Valley Commerce Bancorp (VCBP) 10-K/A 2007 FY Annual report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

þ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  

For the fiscal year ended December 31, 2007

or

o Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  

Commission file number: 000-51949

Valley Commerce Bancorp

(Exact name of Registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization) 46-1981399 (IRS Employer Identification No.)

200 South Court Street, Visalia, CA (Address of principal executive offices) 93291 (Zip Code)  

Registrant’s telephone number, including area code: (559) 622-9000

Securities to be registered pursuant to Section 12(b) of the Act: None.

Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value.

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes þ No

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes þ No

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

     Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large Accelerated Filer o     Accelerated Filer o     Non-Accelerated Filer o     Smaller Reporting Company þ

     Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes þ No

As of June 30, 2007, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $43.7 based on the average bid and asked price.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, No Par Value	Outstanding at March 14, 2008
[Common Stock, No par value per share]	2,396,435 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Shareholders to be held May 20, 2008 (Proxy Statement)	Part III

EXPLANATORY NOTE

This Amendment to the Company’s Annual Report on Form 10-K is solely for the purpose of re-filing Item 8. I. Report of Independent Registered Public Accounting Firmfiled with the original 2007 Form 10-K filed on March 31, 2008 (“Original Report”).  The accounting firm’s conformed signature was inadvertently omitted from the Original Report.

This Amendment does not reflect events occurring after the filing of the Original Report of modify or update the disclosures therein in any way other than as described above.

2

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and

   Board of Directors

Valley Commerce Bancorp

We have audited the accompanying consolidated balance sheet of Valley Commerce Bancorp and subsidiary (the "Company") as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2007.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provided a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Valley Commerce Bancorp and subsidiary as of December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Perry-Smith LLP                                           

Sacramento, California

March 19, 2008

3

VALLEY COMMERCE BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

December 31, 2007 and 2006

	2007			2006
ASSETS
Cash and cash equivalents	$	9,297,346		$	13,265,547
Available-for-sale investment securities, at fair value (Notes 3 and 7)		56,615,000			55,298,000
Loans, less allowance for loan losses of $1,757,591 in 2007 and $1,745,582 in 2006 (Notes 4, 7, 9 and 13)		199,514,271			182,331,506
Bank premises and equipment, net (Note 5)		3,037,063			1,832,177
Cash surrender value of bank-owned life insurance (Note 14)		6,184,531			5,934,563
Accrued interest receivable and other assets (Note 12)		4,432,665			5,002,900
Total assets	$	279,080,876		$	263,664,693
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing	$	66,992,568		$	63,019,956
Interest bearing (Note 6)		148,393,500			144,556,213
Total deposits		215,386,068			207,576,169
Accrued interest payable and other liabilities		1,778,548			1,399,787
Short-term debt (Note 7)		21,804,000			17,600,000
Long-term debt (Note 7)		8,146,049			8,547,638
Junior subordinated deferrable interest debentures (Note 8)		3,093,000			3,093,000
Total liabilities		250,207,665			238,216,594
Commitments and contingencies (Note 9)
Shareholders' equity (Note 10):
Serial preferred stock - no par value; 10,000,000 shares authorized; none issued		-			-
Common stock - no par value; 30,000,000 shares authorized; issued and outstanding – 2,396,435 shares in 2007 and 2,215,765 shares in 2006		23,511,066			20,683,720
Retained earnings		5,423,324			5,040,381
Accumulated other comprehensive loss, net of taxes (Notes 3 and 15)		(61,179	)		(276,002	)
Total shareholders' equity		28,873,211			25,448,099
Total liabilities and shareholders’ equity	$	279,080,876		$	263,664,693

The accompanying notes are an integral

part of these consolidated financial statements

4

VALLEY COMMERCE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

For the Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
Interest income:
Interest and fees on loans	$	16,113,423		$	14,448,209		$	10,511,090
Interest on investment securities:
Taxable		1,581,892			1,444,707			1,459,998
Exempt from Federal income taxes		771,368			719,117			303,267
Interest on Federal funds sold		3,658			137,749			229,197
Total interest income		18,470,341			16,749,782			12,503,552
Interest expense:
Interest on deposits (Note 6)		5,802,852			4,306,344			2,028,091
Interest on short-term borrowings (Note 7)		695,062			610,911			52,523
Interest on long-term borrowings (Note 7)		362,665			380,212			393,303
Interest on junior subordinated deferrable interest debentures (Note 8)		270,690			263,310			208,787
Total interest expense		7,131,269			5,560,777			2,682,704
Net interest income before provision for loan losses		11,339,072			11,189,005			9,820,848
Provision for loan losses (Note 4)		-			-			368,768
Net interest income after provision for loan losses		11,339,072			11,189,005			9,452,080
Non-interest income:
Service charges		590,900			546,514			513,859
Loss on sale of available-for-sale investment securities, net (Note 3)		(1,145	)		(52,737	)		(48,494	)
Mortgage loan brokerage fees		76,636			125,085			136,183
Earnings on cash surrender value of lifepolicies (Note 14)		258,134			153,394			103,851
Other		230,140			223,693			182,347
Total non-interest income		1,154,665			995,949			887,746
Non-interest expense:
Salaries and employee benefits (Notes 4 and 14)		4,770,498			4,260,909			3,777,496
Occupancy and equipment (Notes 5 and 9)		1,073,196			890,337			756,664
Other (Note 11)		2,855,193			2,501,930			2,275,859
Total non-interest expense		8,698,887			7,653,176			6,810,019
Income before provision for income taxes		3,794,850			4,531,778			3,529,807
Provision for income taxes (Note 12)		1,134,000			1,576,000			1,367,000
Net income	$	2,660,850		$	2,955,778		$	2,162,807
Basic earnings per share (Note 10)	$	1.13		$	1.28		$	0.95
Diluted earnings per share (Note 10)	$	1.09		$	1.22		$	0.90

The accompanying notes are an integral

part of these consolidated financial statements.

5

VALLEY COMMERCE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the Years Ended December 31, 2007, 2006 and 2005

										Accumulated
										Other
										Compre-			Total			Total
	Common Stock									hensive			Share-			Compre-
							Retained			Loss			holders’			hensive
	Shares			Amount			Earnings			(Net of Taxes)			Equity			Income
Balance, January 1, 2005		1,788,258		$	14,451,969		$	1,959,281		$	(78,612	)	$	16,332,638
Comprehensive income (Note 15):
Net income								2,162,807						2,162,807		$	2,162,807
Other comprehensive loss, net of tax:
Net change in unrealized losses on available-for-sale investment securities											(466,509	)		(466,509	)		(466,509	)
Total comprehensive income																$	1,696,298
Proceeds from sale of stock (Note 10):		299,250			3,880,321									3,880,321
Balance, December 31, 2005		2,087,508			18,332,290			4,122,088			(545,121	)		21,909,257
Comprehensive income (Note 15):
Net income								2,955,778						2,955,778		$	2,955,778
Other comprehensive loss, net of tax:
Net change in unrealized losses on available-for-sale investment securities											269,119			269,119			269,119
Total comprehensive income																$	3,224,897
Stock dividend		104,123			2,032,481			(2,032,481	)
Cash paid for fractional shares								(5,004	)					(5,004	)
Stock options exercised and  related tax benefit		24,134			280,230									280,230
Stock-based compensation expense					38,719									38,719
Balance, December 31, 2006		2,215,765			20,683,720			5,040,381			(276,002	)		25,448,099
Comprehensive income (Note 15):
Net income								2,660,850						2,660,850		$	2,660,850
Other comprehensive income, net of tax:
Net change in unrealized losses on available-for-sale investment securities											214,823			214,823			214,823
Total comprehensive income																$	2,875,673
Stock dividend		110,603			2,158,974			(2,158,974	)
Cash paid for fractional shares								(5,392	)					(5,392	)
Stock repurchase		(27,440	)		(268,267	)		(113,541	)					(381,808	)
Stock options exercised and related tax benefit		97,507			892,229									892,229
Stock-based compensation expense					44,410									44,410
Balance, December 31, 2007		2,396,435		$	23,511,066		$	5,423,324		$	(61,179	)	$	28,873,211

(Continued)

6

VALLEY COMMERCE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(Continued)

For the Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
Disclosure of reclassification amount, net of taxes (Note 15):
Unrealized holding gains (losses) arising during the year	$	214,054		$	235,394		$	(496,223	)
Less: reclassification adjustment for losses included in net income		(769	)		(33,725	)		(29,714	)
Net change in unrealized losses on available-for-sale investment securities	$	214,823		$	269,119		$	(466,509	)

The accompanying notes are an integral

part of these consolidated financial statements.

7

VALLEY COMMERCE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
Cash flows from operating activities:
Net income	$	2,660,850		$	2,955,778		$	2,162,807
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		-			-			368,768
(Decrease) increase in deferred loan origination fees, net		(131,895	)		(199,771	)		176,033
Depreciation		315,365			242,116			194,531
Amortization of intangibles		62,538			62,538			62,538
Net loss on sale of available-for-sale investment securities, net		1,145			52,737			48,494
Dividends on Federal Home Loan Bank stock		(79,100	)		(54,900	)		(29,300	)
Accretion (amortization) of investment securities, net		(23,459	)		38,099			819,551
Loss on disposition of premises and equipment		16,470			-			8,208
Provision for deferred income taxes		(77,000	)		2,000			(251,000	)
Tax benefits on stock-based compensation		(335,893	)		(125,828	)		-
Increase in cash surrender value of bank owned life insurance		(249,968	)		(153,394	)		(103,851	)
Stock-based compensation expense		44,410			38,719			-
Decrease (increase) in accrued interest receivable and other assets		627,659			(354,558	)		(512,561	)
Increase in accrued interest payable and other liabilities		378,761			111,387			453,812
Net cash provided by operating activities		209,883			2,614,923			3,398,030
Cash flows from investing activities:
Proceeds from matured and called available-for-sale investment securities		7,615,000			1,658,100			4,500,000
Proceeds from sales of available-for-sale investment securities		1,533,619			2,731,795			3,951,507
Purchases of available-for-sale investment securities		(12,530,396	)		(11,082,486	)		(24,836,258	)
Proceeds from principal repayments from available-for-sale mortgage-backed securities		2,427,545			2,152,829			2,462,904
Net increase in loans		(17,050,870	)		(32,141,121	)		(35,701,170	)
Redemption (purchase) of Federal Home Loan Bank stock, net		246,400			(714,100	)		(405,000	)
Purchase of premises and equipment		(1,544,749	)		(850,977	)		(392,469	)
Proceeds from sale of premises and equipment		8,028			-			-
Premiums paid for life insurance policies		-			(3,000,000	)		-
Net cash used in investing activities		(19,295,423	)		(41,245,960	)		(50,420,486	)

(Continued)

8

VALLEY COMMERCE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(Continued)

For the Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
Cash flows from financing activities:
Net increase (decrease) increase in noninterest bearing and interest-bearing deposits	$	14,956,957		$	(655,498	)	$	25,884,925
Net (decrease) increase in time deposits		(7,147,058	)		15,650,553			10,272,285
Proceeds from the issuance of stock		-			-			3,880,321
Proceeds from exercised stock options		556,336			154,402			-
Cash paid to repurchase common stock		(381,808	)		-			-
Tax benefits from stock-based compensation		335,893			125,828			-
Net increase in short-term borrowings		4,204,000			17,600,000			-
Payments on long-term advances		(401,589	)		(591,982	)		(182,852	)
Cash paid to repurchase fractional shares		(5,392	)		(5,004	)		-
Net cash provided by financing activities		12,117,339			32,278,299			39,854,679
Decrease in cash and cash equivalents		(3,968,201	)		(6,352,738	)		(7,167,777	)
Cash and cash equivalents at beginning of year		13,265,547			19,618,285			26,786,062
Cash and cash equivalents at end of year	$	9,297,346		$	13,265,547		$	19,618,285
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense	$	7,184,869		$	5,472,442		$	2,613,323
Income taxes	$	740,000		$	1,750,000		$	1,453,000
Non-cash investing activities:
Net decrease (increase) in unrealized loss on available-for-sale securities	$	340,454		$	458,074		$	(761,802	)

The accompanying notes are an integral

part of these consolidated financial statements.

9

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE BUSINESS OF VALLEY COMMERCE BANCORP

On February 2, 2002, Valley Commerce Bancorp (the "Company") was incorporated as a bank holding company for the purpose of acquiring Valley Business Bank (the "Bank"), formerly Bank of Visalia, in a one bank holding company reorganization.  The new corporate structure provides the Company and the Bank greater flexibility to expand and diversify.  The reorganization was completed on November 21, 2002, subsequent to which the Bank continued its operations as previously conducted, but as a wholly owned subsidiary of the Company.

The Bank commenced operations in 1996 under the name Bank of Visalia and changed its name during 2005 to Valley Business Bank.  The Bank operates branches in Visalia, Fresno, Woodlake and Tipton, and a loan production office in Tulare.  The Bank's deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits.  The Bank's primary source of revenue is generated from providing loans to customers who are predominately small and middle market businesses and individuals residing in the surrounding areas.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and the accounts of its wholly-owned subsidiary, Valley Business Bank.  All significant intercompany balances and transactions have been eliminated.

Valley Commerce Trust I, a wholly-owned subsidiary formed for the exclusive purpose of issuing trust preferred securities, is not consolidated into the Company's consolidated financial statements and, accordingly, is accounted for under the equity method.  The Company’s investment in the Trust is included in accrued interest receivable and other assets on the consolidated balance sheet.  The junior subordinated debentures issued and guaranteed by the Company and held by the Trust are reflected as debt in the consolidated balance sheet.

The accounting and reporting policies of Valley Commerce Bancorp and subsidiary conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

Segment Information

Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment.  No customer accounts for more than 10 percent of revenues for the Company or the Bank.

10

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassifications

Certain reclassifications have been made to prior years’ balances to conform to classifications used in 2007.

Stock Dividends

On May 15, 2007 and February 21, 2006 the Board of Directors declared a 5% stock dividend payable on June 20, 2007 and May 16, 2006, respectively, to shareholders of record on June 6, 2007 and April 28, 2006, respectively.  All per share and stock option data in the consolidated financial statements have been retroactively restated to reflect the stock dividend.

Cash and Cash Equivalents

For the purpose of the statement of cash flows, cash, due from banks and Federal funds sold are considered to be cash equivalents.  Generally, Federal funds are sold for one day periods.  Cash held with other federally insured institutions in excess of FDIC insured limits as of December 31, 2007 was $981,000.

Investment Securities

Investments are classified as available-for-sale.  Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, as accumulated other comprehensive income (loss) within shareholders' equity.

Gains or losses on the sale of securities are computed on the specific identification method.  Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums.

Investment securities are evaluated for impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other than temporary.  Management utilizes criteria such as the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the issues for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary.  The term "other than temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.  Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

11

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment in Federal Home Loan Bank Stock

As a member of the Federal Home Loan Bank System, the Bank is required to maintain an investment in the capital stock of the Federal Home Loan Bank.  The investment is carried at cost.  At December 31, 2007, 2006, and 2005, Federal Home Loan Bank stock totaled $1,658,600, $1,825,900, and $1,056,900 respectively.  On the consolidated balance sheet, Federal Home Loan Bank stock is included in accrued interest receivable and other assets.

Loans

Loans are stated at principal balances outstanding.  Interest is accrued daily based upon outstanding loan balances.  However, when, in the opinion of management, loans are considered to be impaired and the future collectibility of interest and principal is in serious doubt, loans are placed on nonaccrual status and the accrual of interest income is suspended.  Any interest accrued but unpaid is charged against income.  Payments received are applied to reduce principal to the extent necessary to ensure collection.  Subsequent payments on these loans, or payments received on nonaccrual loans for which the ultimate collectibility of principal is not in doubt, are applied first to earned but unpaid interest and then to principal.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (including both principal and interest) in accordance with the contractual terms of the loan agreement.  An impaired loan is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical matter, at the loan's observable market price or the fair value of collateral if the loan is collateral dependent.

Substantially all loan origination fees, commitment fees, direct loan origination costs and purchased premiums and discounts on loans are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan.  The unamortized balance of deferred fees and costs is reported as a component of net loans.

The Company may acquire loans through a business combination or a purchase for which differences may exist between the contractual cash flows and the cash flows expected to be collected due, at least in part, to credit quality.  When the Company acquires such loans, the yield that may be accreted (accretable yield) is limited to the excess of the Company's estimate of undiscounted cash flows expected to be collected over the Company's initial investment in the loan.  The excess of contractual cash flows over cash flows expected to be collected may not be recognized as an adjustment to yield, loss, or a valuation allowance.  Subsequent increases in cash flows expected to be collected generally are recognized prospectively through adjustment of the loan's yield over its remaining life.  Decreases in cash flows expected to be collected are recognized as an impairment.  The Company may not "carry over" or create a valuation allowance in the initial accounting for loans acquired under these circumstances.  At December 31, 2007 and 2006, there were no loans being accounted for under this policy.

12

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses

The allowance for loan losses is maintained to provide for losses related to impaired loans and other losses that can be expected to occur in the normal course of business.  The determination of the allowance is based on estimates made by management, to include consideration of the character of the loan portfolio, specifically identified problemloans, potential losses inherent in the portfolio taken as a whole and economic conditions in the Company's service area.

Classified loans and loans determined to be impaired are evaluated by management for specific risk of loss. In addition, reserve factors are assigned to currently performing loans based on historical loss rates for each identified loan type adjusted to reflect current economic and market conditions.

The allowance is established through a provision for loan losses which is charged to expense.  Management reviews the adequacy of the allowance for loan losses at least quarterly, to include consideration of the relative risks in the portfolio and current economic conditions. The allowance is adjusted based on that review if, in management’s judgment, changes are warranted.

Allowance for Losses Related to Undisbursed Loan Commitments

The Company maintains a separate allowance for losses related to undisbursed loan commitments.  Management estimates the amount of probable losses by applying a loss reserve factor to the unused portion of undisbursed lines of credit.  The allowance totaled $40,000 at December 31, 2007 and 2006, respectively and is included in accrued interest payable and other liabilities in the consolidated balance sheet.

Other Real Estate

Other real estate includes real estate acquired in full or partial settlement of loan obligations.  When property is acquired, any excess of the Bank's recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property is charged against the allowance for loan losses.  Subsequent gains or losses on sales or writedowns resulting from impairment are recorded in other income or expenses as incurred.  The Company did not hold other real estate as of December 31, 2007 and 2006.

Bank Premises and Equipment

Bank premises and equipment are carried at cost.  Depreciation is determined using the straight-line method over the estimated useful lives of the related assets.  The useful lives of premises are estimated to be twenty to thirty years.  The useful lives of furniture, fixtures and equipment are estimated to be two to ten years.  Leasehold improvements are amortized over the life of the asset or the life of the related lease, whichever is shorter.  When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to expense as incurred.

Intangible Assets

Intangible assets consist of core deposit intangibles related to branch acquisitions and are amortized using the straight-line method over ten years.  The Bank periodically evaluates whether events and circumstances have occurred that may affect the estimated useful life or the remaining balance of the core deposit intangibles resulting in impairment of the intangible asset.  Amortization expense totaled $62,538 for each of the years in the three-year period ended December 31, 2007.  The core deposit intangibles totaled $7,718 and $70,256 at December 31, 2007 and 2006, respectively.

13

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

The Company files its income taxes on a consolidated basis with its subsidiary.  The allocation of income tax expense (benefit) represents each entity's proportionate share of the consolidated provision for income taxes.

Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amount of assets and liabilities and their tax bases.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

Accounting for Uncertainty in Income Taxes

On January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes.  FIN 48 prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return.  In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The provisions of FIN 48 have been applied to all tax positions of the Company as of January 1, 2007.  Only tax positions that met the more-likely-than-not recognition threshold on January 1, 2007 were recognized or continue to be recognized upon adoption.  The Company previously recognized income tax positions based on management's estimate of whether it was reasonably possible that a liability had been incurred for unrecognized income tax benefits by applying FASB Statement No. 5, Accounting for Contingencies.  The adoption of FIN 48 did not have a material impact on the Company's financial position, results of operations or cash flows.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.  The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  Tax positions taken are not offset or aggregated with other positions.  Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.  The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are classified as income tax expense in the consolidated statement of income.

14

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share

Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock.  The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS.

Stock-Based Compensation

At December 31, 2007, the Company had two stock-based compensation plans, the Valley Commerce Bancorp Amended and Restated 1997 Stock Option Plan and the Valley Commerce Bancorp 2007 Equity Incentive Plan, which are more fully described in Note 10.  Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share Based Payment (“SFAS 123(R)”), using the modified prospective application transition method, which requires recognizing expense for options granted prior to the adoption date equal to the fair value of the unvested amounts over their remaining vesting period based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 Accounting for Stock Based Compensation and compensation cost for all share based payments granted subsequent to January 1, 2006 based on the grant date fair values estimated in accordance with the provisions of SFAS 123(R). The Company applied the alternative transition method in calculating its pool of excess tax benefits available to absorb future tax deficiencies as provided by FSP FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. During the year ended December 31, 2006, 10,500 options were awarded. Prior periods have not been restated to reflect the results of operations in 2005 as if the Company had recorded compensation expense based on the fair value of the options granted as prescribed by SFAS No. 123.

Prior to January 1, 2006, the Company accounted for the stock-based compensation plan under the recognition and measurement principles of Accounting Practice Bulletin Opinion No. 25, (“APB 25”) Accounting for Stock Issued to Employees, and related Interpretations.  No stock-based compensation expense was reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.

During the years ended December 31, 2007 and 2006, the Company recorded expenses of $44,410 and $38,719, respectively as a result of adopting SFAS 123(R).  The Company’s net income for years ended December 31, 2007 and 2006 was $31,402 and $31,510, respectively, lower than if management had continued to account for share-based compensation under APB 25.  For the years ended December 31, 2007 and 2006 basic and diluted earnings per did not change as a result of the adoption of SFAS 123(R).

As of December 31, 2007, there was $292,766 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under Incentive and Stock Option Plans described more fully in Note 10. That cost is expected to be recognized over a weighted average period of 2.8 years.

In accordance with SFAS 123 (R), beginning in 2006 the Company has presented excess tax benefits from the exercise of stock-based compensation awards as a financing activity in the consolidated statement of cash flows.

15

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The following table illustrates the pro forma effect on consolidated net income and earnings per share in 2005 as if the Company had recorded compensation expense based on the fair value of the options granted as prescribed by SFAS No. 123:

	For the Year
	Ended December 31, 2005
(In Thousands)
Net income as reported	$	2,162,807
Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax effects		(29,000	)
Pro forma net income	$	2,133,807
Basic earnings per share - as reported	$	0.95
Basic earnings per share - pro forma	$	0.94
Diluted earnings per share - as reported	$	0.90
Diluted earnings per share - pro forma	$	0.89

The Company determines the fair value of the options previously granted on the date of grant using a Black-Scholes option pricing model that uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate. The expected volatility assumptions used by the Company are based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options.  The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of the grant. The Company also makes assumptions regarding estimated forfeitures that will impact the total compensation expenses recognized under the Plans.

The fair value of each option is estimated on the date of grant using the following assumptions.

There were 38,500 stock options granted in 2007 and 10,500 in 2006.  There were no stock options granted in 2005. The fair value of each option granted in 2007 and 2006 was estimated on the date of grant using an option-pricing model with the following assumptions:

	2007			2006
Weighted average fair value of options granted	$	7.42		$	7.99
Dividend yield		N/A			N/A
Expected volatility		28.22	%		11.27	%
Risk-free interest rate		3.49	%		5.11	%
Expected option life	7.5 years			7.5 years

16

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impact of New Financial Accounting Standards

Fair Value Measurements

In September 2006, the FASB issued Statement No. 157 (“SFAS 157”), Fair Value Measurements.  SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances.  In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability.  In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.  The provisions should be applied prospectively, except for certain specifically identified financial instruments.  The Company adopted SFAS 157 on January 1, 2008 and management does not believe its adoption will have a material impact on the Company’s financial position, results of operations or cash flows.

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued Statement No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.  This standard permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates.  The entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments.  The provisions of SFAS 159 are effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.  The Company adopted SFAS 159 on January 1, 2008 and management did not elect the fair value option for any of its financial instruments.

Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements

In September 2006, the FASB ratified the consensuses reached by the Task Force on Issue No. 06-4 (“EITF 06-4”), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.  A question arose when an employer enters into an endorsement split-dollar life insurance arrangement related to whether the employer should recognize a liability for the future benefits or premiums to be provided to the employee.  EITF 06-4 indicates that an employer should recognize a liability for future benefits and that a liability for the benefit obligation has not been settled through the purchase of an endorsement type policy.  An entity should apply the provisions of EITF 06-4 either through a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or a change in accounting principle through retrospective application to all prior periods.  The provisions of EITF 06-4 are effective for fiscal years beginning after December 15, 2007.  The Company adopted EITF 06-04 on January 1, 2008 and management determined that a liability of approximately $102,000 will be recorded as of January 1, 2008, with a corresponding reduction as a cumulative-effect adjustment to retained earnings.

17

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impact of New Financial Accounting Standards (Continued)

Accounting for Business Combinations

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations “SFAS No. 141(R)”).  SFAS No. 141(R), among other things, establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired business, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  The Company is required to adopt SFAS No. 141(R) for all business combinations for which the acquisition date is on or after January 1, 2009.  Earlier adoption is prohibited.  This standard will change the accounting treatment for business combinations on a prospective basis.

3. AVAILABLE-FOR-SALE INVESTMENT SECURITIES

The amortized cost and estimated fair value of available-for-sale investment securities at December 31, 2007 and 2006 consisted of the following:

	2007
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Debt securities:
U.S. Treasury and Government agencies	$	17,544,088	$	80,246	$	(70,334	)	$	17,554,000
Mortgage-backed securities		16,853,448		191,633		(85,081	)		16,960,000
Municipal securities		19,303,490		41,984		(226,474	)		19,119,000
Corporate debt securities		3,005,110		651		(23,761	)		2,982,000
	$	56,706,136	$	314,514	$	(405,650	)	$	56,615,000

Net unrealized losses on available-for-sale investment securities totaling $91,136 were recorded, net of $29,957 in tax benefits, as accumulated other comprehensive loss within shareholders' equity at December 31, 2007.  Proceeds and realized losses from the sale of available-for-sale investment securities for the year ended December 31, 2007 totaled $1,508,855 and $1,145, respectively.

	2006
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Debt securities:
U.S. Government agencies	$	20,324,780	$	6,276	$	(282,056	)	$	20,049,000
Mortgage-backed securities		12,422,446		65,105		(250,551	)		12,237,000
Municipal securities		18,949,602		141,331		(34,933	)		19,056,000
Corporate debt securities		4,032,762		-		(76,762	)		3,956,000
	$	55,729,590	$	212,712	$	(644,302	)	$	55,298,000

18

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

3. AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued)

Net unrealized losses on available-for-sale investment securities totaling $431,590 were recorded, net of $155,588 in tax benefits, as accumulated other comprehensive loss within shareholders' equity at December 31, 2006.  Proceeds and realized losses from the sale of available-for-sale investment securities for the year ended December 31, 2006 totaled $3,907,737 and $52,737, respectively. Proceeds and realized gains from the sale of available-for-sale investment securities for the year ended December 31, 2005 totaled $3,951,507 and $48,494, respectively.

Investment securities with unrealized losses at December 31, 2007 are summarized and classified according to the duration of the loss period as follows:

	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Debt securities:
U.S. Treasury and Government agencies	$	1,489,000	$	(3,015	)	$	8,741,000	$	(67,306	)	$	10,230,000	$	(70,321	)
Mortgage-backed securities		992,000		(598	)		5,687,000		(84,449	)		6,679,000		(85,047	)
Municipal securities		12,384,000		(212,787	)		1,035,000		(13,450	)		13,419,000		(226,237	)
Corporate debt		-		-			2,478,000		(23,761	)		2,478,000		(23,761	)
Securities	$	14,865,000	$	(216,400	)	$	17,941,000	$	188,966		$	32,806,000	$	(405,366	)

Investment securities with unrealized losses at December 31, 2006 are summarized and classified according to the duration of the loss period as follows:

	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Debt securities:
U.S. Government Agencies	$	364,000	$	(4,459	)	$	18,689,000	$	(277,597	)	$	19,053,000	$	(282,056	)
Mortgage-backed Securities		1,357,000		(3,795	)		7,529,000		(246,806	)		8,886,000		(250,601	)
Municipal securities		4,004,000		(14,759	)		2,341,000		(20,174	)		6,345,000		(34,933	)
Corporate debt		-		-			3,956,000		(76,762	)		3,956,000		(76,762	)
Securities	$	5,725,000	$	(23,013	)	$	32,515,000	$	(621,339	)	$	38,240,000	$	(644,352	)

19

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

3. AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued)

U.S. Treasury and Government Agencies

At December 31, 2007, the Company held 31 U.S. Treasury and Government agency securities of which 3 were in a loss position for less than twelve months and 18 were in a loss position and had been in a loss position for twelve months or more.  Management believes the unrealized losses on the Company's investments in direct obligations of the U.S. Treasury Government Agencies were caused by interest rate increases.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized costs of the investment.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2007.

Mortgage-backed Obligations

At December 31, 2007, the Company held 45 mortgage-backed obligations of which 1 was in a loss position for less than twelve months and 27 were in a loss position and had been in a loss position for twelve months or more.  Management believes the unrealized losses on the Company's investments in mortgage obligations were caused by interest rate increases.  The contractual cash flows of these investments are guaranteed by an agency of the U.S. government.  Accordingly, it is expected that the securities will not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2007.

Obligations of States and Political Subdivision

At December 31, 2007, the Company held 60 obligations of states and political subdivision securities of which 37 were in a loss position for less than twelve months and 3 were in a loss position and had been in a loss position for twelve months or more.  Management believes the unrealized losses on the Company's investments in obligations of states and political subdivision securities were primarily caused by interest rate increases.  Because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2007.

Corporate Debt Securities

At December 31, 2007, the Company held 6 corporate debt securities of which 5 were in a loss position and had been in a loss position for twelve months or more.  Management believes the unrealized losses on the Company's investments in corporate debt securities were caused primarily by interest rate increases.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2007.

20

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

3. AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued)

The amortized cost and estimated fair value of investment securities at December 31, 2007 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

			Estimated
	Amortized		Fair
	Cost		Value
Within one year	$	10,489,277	$	10,416,000
After one year through five years		5,076,526		5,091,000
After five years through ten years		7,390,928		7,453,000
After ten years		16,895,957		16,695,000
		39,852,688		39,655,000
Investment securities not due at a single maturity date:
Mortgage-backed securities		16,853,448		16,960,000
	$	56,706,136	$	56,615,000

At December 31, 2007 and 2006, all investment securities were pledged to secure either public deposits or borrowing arrangements.

21

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Outstanding loans are summarized below:

	December 31,
	2007			2006
Commercial	$	41,823,876		$	41,103,607
Real estate - mortgage		106,872,707			92,639,046
Real estate – construction		44,896,223			44,272,460
Agricultural		4,987,839			4,693,307
Consumer and other		2,994,997			1,804,343
		201,575,642			184,512,763
Deferred loan fees, net		(303,780	)		(435,675	)
Allowance for loan losses		(1,757,591	)		(1,745,582	)
	$	199,514,271		$	182,331,506

Certain loans were pledged to secure borrowing arrangements (see Note 7).

Changes in the allowance for loan losses were as follows:

	Year Ended December 31,
	2007		2006			2005
Balance, beginning of year	$	1,745,582	$	1,766,115		$	1,400,818
Provision charged to operations		-		-			368,768
Losses charged to allowance		-		(20,833	)		(3,471	)
Recoveries		12,009		300			-
Balance, end of year	$	1,757,591	$	1,745,582		$	1,766,115

At December 31, 2007 and 2006, there were no loans considered to be impaired.  The average recorded investment in impaired loans for the years ended December 31, 2006 and 2005 was $8,680 and $26,476, respectively. Interest income recognized by the Company on a cash basis during the years ended December 31, 2007, 2006, and 2005 was not considered significant.

At December 31, 2007 and 2006, there were no nonaccrual loans.  There was no interest foregone on nonaccrual loans for the years ended December 31, 2007, 2006, and 2005.

Salaries and employee benefits totaling $687,155, $551,154 and $221,278 have been deferred as loan origination costs during the years ended December 31, 2007, 2006 and 2005, respectively.

22

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

5. PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

	December 31,
	2007			2006
Furniture and equipment		2,334,786			1,836,403
Construction in progress		756,617			53,889
Premises		614,477			614,477
Leasehold improvements		522,057			303,286
Land		452,320			452,320
		4,680,257			3,260,375
Less accumulated depreciation and amortization		(1,643,194	)		(1,428,198	)
		3,037,063			1,832,177

Depreciation and amortization included in occupancy and equipment expense totaled $315,365, $242,116 and $194,531 for the years ended December 31, 2007, 2006 and 2005, respectively.

6. INTEREST-BEARING DEPOSITS

Interest-bearing deposits consisted of the following:

	December 31,
	2007		2006
Savings	$	8,355,350	$	8,575,919
Money market		48,844,837		40,000,066
NOW accounts		29,076,881		26,716,738
Time, $100,000 or more		44,013,799		47,871,287
Other time		18,102,633		21,392,203
	$	148,393,500	$	144,556,213

23

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

6. INTEREST-BEARING DEPOSITS (Continued)

Aggregate annual maturities of time deposits are as follows:

Year Ending
December 31,
2008	$	60,394,542
2009		1,461,654
2010		260,236
	$	62,116,432

Interest expense recognized on interest-bearing deposits consisted of the following:

	Year Ended December 31,
	2007		2006		2005
Savings	$	68,879	$	95,780	$	67,109
Money market		1,545,160		1,175,225		376,226
NOW accounts		767,979		723,834		385,852
Time, $100,000 or more		2,453,317		1,491,363		738,638
Other time		967,517		820,142		460,266
	$	5,802,852	$	4,306,344	$	2,028,091

7. BORROWING ARRANGEMENTS

Lines of Credit

The Bank had unsecured lines of credit with two correspondent banks which, in the aggregate, amounted to $13,000,000 at December 31, 2007 and 2006.  There were no borrowings outstanding under either of these borrowing arrangements as of December 31, 2007 and 2006.

Federal Home Loan Bank Advances

At December 31, 2007 and 2006 the Bank could borrow up to 49% of pledged real estate mortgage loans from the Federal Home Loan Bank of San Francisco (FHLB).  As of December 31, 2007 and 2006, the Bank had pledged loans with total carrying values of $56,102,000 and $55,260,000, respectively.  At December 31, 2007 borrowings were comprised of $21,804,000 in short-term (one day) adjustable rate debt with an interest rate of 3.25%, and $8,146,049 of long-term fixed rate debt with a weighted average interest rate and maturity of 4.38% and 2.2 years, respectively. At December 31, 2006, the Company had $17,600,000 in short-term (one) day adjustable rate debt with an interest rate of 5.25% and long-term debt totaling $8,547,638 with a weighted average interest rate and maturity of 4.33% and 3.1 years, respectively.

24

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

7. BORROWING ARRANGEMENTS (Continued)

Federal Home Loan Bank Advances (continued)

As of December 31, 2007 and 2006, outstanding long-term advances from the Federal Home Loan Bank (FHLB) consisted of the following:

2007						2006
Amount		Rate			Maturity Date	Amount		Rate			Maturity Date
						$	200,000		2.27	%	March 26, 2007
$	900,000		3.08	%	March 6, 2008		900,000		3.08	%	March 6, 2008
	1,600,000		2.67	%	May 27,2008		1,600,000		2.67	%	May 27, 2008
	250,000		3.71	%	October 22, 2008		250,000		3.71	%	October 22, 2008
	900,000		3.94	%	April 27, 2009		900,000		3.94	%	April 27, 2009
	400,000		4.51	%	May 12, 2009		400,000		4.51	%	May 12, 2009
	953,614		7.41	%	June 22, 2010		978,361		7.41	%	June 22, 2010
	100,000		5.09	%	May 12, 2011		100,000		5.09	%	May 12, 2011
	792,435		4.01	%	December 6, 2011		969,277		4.01	%	December 6, 2011
	1,250,000		4.44	%	December 6, 2011		1,250,000		4.44	%	December 6, 2011
	1,000,000		6.02	%	January 2, 2012		1,000,000		6.02	%	January 2, 2012
$	8,146,049					$	8,547,638

Future principal payments of outstanding FHLB advances are as follows:

Year Ending
December 31,
2008	$	2,961,702
2009		1,522,346
2010		1,100,351
2011		1,561,650
2012		1,000,000
	$	8,146,049

25

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

8. JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

Valley Commerce Trust I is a Delaware business trust formed by the Company with capital of $93,000 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company.  During the second quarter of 2003, Valley Commerce Trust I (the "Trust") issued 3,000 Floating Rate Capital Trust Pass-Through Securities ("Trust Preferred Securities"), with a liquidation value of $1,000 per security, for gross proceeds of $3,000,000.  The entire proceeds of the issuance were invested by the Trust in $3,093,000 of Floating Rate Junior Subordinated Deferrable Interest Debentures (the "Subordinated Debentures") issued by the Company, with identical maturity, repricing and payment terms as the Trust Preferred Securities.  The Subordinated Debentures represent the sole assets of the Trust. The Subordinated Debentures mature on April 7, 2033, bear a current interest rate of 8.54% (based on 3-month LIBOR plus 3.30%), with repricing and payments due quarterly.  The Subordinated Debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Board of Governors, on any January 7, April 7, July 7 or October 7 on or after April 7, 2008.  The redemption price is par plus accrued interest, except in the case of redemption under a special event which is defined in the debenture.  The Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the junior subordinated debentures and upon maturity of the junior subordinated debentures on April 7, 2033.

Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security at an initial rate per annum of 4.59%.  For each successive period beginning on January 7, April 7, July 7 or October 7 of each year, the rate will be adjusted to equal the 3-month LIBOR plus 3.30% provided, however, that prior to July 7, 2008, such annual rate does not exceed 12.50%.  As of December 31, 2007, the rate was 8.54%.  The Trust has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default on the payment of interest on the junior subordinated debentures.  The Trust Preferred Securities were sold and issued in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended.  The Company has guaranteed, on a subordinated basis, distributions and other payments due on the Trust Preferred Securities.

The unamortized deferred costs related to the junior subordinated debentures, which are included in other assets on the consolidated balance sheet, at December 31, 2007 and 2006 were $3,000 and $21,000, respectively, and the amortization for each of the three years ended December 31, 2007 was $18,000.

26

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

9. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases its Fresno and Visalia branch offices, its Tulare loan production office, and its administrative office under noncancelable operating leases which expire in September 2017, November 2009, January 2008, and June 2008, respectively.  The Visalia branch office lease contains two options to renew the lease for five year periods.  Future minimum lease payments are as follows:

Year Ending
December 31,
2008	$	275,949
2009		218,142
2010		94,942
2011		94,942
2012		99,828
Thereafter		543,820
	$	1,327,623

Rental expense included in occupancy and equipment expense totaled $309,657, $293,504, and $250,968 for the years ended December 31, 2007, 2006 and 2005, respectively.

Federal Reserve Requirements

Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of their reservable deposits.  The Company had no reservable deposits.

Financial Instruments With Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and letters of credit.  These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the consolidated balance sheet.

The Company's exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments and letters of credit as it does for loans included on the consolidated balance sheet.

27

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

9. COMMITMENTS AND CONTINGENCIES (Continued)

Financial Instruments With Off-Balance-Sheet Risk (Continued)

The following financial instruments represent off-balance-sheet credit risk:

	December 31,
	2007		2006
Commitments to extend credit	$	53,452,752	$	44,128,000
Standby letters of credit	$	209,463	$	1,169,000

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 some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Bank evaluates each customer's creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower.  Collateral held varies, but may include real property, bank deposits, debt or equity securities or business assets.

Standby letters of credit are conditional commitments written to guarantee the performance of a customer to a third party.  These guarantees are primarily related to the purchases of inventory by commercial customers and are typically short-term in nature.  Credit risk is similar to that involved in extending loan commitments to customers and, accordingly, evaluation and collateral requirements similar to those for loan commitments are used.  The fair value of the liability related to the Company’s stand-by-letters of credit, which represents the fees received for issuing the guarantee, was not considered significant at December 31, 2007 or 2006.  The Company recognizes these fees as revenue over the term of the commitment or when the commitment is used.

At December 31, 2007, consumer loan commitments represent approximately 4% of total commitments and are generally unsecured.  Commercial loan commitments represent approximately 73% of total commitments and are generally secured by various assets of the borrower.  Real estate loan commitments represent the remaining 23% of total commitments and are generally secured by property with a loan-to-value ratio not to exceed 80%.

Significant Concentrations of Credit Risk

The Company grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to customers throughout the cities of Visalia, Tulare, Fresno, Woodlake and Tipton, California.

Although the Company has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial and residential real estate.  However, personal and business income represent the primary source of repayment for a majority of these loans.

28

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

9. COMMITMENTS AND CONTINGENCIES (Continued)

Contingencies

The Company is subject to legal proceedings and claims which arise in the ordinary course of business.  In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Company.

10. SHAREHOLDERS' EQUITY

Dividend Restrictions

The Company's ability to pay cash dividends is dependent on dividends paid to it by the Bank and limited by California corporation law.  Under California law, the holders of common stock of the Company are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available, subject to certain restrictions.  The California general corporation law prohibits the Company from paying dividends on its common stock unless: (i) its retained earnings, immediately prior to the dividend payment, equals or exceeds the amount of the dividend or (ii) immediately after giving effect to the dividend, the sum of the Company's assets (exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities (not including deferred taxes, deferred income and other deferred liabilities) and the current assets of the Company would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least equal to 125% of its current liabilities.

Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank's retained earnings or the Bank's net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the Department of Financial Institutions, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year.  As of December 31, 2007, the maximum amount available for dividend distribution under this restriction was approximately $8,866,000.  In addition, the Company's ability to pay dividends is subject to certain covenants contained in the indentures relating to the Trust Preferred Securities issued by the business trust (see Note 8).

29

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

10.           SHAREHOLDERS' EQUITY (Continued)

Earnings Per Share

A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:

			Weighted
			Average
			Number of
	Net		Shares		Per Share
For the Year Ended	Income		Outstanding		Amount
December 31, 2007
Basic earnings per share		2,660,850		2,358,353	$	1.13
Effect of dilutive stock options				90,536
Diluted earnings per share		2,660,850		2,449,889	$	1.09
December 31, 2006
Basic earnings per share		2,955,778		2,312,140		1.28
Effect of dilutive stock options				116,940
Diluted earnings per share		2,955,778		2,429,080		1.22
December 31, 2005
Basic earnings per share		2,162,807		2,274,093		0.95
Effect of dilutive stock options				133,510
Diluted earnings per share		2,162,807		2,407,603		0.90

Shares of common stock issuable under stock options for which the exercise prices are greater than the average market prices are not included in the computation of diluted earnings per share due to their antidilutive effect.  There were 10,500 options excluded form the computation of diluted earnings per share for the year ended December 31, 2007.  There were no options excluded from the computation of diluted earnings per share for the years ended December 31, 2006 and 2005.

30

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

10. SHAREHOLDERS' EQUITY (Continued)

Stock-Based Compensation

The Company has two active share base compensation plans. On May 15, 2007, the Company’s shareholders approved the Valley Commerce Bancorp 2007 Equity Incentive Plan (“Incentive Plan”).  The Incentive Plan provides for awards of stock options, restricted stock awards, qualified performance based awards and stock grants.  Under the Incentive Plan, 122,007 shares of common stock are reserved for issuance to employees and directors under incentive and nonstatutory agreements. During the year ended December 31, 2007 a total of 38,500 options were granted under the Incentive Plan. On February 17, 2007 the Valley Commerce Bancorp Amended and Restated 1997 Stock Option Plan (“Prior Plan”) expired. Under the Prior Plan, 137, 359 shares of common stock are reserved for issuance. Subsequent to the 10,500 options granted during the year ended December 31, 2006, there were no additional options granted under the Prior Plan and no further grants may be made under this plan. The purpose of the plans is to promote the long-term success of the Company and the creation of shareholder value.  The Board of Directors believes that the availability of stock options and other forms of stock awards will be a key factor in the ability of the Company to attract and retain qualified individuals.

The plans require that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid in full at the time the option is exercised.  Payment in full for the option price must be made in cash or with Company common stock previously acquired by the optionee and held by the optionee for a period of at least six months.  The plans do not provide for the settlement of awards in cash and new shares are issued upon option exercise.  The options expire on dates determined by the Board of Directors, but not later than ten years from the date of grant.  Upon grant, options vest ratably over a one to five year period.  The prior plan, the Valley Commerce Bancorp Amended and Restated 1997 stock option plan (“Prior Plan”) was established in 1997 and expired on February 17, 2007.  A total of 38,500 options were granted under the Incentive Plan and 137,359 options were granted under the Prior Plan.

A summary of the activity within the Plans follows:

	For the Year Ended December 31, 2007
						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual	Aggregate
	Shares			Price		Term	Intrinsic Value
Incentive:
Options outstanding at January 1, 2006		37,515		$	8.20
Options granted		-			-
Options exercised		(1,619	)		7.76
Options cancelled		-			-
Options outstanding at December 31, 2006		35,896			8.20
Options granted		38,500			14.50
Options exercised		(1,914	)		6.79
Options cancelled		(608	)		11.52
Options outstanding at December 31, 2007		71,874			11.58	7.55 years	$	427,984
Options vested or expected to vest at December 31, 2007		70,707			11.60	6.00 years	$	820,084	(1)
Options exercisable at December 31, 2007		29,662			7.79	5.33 years	$	289,011	(1)
Nonstatutory:
Options outstanding at January 1, 2006		213,937		$	7.47

31

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Options granted	10,500		18.58
Options exercised	(23,726	)	6.03
Options cancelled	(1,042	)	7.07
Options outstanding at December 31, 2006	199,669		7.47
Options granted	-		-
Options exercised	(95,684	)	5.68
Options cancelled	-		-
Options outstanding at December 31, 2007	103,985		9.10	5.48 years	$	887,080
Options vested or expected to vest at December 31, 2007	103,227		8.04	6.83 years	$	517,143
Options exercisable at December 31, 2007	93,517		8.36	5.48 years	$	862,022

(1) 10,500 options at an average price are excluded from intrinsic value because they are not in the money.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for options that were in-the-money at December 31, 2007.  There were 97,507 and 24,345 options exercised during the years ended December 31, 2007 and 2006, respectively.  There were 25,345 options exercised during the year ended December 31, 2006.  The total intrinsic value of options exercised during the years ended December 31, 2007, 2006, and 2005 was $1,152,962, $331,737, and $0, respectively.  The total fair value of shares vested during the years ended December 31, 2007, 2006, and 2005 was $219,283, $295,328, and $265,229, respectively. Cash received from option exercise for the years ended December 31, 2007 and 2006 was $556,335 and $154,402, respectively.  The total tax benefit of the non-qualified options exercised in 2007 and 2006 was $335,894 and $125,828, respectively.

There were 38,500 incentive stock options granted in 2007 and 10,500 non-statutory options granted in 2006.  The Company bases the fair value of the options granted on the date of grant using a Black-Scholes option pricing model that uses assumptions based on expected option life and the level of estimated forfeitures, expected stock volatility, risk free interest rate, and dividend yield.  The Company uses historical data to estimate expected option life.  Stock volatility is based on the historical volatility of the Company’s stock.  The risk-free rate is based on the U. S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of grant.

Regulatory Capital

The Company and the Bank are subject to certain regulatory capital requirements administered by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC).  Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets.  Each of these components is defined in the regulations.  Management believes that the Company and the Bank met all their capital adequacy requirements as of December 31, 2007 and 2006.

32

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

10. SHAREHOLDERS' EQUITY (Continued)

Regulatory Capital (Continued)

In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth below.  There are no conditions or events since that notification that management believes have changed the Bank's category.

	December 31,
	2007					2006
	Amount		Ratio			Amount		Ratio
Leverage Ratio
Valley Commerce Bancorp and Subsidiary	$	31,927,000		11.5	%	$	28,654,000		11.1	%
Minimum regulatory requirement	$	11,101,000		4.0	%	$	10,346,000		4.0	%
Valley Business Bank	$	31,538,000		11.4	%	$	28,336,000		11.0	%
Minimum requirement for "Well-Capitalized" institution	$	13,871,000		5.0	%	$	12,926,000		5.0	%
Minimum regulatory requirement	$	11,097,000		4.0	%	$	10,341,000		4.0	%
Tier 1 Risk-Based Capital Ratio
Valley Commerce Bancorp and Subsidiary	$	31,927,000		13.8	%	$	28,654,000		13.5	%
Minimum regulatory requirement	$	9,233,000		4.0	%	$	8,500,000		4.0	%
Valley Business Bank	$	31,538,000		13.7	%	$	28,336,000		13.4	%
Minimum requirement for "Well-Capitalized" institution	$	13,844,000		6.0	%	$	12,738,000		6.0	%
Minimum regulatory requirement	$	9,230,000		4.0	%	$	8,492,000		4.0	%
Total Risk-Based Capital Ratio
Valley Commerce Bancorp and Subsidiary	$	33,684,000		14.6	%	$	30,399,000		14.3	%
Minimum regulatory requirement	$	18,465,000		8.0	%	$	17,000,000		8.0	%
Valley Business Bank	$	33,296,000		14.4	%	$	30,081,000		14.2	%
Minimum requirement for "Well-Capitalized" institution	$	23,074,000		10.0	%	$	21,230,000		10.0	%
Minimum regulatory requirement	$	18,459,000		8.0	%	$	16,984,000		8.0	%

33

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

10. SHAREHOLDERS' EQUITY (Continued)

Stock Repurchase

On November 13, 2007 the Company announced that its Board of Directors authorized a common stock repurchase plan.  The plan calls for the repurchase up to an aggregate of $3,000,000 of the Company’s common stock.  The repurchases will be made from time to time by the Company in the open market or privately negotiated transactions as conditions allow and all shares repurchased under this plan will be returned to authorized but unissued shares.  The number, price and timing of the repurchases shall be at the Company’s sole discretion and the plan may be re-evaluated depending on market conditions, liquidity needs or other factors.  The Board, based on such re-evaluations, may suspend, terminate, modify or cancel the plan at any time without notice.  During 2007 the Company repurchased 27,440 shares at an average price of $13.91 for a total cost of $381,808.

11. OTHER EXPENSES

Other expenses consisted of the following:

	Year Ended December 31,
	2007		2006		2005
Data processing	$	494,863	$	459,981	$	422,158
Operations		479,803		454,229		414,485
Professional and legal		507,920		330,101		310,928
Promotional		304,774		268,374		258,360
Telephone and postal		213,401		205,804		171,117
Assessment and insurance		197,225		114,270		124,506
Supplies		187,834		180,384		236,859
Amortization expense		62,538		62,538		62,538
Other expenses		406,835		426,249		274,908
	$	2,855,193	$	2,501,930	$	2,275,859

34

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

12. INCOME TAXES

The provision for income taxes for the years ended December 31, 2007 and 2006 consisted of the following:

	Federal			State			Total
2007
Current	$	809,000		$	402,000		$	1,211,000
Deferred		(40,000	)		(37,000	)		(77,000	)
Provision for income taxes	$	769,000		$	365,000		$	1,134,000
2006
Current	$	1,107,000		$	467,000		$	1,574,000
Deferred		(6,000	)		8,000			2,000
Provision for income taxes	$	1,101,000		$	475,000		$	1,576,000
2005
Current	$	1,188,000		$	403,000		$	1,591,000
Deferred		(195,000	)		(56,000	)		(251,000	)
Provision for income taxes	$	993,000		$	347,000		$	1,340,000

35

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

12. INCOME TAXES (Continued)

Deferred tax assets (liabilities) consisted of the following:

	December 31,
	2007			2006
Deferred tax assets:
Allowance for loan losses	$	740,000		$	740,000
Unrealized loss on available-for-sale investment securities		30,000			156,000
Deferred compensation		499,000			356,000
Intangible assets		92,000			82,000
Future benefit of state income tax deduction		20,000			73,000
Total deferred tax assets		1,381,000			1,407,000
Deferred tax liabilities:
Bank premises and equipment		(34,000	)		(74,000	)
Loan costs		(261,000	)		(197,000	)
Other		(35,000	)		(36,000	)
Total deferred tax liabilities		(330,000	)		(307,000	)
Net deferred tax assets	$	1,051,000		$	1,100,000

Management believes that it is more likely than not that it will realize the above deferred tax assets in future periods; therefore, no valuation allowance has been provided against its deferred tax assets.

The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rate to operating income before income taxes.  The items comprising these differences consisted of the following:

	Year Ended December 31,
	2007			2006			2005
	Rate			Rate			Rate
Federal income tax expense, at statutory rate		34.0	%		34.0	%		34.0	%
State franchise tax, net of Federal tax effect		7.2	%		7.2	%		7.2	%
Interest on obligations of states and political subdivisions		(6.0	)%		(4.8	)%		(2.7	)%
Net increase in cash surrender value of bank-owned life insurance		(2.2	)%		(1.2	)%		(1.0	)%
Other		(3.1	)%		(0.4	)%		1.2	%
Total income tax expense		29.9	%		34.8	%		38.7	%

36

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

12. INCOME TAXES (Continued)

The Company and its subsidiary file income tax returns in the U.S. federal and California jurisdictions.  There are currently no pending U.S. federal, state, and local income tax or non-U.S. income tax examinations by tax authorities.

With few exceptions, the Company is no longer subject to tax examinations by U.S. Federal taxing authorities for years ended before December 31, 2004, and by state and local taxing authorities for years ended before December 31, 2003.

The unrecognized tax benefits and the interest and penalties accrued by the Company as of December 31, 2007 were not significant.

13. RELATED PARTY TRANSACTIONS

During the normal course of business, the Company enters into transactions with related parties, including executive officers and directors.  These transactions include borrowings from the Company with substantially the same terms, including rates and collateral, as loans to unrelated parties.  The following is a summary of the aggregate activity involving related party borrowers during 2007:

Balance, January 1, 2007	$	4,359,782
Disbursements		7,952,031
Amounts repaid		(3,855,377	)
Balance, December 31, 2007	$	8,456,436
Undisbursed commitments to related parties, December 31, 2007	$	4,065,350

14. EMPLOYEE BENEFIT PLANS

Employee Retirement Plan

The Company adopted the Valley Business Bank 401(k) Profit Sharing Plan, effective January 1, 1997.  All employees that work 30 or more hours per week with more than 3 months of service are eligible to participate in the plan.  Eligible employees may elect to make tax deferred contributions of their salary up to the maximum amount allowed by law.  The Company matched 70% of the employees’ contributions, applicable to contributions of up to 6% of the employees’ annual salary beginning in April 2006.  Prior to that the Company had matched 50% of the employees’ contributions, applicable to contributions of up to 6% of the employees annual salary.  Company contributions vest at a rate of 20% annually.  Bank contributions for the years ended December 31, 2007, 2006, and 2005 totaled $112,583, $89,493, and $47,211 respectively.

37

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

14. EMPLOYEE BENEFIT PLANS (continued)

Salary Continuation and Retirement Plans

Salary continuation plans are in place for three executives. Under these plans, the executives will receive monthly payments after retirement until death.  These benefits are substantially equivalent to those available under split-dollar life insurance policies purchased by the Bank on the lives of the executives.  In addition, the estimated present value of these future benefits is accrued over the period from the effective dates of the plans until the participants' expected retirement dates.  The expense recognized under these plans for the years ended December 31, 2007, 2006, and 2005 totaled $229,774, $184,807, and $195,232, respectively. Income earned on these policies, net of expenses, totaled $111,813, $108,034, and $103,851 for the years ended December 31, 2007, 2006 and 2005, respectively.

In connection with these agreements, the Bank purchased single premium life insurance policies with cash surrender values totaling $6,184,531 and $5,934,563 at December 31, 2007 and 2006, respectively.  Income earned on these policies, net of expenses, totaled $249,968, $153,394 and $103,851 for the years ended December 31, 2007, 2006 and 2005, respectively.  Income earned on these policies is not subject to Federal and State income tax.

15. COMPREHENSIVE INCOME

Comprehensive income is reported in addition to net income for all periods presented.  Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income.  The unrealized gains and losses on the Company's available-for-sale investment securities are included in other comprehensive income (loss).  Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the consolidated statement of changes in shareholders’ equity.

At December 31, 2007, 2006 and 2005, the Company held securities classified as available-for-sale which had unrealized losses as follows:

				Tax
	Before			Benefit			After
	Tax			(Expense)			Tax
For the Year Ended December 31, 2007
Other comprehensive loss:
Unrealized holding losses	$	339,309		$	(125,255	)	$	214,054
Reclassification adjustment for losses included in net income		(1,145	)		376			(769	)
Total other comprehensive loss	$	340,454		$	(125,631	)	$	214,823

38

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

15. COMPREHENSIVE INCOME (continued)

				Tax
	Before			Benefit			After
	Tax			(Expense)			Tax
For the Year Ended December 31, 2006
Other comprehensive loss:
Unrealized holding losses	$	405,337		$	(169,943	)	$	235,394
Reclassification adjustment for losses included in net income		(52,737	)		19,012			(33,725	)
Total other comprehensive loss	$	458,074		$	(188,955	)	$	269,119
For the Year Ended December 31, 2005
Other comprehensive loss:
Unrealized holding losses	$	(810,296	)	$	314,073		$	(496,223	)
Reclassification adjustment for gains included in net income		(48,494	)		18,780			(29,714	)
Total other comprehensive loss	$	(761,802	)	$	295,293		$	(466,509	)

16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value.  These estimates are made at a specific point in time based on relevant market data and information about the financial instruments.  These estimates do not reflect any premium or discount that could result from offering the Company's entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments.  In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the fair values presented.

The following methods and assumptions were used by management to estimate the fair value of its financial instruments at December 31, 2007 and 2006:

Cash and cash equivalents:  For cash and cash equivalents, the carrying amount is estimated to be fair value.

Investment securities:  For investment securities, fair values are based on quoted market prices, where available.  If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers.

39

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Loans:  For variable-rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values.  The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered at each reporting date for loans with similar terms to borrowers of comparable creditworthiness.  The carrying amount of accrued interest receivable approximates its fair value.

Cash surrender value of Bank-owned life insurance:  The fair values of life insurance policies are based on current cash surrender values at each reporting date provided by the insurers.

Federal Home Loan Bank stock:  For Federal Home Loan Bank stock, cost approximates fair value.

Deposits:  The fair values for demand deposits are, by definition, equal to the amount payable on demand at the reporting date represented by their carrying amount.  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis using interest rates offered at each reporting date by the Bank for certificates with similar remaining maturities.  The carrying amount of accrued interest payable approximates its fair value.

Long-term debt:  The fair values of fixed-rate borrowings are estimated by discounting their future cash flows using rates at each reporting date for similar instruments.  The fair values of variable rate borrowings are based on carrying value.

Junior subordinated deferrable interest debentures:  The fair value of junior subordinated deferrable interest debentures was determined based on the current market value for the like kind instruments of a similar maturity and structure.

Commitments to extend credit:  Commitments to extend credit are primarily for variable rate loans and standby letters of credit.  For these commitments, there is no difference between the committed amounts and their fair values.  Commitments to fund fixed rate loans and standby letters of credit are at rates which approximate fair value at each reporting date.  The fair value of the commitments at each reporting date were not significant and not included in the accompanying table.

	December 31, 2007				December 31, 2006
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	9,297,346	$	9,297,346	$	13,265,547	$	13,265,547
Available-for-sale investment securities		56,615,000		56,615,000		55,298,000		55,298,000
Loans, net		199,514,271		192,838,151		182,331,506		184,830,865
Cash surrender value of life insurance policies		6,184,531		6,184,531		5,934,563		5,934,563
Accrued interest receivable		2,774,065		2,774,065		1,437,161		1,437,161
FHLB stock		1,658,600		1,658,600		1,825,900		1,825,900
Financial liabilities:
Deposits		215,386,068		214,836,974		207,576,169		207,667,710
Short-term debt		21,804,000		21,804,000		17,600,000		17,600,000
Long-term debt		8,146,049		7,977,153		8,547,638		8,215,627

40

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Junior subordinated deferrable interest debentures	3,093,000	3,093,000	3,093,000	3,093,000
Accrued interest payable	231,342	209,463	231,342	284,942

41

VALLEY COMMERCE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

17. PARENT ONLY FINANCIAL STATEMENTS

CONDENSED BALANCE SHEET
December 31, 2007 and 2006
	2007			2006
ASSETS
Cash and due from banks	$	378,772		$	113,078
Investment in bank subsidiary		31,484,801			28,129,997
Other assets		214,957			402,302
	$	32,078,530		$	28,645,377
LIABILITIES AND
SHAREHOLDERS' EQUITY
Other liabilities	$	112,319		$	104,278
Junior subordinated debentures due to subsidiary grantor trust		3,093,000			3,093,000
Total liabilities		3,205,319			3,197,278
Shareholders' equity:
Common stock		23,511,066			20,683,720
Retained earnings		5,423,324			5,040,381
Accumulated other comprehensive loss,net of taxes		(61,179	)		(276,002	)
Total shareholders' equity		28,873,211			25,448,099
	$	32,078,530		$	28,645,377

42

17. PARENT ONLY FINANCIAL STATEMENTS (Continued)

STATEMENT OF INCOME
For the Years Ended December 31, 2007, 2006 and 2005
	2007			2006			2005
Income:
Earnings from investment in Valley Commerce Trust I	$	8,139		$	7,917		$	6,279
Expenses:
Interest on junior subordinated deferrable interest debentures		270,690			263,310			208,787
Other expenses		531,689			390,647			292,941
Total expenses		802,379			653,957			501,728
Loss before equity in undistributed income of subsidiary		(794,240	)		(646,040	)		(495,449	)
Equity in undistributed income of subsidiary		3,128,090			3,335,818			2,454,256
Income before income taxes		2,333,850			2,689,778			1,958,807
Income tax benefit		327,000			266,000			204,000
Net income	$	2,660,850		$	2,955,778		$	2,162,807

43

17. PARENT ONLY FINANCIAL STATEMENTS (Continued)

STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2007, 2006 and 2005
	2007			2006			2005
Cash flows from operating activities:
Net income	$	2,660,850		$	2,955,778		$	2,162,807
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed net income of subsidiary		(3,128,090	)		(3,335,818	)		(2,454,256	)
Stock-based compensation expense		32,519			18,847			-
Tax benefits on stock-based compensation		(335,893	)		(125,828	)		-
Decrease in other assets		523,238			77,182			10,536
Increase (decrease) in other liabilities		8,041			(4,007	)		(67,128	)
Net cash used in operating activities		(239,335	)		(413,846	)		(348,041	)
Cash flows from investing activities:
Investment I bank subsidiary		-			-			(7,500,000	)
Cash flows from financing activities:
Cash paid for fractional shares		(5,392	)		(5,004	)		-
Proceeds from the exercise of stock options		556,336			154,402			-
Tax benefits from stock-based compensation		335,893			125,828			-
Cash paid to repurchase common stock		(381,808	)		-			-
Net proceeds from sale of common stock		-			-			3,880,321
Net cash provided by financing activities		505,029			275,226			3,880,321
Increase (decrease) in cash and cash equivalents		265,694			(138,620	)		(3,967,720	)
Cash and cash equivalents at beginning of year		113,078			251,698			4,219,418
Cash and cash equivalents at end of year	$	378,772		$	113,078		$	251,698

44

ITEM 15. EXHIBITS

Exhibits required to be filed are listed on the “Exhibit Index” attached hereto, which is incorporated herein by reference.

45

SIGNATURES

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

Valley Commerce Bancorp

(Registrant)

Date: April 7, 2008

/s/ Donald A. Gilles

Donald A. Gilles

President/Chief Executive Officer

/s/ Roy O. Estridge

Roy O. Estridge

Executive Vice President/Chief

Financial Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  

Signature	Title	Date
/s/ Donald A. Gilles Donald A. Gilles	Director and Chief Executive Officer (Principal Executive Officer)	April 7, 2008
/s/ Roy O. Estridge Roy O. Estridge	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	April 7, 2008
/s/ David B. Day* David B. Day*	Director	April 7, 2008
/s/ Walter A. Dwelle* Walter A. Dwelle*	Chairman and Director	April 7, 2008
/s/ Thomas A. Gaebe* Thomas A. Gaebe*	Director	April 7, 2008
/s/ Philip R. Hammond, Jr.* Philip R. Hammond, Jr.*	Director	April 7, 2008
/s/ Russell F. Hurley* Russell F. Hurley*	Vice Chairman and Director	April 7, 2008

/s/ Fred P. LoBue, Jr.* Fred P. LoBue, Jr.*	Secretary and Director	April 7, 2008
/s/ Kenneth H. Macklin* Kenneth H. Macklin*	Director	April 7, 2008
/s/ Barry R. Smith* Barry R. Smith*	Director	April 7, 2008
*By /s/ Roy O. Estridge, Attorney in fact Roy O. Estridge, Attorney in fact

46

EXHIBIT INDEX

Exhibit	Description of Document
3.1	Articles of Incorporation of the Company, as amended (1)
3.2	Bylaws of the Company (1)
4.3	Specimen Stock Certificate (2)
10.1	Valley Commerce Bancorp Amended and Restated 1997 Stock Option Plan (1,3)
10.2	Lease of premises at 200 South Court Street, Visalia (1)
10.3	Executive Supplemental Compensation Agreement with Donald A. Gilles  (1,3)
10.4	Executive Supplemental Compensation Agreement with Roy O. Estridge (1, 3)
10.5	Executive Supplemental Compensation Agreement with Allan W. Stone (1, 3)
10.6	Valley Commerce Bancorp Amended and Restated 1997 Stock Option Plan (1, 3)
10.7	Valley Commerce Bancorp 2007 Equity Incentive Plan (4)
10.8	Indenture between Valley Commerce Bancorp and Wells Fargo Bank National Association as Trustee, Junior Subordinated Debt Securities Due April 7, 2033 (1)
10.9	Junior Subordinated Debt Security Due 2003 of Valley Commerce Bancorp (1)
10.10	Guaranty Agreement of Valley Commerce Bancorp in favor of Wells Fargo Bank National Association as Trustee (1)
21	Subsidiaries of the Company (1)
24	Powers of Attorney (included on signature pages) (5)
31	Rule 13a-14(a)/15d-14(a) Certifications
32	Section 1350 Certifications

_______________________________________

(1) Incorporated by reference to the same-numbered exhibit to the Company’s Registration Statement on Form SB-2, filed September 9, 2004.

(2) Incorporated by reference to the same-numbered exhibit to the Company’s Registration Statement on Form SB-2/A, filed October 27, 2004.

(3) Management contract or compensatory plan or arrangement.

(4) Incorporated by reference to the Company’s definitive proxy statement for its 2007 annual meeting of shareholders, filed on April 5, 2007

(5) Incorporated by reference to the signature page of Annual Report on Form 10-K filed on March 31, 2007.

47