus Bureau and Marshall. Communities include: Aurora, DePue, Genoa, Hampshire, Henry, Huntley, Millbrook, Minooka, Newark, Oglesby, Peru, Plainfield, Plano, Princeton, Sandwich, Somonauk and Spring Valley. The Subsidiary Bank, Citizens First National Bank, provides financial services to meet the needs of individuals, businesses and public entities.

This press release contains certain forward-looking statements, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. These forward-looking statements are identified by the use of words such as 1) believes, 2) anticipates, 3) estimates, 4) expects, 5) projects or similar words. Actual results could differ materially from those contained or implied by such statements for a variety of factors including: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature, extent, and timing of governmental actions and reforms; and extended disruption of vital infrastructure. The figures included in this press release are unaudited and may vary from the audited results.

CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data) June 30, 2009 December 31, (unaudited) 2008 ----------- ------------- ASSETS Cash and due from banks $ 12,741 $ 20,163 Interest-bearing deposits with financial institutions 35,929 98 Federal funds sold 0 0 ----------- ------------- Total cash and cash equivalents 48,670 20,261 Loans held for sale, at lower of cost or market 2,766 2,155 Investment securities available-for-sale, at fair value 317,514 236,883 Investment securities held-to-maturity, at amortized cost 15,186 14,232 ----------- ------------- Total investment securities 332,700 251,115 Loans, net of unearned interest 765,754 790,837 Allowance for loan losses (6,160) (5,064) ----------- ------------- Net loans 759,594 785,773 Premises and equipment, net 28,935 29,297 Land held for sale, at lower of cost or market 2,354 2,354 Federal Reserve and Federal Home Loan Bank stock 4,230 4,211 Bank-owned life insurance 22,072 21,588 Interest receivable 7,840 9,693 Goodwill, net of accumulated amortization 24,521 24,521 Intangible assets, net of accumulated amortization 3,776 4,207 Other real estate owned 15,250 2,487 Other assets 5,346 5,468 ----------- ------------- TOTAL ASSETS $ 1,258,054 $ 1,163,130 =========== ============= ----------- ------------- LIABILITIES Demand deposits $ 108,952 $ 110,559 Interest-bearing demand deposits 289,432 246,714 Savings deposits 67,144 61,089 Time deposits 590,129 543,770 ----------- ------------- Total deposits 1,055,657 962,132 Customer repurchase agreements 35,621 35,532 Advances from the Federal Home Loan Bank 32,496 32,493 Interest-bearing demand notes issued to the U.S. Treasury 1,516 2,441 Federal funds purchased 0 6,500 Trust Preferred securities 25,000 25,000 Note payable 0 16,050 ----------- ------------- Total borrowings 94,633 118,016 Other liabilities 9,664 10,511 ----------- ------------- Total liabilities 1,159,954 1,090,659 ----------- ------------- STOCKHOLDERS' EQUITY Preferred stock 24,944 0 Common stock 22,391 22,391 Common stock warrants 150 0 Additional paid-in capital 18,395 18,420 Retained earnings 55,597 54,329 Accumulated other comprehensive income (loss), net of tax 624 1,402 Less: Treasury stock (24,001) (24,071) ----------- ------------- Total stockholders' equity 98,100 72,471 ----------- ------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,258,054 $ 1,163,130 =========== ============= CAPITAL STATISTICS (UNAUDITED) YTD average equity to average assets 7.78% 6.25% Tier 1 leverage capital ratio 7.91% 6.22% Tier 1 risk-based capital ratio 10.75% 7.72% Total risk-based capital ratio 11.46% 8.30% Common book value per share $ 22.15 $ 21.97 Closing market price per share $ 14.60 $ 22.14 End of period shares outstanding 3,302,157 3,298,041 End of period treasury shares outstanding 1,176,138 1,180,254

CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except share data) THREE THREE MONTHS MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED June 30, June 30, June 30, June 30, 2009 2008 2009 2008 (unaudited) (unaudited) (unaudited) (unaudited) ----------- ----------- ----------- ----------- INTEREST INCOME Interest and fees on loans $ 11,167 $ 11,801 $ 22,543 $ 24,152 Interest and dividends on investment securities 3,216 2,659 6,147 5,338 Interest on federal funds sold 0 4 0 29 Interest on interest-bearing time deposits in other banks 35 9 51 20 ----------- ----------- ----------- ----------- Total Interest Income 14,418 14,473 28,741 29,539 ----------- ----------- ----------- ----------- INTEREST EXPENSE Interest on deposits 5,103 5,805 10,250 12,479 Interest on borrowings 686 851 1,467 1,789 ----------- ----------- ----------- ----------- Total Interest Expense 5,789 6,656 11,717 14,268 ----------- ----------- ----------- ----------- Net interest income 8,629 7,817 17,024 15,271 Provision for loan losses 1,465 450 2,635 818 ----------- ----------- ----------- ----------- Net interest income after provision 7,164 7,367 14,389 14,453 ----------- ----------- ----------- ----------- NON-INTEREST INCOME Trust & farm management fees 394 336 708 812 Service charges on deposit accounts 977 1,110 1,953 2,202 Other service charges 508 567 953 1,024 Gain on sales of securities available-for-sale 574 0 761 276 Brokerage fee income 249 208 447 427 Mortgage banking income 765 288 876 636 Bank-owned life insurance 230 206 473 421 Other operating income 34 36 148 106 ----------- ----------- ----------- ----------- Total Non-Interest Income 3,731 2,751 6,319 5,904 ----------- ----------- ----------- ----------- NON-INTEREST EXPENSE Salaries and employee benefits 4,113 4,226 8,693 8,623 Occupancy 602 611 1,311 1,290 Equipment expense 763 751 1,536 1,470 Federal insurance assessments 826 84 1,523 168 Intangible assets amortization 208 178 416 357 Data processing 339 302 655 579 Advertising 211 162 408 330 ORE Expenses, net 419 91 509 122 Other operating expense 1,234 1,104 2,424 2,130 ----------- ----------- ----------- ----------- Total Non-Interest Expense 8,715 7,509 17,475 15,069 ----------- ----------- ----------- ----------- Income before income taxes 2,180 2,609 3,233 5,288 Income tax expense 282 589 178 1,177 ----------- ----------- ----------- ----------- Net income 1,898 2,020 3,055 4,111 Preferred stock dividends 317 0 554 0 Accretion of preferred stock discount 6 0 11 0 ----------- ----------- ----------- ----------- Net income available to common stockholders $ 1,575 $ 2,020 $ 2,490 $ 4,111 =========== =========== =========== =========== Net income per share: BASIC $ 0.48 $ 0.61 $ 0.75 $ 1.25 DILUTED $ 0.48 $ 0.61 $ 0.75 $ 1.24 Basic weighted average shares outstanding 3,300,161 3,295,998 3,299,119 3,300,030 Diluted weighted average shares outstanding 3,300,586 3,309,084 3,299,634 3,311,735 PERFORMANCE RATIOS (annualized) Return on average assets 0.61% 0.75% 0.51% 0.76% Return on average equity 7.77% 11.71% 6.51% 11.98% Net interest margin (tax-equivalent) 3.43% 3.49% 3.48% 3.44% Efficiency ratio (tax-equivalent) 66.72% 67.71% 70.86% 67.68% ASSET QUALITY Net loan charge-offs $ 1,169 $ 189 $ 1,540 $ 670 Total non-performing loans $ 22,021 $ 14,567 $ 22,021 $ 14,567 Non-performing loans as a % of total loans 2.88% 1.95% 2.88% 1.95%