UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark one)

      |X|   Annual report under Section 13 or 15(d) of the Securities Exchange
            Act of 1934

                      For the Fiscal Year December 31, 2004

      |_|   Transition report pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934

                       Commission file number: 333-118883

                             Valley Commerce Bancorp
                 (Name of Small Business Issuer in its charter)

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

                200 South Court Street, Visalia, California 93291
                    (Address of principal executive offices)

                                 (559) 622-9000
                (Issuer's telephone number, including area code)

       Securities registered under Section 12(b) of the Exchange Act: None

       Securities registered under Section 12(g) of the Exchange Act: None

      Indicate by check mark whether the issuer (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 issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

      State issuer's revenues for its most recent fiscal year: $10,078,257
                                                               -----------

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.): $26,739,520, based upon the
closing price of the issuer's Common Stock reported for March 22, 2005, on the
OTC Bulletin Board. For purposes of this disclosure, shares of Common Stock held
by persons who the issuer believes beneficially own more than 5% of the
outstanding shares of Common Stock and shares held by officers and directors of
the issuer have been excluded because such persons may be deemed to be
affiliates of the issuer. This determination is not necessarily conclusive.

<PAGE>

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

      As of March 22, 2005, 2,087,508 shares of the issuer's Common Stock were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Not applicable

      Transitional Small Business Disclosure Format (check one):

Yes |_|   No |X|


                                       2
<PAGE>

                                TABLE OF CONTENTS

                                     Part I

                                                                            Page
                                                                            ----

Item 1.  Description of Business                                              4

Item 2.  Description of Property                                             14

Item 3.  Legal Proceedings                                                   15

Item 4.  Submission of Matters to a Vote of Security Holders                 15

                                     Part II

Item 5.  Market For Common Equity, Related Stockholder Matters and
         Small Business Issuer Purchases of Equity Securities                16

Item 6.  Management's Discussion and Analysis or Plan of Operation           18

Item 7.  Financial Statements                                                36

Item 8.  Change in and Disagreements With Accountants on Accounting
         and Financial Disclosure                                            72

Item 8A. Controls and Procedures                                             72

Item 8B  Other Information                                                   72

                                    Part III

Item 9.  Directors and Executive Officers of the Registrant; Compliance
         With Section 16(a) of the Exchange Act                              73

Item 10. Executive Compensation                                              76

Item 11. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters                                     79

Item 12. Certain Relationships and Related Transactions                      81

Item 13. Exhibits                                                            82

Item 14. Principal Accountant Fees and Services                              82


                                       3
<PAGE>

                                     PART I

                           Forward-Looking Information

Certain matters discussed in this Annual Report on Form 10-KSB including, but
not limited to, those described in Item 6 - Management's Discussion and Analysis
or Plan of Operation, are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those projected in the forward-looking statements. Such risks and uncertainties
include, among others: (1) significant increases in competitive pressure in the
banking and financial services industries; (2) changes in the interest rate
environment, which could reduce anticipated or actual margins; (3) changes in
the regulatory environment; (4) general economic conditions, either nationally
or regionally and especially in the Company's primary service area, becoming
less favorable than expected and resulting in, among other things, a
deterioration in credit quality; (5) operational risks, including data
processing systems failures or fraud; (6) changes in business conditions and
inflation; (7)changes in technology; (8) changes in monetary and tax policies;
and (9)changes in the securities markets. Therefore, the information set forth
in such forward-looking statements should be carefully considered when
evaluating the business prospects of the Company.

When the Company uses in this Annual Report on Form 10-KSB the words
"anticipate," "estimate," "expect," "project," "intend," "commit," "believe" and
similar expressions, the Company intends to identify forward-looking statements.
Such statements are not guarantees of performance and are subject to certain
risks, uncertainties and assumptions, including those described in this Annual
Report on Form 10-KSB. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected, projected,
intended, committed or believed. The future results and shareholder values of
the Company may differ materially from those expressed in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond the Company's ability to control or predict. The Company undertakes no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. For those statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.

ITEM 1 - DESCRIPTION OF BUSINESS

General

The Company. Valley Commerce Bancorp (the "Company") was incorporated on
February 21, 2002 as a California corporation, for the purpose of becoming the
holding company for Bank of Visalia (the "Bank"), a California state chartered
bank, through a corporate reorganization. In the reorganization, the Bank became
the wholly-owned subsidiary of the Company, and the shareholders of the Bank
became the shareholders of the Company. The Company is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"), and is subject to supervision and regulation by the Board of Governors of
the Federal Reserve System (the "Board of Governors").

At December 31, 2004, the Company had one banking subsidiary, the Bank. The
Company's principal source of income is dividends from the Bank. The cash
outlays of the Company, including operating expenses and debt service costs, as
well as any future cash dividends paid to Company shareholders, will generally
be paid from dividends paid to the Company by the Bank.

The Company's principal business is to provide, through its banking subsidiary,
financial services in its primary market area in California. The Company serves
Tulare and Fresno Counties and the surrounding area through the Bank. The
Company does not currently conduct any operations other than through the Bank.
Unless the context otherwise requires, references to the Company refer to the
Company and the Bank on a consolidated basis.


                                       4
<PAGE>

At December 31, 2004, the Company's consolidated total assets totaled $186.0
million. As of March 22, 2005, the Company had a total of 74 employees and 68.5
full time equivalent employees, including the employees of the Bank.

This Annual Report on Form 10-KSB is the first such filing made by the Company.
This report as well as future annual, quarterly and other reports filed under
the Securities Exchange Act of 1934 with the Securities and Exchange Commission
(SEC) will be accessible on the Company's website, www.bankofvisalia.com, as
soon as practicable after the Company files the document with the SEC. These
reports are also available through the SEC's website at www.sec.gov.

Recent Events. On March 19, 2003, the Company formed Valley Commerce Trust I, a
Delaware statutory business trust, for the exclusive purpose of issuing trust
preferred securities. Shortly after its formation, Valley Commerce Trust I
issued $3,000,000 of trust preferred securities.

On May 16, 2003, the Bank entered into an agreement to purchase certain assets
and liabilities of the Fresno Branch Office of Humboldt Bank. Regulatory
approval was subsequently received from the Federal Deposit Insurance
Corporation and the California Department of Financial Institutions, and the
transaction as consummated on October 10, 2003. On this date, the Bank acquired
the branch assets, comprised of banking equipment and office furniture, and
assumed the branch liabilities, consisting of customer deposits. All assets and
liabilities were acquired at face value (without premium or discount) which
approximated fair value.

On September 9, 2004, the Company filed a registration statement with the SEC
for the public sale of 650,000 shares of common stock. The primary purpose of
the common stock offering was to obtain financing to support the continued
growth of the Bank. The SEC declared the registration statement effective on
December 23, 2004. The entire offering of 650,000 shares was sold by the Company
during the months of December 2004 and January 2005. The net proceeds from the
offering totaled $7.6 million. The number of outstanding shares of common stock
increased to 2,087,508 at January 31, 2005. The amount of common stock included
in Stockholder's Equity increased to $18.3 million at January 31, 2005.

The Bank. The Bank was organized in 1995 and commenced business as a California
state chartered bank in 1996. The deposits of the Bank are insured by the
Federal Deposit Insurance Corporation (the "FDIC") up to applicable limits. The
Bank is not a member of the Federal Reserve System.

The Bank's income is derived primarily from interest received on loans, and, to
a lesser extent, fees from the sale or brokerage of loans, interest on
investment securities and fees for services provided to deposit customers. The
Bank's major operating expenses are the interest paid on deposits and borrowings
and general operating expenses. The Bank experiences modest seasonal trends in
deposit growth and loan originations, but in general, the business of the Bank
is not seasonal.

The Bank conducts its business through the main office in Visalia and three
branch offices located in Fresno, Woodlake and Tipton, all in California's South
San Joaquin Valley. The Visalia office opened in 1996 and is the primary
location for the Bank's deposits and loans. The Woodlake and Tipton branch
offices were acquired from Bank of America in 1998, primarily for core deposits.
The Fresno Branch was acquired in 2003 to allow the Bank to offer the full range
of commercial banking services in the Fresno metropolitan area. Management
anticipates that over time the Fresno area will become a principal market of the
Bank in addition to the Visalia/Tulare County area which is the current
principal market.

The Bank intends to continue expanding within the South San Joaquin Valley by
opening de novo branches and loan production offices, and by acquiring branches
from other institutions. In January 2005, the Bank opened a loan production
office in the city of Tulare. New branches and loan production offices provide
the Bank with greater opportunity to expand its core deposit base and increase
its lending activities. At the Bank's present size, it is unavoidable that the
opening of new branches and offices will negatively impact Company earnings in
the near term. This is because employee costs and general overhead costs
required to open a de novo branch or loan production office are incurred before
significant


                                       5
<PAGE>

new revenues are generated. The Bank anticipates opening a de novo branch in the
city of Tulare in early 2006 and a de novo branch in the city of Fresno later
that same year. Future expansion into adjacent counties in the South San Joaquin
Valley is a long term strategy of the Bank.

The Bank's target customers are local businesses, professionals and commercial
property owners, a niche market that the Bank believes is not well served by
larger banks, particularly in the wake of recent merger and acquisition
activity. For example, the acquisitions in 2003 of Kaweah National Bank by
Citizens Business Bank, and Valley Independent Bank and subsidiaries Bank of
Stockdale and Kings River State Bank by Rabobank, are expected to result in new
business opportunities for the Bank.

Bank Lending Activities. The Bank originates primarily commercial mortgage
loans, secured and unsecured commercial loans and construction loans. It also
originates a small number of consumer and agricultural loans and broker
single-family residential loans to other mortgage lenders. The Bank targets
small businesses, professionals and commercial property owners in its market
area for loans. It attracts and retains borrowers primarily on the basis of
personalized service, responsive handling of their needs, local promotional
activity, and personal contacts by officers, directors and staff. The majority
of loans bear interest at adjustable rates tied to the Bank of Visalia prime
rate, which is administered by management and will not necessarily change at the
same time or by the same amount as the prevailing national prime rate. At March
22, 2005, Bank of Visalia's prime rate was equivalent to the prevailing national
prime rate as published in the Wall Street Journal. The remaining loans in the
Bank's portfolio either bear interest at adjustable rates tied to the national
prime rate or are priced with fixed rates or under custom pricing programs. For
customers whose loan demands exceed the Bank's lending limits, the Bank seeks to
make those loans and concurrently sell participation interests in them to other
lenders.

No individual or single group of related accounts is considered material in
relation to the Bank's assets or in relation to the overall business of the
Bank. However, at December 31, 2004 approximately 65% of the Bank's loan
portfolio consisted of real estate-related loans, including construction loans,
real estate mortgage loans and commercial loans secured by real estate and 28%
consisted of commercial loans. The Bank believes that these concentrations are
mitigated by the diversification of the loan portfolio among commercial,
commercial and residential construction, commercial mortgage, home equity and
consumer loans. Currently, the business activities of the Bank are mainly
concentrated in Tulare County, California. Consequently, the results of
operations and financial condition of the Bank are dependent upon the general
trends in this part of the California economy and, in particular, the
residential and commercial real estate markets. In addition, the concentration
of the Bank's operations in this area of California exposes it to greater risk
than other banking companies with a wider geographic base in the event of
natural disaster or as a result of energy shortages in California.

Bank Deposit Activities. The Bank offers a full range of deposit products and
services, including non-interest bearing demand checking, savings, time deposits
and certificates of deposit. In addition, the Bank has contracted with a highly
regarded investment company to offer cash sweep accounts to customers that
desire to invest a portion of their deposit account in mutual funds. As part of
the loan underwriting process, borrowers are generally required to maintain
deposits with us. The Bank has not used brokers or a money desk to solicit
deposits.

The Bank's deposits are a combination of business and consumer accounts. No
individual deposit account or group of related deposit accounts is considered
material in relation to the Bank's total deposits. The loss of any one account
or group of related accounts would not have a material adverse effect on the
business of the Bank.

Other Bank Services. The Bank has offered Internet banking services, consisting
of inquiry, account status, bill paying, and other features since July 2002. The
Bank intends to continue expanding its Internet based banking services to keep
abreast of technology and continue to provide superior customer service. The
Bank also offers courier services, travelers' checks, safe deposit boxes,
banking-by-mail, and other customary bank services. Certain services that the
Bank does not offer directly, for example, international banking services, are
provided to Bank customers through correspondent banks.


                                       6
<PAGE>

During the Bank's past three fiscal years, there have been no significant
changes in the kinds of services rendered, or the methods of distribution of
such services. The Bank has not engaged in any material research activities
relating to the development of new products or services during this time but has
devoted substantial time and resources to improving existing Bank services. In
the last twelve months, loan production staff was added to reduce the time
between loan application and loan approval. A comprehensive internal technology
upgrade was also completed that improved the productivity of virtually all Bank
employees. Bank management is continually engaged in the evaluation and
development of new products and services to enable the Bank to retain and
improve its competitive position. The Bank holds no patents or licenses (other
than licenses required by appropriate bank regulatory agencies), franchises, or
concessions.

Competition and Growth. The Company's primary market area has been Tulare
County. In California generally and in the Company's market area specifically,
major banks and large regional banks dominate the commercial banking industry.
As of December 31, 2004, there were 18 commercial banks and savings associations
with a total of 64 offices in Tulare County. By virtue of their larger capital
bases, many of the Company's competitors have substantially greater lending
limits than the Bank, as well as more locations, more products and services,
greater economies of scale and greater ability to make investments in technology
for the delivery of financial services.

The Company's principal competitors for deposits and loans are other banks
(particularly major banks), savings and loan associations, credit unions, thrift
and loans, mortgage brokerage companies and insurance companies. Other
institutions, such as mutual funds, stockbrokerages, credit card companies and
even retail establishments have offered new investment vehicles, such as
money-market funds, that also compete with banks. The direction of federal
legislation in recent years favors competition between different types of
financial institutions and encourages new entrants into the financial services
market, and Company management anticipates that this trend will continue.

Despite a very competitive banking environment, the Company has grown
significantly in the last three years. Total assets grew from $102.2 million at
December 31, 2001, to $186.0 million at December 31, 2004, an increase of 82%.
Growth in the regional economy and the Company's success in marketing to its
target customers are primarily responsible for this growth.

The Company's growth over the last three years is detailed further in the
following table:

                                               December 31,
                                               ------------
      (dollars in 000's)           2001       2002       2003       2004
                                 --------   --------   --------   --------
      Total assets               $102,203   $120,365   $139,611   $186,007
      Loans, net                   75,373     76,988    101,177    114,834
      Deposits                     91,464    107,759    119,668    156,424
      Shareholders' equity          8,892      9,937     11,020     16,333

At June 30, 2004 (date of latest available statistics from FDIC), the Bank's
main office in Visalia was one of the 25 banking offices in the city of Visalia.
On that date, the Visalia office held $95.0 million or 6.8% of the total $1.4
billion in deposits at FDIC-insured institutions in Visalia. The Company's
market share of FDIC-insured deposits in Tulare County was approximately 4.4% of
the total $2.8 billion in deposits as of June 30, 2004. The Company believes
that it can gain additional market share in its principal market of Tulare
County while it develops a core customer base in the metropolitan Fresno area.


                                       7
<PAGE>

Selected Financial Data. The following table presents a five year summary of
selected financial information which should be read in conjunction with the
Company's consolidated financial statements and notes thereto included in Item
7, Financial Statements, and with the Management's Discussion and Analysis of
Financial Condition and Results of Operations which is included as Item 6. The
financial information contained in the table is unaudited. The results of
operations for 2004 are not necessarily indicative of the results of operations
that may be expected for future years.

<TABLE>
<CAPTION>
                                                         As of and for the year ended December 31,
          (in thousands except             ----------------------------------------------------------------------
        share and per share data)             2000           2001           2002           2003           2004
                                           ----------     ----------     ----------     ----------     ----------
<S>                                        <C>            <C>            <C>            <C>            <C>
Statement of Income
Interest income                            $    6,835     $    6,528     $    6,404     $    7,188     $    8,737
Interest expense                                2,212          2,217          1,454          1,426          1,622
Net interest income                             4,623          4,311          4,950          5,762          7,115
Provision for loan losses                         200            215            405            315            138
Net interest income after provision for
   loan losses                                  4,423          4,096          4,545          5,447          6,977
Non-interest income                               592            704          1,065          1,055          1,341
Non-interest expense                            3,437          3,546          4,079          4,648          5,662
Income before income taxes                      1,578          1,254          1,531          1,854          2,656
Income taxes                                      650            504            600            705          1,027
Net income                                        928            750            931          1,149          1,629

Per Share Data:
Basic earnings per share                   $     0.66     $     0.53     $     0.66     $     0.81     $     1.13
Diluted earnings per share                 $     0.65     $     0.52     $     0.64     $     0.77     $     1.06
Book value - end of period                 $     5.72     $     6.27     $     7.01     $     7.66     $     9.13
Average shares outstanding-basic            1,413,201      1,418,562      1,418,074      1,421,710      1,440,383
Average shares outstanding-diluted          1,424,759      1,442,637      1,452,573      1,483,954      1,538,054
Shares outstanding - end of period          1,167,293      1,225,407      1,286,235      1,369,369      1,788,258

Statement of Condition
Available-for-sale
   investment securities                   $   17,516     $   11,538     $   25,976     $   21,888     $   38,099
Total loans, net                               56,366         75,373         76,988        101,177        114,834
Allowance for loan losses                         908          1,051          1,102          1,393          1,401
Total assets                                   92,715        102,203        120,365        139,611        186,007
Total deposits                                 82,001         91,464        107,759        119,668        156,424
Total shareholders' equity                      8,111          8,892          9,937         11,020         16,333

Selected Performance Ratios:
Return on average assets                         1.12%          0.81%          0.85%          0.89%          1.04%
Return on average equity                        12.52%          8.72%          9.85%         11.01%         13.84%
Net interest margin (1)                          6.09%          5.02%          5.03%          4.85%          5.00%
Average net loans as a percentage
   of average deposits                           76.1%          79.6%          81.9%          81.4%          80.2%
Efficiency ratio                                 64.7%          69.5%          66.8%          67.4%          66.2%
</TABLE>


                                       8
<PAGE>

Selected Financial Data (continued)

<TABLE>
<CAPTION>
                                         As of and for the year ended December 31,
      (in thousands except        -------------------------------------------------------
   share and per share data)        2000        2001        2002        2003        2004
                                  -------     -------     -------     -------     -------
<S>                                  <C>         <C>         <C>       <C>         <C>
Selected Asset Quality Ratios:
Nonperforming assets to
   total assets                       0.0%        2.2%        1.0%        0.7%       0.04%
Nonperforming loans to
   total loans                        0.0%        3.0%        1.5%        1.0%        0.1%
Net loan charge-offs to
   average loans                      0.1%        0.1%        0.5%        0.0%        0.1%
Allowance for loan losses
   to total loans                     1.6%        1.4%        1.4%        1.4%        1.2%
Allowance for loan losses
   to nonperforming loans             n/a        45.7%       92.8%     138.15%     1729.6%

Capital Ratios:
     Bank
     ----
Leverage                              8.8%        8.7%        8.0%        9.8%        8.4%
Tier 1 Risk-Based                    12.4%       10.9%       10.8%       12.7%       11.4%
Total Risk-Based                     13.7%       12.2%       12.1%       14.0%       12.5%
    Consolidated (2)
    ------------
Leverage                              n/a         n/a         8.0%       10.0%       10.8%
Tier 1 Risk-Based                     n/a         n/a        10.8%       13.0%       14.7%
Total Risk-Based                      n/a         n/a        12.1%       14.2%       15.8%
</TABLE>

Notes:  (1) does not reflect tax equivalent yields

        (2) not applicable; bank holding company formed during 2002

Regulation and Supervision

There has been no material effect upon the Company's capital expenditures,
earnings, or competitive position as a result of Federal, state, or local
environmental regulation. The Company became subject to many of the requirements
of the Sarbanes-Oxley Act discussed below at the commencement of the common
stock offering described in Recent Events. The Company anticipates that
complying with these requirements will require substantial additional costs in
future years.

Regulatory Environment. The banking and financial services industry is
extensively regulated. Statutes, regulations and policies affecting the industry
are frequently under review by Congress and state legislatures, and by the
federal and state agencies charged with supervisory and examination authority
over banking institutions. Changes in the regulation of the banking and
financial services industry may create opportunities for the Company to compete
in financial markets with less regulation. However, these changes also may
create new competitors. Changes in the statutes, regulations, or policies that
impact the Company cannot necessarily be predicted and may have a material
effect on its business and earnings. In addition, the operations of bank holding
companies and their subsidiaries are affected by the credit and monetary
policies of the Federal Reserve Board, which influence the over-all level of
bank loans, investments and deposits, the interest rates charged on loans and
paid for deposits, the price of the dollar in foreign exchange markets, and the
level of inflation. The credit and monetary policies of the Federal Reserve
Board have a significant effect on the Company.

Set forth below is a summary of some significant statutes, regulations and
policies that apply to the operation of banking institutions. This summary is
qualified in its entirety by reference to the full text of such statutes,
regulations and policies.


                                       9
<PAGE>

Holding Company Regulation. Valley Commerce Bancorp is a bank holding company
within the meaning of the Bank Holding Company Act and is registered as such
with the Federal Reserve Board. A bank holding company is required to file with
the Federal Reserve Board annual reports and other information regarding its
business operations and those of its subsidiaries. It is also subject to
examination by the Federal Reserve Board and is required to obtain Federal
Reserve Board approval before acquiring ownership or control of more than 5% of
the voting stock of any bank. According to Federal Reserve Board policy, bank
holding companies are expected to act as a source of financial strength to each
of their subsidiary banks and to commit resources to support each subsidiary.
The Federal Reserve Board has issued regulations that describe the activities in
which a bank holding company can and cannot engage. In general, bank holding
companies can engage in the business of banking or managing or controlling banks
or furnishing services to or performing services for their subsidiary banks.

A holding company for a bank and any subsidiary which it may acquire or organize
are deemed to be affiliates of the bank and are therefore subject to the Federal
Reserve Act. This means, for example, that there are limitations on loans by the
bank to affiliates, on investments by the bank in any affiliate's stock and on
the bank's taking any affiliate's stock as collateral for loans to any borrower.
Also, transactions by the bank with an affiliate must be on substantially the
same terms as would be available for non-affiliates.

Sections 23A and 23B of the Federal Reserve Act limit the risks to a bank from
transactions between the bank and its affiliates and limit the ability of a bank
to transfer to its affiliates the benefits arising from the bank's access to
insured deposits, the payment system and the discount window and other benefits
of the Federal Reserve system. Federal Reserve Board Regulation W
comprehensively implements sections 23A and 23B of the Federal Reserve Act. The
statute and rule impose quantitative and qualitative limits on the ability of a
bank to extend credit to, or engage in certain other transactions with, an
affiliate (and a nonaffiliate if an affiliate benefits from the transaction).
However, certain transactions that generally do not expose a bank to undue risk
or abuse the safety net are exempted from coverage under Regulation W.

The Company is also prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit. For example, generally a bank may not
extend credit on the condition that the customer obtain some additional service
from the bank or its parent company, or refrain from obtaining such service from
a competitor.

Bank Regulation. Federal law mandates frequent examinations of all banks, with
the costs of examinations assessed against the bank. Bank of Visalia's primary
federal regulator is the FDIC. As a California state-chartered bank whose
accounts are insured by the FDIC up to a maximum of $100,000 per depositor, the
Bank is subject to regulation, supervision and regular examination by the
California Commissioner of Financial Institutions and the FDIC, and must comply
with certain regulations of the Federal Reserve Board. The regulations of these
agencies govern most aspects of the Bank's business, including the making of
periodic reports, activities relating to dividends, investments, loans,
borrowings, capital requirements, certain check-clearing activities, branching,
mergers and acquisitions, reserves against deposits and numerous other areas.
Supervision, legal action and examination by these agencies is generally
intended to protect depositors and is not intended for the protection of
shareholders.

Capital Adequacy Requirements. Valley Commerce Bancorp is subject to the capital
adequacy regulations of the Federal Reserve Board and Bank of Visalia is subject
to the capital adequacy regulations of the Federal Deposit Insurance
Corporation. The regulations incorporate both risk-based and leverage capital
requirements and define capital in terms of "core capital elements," or Tier 1
capital, and "supplemental capital elements," or Tier 2 capital. The Company's
capital requirements and actual ratios are shown in Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital Resources,
which is included as Item 6..

Prompt Corrective Action Provisions. Federal law requires the federal banking
agencies to take prompt corrective action to resolve the problems of insured
financial institutions, including institutions that fall below prescribed
minimum capital ratios. Regulations of the federal banking agencies define five
capital


                                       10
<PAGE>

categories: well capitalized (total risk-based capital ratio of 10%; tier 1
risk-based capital ratio of 6%; and leverage ratio of 5%); adequately
capitalized (total risk-based capital l ratio of 8%; tier 1 risk-based capital
ratio of 4%; and leverage ratio of 4%, or 3% if the institution receives the
highest rating from its primary regulator); undercapitalized (total risk-based
capital ratio of less than 8%; tier 1 risk-based capital ratio of less than 4%;
or leverage ratio of less than 4%, or 3% if the institution receives the highest
rating from its primary regulator); significantly undercapitalized (total
risk-based capital ratio of less than 6%; tier 1 risk-based capital ratio of
less than 3%; or leverage ratio less than 3%); and critically undercapitalized
(tangible equity to total assets less than 2%). A bank may be treated as though
it were in the next lower capital category if regulators find to be in an unsafe
or unsound condition, but a bank may not be treated as critically
undercapitalized unless its actual capital ratio warrants such treatment. At
each successively lower capital category, an insured bank is subject to
increased restrictions on its operations.

In addition to measures taken under the prompt corrective action provisions,
insured banks may be subject to actions by federal regulators for unsafe or
unsound practices or for violation of any law, rule, regulation or condition
imposed in writing by the agency or included in any written agreement with the
agency. Enforcement actions may include the issuance of cease and desist orders,
termination of insurance of deposits (in the case of a bank), the imposition of
civil money penalties, the issuance of directives to increase capital, formal
and informal agreements, or removal and prohibition orders against
"institution-affiliated" parties.

Safety and Soundness Standards. The federal banking agencies have also adopted
guidelines establishing safety and soundness standards for insured depository
institutions. These guidelines relate to internal controls, information systems,
internal audit systems, loan underwriting and documentation, compensation, and
interest rate exposure. In general, the standards are designed to assist the
federal banking agencies in identifying and addressing problems at insured
depository institutions before capital becomes impaired. If an institution fails
to meet these standards, the appropriate federal banking agency may require the
institution to submit a compliance plan or, if an acceptable compliance plan is
not submitted, institute enforcement proceedings.

Premiums for Deposit Insurance. FDIC regulations implement a risk-based premium
system, whereby insured depository institutions are required to pay insurance
premiums depending on their risk classification. Under this system, institutions
such as Bank of Visalia which are insured by the Bank Insurance Fund are
categorized into one of three capital categories (well capitalized, adequately
capitalized, and undercapitalized) and one of three supervisory categories based
on federal regulatory evaluations: financially sound with only a few minor
weaknesses (Group A); demonstrates weaknesses that could result in significant
deterioration (Group B); or poses a substantial probability of loss (Group C).

Community Reinvestment Act. The Bank is subject to certain requirements and
reporting obligations involving Community Reinvestment Act activities. The
Community Reinvestment Act generally requires the federal banking agencies to
evaluate the record of a financial institution in meeting the credit needs of
its local communities, including low and moderate income neighborhoods, and to
take into account a financial institution's record of meeting its community
credit needs when evaluating applications for, among other things, domestic
branches, consummating mergers or acquisitions, or holding company formations.
In its assessment of Community Reinvestment Act performance, the FDIC assigns a
rating of "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance. The Bank has a "satisfactory" rating.

Other Consumer Protection Laws and Regulations. In addition to the other laws
and regulations discussed herein, the Bank is subject to certain consumer and
public interest laws and regulations that are designed to protect customers in
transactions with banks. While this list is not exhaustive, these laws and
regulations include the Truth in Lending Act, the Truth in Savings Act, the
Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal
Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement
Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act,
the Fair Debt Collection Practices Act and the Right to Financial Privacy Act.
These laws and regulations mandate certain disclosure requirements and regulate
the manner in which financial institutions must deal with customers when taking
deposits, making loans, collecting loans and providing


                                       11
<PAGE>

other services. Failure to comply with these laws and regulations can subject
the bank to various penalties, including enforcement actions, injunctions, fines
or criminal penalties, punitive damages to consumers and the loss of certain
contractual rights.

The Americans with Disabilities Act, in conjunction with similar California
legislation, requires employers with 15 or more employees and all businesses
operating "commercial facilities" or "public accommodations" to accommodate
disabled employees and customers. The Americans with Disabilities Act has two
major objectives: (1) to prevent discrimination against disabled job applicants,
job candidates and employees, and (2) to provide disabled persons with ready
access to commercial facilities and public accommodations. Commercial facilities
such as Bank of Visalia must ensure that all new facilities are accessible to
disabled persons, and in some instances may be required to adapt existing
facilities to make them accessible.

Interstate Banking and Branching. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Banking Act") regulates the
interstate activities of banks and bank holding companies and establishes a
framework for nationwide interstate banking and branching. Since June 1, 1997, a
bank in one state has generally been permitted to merge with a bank in another
state without the need for explicit state law authorization, although states
were given the ability to prohibit interstate mergers with banks in their own
state. Adequately capitalized and managed bank holding companies are permitted
to acquire banks located in any state, subject to certain exceptions. Also, a
bank may establish and operate de novo branches in any state in which that bank
does not maintain a branch if that state has enacted legislation to expressly
permit all out-of-state banks to establish branches in that state. California
does not permit out-of-state banks to acquire existing branches or establish de
novo branches in California; an out-of-state bank that wishes to enter
California must acquire an existing bank or establish a new one.

Financial Modernization Act. The Financial Modernization Act repealed provisions
of the Glass-Steagall Act which restricted the affiliation of Federal Reserve
Member Banks with firms "engaged principally" in specified securities activities
and which restricted officer, director, or employee interlocks between a member
bank and any company or person "primarily engaged" in specified securities
activities. In addition, it contains provisions that expressly preempt any state
law restricting the establishment of financial affiliations, primarily related
to insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the Bank Holding Company Act framework to permit a holding company
system to engage in a full range of financial activities through a new entity
known as a financial holding company. The Financial Modernization Act also
broadens the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies, and their financial subsidiaries and
provides an enhanced framework for protecting the privacy of consumer
information.

In order for the Company to take advantage of the ability to affiliate with
other financial services providers, it must become a "financial holding company"
as permitted under an amendment to the Bank Holding Company Act affected by the
Financial Modernization Act. The Company currently meets the requirements to
make an election to become a financial holding company but it has not determined
to become financial holding company.

Pursuant to the Financial Modernization Act, the federal banking agencies have
released joint rules that establish minimum requirements to be followed by
financial institutions for protecting the privacy of financial information
provided by consumers. The rules, which establish privacy standards to be
followed by state banks such as the Bank, require a financial institution to (i)
provide notice to customers about its privacy policies and practices, (ii)
describe the conditions under which the institution may disclose nonpublic
personal information about consumers to nonaffiliated third parties, and (iii)
provide a method for consumers to prevent the financial institution from
disclosing that information to nonaffiliated third parties by "opting out" of
that disclosure.

The Company does not believe that the Financial Modernization Act will have a
material adverse effect on its operations in the near-term period. However, to
the extent that it permits banks, securities firms,


                                       12
<PAGE>

and insurance companies to affiliate, the financial services industry may
experience further consolidation. The Financial Modernization Act is intended to
grant to community banks certain powers as a matter of right that larger
institutions have accumulated on an ad hoc basis. Nevertheless, this act may
have the result of increasing the amount of competition that we face from larger
institutions and other types of companies offering financial products, many of
which may have substantially more financial resources.

Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley")
implemented legislative reforms intended to address corporate and accounting
fraud. Sarbanes-Oxley places certain restrictions on the scope of services that
may be provided by accounting firms to their public company audit clients. Any
non-audit services being provided to a public company audit client require
preapproval by the company's audit committee. In addition, Sarbanes-Oxley made
changes to the requirements for accounting firm partner rotation after a period
of time. Sarbanes-Oxley requires chief executive officers and chief financial
officers, or their equivalent, to certify to the accuracy of periodic reports
filed with the SEC, subject to civil and criminal penalties if they knowingly or
willingly violate the certification requirement. In addition, under
Sarbanes-Oxley, counsel are required to report evidence of a material violation
of the securities laws or a breach of fiduciary duty by a company to its chief
executive officer or its chief legal officer, and, if such officer does not
appropriately respond, to report such evidence to the audit committee or other
similar committee of the board of directors or to the board itself.

Sarbanes-Oxley accelerates the time frame for disclosures by public companies,
as they must immediately disclose any material changes in their financial
condition or operations. In most cases directors and executive officers must
provide information regarding changes in ownership in a company's securities
within two business days of the change. Sarbanes-Oxley increases
responsibilities and codifies certain requirements relating to audit committees
of public companies and how they interact with the company's public accounting
firm. Audit committee members must be independent and are absolutely barred from
accepting consulting, advisory or other compensatory fees from the issuer. In
addition, companies must disclose whether at least one member of the committee
is a "financial expert" (as defined by the SEC) and if not, why not.
Sarbanes-Oxley also requires the public accounting firm that issues a company's
audit report to attest to and report on management's assessment of the company's
internal controls. For the Company, this component of the legislation will
become effective with the audit of the 2006 consolidated financial statements.

USA PATRIOT Act. The terrorist attacks in September 2001 impacted the financial
services industry and led to the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
"USA PATRIOT Act"). Part of the USA PATRIOT Act is the International Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001 ("IMLAFATA").
IMLAFATA authorizes the Secretary of the Treasury, in consultation with the
heads of other government agencies, to adopt special measures applicable to
banks, bank holding companies and other financial institutions. These measures
may include enhanced recordkeeping and reporting requirements for certain
financial transactions that are of primary money laundering concern, due
diligence requirements concerning the beneficial ownership of certain types of
accounts, and restrictions or prohibitions on certain types of accounts with
foreign financial institutions.

Among its other provisions, IMLAFATA requires each financial institution to: (i)
establish an anti-money laundering program; (ii) establish due diligence
policies, procedures and controls with respect to its private banking accounts
and correspondent banking accounts involving foreign individuals and certain
foreign banks; and (iii) avoid establishing, maintaining, administering, or
managing correspondent accounts in the United States for, or on behalf of, a
foreign bank that does not have a physical presence in any country. IMLAFATA
expands the circumstances under which funds in a bank account may be forfeited
and requires covered financial institutions to respond under certain
circumstances to requests for information from federal banking agencies within
120 hours. Additional regulations implement minimum standards to verify customer
identity, encourage cooperation among financial institutions, federal banking
agencies, and law enforcement authorities regarding possible money laundering or
terrorist activities, prohibit the anonymous use of "concentration accounts,"
and require all covered financial institutions to have in place a Bank Secrecy
Act compliance program.


                                       13
<PAGE>

Other Pending and Proposed Legislation. Other legislative and regulatory
initiatives which could affect the Company and the banking industry in general
are pending, and additional initiatives may be proposed or introduced, before
the United States Congress, the California legislature and other governmental
bodies in the future. Such proposals, if enacted, may further alter the
structure, regulation and competitive relationship among financial institutions,
and may subject the Company to increased regulation, disclosure and reporting
requirements. In addition, the various banking regulatory agencies often adopt
new rules and regulations to implement and enforce existing legislation. The
Company cannot predict whether, or in what form, any such legislation or
regulations may be enacted or the extent to which it might affect the Company's
business.

ITEM 2 - DESCRIPTION OF PROPERTY

The following table summarizes certain information about the Company's main
office and branch offices:

                                                 Approximate
         Office location          Year opened   square footage   Owned or leased
         ---------------          -----------   --------------   ---------------

Main office                           1996           8,700           Leased
200 South Court Street
Visalia, California

Administrative office                 2003           2,265           Leased
100 Willow Plaza, Suite 101
Visalia, California

Fresno branch                         2003           3,216           Leased
1377 West Shaw Avenue, Suite 101
Fresno, California

Woodlake branch                       1998           5,000            Owned
232 North Valencia
Woodlake, California

Tipton branch                         1998           5,610            Owned
174 South Burnett
Tipton, California

The main office premises are leased under a noncancelable operating lease with a
nonaffiliated third party expiring 2009 with the option to extend the lease for
two additional five-year terms. The primary operating area consists of
approximately 8,700 square feet of space comprising the entire usable space in a
single-story building. The lease arrangement for the primary operating area is a
"triple net lease" with monthly rent of $11,130 in 2004, and $11,200 starting
December 2004 until the term expires on November 30, 2009. In the event the
renewal option is exercised, the annual rent to be paid will be equivalent to
10% of the fair market value of the leased premises.

In close proximity to the main office is the administrative office housing
credit and finance personnel. These premises are leased under a noncancelable
operating lease for three years with the option to extend the lease for two
additional years. The primary operating area consists of an office suite of
approximately 2,265 square feet in a four-story building. The lease arrangement
for the primary operating area is a "triple net lease" with monthly rent of
$3,171 in 2004, and $3,284 starting February 2005 until the term expires on
January 31, 2006. In the event the renewal option is exercised, the annual rent
to be paid will increase by approximately 3.5% in each of the extension years.


                                       14
<PAGE>

The Fresno branch is leased under a noncancelable operating lease with a
nonaffiliated third party for five years with no option to extend. The primary
operating area consists of approximately 3,216 square feet of space comprising
the entire usable space in a single-story building. The lease arrangement for
the primary operating area is a "triple net lease" expiring October 31, 2007.
The current monthly rent under the lease is $4,969, increasing to $5,118, $5,271
and $5,429 for the third through fifth years.

At December 31, 2004, the total net book value of the Company's land, buildings,
leasehold improvements and equipment was approximately $1,034,000. Each of the
Company's facilities is considered to be in good condition and adequately
covered by insurance.

ITEM 3 - LEGAL PROCEEDINGS

From time to time the Company may be subject to legal proceedings and claims in
the ordinary course of business. These claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources.
Management is not aware of any legal proceedings or claims that it believes
could harm the Company's business or cause its revenues or stock price to fall.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of shareholders during the fourth quarter of
the fiscal year covered by this annual report. The 2005 Annual Meeting of
Shareholders will be held at 6:00 p.m., local time, on April 26, 2005, at the
Visalia Convention Center located at 303 E. Acequia Street, Visalia, California,
93291.


                                       15
<PAGE>

                                     PART II

ITEM 5 - MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

General

The Company's common stock is traded on the OTC Bulletin Board under the symbol
"VCBP.OB." Historically, there has been a limited over-the-counter market for
the Company's common stock. Despite certain actions taken by the Company in
2004, including a three-for-two stock split, and a common stock offering which
resulted in the issuance of 650,000 new shares, it is unlikely that an active
trading market will develop or be sustained for the common stock. Wedbush Morgan
Securities Inc. and Hoefer & Arnett Incorporated have acted as market makers for
the Company's common stock. These market makers have no obligation to make a
market for the Company's common stock, and they may discontinue making a market
at any time.

The information in the following table indicates the high and low "bid"
quotations for the Company's common stock for each quarterly period since
January 1, 2003, and is based upon information provided by market makers. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission, do not reflect actual transactions, which have been very sporadic,
and do not include nominal amounts traded directly by shareholders or through
other dealers who are not market makers. In addition, the quotations have been
adjusted for 5% stock dividends paid in May 2003 and May 2004, and for a
three-for-two stock split issued in September 2004.

                                                  High and low bid quotations
                                                  ---------------------------
                                                     High             Low
                                                     ----             ---
      2004
      Fourth quarter                                $16.50          $12.75
      Third quarter                                  16.00           12.33
      Second quarter                                 13.37           12.00
      First quarter                                  12.70           10.79

      2003
      Fourth quarter                                $13.33          $10.79
      Third quarter                                  10.92            9.84
      Second quarter                                 10.79            9.07
      First quarter                                   9.07            7.60

As of March 4, 2005, there were 347 record holders of the Company's common stock
and approximately 531 beneficial holders.

In 1997, the Company established Stock Option Plans for which shares of stock
are reserved for issuance to employees and directors under incentive and
nonstatutory agreements. During 2004, no stock options were exercised.

Dividend Policy. The Company has not paid any cash dividends on common stock
since its inception in 1996. The Company intends to retain any future earnings
for the development and operations of its business and accordingly does not
anticipate paying cash dividends on capital stock in the foreseeable future.


                                       16
<PAGE>

Holders of the Company's common stock will be entitled to receive such cash
dividends as may be declared by the board of directors out of funds legally
available for that purpose. The Company is subject to certain restrictions on
dividends under the California General Corporation Law. Generally, California
law permits the Company to pay dividends not exceeding its retained earnings. In
the alternative, the Company may pay a greater amount as dividends if its
tangible assets after the dividends would be at least 125% of its liabilities
(other than certain deferred items) and certain financial ratio tests are met.
However, a bank holding company ordinarily cannot meet these alternative
requirements. In addition, the Company has agreed not to pay cash dividends if
it is in default or deferring interest payments on trust preferred securities.

The Company's ability to pay cash dividends will also depend to a large extent
upon the amount of cash dividends paid by the Bank to Valley Commerce Bancorp.
The ability of the Bank to pay cash dividends will depend upon its earnings and
financial condition. Under California law, a California-chartered bank may pay
dividends not exceeding the lesser of its retained earnings or its net income
for the last three fiscal years (less any previous dividends; provided, with the
prior regulatory approval, a bank may pay dividends not exceeding the greatest
of (a) its retained earnings, (b) its net income for the previous fiscal year or
(c) its net income for the current fiscal year). However, the Bank has no formal
dividend policy, and dividends are issued in the sole discretion of the Bank's
board of directors. There can be no assurance as to when or whether a dividend
will be paid or the amount of any dividend. The Bank currently has a policy of
retaining earnings to support the growth of the Bank except as necessary to
enable Valley Commerce Bancorp to pay its direct expenses and amounts due under
subordinated debentures issued in connection with trust preferred securities.

The Company paid 5% stock dividends in each year from 2000 to 2004 and issued a
three-for-two stock split in September 2004.

Registrar and Transfer Agent

Registrar and Transfer Company is the registrar and transfer agent for the
Company's common stock. Its address is 10 Commerce Drive, Cranford, New Jersey
07016. Its phone number is (800) 368-5948 and its email address is
invrelations@rtco.com.


                                       17
<PAGE>

ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of the Company's financial condition and
results of operations should be read together with the selected financial data
appearing in Item 1, Description of Business, and the financial statements and
notes thereto appearing in Item 7, Financial Statements, included in this Annual
Report on Form 10-KSB.

Overview

The Company is the holding company for Bank of Visalia, a California state
chartered bank. The Company's principal business is to provide, through its
banking subsidiary, financial services in its primary market area in California.
The Company serves Tulare and Fresno Counties and the surrounding area through
the Bank. The Company derives its income primarily from interest received on
real estate related loans, commercial loans, and consumer loans and to a lesser
extent fees from the brokerage of loans, interest on investment securities and
fees for services provided to deposit customers. The Company's major operating
expenses are interest paid on deposits and borrowings and general operating
expenses, consisting primarily of salaries and employee benefits and, to a
lesser extent, occupancy and equipment, data processing and operations. The
Company does not currently conduct any operations other than through the Bank.

The Company's founders opened the Bank in 1996 to serve as a community bank in
the city of Visalia, which is the primary metropolitan area of Tulare County, as
well as surrounding areas. The Bank operated solely from its branch office in
Visalia until 1998 when the Bank purchased two branch offices from Bank of
America in the Tulare County towns of Woodlake and Tipton. In October 2003, the
Bank acquired the branch facilities and deposits of the Fresno branch of
Humboldt Bank. This location was the Bank's first office outside of Tulare
County and achieved the Bank's strategic goal of entering the Fresno
marketplace. One of the Company's primary strategic objectives is to continue
expanding within the South San Joaquin Valley by opening de novo branches and
loan production offices, and by acquiring branches from other institutions.

Critical Accounting Policies

The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The
Company's accounting policies are integral to understanding the financial
results reported. The most complex of these accounting policies require
management's judgment to ascertain the valuation of assets, liabilities,
commitments and contingencies. The Company has established detailed policies and
control procedures that are intended to ensure valuation methods are well
controlled and consistently applied from period to period. In addition, the
policies and procedures are intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The allowance for loan losses is
the accounting area where management's judgment is most likely to materially
impact the Company's financial results. The following is a brief description of
current accounting policies involving the allowance for loan losses:

Allowance for Loan Losses. The allowance for loan losses represents management's
best estimate of losses inherent in the existing loan portfolio. Management
believes the allowance for loan losses is a "critical accounting estimate"
because it is based upon management's assessment of various factors affecting
the collectibility of loans. The determination of the allowance for loan losses
requires management to make significant estimates based on information available
as of the balance sheet date. These estimates are subject to change in future
reporting periods if such conditions and information change. For example, a
decline in the California real estate market could result in an increase in
delinquencies or foreclosures, which may require additional allowances for
losses in future periods.


                                       18
<PAGE>

The level of the allowance for loan losses is based upon the current status of
quantitative and qualitative (judgmental) risk factors. The analysis considers
all significant conditions that might affect the ability of borrowers to perform
on their obligations. Quantitative and qualitative risk factors that may affect
loss recognition in the portfolio include, but are not limited to the following:

            Quantitative factors
            --------------------

            o     Specific allocations for significant classified loans

            o     Migration and historical loss experience by type and
                  classification

            o     The review and risk grading of the portfolio

            Qualitative (judgmental) factors
            --------------------------------

            o     Volume and trends in delinquent and non-accrual loans

            o     Volume, severity, and trends in identified problem loans

            o     The value of the underlying collateral

            o     Volume and nature of the existing portfolio

            o     Concentrations of credit

            o     National and local economic conditions affecting the loan
                  portfolio

            o     Lending policies and systems

            o     Experience, ability and depth of lending personnel

            o     Off-balance sheet credit risk

The allowance for loan losses is increased through periodic provisions to the
allowance for loan losses that are charged against income, and decreased by
actual loan charge-offs, net of recoveries. Charge-offs represent losses on the
outstanding principal balance and any interest payments previously accrued.

Further information is provided in the "Provision for Loan Losses" and
"Allowance for Loan Losses" sections of this discussion and analysis.

Allowance for Loan Losses Related to Undisbursed Loan Commitments. A separate
allowance for loan losses related to undisbursed loan commitments is maintained.
Management estimates the amount of probable losses by applying the loss factors
used in the allowance for loan losses methodology to management's estimate of
the expected usage of undisbursed commitments and letters of credit.

Available for Sale Securities. Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities, requires
that available-for-sale securities be carried at fair value. Management believes
this is a "critical accounting estimate" in that the fair value of a security is
based on quoted market prices or if quoted market prices are not available, fair
values are extrapolated from the quoted prices of similar instruments.
Adjustments to the available-for-sale securities fair value impact the
consolidated financial statements by increasing or decreasing assets and
shareholders' equity.

Deferred Income Taxes. Deferred income taxes reflect the estimated future tax
effects of temporary differences between the reported amount of assets and
liabilities for financial reporting purposes and such amounts as measured by tax
laws and regulations. Management uses an estimate of future earnings to support
its position that the benefit of the Company's deferred tax assets will be
realized. If future income should prove non-existent or less than the amount of
the deferred tax assets within the tax years to which they may be applied, the
asset may not be realized and the Company's net income will be reduced.


                                       19
<PAGE>

Results of Operations for the Fiscal Years Ended December 31, 2004 and 2003

Overview

The Company earned net income of $1.63 million, or $1.06 per diluted share, for
the year ended December 31, 2004, compared to $1.15 million, or $0.77 per
diluted share, for the year ended December 31, 2003. The return on average
assets was 1.04% for 2004 and 0.89% for 2003. The return on average
shareholders' equity for 2004 and 2003 was 13.84% and 11.01%, respectively.

The increase in earnings was primarily related to the Company's continued strong
growth and to income realized upon sale of other real estate in 2004. These
factors were partially offset by costs incurred to expand the Company's
infrastructure and branches.

At December 31, 2004, the Company's total assets were $186.0 million,
representing an increase of $46.4 million or 33% compared to December 31, 2003.
Total loans, net of the allowance for loan losses, were $114.8 million at
December 31, 2004, representing an increase of $13.6 million or 13% compared to
December 31, 2003. Total deposits were $156.4 million at December 31, 2004,
representing an increase of $36.8 million or 31% compared to December 31, 2003.

At December 31, 2004, the Company's leverage ratio was 10.8% while its tier 1
risk-based capital ratio and total risk-based capital ratios were 14.7% and
15.8%, respectively. The leverage, tier 1 risk-based capital and total
risk-based capital ratios at December 31, 2003 were 10.0%, 13.0% and 14.2%,
respectively.

A detailed presentation of the Company's financial results as of, or for the
fiscal year ended December 31, 2004 and 2003 follows.

Net Interest Income

The Company's earnings depend largely upon net interest income, which is the
difference between the total interest income earned on interest earning assets
(primarily loans and investment securities) and the total interest expense
incurred on interest bearing liabilities (primarily deposits and borrowed
funds). Net interest income is affected by changes in the interest rates earned
on interest earning assets, the interest rates paid on interest bearing
liabilities, and the average account balances included in each category. The net
interest margin (net interest income expressed as a percentage of average total
interest earning assets) provides a measure of the Company's performance in
generating net interest income when comparing different time periods.

The interest rates earned on assets and paid on liabilities are affected
principally by direct competition, and general economic conditions at the state
and national level which result in factors beyond the Company's control such as
actions of the Federal Reserve Board, the general supply of money in the
economy, legislative tax policies, governmental budgetary matters, and other
state and federal economic policies. Average balances of interest earning assets
and interest bearing liabilities are affected principally by direct competition,
economic conditions within the Company's area of operations, and the Company's
internal management of asset quality, capital and liquidity. The Company's
inability to maintain strong asset quality, capital or liquidity may adversely
affect (a) its ability to accommodate desirable borrowing customers, thereby
impacting growth in quality, higher-yielding earning assets, and (b) its ability
to attract comparatively stable, lower-cost deposits.


                                       20
<PAGE>

Total interest income increased from $7.19 million in 2003 to $8.74 million in
2004 due to higher average interest earning assets during 2004, and the
recognition of $423,000 of interest income from collection of interest related
to loans previously designated as nonaccrual. Average earning assets in 2004
were $24.1 million or 20% greater than in 2003 due to an increase of $17.1
million or 19% in average loans outstanding. The average yield on loans was
7.17% and 6.98% for 2004 and 2003, respectively. Excluding the interest income
from the collection of interest related to loans previously designated as
nonaccrual, the average yield on average loans outstanding for 2004 was 6.78%, a
20 bps decrease from 6.98% for 2003. The increase in loans was due to the
Company's continued marketing efforts which resulted in growth in all segments
of the loan portfolio. The decrease in weighted average yield was due to
decreases in market interest rates, thus resulting in lower rates being assigned
to loans at scheduled renewal or repricing dates and lower yields on newly
originated or purchased loans and securities.

Total interest expense increased from $1.43 million in 2003 to $1.62 million in
2004 due in part to an increase of $67,000 or 6% in interest on deposits.
Interest expense in 2004 on other borrowings increased $126,000 or 42% during
2004, due to increased borrowings from Federal Home Loan Bank and higher
interest payments on subordinated interest debentures related to trust preferred
securities.

Net interest income before provision for loan losses increased to $7.11 million
for 2004 from $5.76 million for 2003 due to the factors described above.
Increased volume of net average earning assets and interest income from
nonaccrual loans resulted in an increase in the Company's net interest income of
$1.12 million, while the decrease in interest rates increased net interest
income by an additional $235,000.

The Company's net interest margin increased 15 bps (from 4.85% to 5.00%) in 2004
compared to 2003. The increase in net interest margin was attributable to
interest related to loans previously designated as nonaccrual in 2004, which
alone accounted for a 29 bps improvement in the net interest margin. Without
this income, the net interest margin for 2004 and 2003 would have been 4.71% and
4.85% respectively, a 14 bps decrease. Excluding interest related to loans
previously designated as nonaccrual, the net interest margin trended slightly
downward in 2004 because (i) interest rates on assets continued to reprice at
lower rates, (ii) the Company's ability to reduce pricing on deposits was
somewhat limited by the historically low interest rate environment and (iii)
other borrowings, consisting of relatively higher cost Federal Home Loan Bank
advances and junior subordinated deferrable interest debentures, constituted a
higher percentage of the Company's interest bearing liabilities in the 2004
period. See "Borrowings" and "Junior Subordinated Deferrable Interest
Debentures."

The increased significance of non-interest-bearing deposits as a funding source
prevented the net interest margin from deteriorating further. Average
non-interest bearing deposits totaled $46.3 million, representing 35% of average
deposits during 2004, compared to $32.7 million, representing 30% of average
deposits, during 2003.


                                       21
<PAGE>

The following table presents the Company's average balance sheet, including
weighted average yields and rates on a taxable-equivalent basis, for the years
indicated:

<TABLE>
<CAPTION>
                                  Average balances and weighted average yields and rates
                                  ------------------------------------------------------

                                                                            Fiscal year ended December 31,
                                                      --------------------------------------------------------------------------
                                                                     2004                                    2003
                                                      ----------------------------------      ----------------------------------
                                                                   Interest      Average                   Interest      Average
                                                       Average      income/       yield/       Average      income/       Yield/
(dollars in thousands)                                 Balance      expense       cost         balance      expense       cost
                                                      --------     --------     --------      --------     --------     --------
<S>                                                   <C>          <C>              <C>       <C>          <C>              <C>
ASSETS
Due from banks                                        $     41     $      2         4.88%     $    309     $     11         3.56%
Federal funds sold                                       9,022          136         1.51%        6,693           72         1.08%
Available-for-sale investment securities:
         Taxable                                        23,653          773         3.27%       20,581          738         3.59%
         Non-taxable (1)                                 3,806          133         5.29%        1,979           75         5.74%
                                                      --------     --------     --------      --------     --------     --------
    Total securities (1)                                27,459          906         3.55%       22,560          813         3.77%
Loans (2) (3) (4)                                      107,262        7,693         7.17%       90,153        6,292         6.98%
                                                      --------     --------     --------      --------     --------     --------
      Total interest earning assets (1)                143,784        8,737         6.12%      119,715        7,188         6.04%
Non-interest earning assets, net of allowance for
loan                                                    12,223                                   9,192
                                                      --------                                --------
       Total assets                                   $156,007                                $128,907
                                                      ========                                ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
   Interest bearing                                   $ 50,167     $    417          .83%     $ 44,213     $    352          .80%
   Time deposits less than $100,000                     18,428          351         1.90%       17,550          378         2.15%
   Time deposits $100,000 or more                       18,229          427         2.34%       15,930          395         2.48%
                                                      --------     --------     --------      --------     --------     --------
    Total interest-bearing deposits                     86,824        1,195         1.38%       77,693        1,125         1.45%
Other borrowings                                         9,499          427         4.50%        6,274          301         4.80%
                                                      --------     --------     --------      --------     --------     --------
      Total interest-bearing liabilities                96,323        1,622         1.68%       83,967        1,426         1.70%
                                                                   --------                                --------
Non-interest bearing deposits                           46,265                                  32,671
Other liabilities                                        1,645                                   1,836
                                                      --------                                --------
    Total liabilities                                  144,233                                 118,474
Shareholders' equity                                    11,774                                  10,433
                                                      --------                                --------
    Total liabilities and shareholders' equity        $156,007                                $128,907
                                                      ========                                ========
Net interest income and margin (1)                                 $  7,115         5.00%                  $  5,762         4.85%
                                                                   ========      ========                  ========     ========
</TABLE>

(1)   Interest income is not presented on a taxable-equivalent basis, however,
      the average yield was calculated on a taxable-equivalent basis by using a
      marginal tax rate of 34%.

(2)   Nonaccrual loans are included in total loans. Interest income is included
      on nonaccrual loans only to the extent cash payments have been received.

(3)   Interest income includes amortized loan fees of $463 and $473 for 2004 and
      2003, respectively.

(4)   Interest income includes interest from loans previously designated as
      nonaccrual of $423 and $20 for 2004 and 2003, respectively.


                                       22
<PAGE>

The following table sets forth a summary of the changes in interest income and
interest expense from changes in average earning assets and interest-bearing
liabilities (volume) and changes in average interest rates for the years
indicated. Changes not solely attributable to volume or rates have been
allocated in proportion to the respective volume and rate components.

<TABLE>
<CAPTION>
                      Changes in net interest income due to changes in volumes and rates
                      ------------------------------------------------------------------

                                                       2004 vs 2003                           2003 vs 2002
                                           Increase (decrease) due to change in:  Increase (decrease) due to change in:
                                             Average      Average                   Average      Average
                                             Volume        Rate         Total        Volume        Rate        Total
                                             -------      -------      -------      -------      -------      -------
<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
(In thousands)
Increase (decrease) in interest income:
Due from banks                               $    (9)     $     4      $    (5)     $    (5)     $    (3)     $    (8)
Federal funds sold                                25           29           54           14          (34)         (20)
Available-for-sale investments
securities                                       185          (51)         134          398         (236)         162
Loans                                          1,194          171        1,365          809         (159)         650
                                             -------      -------      -------      -------      -------      -------
     Total interest income                     1,395          153        1,548        1,216         (432)         784

(Decrease) increase in interest expense:
Interest-bearing deposits                         47           18           65           62         (157)         (95)
Time certificates less than $100,000              19          (46)         (27)          98         (161)         (63)
Time certificates $100,000 or more                57          (25)          32           (6)         (14)         (20)
Other borrowings                                 155          (29)         126          271         (121)         150
                                             -------      -------      -------      -------      -------      -------
     Total interest expense                      278          (82)         196          425         (453)         (28)
                                             -------      -------      -------      -------      -------      -------
     Increase in net interest income         $ 1,117      $   235      $ 1,352      $   791      $    21      $   812
                                             =======      =======      =======      =======      =======      =======
</TABLE>

Provision for Loan Losses

The provision for loan losses, which is included in operations to support the
required level of the allowance for loan losses, is based on loan growth, credit
experience, portfolio mix and management's ongoing evaluation of the loan
portfolio risk and economic conditions. The Company recorded a provision for
loan losses of $138,000 in 2004 compared to a provision for loan losses of
$315,000 in 2003. The lower amount recorded in 2004 reflected a lesser amount of
growth in the loan portfolio during 2004 compared to 2003. Net loan charge-offs
totaled $130,000 in 2004. This amount included a loan charge-off of $129,000
recorded in June 2004 on a commercial real estate loan. Net loan recoveries
totaled $16,000 in 2003. For further information regarding credit losses and the
allowance for loan losses see "Critical Accounting Polices" and "Financial
Condition - Allowance for Loan Losses."


                                       23
<PAGE>

Non-Interest Income

Non-interest income for 2004 totaled $1.41 million compared with $1.06 million
in 2003. The components of non-interest income during each year were as follows:

                               Non-interest income
                               -------------------

<TABLE>
<CAPTION>
                                                              Years Ended December 31,      Change
                                                              ------------------------      during
(in thousands)                                                   2004          2003          year
                                                                ------        ------        ------
<S>                                                             <C>           <C>           <C>
Service charges                                                 $  517        $  496        $   21

Gain on sale of available-for-sale investment securities             7           131          (124)

Gain on other real estate                                          373             0           373

Mortgage loan brokerage fees                                       176           202           (26)

Earnings on cash surrender value of life insurance policies         99            75            24

Other                                                              169           151            18
                                                                ------        ------        ------

     Total non-interest income                                  $1,341        $1,055        $  286
                                                                ======        ======        ======
</TABLE>

Despite deposit growth during 2004, income from service charges on deposit
accounts increased only slightly from 2003. This was primarily due to higher
average balances maintained by business and professional customers which
mitigated growth in service charges. This was offset by increased nonsufficient
funds charges due to an increased number of consumer accounts.

During 2004, the Company brokered fewer residential mortgage loans and therefore
earned less loan brokerage fees. This was due to a slowdown in refinance
activity that was experienced throughout the mortgage industry. Greater
refinance activity occurred in 2003 when mortgage interest rates initially
decreased to historically low levels.

The gains on sale of available-for-sale investment securities decreased during
2004. This was due to the sale of certain securities in 2003. The Company has no
established program of selling securities other than as a source of liquidity or
to achieve interest rate risk management goals. From time to time, management
evaluates the portfolio of investment securities and may initiate sales of
selected securities. Sales of securities can produce either gains or losses
depending upon the prevailing interest rate environment.

In the second quarter of 2004, the Company acquired other real estate upon
foreclosure of the related loan collateral. The property was sold in the third
quarter of 2004 resulting in the collection of $423,000 of interest income
related to the loan previously designated as nonaccrual. In addition, a gain on
the sale of the other real estate was realized in the amount of $373,000.

Non-Interest Expense

Total non-interest expense was $5.66 million in 2004, up $1.01 million or 22%,
from the $4.65 million in non-interest expense in 2003. The ratio of
non-interest expense to net operating revenue (efficiency ratio) was 66.2% and
67.4% for 2004 and 2003, respectively. This ratio reflects changes in
non-interest expense as well as changes in revenue from interest and
non-interest sources. The improvement in efficiency resulted primarily from the
interest income and gain resulting from the sale of other real estate in 2004.
Without this nonrecurring income, the efficiency ratio would have been 69.7% in
2004 due to expansion of the Company's infrastructure and operations in 2004 in
anticipation of future loan and deposit growth.


                                       24
<PAGE>

The following table presents the major components of non-interest expense for
the years indicated.

                              Non-interest expense
                              --------------------

                                        Years Ended December 31,
                                        ------------------------
                                                                       Change
(in thousands)                             2004          2003       during Year
                                          -------       -------     -----------
Salaries and employee benefits            $ 3,130       $ 2,419       $   711

Occupancy and equipment                       656           550           106

Data processing                               408           418           (10)

Operations                                    367           309            58

Professional and legal                        216           200            16

Advertising and business development          200           128            72

Telephone and postal                          131           121            10

Supplies                                      137           111            26

Assessment and insurance                      131           100            31

Amortization expense                           63            63             0

Other expenses                                223           229            (6)
                                          -------       -------       -------

     Total non-interest expense           $ 5,662       $ 4,648       $ 1,014
                                          =======       =======       =======

The increase in non-interest expense resulted from growth, including the
addition of the Fresno branch in the fourth quarter of 2003. Of the $1.01
million increase in non-interest expense, $239,000 represented the employee,
occupancy and other non-interest costs of the Fresno branch, in excess of the
comparable costs incurred in 2003. The remainder of the variance is attributable
to increased employee costs, advertising and business development expenses, and
other expenses associated with the Company's growth.

Additional increases in employee costs were to enhance loan production
capability and for normal salary adjustments. Operations costs increased due to
significantly higher costs in the areas of correspondent bank charges and
courier/armored car charges. These reflected the Company's growth as well as
changing vendor cost structures. The other expenses category decreased in 2004
due to the absence of an operations-related loss that occurred in 2003.

Provision for Income Taxes

The provision for income taxes for 2004 was $1,027,000 compared to $705,000 in
2003. The effective tax rates for these years were 38.7%, and 38.0%,
respectively.

Financial Condition

Investment Securities

The Company purchases investment securities primarily to maintain adequate
liquidity. The portfolio consists of obligations of U.S. Government agencies,
mortgage-backed securities of U.S. government sponsored enterprises, obligations
of states and political subdivisions, and other investment grade securities.

All existing investment securities are classified as available-for-sale
securities rather than as held-to-maturity securities. In classifying its
investments as 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 within shareholders' equity.

The following tables set forth the estimated market value of available-for-sale
investment securities at the dates indicated:


                                       25
<PAGE>

                  Market value of securities available for sale
                  ---------------------------------------------

                                                December 31, 2004
                                   ---------------------------------------------
(in thousands)                     Amortized   Unrealized  Unrealized     Fair
                                     Cost         Gain        Loss        Value
                                    -------     -------     -------      -------
U.S. government  agencies           $20,988     $     5     $  (118)     $20,875
Mortgage-backed securities            8,790          12         (48)       8,754
Municipal securities                  4,382          66         (31)       4,417
Corporate debt securities             4,067           4         (18)       4,053
                                    -------     -------     -------      -------
    Total                           $38,227     $    87     $  (215)     $38,099
                                    =======     =======     =======      =======

                                                December 31, 2003
                                   ---------------------------------------------
(in thousands)                     Amortized   Unrealized  Unrealized     Fair
                                     Cost         Gain        Loss        Value
                                    -------     -------     -------      -------
U.S. government  agencies           $ 9,614     $    18     $   (63)     $ 9,269
Mortgage-backed securities            9,423          12         (62)       9,373
Municipal securities                  1,741          63          (2)       1,802
Corporate debt securities             1,140           4          --        1,444
                                    -------     -------     -------      -------
    Total                           $21,918     $    97     $  (127)     $21,888
                                    =======     =======     =======      =======

The following table summarizes the amounts and distribution of investment
securities and their weighted average yields as of December 31, 2004. Expected
maturities may differ from contractual maturities where the issuers of the
securities have the right to call or prepay obligations without penalty.

<TABLE>
<CAPTION>
                                                         Maturities of securities available for sale
                              ------------------------------------------------------------------------------------------------
                                                     After one           After five
                                    Within           but within          but within             After
                                   one year          five years           ten years           ten years             Total
                                   --------          ----------           ---------           ---------             -----
(dollars in thousands)         Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield
                               ------    -----     ------    -----     ------    -----     ------    -----     ------    -----
<S>                           <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>
U.S. government agencies      $ 3,487    1.93%    $14,896    3.62%    $ 1,983    4.91%    $   509    6.74%    $20,875    3.37%

Mortgage-backed securities         --      --       1,621    3.80%      4,081    3.80%      3,052    4.50%      8,754    4.04%

Municipal securities (1)          514    2.72%        539    4.82%      1,836    6.06%      1,528    6.19%      4,417    5.60%

Corporate debt securities          --      --       4,053    3.53%         --      --          --      --       4,053    3.53%
                              -------             -------             -------             -------             -------

          Total               $ 4,001    2.03%    $21,109    3.65%    $ 7,900    4.60%    $ 5,089    5.23%    $38,099    3.80%
                              =======             =======             =======             =======             =======
</TABLE>

(1)   Yields shown are not computed on a tax equivalent basis.

Loan Portfolio

The Company's lending activities are geographically concentrated in the South
San Joaquin Valley, primarily in Tulare and Fresno counties. The loan portfolio
mix consists primarily of commercial and real estate loans. Consumer and other
types of loans are offered to meet the broader needs of business customers and
the community in general.


                                       26
<PAGE>

The following table sets forth the breakdown of loans outstanding by type at the
dates indicated by amount and percentage of the portfolio:

(dollars in thousands           December 31, 2004         December 31, 2003
                              ---------------------     ---------------------

Commercial                     $34,389           29%     $27,900           27%
Real estate - mortgage (1)      60,688           52       55,406           54
Real estate - construction      14,694           13       10,925           11
Agricultural                     4,535            4        4,885            5
Consumer and other               2,388            2        3,786            3
                              --------      -------     --------      -------
    Subtotal                   116,694          100%     102,902          100%
                                            =======                   =======
Deferred loan fees, net           (459)                     (332)
Allowance for loan losses       (1,401)                   (1,393)
                              --------                  --------
    Total loans, net          $114,834                  $101,177
                              ========                  ========

(1)   Consists primarily of commercial mortgage loans.

Loans outstanding at December 31, 2004 increased by $13.7 million or 13%
compared to December 31, 2003. This is indicative of significant economic growth
in the Company's lending territory and its strong marketing efforts.

The primary focus of the lending division is commercial loans, including
commercial mortgage loans. The strongest growth has been in these segments of
the portfolio, which is indicative of the rapidly growing commercial economy in
the Company's lending territory. Tulare and Fresno counties are two of the top
counties in the United States for agricultural production, but the Company lends
in the agricultural sector on a very selective basis due to the volatility of
that market and other factors. Retail loan products are offered primarily for
the benefit of commercial business owners and professionals who typically
maintain depository and other lending relationships with the Company. With each
new loan account, the Company strives to attain a related deposit account.

The following table presents the maturity distribution of the loan portfolio as
of December 31, 2004. The table shows the distribution of such loans between
those loans with fixed interest rates and those with floating (variable)
interest rates. Floating rates generally fluctuate with changes in the prime
rate. A majority of the Company's floating rate loans have rate floors.

                                Maturity of loans
                                -----------------

<TABLE>
<CAPTION>
                                                After one
                                     Within     but within     After
(in thousands)                      one year    five years   five years      Total
                                    --------    ----------   ----------    --------
<S>                                 <C>          <C>          <C>          <C>
Commercial                          $ 14,977     $  9,153     $ 10,259     $ 34,389
Real estate - mortgage (1)             1,804       10,943       47,941       60,688
Real estate - construction             7,893        6,801            0       14,694
Agriculture                            3,535          900          100        4,535
Consumer and other                     1,216          993          179        2,388
                                    --------     --------     --------     --------
    Total                           $ 29,425     $ 28,790     $ 58,479     $116,694
                                    ========     ========     ========     ========

Loans with fixed interest rates     $  1,548     $  6,182     $ 23,884     $ 31,614
Loans with floating interest
rates                                 27,877       22,608       34,595       85,080
                                    --------     --------     --------     --------
    Total                           $ 29,425     $ 28,790     $ 58,479     $116,694
                                    ========     ========     ========     ========
</TABLE>

(1)   Consists primarily of commercial mortgage loans.


                                       27
<PAGE>

Credit Risk. The Company manages credit risk on an ongoing basis through
stringent credit review and approval policies, extensive internal monitoring and
established formal lending policies. Additionally, an outside loan review
consultant periodically examines new loans and reviews the existing loan
portfolio. The Company's ability to identify and assess the risk characteristics
of the loan portfolio is critical for continued profitability and growth.
Management strives to maintain the Company's historically low level of loan
losses by placing continuing emphasis on credit quality in the loan approval
process, and through active monitoring of the portfolio. The Company has a
comprehensive loan review and grading system that continually assesses the
credit risk inherent in the loan portfolio. The Company's credit administration
personnel closely evaluate the primary and secondary sources of repayment of all
credits granted with strong emphasis on cash flows.

The credit quality of the loan portfolio may be influenced by local and national
economic trends and business cycles. Management closely monitors these trends
and makes timely adjustments to lending policies and underwriting standards to
mitigate losses in an economic downturn; however, no assurance can be given that
losses will not occur should adverse economic circumstances materialize.

Nonperforming Assets. The following table presents nonaccrual loans, loans past
due 90 days and still accruing interest, restructured loans, and other real
estate owned, as of the dates indicated:

                              Nonperforming assets
                              --------------------

                                                                December 31,
                                                            -------------------
(dollars in thousands)                                       2004         2003
                                                            ------       ------
Nonaccrual loans                                            $   81       $1,038
Loans 90 days or more past due and still accruing                0            0
Restructured loans                                               0            0
Other real estate owned                                          0            0
                                                            ------       ------
Total nonperforming assets                                  $   81       $1,038
                                                            ======       ======
Nonperforming assets to total loans                            0.1%         1.0%
                                                            ======       ======

Nonaccrual loans are comprised primarily of commercial mortgage loans. The
single largest nonaccrual loan outstanding at December 31, 2003 had been in
nonaccrual status since 2001. The underlying collateral for this nonaccrual loan
was foreclosed in June 2004 and the related loan collateral was sold in
September 2004. A $129,000 charge-off was taken on this loan as described below
in Allowance for Loan Losses. Proceeds from the sale resulted in the full
recovery of foregone interest and expenses the Company incurred on the related
loan since it was placed on nonaccrual status.

Generally, loans are placed on nonaccrual status when full collectibility of
principal or interest is uncertain or when principal or interest is past due for
90 days (unless the loan is well secured and in the process of collection). From
the time a loan is placed on nonaccrual status, interest previously accrued but
not collected is reversed from interest income. Any interest or principal
payments received on a nonaccrual loan are normally applied as a principal
reduction. A nonaccrual loan may be restored to accrual status when none of its
principal and interest is past due and unpaid, and certain other factors are
satisfied.

Classification of a loan as nonaccrual does not necessarily indicate that
collection of principal and interest will be uncollectible in whole or in part.


                                       28
<PAGE>

Impaired Loans. A loan is considered impaired when collection of all amounts due
according to the original contractual terms is not probable. The category of
impaired loans is not coextensive with the category of nonaccrual loans,
although the two categories may overlap in part or in full and did overlap in
full at December 31, 2004, and December 31, 2003. The recorded investment in
loans that were considered to be impaired totaled $81,000 and $1.04 million at
December 31, 2004 and December 31, 2003, respectively. At December 31, 2004,
management determined that no specific allowance for impaired loans was
necessary. The related specific allowance for loan losses for impaired loans was
$177,000 at December 31, 2003. The average recorded investment in impaired loans
for the years ended December 31, 2004 and 2003 was $762,000 and $1.20 million,
respectively.

Allowance for Loan Losses

The Company maintains an allowance for loan losses to absorb losses inherent in
the loan portfolio that is based on management's regular assessments of the
probable estimated losses inherent in the loan portfolio. Determining the
adequacy of the allowance is a matter of careful judgment, which reflects
consideration of all significant factors that affect the collectibility of the
portfolio as of the evaluation date. The Company's methodology for measuring the
appropriate level of the allowance for loan losses relies on several key
elements, which include the formula allowance and specific allowances for
identified problem loans.

The allowance for loan losses totaled $1.40 million or 1.20% of total loans at
December 31, 2004 compared to $1.39 million or 1.36% at December 31, 2003 and
$1.06 million or 1.36% at December 31, 2002. The decrease in the allowance for
loan losses percentage at December 31, 2004 reflected a $129,000 loan charge-off
recorded in June 2004 upon foreclosure of the collateral securing a large
nonaccrual loan. This charge-off had been anticipated and was reflected in the
portion of the allowance that was allocated to the specific loan as discussed
above in "Impaired Loans." After the charge-off was recorded the allowance for
loan losses decreased and management determined that the reduced level of
Allowance for Loan Losses was sufficient to reflect the estimated loan losses in
the loan portfolio.

Management's periodic assessment of the allowance for loan losses considers
information currently available to analyze loan loss potential, including
economic factors, overall credit quality, historical delinquency and a history
of actual charge-offs. Based on this assessment, management believes that the
loan loss provision and allowance for loan losses was adequate at December 31,
2004. However, no prediction of the ultimate level of loans charged off in
future years can be made with any certainty.

The following table summarizes the changes in the allowance for loan losses for
the periods indicated:

                      Changes in allowance for loan losses
                      ------------------------------------

                                                      Year ended December 31,
                                                     -------------------------
(dollars in thousands)                                  2004            2003
                                                     ---------       ---------

Balance, beginning                                   $   1,393       $   1,062
Provision for  loan losses                                 138             315
Charge-offs                                               (148)            (17)
Recoveries                                                  18              33
                                                     ---------       ---------
Balance, ending                                      $   1,401       $   1,393
                                                     =========       =========

Net charge-offs to average loans outstanding              0.12%          (0.02)%
Average loans outstanding                            $ 107,262       $  90,153
Ending allowance to total loans outstanding               1.20%           1.36%


                                       29
<PAGE>

Charge-offs and recoveries for the periods presented pertained primarily to
commercial loans and to a lesser extent, consumer loans. The allocation of the
allowance for loan losses ("ALL") by loan category and the percentage of loans
to total loans is presented in the following table:

                       Allocation of allowance for loan losses
                       ---------------------------------------

                                              Year ended December 31,
                                              -----------------------
(dollars in thousands)                       2004                   2003
                                             ----                   ----
                                      ALL by   % of loans    ALL by   % of loans
                                     category   to total    category   to total
                                     --------  ----------   --------  ----------
Commercial                            $  411         28%     $  376         27%
Real estate - mortgage                   729         52         752         54
Real estate - construction               176         14         153         11
Agricultural                              54          4          70          5
Consumer and other                        31          2          42          3
                                      ------     ------      ------     ------
    Total allowance for loan losses   $1,401        100%     $1,393        100%
                                      ======     ======      ======     ======

The allocation percentages are very similar to the percentage distribution of
loan volume by category. The category of real estate - construction loans has a
slightly higher percentage of the allowance for loan losses due to management's
assessment of the risk factors involved. While the allowance is allocated by
loan types in the table above, the allowance is general in nature and available
in its entirety to provide for losses in any loan category.

Deposits

Deposits are obtained from local businesses and residents. The average daily
deposits and the average rates paid for 2004, 2003, and 2002 are presented in
the "Results of Operations" section under the heading "Net Interest Income."

Average deposits for 2004 increased $22.7 million, or 21%, compared to average
deposits for 2003. Average deposits for 2003 increased $14.3 million, or 15%,
compared to average deposits in 2002. The steady increase in deposits is
attributable to a continued strong marketing effort to attract local deposits,
particularly from business customers.

The following table summarizes by time remaining to maturity, the amount of
certificates of deposit issued in amounts of $100,000 or more as of December 31,
2004.

            Maturities of certificates of deposit of $100,000 or more
            ---------------------------------------------------------

                                                                        Percent
(dollars in thousands)                                      Balance     of total
                                                            -------     --------
Three months or less                                        $ 4,083          18%
Over three months through nine months                         5,904          25
Over nine months through twelve months                        9,128          39
Over twelve months                                            4,240          18
                                                            -------     -------
   Total certificates of deposit of $100,000 and more       $23,355         100%
                                                            =======     =======


                                       30
<PAGE>

Borrowings

Federal Home Loan Bank. The Company maintains a borrowing relationship with the
Federal Home Loan Bank of San Francisco primarily as a source of liquidity and
secondarily as a source of fixed rate funds. At December 31, 2004, long-term
debt outstanding from the FHLB totaled $9.32 million. A portion of this debt was
collateralized by qualifying mortgage loans originated and held for investment
and the remainder was collateralized by investment securities. At December 31,
2003 and 2002, long-term debt outstanding from the FHLB totaled $5.19 million
and $2.06 million, respectively. The increase in long-term debt resulted from a
greater customer demand for fixed rate loans. The Company obtained fixed rate
debt from FHLB to match the cash flow characteristics of certain fixed rate
loans.

Average borrowings from FHLB totaled $6.44 million for 2004 at an average cost
of 4.19%. Average borrowings from FHLB totaled $4.01 million in 2003 at an
average cost of 4.76%, and $2.25 million in 2002 at an average cost of 6.66%.
The decrease in the average cost of FHLB borrowings reflects that the Company
increased its FHLB indebtedness within a period of time during which interest
rates charged by FHLB were trending significantly lower.

The Company maintains short-term unsecured borrowing arrangements with
correspondent banks to meet unforeseen deposit outflows and cash needs.
Short-term borrowings are also available from FHLB secured by loans and
investments securities which have been pledged as collateral. To date, the
Company has not utilized short-term borrowings from either source.

Junior Subordinated Deferrable Interest Debentures. During 2003, the Company
formed Valley Commerce Trust I with capital of $93,000 for the sole purpose of
issuing trust preferred securities. During the second quarter of 2003, Valley
Commerce Trust I issued trust preferred securities for gross proceeds of $3.0
million and invested this amount plus the $93,000 of capital proceeds in
floating rate junior subordinated deferrable interest debentures issued by the
Company. The Subordinated Debentures mature on April 7, 2033 and are repriced
quarterly to an interest rate that is the sum of 3-month Libor plus 3.30%. The
interest rate at December 31, 2004 and December 31, 2003 was 5.37% and 4.59%,
respectively.

Trust preferred securities are includable in the Company's Tier 1 capital for
regulatory purposes subject to certain limitations. The action taken to form
Valley Commerce Trust I and issue trust preferred securities was made for the
purpose of enhancing the Company's capital position and to provide for continued
growth of the Bank.

Off-Balance Sheet Items

The Company has certain ongoing commitments under operating leases for branch
and administrative office space in Visalia and Fresno which required payments
totaling approximately $19,000 per month in 2004. As of December 31, 2004 and
December 31, 2003, commitments to extend credit and letters of credit were the
only financial instruments with off-balance sheet risk. As of December 31, 2004
and December 31, 2003, commitments to extend credit totaled $28.6 million and
$26.7 million, respectively, and letters of credit totaled $948,000 and
$806,000, respectively. The Company has not entered into any contracts for
financial derivative instruments such as futures, swaps, options or similar
instruments.


                                       31
<PAGE>

Capital Resources

Federal regulations establish guidelines for calculating "risk-adjusted" capital
ratios. These guidelines, which apply to banks and bank holding companies,
establish a systematic approach of assigning risk weights to assets and
commitments making capital requirements more sensitive to differences in risk
profiles. For these purposes, "Tier 1" capital consists of common equity,
non-cumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries and excludes goodwill. "Tier 2" capital
consists of cumulative perpetual preferred stock, limited-life preferred stock,
mandatory convertible securities, subordinated debt and (subject to a limit of
1.25% of risk-weighted assets) general loan loss reserves. In calculating the
relevant ratio, a company's assets and off-balance sheet commitments are
risk-weighted; thus, for example, loans are included at 100% of their book value
while assets considered less risky are included at a percentage of their book
value (20%, for example, for U. S. Government Agency securities, and 0% for
vault cash and U. S. Government Treasury securities).

The board of directors regularly reviews the Company's capital ratios to ensure
that capital exceeds the prescribed regulatory minimums and is otherwise
adequate to meet future needs. The following table summarizes the Company's
risk-based capital ratios as of December 31, 2004 and December 31, 2003 and
2002:

                       Capital and capital adequacy ratios
                       -----------------------------------

                                                  Year ended December 31,
                                                  -----------------------
                                                2004                  2003
                                                ----                  ----
(dollars in thousands)                   Amount      Ratio     Amount      Ratio
                                         -------     -----     -------     -----
Leverage Ratio
--------------
Valley Commerce Bancorp
    and Subsidiary                       $19,216     10.8%     $13,781     10.0%
Minimum regulatory requirement           $ 7,686      4.0%     $ 5,517      4.0%

Bank of Visalia                          $14,910      8.4%     $13,511      9.8%
Minimum requirement for "Well-
    Capitalized" institution             $ 7,455      5.0%     $ 6,892      5.0%
Minimum regulatory requirement           $ 5,964      4.0%     $ 5,513      4.0%

Tier 1 Risk-Based Capital Ratio
-------------------------------
Valley Commerce Bancorp
    and Subsidiary                       $19,216     14.7%     $13,781     13.0%
Minimum regulatory requirement           $ 5,227      4.0%     $ 4,245      4.0%

Bank of Visalia                          $14,910     11.4%     $13,511     12.7%
Minimum requirement for "Well-
    Capitalized" institution             $ 7,825      6.0%     $ 6,363      6.0%
Minimum regulatory requirement           $ 5,217      4.0%     $ 4,242      4.0%

Total Risk-Based Capital Ratio
------------------------------
Valley Commerce Bancorp
    and Subsidiary                       $20,617     15.8%     $15,108     14.2%
Minimum regulatory requirement           $10,455      8.0%     $ 8,490      8.0%

Bank of Visalia                          $16,311     12.5%     $14,838     14.0%
Minimum requirement for "Well-
    Capitalized" institution             $13,042     10.0%     $10,605     10.0%
Minimum regulatory requirement           $10,434      8.0%     $ 8,484      8.0%


                                       32
<PAGE>

At December 31, 2004 and December 31, 2003, all of the Company's capital ratios
were in excess of minimum regulatory requirements, and Bank of Visalia exceeded
the minimum requirements of a "well capitalized" institution. As described
above, in the second quarter of 2003 Valley Commerce Trust I issued $3.0 million
of trust preferred securities. Trust preferred securities are includable in Tier
1 capital, subject to regulatory limitation. At December 31, 2004, and December
31, 2003, the entire $3.0 million was included in Tier 1 capital.

The Company's average equity as a percentage of average assets was 7.72% for
2004, and 8.09% for 2003. Year-end shareholders' equity as a percentage of
year-end assets was 8.72% and 7.89% at December 31, 2004 and 2003, respectively.
Although mitigated by net income, the Company's strong growth in 2004 and 2003
caused the average equity percentage to decrease. The year-end percentage would
have also decreased except for the new capital added in late 2004 from the
common stock offering described below.

The Company declared a three-for-two stock split in August 2004 and paid 5%
stock dividends in 2004 and 2003. The Company has not declared or paid cash
dividends since inception. Stock splits and dividends are not dilutive to
capital ratios.

On September 9, 2004, the Company filed a registration statement with the SEC
for the public sale of 650,000 shares of common stock. The SEC declared the
registration statement effective on December 23, 2004. On December 29, 2004, the
Company sold 350,750 shares of common stock to the Company's underwriter,
Wedbush Morgan Securities, at the offering price of $13.00 per share, less a 5%
underwriting discount. The proceeds received from this portion of the sale
totaled $4,331,763 and were recorded as an increase to common stock on the
Company's balance sheet. Other offering costs, consisting of legal fees,
accounting fees, and printing charges, totaling $583,000, were recorded as a
decrease to common stock on the Company's balance sheet. The remaining 299,250
shares were sold directly by the Company in January 2005. The entire stock
offering added $7.6 million to the Company's capital.

Risk Management

The Company maintains policies and guidelines for managing risks related to
on-balance sheet and off-balance sheet activities. Such policies and guidelines
are integral to the asset/liability management process conducted by the
asset-liability management committee ("ALCO"). Certain policies may be governed
and implemented by committees or persons other than the ALCO as directed by the
board of directors. Overall asset/liability management encompasses the
management and monitoring of asset quality, liquidity and capital needs, and in
particular, interest rate risk inherent in the interest-earning assets and
interest-bearing liabilities appearing on the Company's balance sheet.

One of the principal objectives of asset/liability management is to manage the
risks associated with changing interest rates and the potential impact on
earnings and stockholder value. The goal of interest rate risk management is to
maintain a balance sheet that generates stable earnings and stockholder value
across a variety of interest rate environments. The ALCO monitors interest rate
risk primarily through management's analysis of the change in projected net
interest margin that results from +/- 100 basis points (bps) and +/- 200 bps
parallel shifts in the interest rate yield curve. This analysis is monitored by
the ALCO on a quarterly basis.

The following table sets forth the distribution of repricing opportunities of
interest-earning assets and interest-bearing liabilities, the interest rate
sensitivity gap (i.e., interest rate sensitive assets less interest rate
sensitive liabilities), the cumulative interest rate sensitivity gap and the
cumulative gap as a percentage of total interest-earning assets as of December
31, 2004. The table also sets forth the time periods during which
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms.


                                       33
<PAGE>

          Distribution of Repricing Opportunities at December 31, 2004
          ------------------------------------------------------------

<TABLE>
<CAPTION>
(dollars in thousands)                                               After three    After one
                                                     Next day but    months but      year but        After
                                                     within three     within 12      within 5        five
                                       Immediately      Months         Months         years          years         Total
                                       -----------   ------------    -----------    ---------      --------      --------
<S>                                      <C>           <C>            <C>            <C>           <C>           <C>
Interest rate sensitivity gap:
Loans                                    $ 71,377      $ 13,685       $  1,566       $ 14,005      $ 16,061      $116,694
Available-for-sale investment
   securities (1)                              --         1,003          3,495         20,611        12,990        38,099
Federal funds sold                         17,750            --             --             --            --        17,750
                                         --------      --------       --------       --------      --------      --------

  Total interest-earning assets          $ 89,127      $ 14,688       $  5,061       $ 34,616      $ 29,051      $172,543
                                         ========      ========       ========       ========      ========      ========

Interest-bearing demand deposits         $     --      $ 45,927       $     --       $     --      $     --      $ 45,927
Other interest-bearing deposits                --         8,762             --             --            --         8,762
Time deposits                                  --         6,912         26,619          9,810            --        43,341
Long-term debt                                 --            45            138          5,478         3,662         9,323
                                         --------      --------       --------       --------      --------      --------
  Total interest-bearing liabilities     $     --      $ 61,646       $ 26,757       $ 15,288      $  3,662      $107,353
                                         ========      ========       ========       ========      ========      ========

Interest rate sensitivity gap            $ 89,127      $(46,958)      $(21,696)      $ 19,328      $ 25,389      $ 65,190
Cumulative gap                           $ 89,127      $ 42,169       $ 20,473       $ 39,801      $ 65,190
Cumulative gap percentage
   to total earning assets                   51.7%         24.4%          11.9%          23.1%         37.8%
</TABLE>

      (1)   Investment securities are stated at fair value.

Based on the contractual terms of its assets and liabilities, the Company was
asset sensitive in terms of its exposure to interest rates as of December 31,
2004. Accordingly, if interest rates rise, the Company's net interest margin is
expected to improve. This improvement will be mitigated for a time by the loans
in the portfolio subject to interest rate floors. Each of these loans will
remain at their respective floor interest rate until market rates have risen
sufficiently to permit the loan rate to be increased.

Liquidity Management

Liquidity is the ability to provide funds to meet customers' loan and deposit
needs and to fund operations in a timely and cost effective manner. The
Company's primary source of funds is deposits. On an ongoing basis, management
anticipates funding needs for loans, asset purchases, maturing deposits, and
other needs and initiates deposit promotions as needed. Management measures the
Company's liquidity position monthly through the use of regulatory and internal
liquidity calculations. These are monitored on an ongoing basis by the board of
directors and ALCO.

In recent years, the Company has had considerable success in attracting deposits
due primarily to establishing deposit relationships with business customers and
by offering competitive rates and high quality service to deposit customers.
Management also recognizes that the economic slowdown that commenced in 2000
contributed to relatively high liquidity levels at many banks. A sustained
favorable growth rate in the United States economy could lead to a general
outflow of funds from banks. In this scenario, the Company may be required to
operate with a higher average cost of deposits in order to maintain necessary
liquidity.


                                       34
<PAGE>

The Company's off-balance sheet financing arrangements are primarily limited to
commitments to extend credit and standby letters of credit, which totaled $26.4
million and $1.1 million, respectively, at December 31, 2004. Management
monitors these arrangements each accounting period in the overall assessment of
the Company's liquidity needs. The Company has no other off-balance sheet
arrangements that are likely to have a material effect on its financial
condition, results of operations, liquidity, capital expenditures or capital
resources. The Company does not retain a repurchase option or contingent
interest in any of its loan participations.

As stated above, the primary goal of the Company's investment policy is to
maintain a specified level of liquidity. Accordingly, all investment securities
are classified as available-for-sale. Management periodically evaluates the
securities portfolio based on current and forecasted liquidity needs, the most
significant being the funding of loans. The Company may sell certain securities
and purchase others in order to better align the cash flows from the investment
portfolio with its operating needs.

As discussed above, the Company's wholly-owned subsidiary, Valley Commerce Trust
I, issued trust preferred securities for gross proceeds of $3.0 million on April
7, 2003. Quarterly interest payments on these securities are considered in
management's normal evaluation of liquidity needs. Although the trust preferred
securities do not mature until April 7, 2033, Valley Commerce Trust I has the
option to redeem the trust preferred securities on or at any time after April 7,
2008. The securities may not be redeemed prior to this date without penalty. The
Company does not intend to redeem these securities prior to maturity at the
present time, but will carefully consider the impact on capital and liquidity of
such redemption if circumstances change.

Other sources of liquidity include borrowing arrangements with correspondent
banks and FHLB (see "Borrowings"). FHLB advances are used to fund certain fixed
rate loans in order to limit interest rate risk. FHLB advances are generally
structured so that cash flows from the loan generally provide the liquidity to
repay the related indebtedness. The Company's fixed rate loans and the related
FHLB advances are subject to prepayment penalties.

The Company's strategic objectives include expanding through opening of "de
novo" branches and loan production offices in the near term and acquiring branch
offices from other institutions in the longer term. The addition of branch
offices is expected to involve significant cash outlays; e.g., for buildings,
improvements, and equipment. The Company's planning efforts consider the impact
of such cash outlays so that sufficient liquidity is maintained for both capital
and operational needs.

In 2003, the Company acquired the deposits and office equipment of Humboldt
Bank's Fresno branch and assumed the branch office lease. The acquisition
resulted in the receipt of $5.7 million from Humboldt Bank, comprised primarily
of funds from time certificates. The Fresno Branch commenced as a full service
branch of Bank of Visalia in October 2003. Since that time, branch deposits have
increased and are providing much of the underlying funding for lending
operations in the Fresno market.


                                       35
<PAGE>

ITEM 7 - FINANCIAL STATEMENTS

The independent auditors' report and financial statements listed below are
included herein:

                                                                            Page
                                                                            ----

      I.    Report of Independent Registered Public Accounting Firm          37

      II.   Consolidated Balance Sheet                                       38

      III.  Consolidated Statement of Income                                 39

      IV.   Consolidated Statement of Changes in Shareholders' Equity        40

      V.    Consolidated Statement of Cash Flows                             41

      VI.   Notes to Consolidated Financial Statements                       43


                                       36
<PAGE>

             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, 2004 and
2003,   and  the  related   consolidated   statements  of  income,   changes  in
shareholders'  equity  and cash  flows for each of the two  years in the  period
ended  December  31,  2004.  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 provide 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, 2004 and 2003, and the
consolidated  results of their  operations  and their cash flows for each of the
two years in the  period  ended  December  31,  2004,  in  conformity  with U.S.
generally accepted accounting principles.


                                        /s/ Perry-Smith LLP

Sacramento, California
February 24, 2005


                                       37
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET

                           December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                     2004               2003
                                                                -------------      -------------
<S>                                                             <C>                <C>
                            ASSETS

Cash and due from banks                                         $   9,036,062      $   9,989,585
Federal funds sold                                                 17,750,000          1,765,000
                                                                -------------      -------------

       Total cash and cash equivalents                             26,786,062         11,754,585

Interest-bearing deposits in banks                                                       198,000
Available-for-sale investment securities (Notes 3 and 7)           38,099,000         21,888,000
Loans, less allowance for loan losses of $1,400,818
   in 2004 and $1,392,735 in 2003 (Notes 4, 7, 9 and 13)          114,834,245        101,177,445
Bank premises and equipment, net (Note 5)                           1,033,586          1,006,610
Cash surrender value of bank-owned life insurance
   (Note 14)                                                        2,677,318          1,578,693
Accrued interest receivable and other assets (Note 12)              2,576,391          2,007,928
                                                                -------------      -------------

                                                                $ 186,006,602      $ 139,611,261
                                                                =============      =============
                        LIABILITIES AND
                     SHAREHOLDERS' EQUITY

Deposits:
   Non-interest bearing                                         $  58,394,071      $  39,804,949
   Interest bearing (Note 6)                                       54,689,181         46,536,482
   Time (Note 6)                                                   43,340,652         33,326,540
                                                                -------------      -------------

         Total deposits                                           156,423,904        119,667,971

Accrued interest payable and other liabilities                        834,588            638,314
Long-term debt (Note 7)                                             9,322,472          5,192,102
Junior subordinated deferrable interest debentures (Note 8)         3,093,000          3,093,000
                                                                -------------      -------------

         Total liabilities                                        169,673,964        128,591,387
                                                                -------------      -------------

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 - 1,788,258
     shares in 2004 and 1,369,369 shares in 2003                   14,451,969          9,837,372
   Retained earnings                                                1,959,281          1,201,124
   Accumulated other comprehensive loss, net of taxes
     (Notes 3 and 15)                                                 (78,612)           (18,622)
                                                                -------------      -------------

         Total shareholders' equity                                16,332,638         11,019,874
                                                                -------------      -------------

                                                                $ 186,006,602      $ 139,611,261
                                                                =============      =============
</TABLE>

                     The accompanying notes are an integral
                part of these consolidated financial statements.


                                       38
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                        CONSOLIDATED STATEMENT OF INCOME

                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                  2004           2003
                                                               ----------     ----------
<S>                                                            <C>            <C>
Interest income:
   Interest and fees on loans                                  $7,692,903     $6,292,204
   Interest on investment securities:
     Taxable                                                      772,604        737,907
     Exempt from Federal income taxes                             133,233         74,837
   Interest on Federal funds sold                                 136,276         71,802
   Interest on deposits in banks                                    1,783         11,182
                                                               ----------     ----------

       Total interest income                                    8,736,799      7,187,932
                                                               ----------     ----------

Interest expense:
   Interest on deposits (Note 6)                                1,195,237      1,124,459
   Interest on borrowings (Note 7)                                276,966        193,113
   Interest on junior subordinated deferrable interest
     debentures (Note 8)                                          149,974        107,928
                                                               ----------     ----------

       Total interest expense                                   1,622,177      1,425,500
                                                               ----------     ----------

       Net interest income                                      7,114,622      5,762,432

Provision for loan losses (Note 4)                                138,000        315,000
                                                               ----------     ----------

       Net interest income after provision for loan losses      6,976,622      5,447,432
                                                               ----------     ----------

Non-interest income:
   Service charges                                                516,976        495,575
   Gain on sale of available-for-sale investment
     securities, net (Note 3)                                       7,390        131,346
   Gain on other real estate                                      373,391
   Mortgage loan brokerage fees                                   176,242        201,751
   Earnings on cash surrender value of life insurance
     policies (Note 14)                                            98,625         74,557
   Other                                                          168,834        151,411
                                                               ----------     ----------

       Total non-interest income                                1,341,458      1,054,640
                                                               ----------     ----------

Non-interest expense:
   Salaries and employee benefits (Notes 4 and 14)              3,129,629      2,419,150
   Occupancy and equipment (Notes 5 and 9)                        655,468        550,290
   Other (Note 11)                                              1,876,736      1,678,621
                                                               ----------     ----------

       Total non-interest expense                               5,661,833      4,648,061
                                                               ----------     ----------

       Income before provision for income taxes                 2,656,247      1,854,011

Provision for income taxes (Note 12)                            1,027,000        705,000
                                                               ----------     ----------

         Net income                                            $1,629,247     $1,149,011
                                                               ==========     ==========

Basic earnings per share (Note 10)                             $     1.13     $     0.81
                                                               ==========     ==========

Diluted earnings per share (Note 10)                           $     1.06     $     0.77
                                                               ==========     ==========
</TABLE>

        The accompanying notes are an integral part of these consolidated
                              financial statements.


                                       39
<PAGE>
<TABLE>
<CAPTION>

                                         VALLEY COMMERCE BANCORP AND SUBSIDIARY
                                CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                                     For the Years Ended December 31, 2004 and 2003

                                                                                    Accumulated
                                                                                        Other
                                                                                       Compre-
                                                                                       hensive         Total           Total
                                                 Common Stock                           (Loss)         Share-         Compre-
                                         --------------------------     Retained        Income        holders'        hensive
                                            Shares         Amount       Earnings    (Net of Taxes)     Equity          Income
                                         -----------    -----------    -----------  --------------   -----------    -----------
<S>                                        <C>          <C>            <C>            <C>            <C>            <C>
Balance, January 1, 2003                   1,286,122    $ 9,020,493    $   746,251    $   170,381    $ 9,937,125

Comprehensive income (Note 15):
   Net income                                                            1,149,011                     1,149,011    $ 1,149,011
   Other comprehensive loss, net
     of tax:
       Net change in unrealized losses
         on available-for-sale invest-
         ment securities                                                                 (189,003)      (189,003)      (189,003)
                                                                                                                    -----------

           Total comprehensive income                                                                               $   960,008
                                                                                                                    ===========

Stock dividend                                64,102        691,879       (691,879)
Cash paid for fractional shares                                             (2,259)                       (2,259)
Stock options exercised (Note 10)             19,145        125,000                                      125,000
                                         -----------    -----------    -----------    -----------    -----------

Balance, December 31, 2003                 1,369,369      9,837,372      1,201,124        (18,622)    11,019,874

Comprehensive income (Note 15):
   Net income                                                            1,629,247                     1,629,247    $ 1,629,247
   Other comprehensive loss, net
     of tax:
       Net change in unrealized losses
         on available-for-sale invest-
         ment securities                                                                  (59,990)       (59,990)       (59,990)
                                                                                                                    -----------

           Total comprehensive income                                                                               $ 1,569,257
                                                                                                                    ===========

Stock dividend                                68,139        865,364       (865,364)
Cash paid for fractional shares                                             (5,726)                       (5,726)
Proceeds from sale of stock (Note 10)        350,750      3,749,233                                    3,749,233
                                         -----------    -----------    -----------    -----------    -----------

Balance, December 31, 2004                 1,788,258    $14,451,969    $ 1,959,281    $   (78,612)   $16,332,638
                                         ===========    ===========    ===========    ===========    ===========

<CAPTION>
                                                                                          2004           2003
                                                                                      -----------    -----------
<S>                                                                                   <C>            <C>
Disclosure of reclassification amount, net of taxes (Note 15):

   Unrealized holding gains arising during the year                                   $   (55,446)   $  (107,594)
   Less: reclassification adjustment for gains included in
     net income                                                                             4,544         81,409
                                                                                      -----------    -----------

   Net change in unrealized losses on available-for-sale
     investment securities                                                            $   (59,990)   $  (189,003)
                                                                                      ===========    ===========

                                           The accompanying notes are an integral
                                       part of these consolidated financial statements.
</TABLE>

                                       40
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS

                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                 2004              2003
                                                             ------------      ------------
<S>                                                          <C>               <C>
Cash flows from operating activities:
   Net income                                                $  1,629,247      $  1,149,011
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Provision for loan losses                                    138,000           315,000
     Increase in deferred loan origination fees, net              127,690            86,756
     Depreciation                                                 160,570           127,201
     Amortization of deposit premium                               62,538            62,538
     Net gain on sale of available-for-sale investment
       securities                                                  (7,390)         (131,346)
     Dividends on Federal Home Loan Bank stock                    (17,600)
     Amortization and accretion of securities, net                302,465           224,792
     Gain on sale of other real estate                           (373,391)
     Loss on disposition of premises and equipment                  1,485            25,320
     Provision for deferred income taxes                          (42,000)         (263,000)
     Increase in cash surrender value of life insurance
       policies                                                   (98,625)          (74,557)
     (Increase) decrease in accrued interest receivable
       and other assets                                          (190,874)            6,604
     Increase (decrease) in accrued interest payable
       and other liabilities                                      196,274           (15,357)
                                                             ------------      ------------

         Net cash provided by operating activities              1,888,389         1,512,962
                                                             ------------      ------------

Cash flows from investing activities:
   Cash acquired in the purchase of selected assets
     and liabilities of another bank                                              5,768,891
   Proceeds from matured and called available-for-sale
     investment securities                                      7,800,000         1,400,379
   Proceeds from sale of available-for-sale investment
     securities                                                 1,297,000        20,718,962
   Purchases of available-for-sale investment securities      (27,940,875)      (23,366,582)
   Proceeds from principal repayments from available-
     for-sale government-guaranteed mortgage-backed
     securities                                                 2,239,983         4,907,667
   Decrease in interest-bearing deposits with banks               198,000           200,000
   Net increase in loans                                      (14,558,735)      (24,550,717)
   Purchase of Federal Home Loan Bank stock                      (342,700)         (133,000)
   Purchases of premises and equipment                           (189,031)         (291,738)
   Proceeds from sale of other real estate                      1,818,922
   Purchase of other real estate                                 (809,286)
   Proceeds from surrender of life insurance policy                                 589,176
   Life insurance policy deposits                              (1,000,000)
                                                             ------------      ------------

         Net cash used in investing activities                (31,486,722)      (14,756,962)
                                                             ------------      ------------
</TABLE>

                                   (Continued)


                                       41
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Continued)
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                  2004              2003
                                                              ------------      ------------
<S>                                                           <C>               <C>
Cash flows from financing activities:
   Net increase in demand, interest-bearing and
     savings deposits                                         $ 26,741,821      $ 11,776,266
   Net increase (decrease) in time deposits                     10,014,112        (5,650,728)
   Proceeds from exercise of stock options                                           125,000
   Proceeds from issuance of stock                               3,749,233
   Proceeds from the issuance of junior subordinated
     deferrable interest debentures                                                3,093,000
   Proceeds from Federal Home Loan Bank term
     advances                                                    4,150,000         3,150,000
   Payments on Federal Home Loan Bank term
     advances                                                      (19,630)          (18,168)
   Cash paid to repurchase fractional shares                        (5,726)           (2,259)
                                                              ------------      ------------

         Net cash provided by financing activities              44,629,810        12,473,111
                                                              ------------      ------------

         Increase (decrease) in cash and cash equivalents       15,031,477          (770,889)

Cash and cash equivalents at beginning of year                  11,754,585        12,525,474
                                                              ------------      ------------

Cash and cash equivalents at end of year                      $ 26,786,062      $ 11,754,585
                                                              ============      ============

Supplemental disclosure of cash flow information:

   Cash paid during the year for:
     Interest expense                                         $  1,601,626      $  1,403,140
     Income taxes                                             $  1,095,000      $    893,281

Non-cash investing activities:
   Net change in unrealized gain on available-for-sale
     investment securities                                    $    (97,817)     $   (334,128)

On October 10, 2003, the Company purchased
   certain assets and liabilities of the
   Fresno branch from Humboldt Bank (Note 1):
     Deposits assumed                                                           $  5,783,566
     Premises and equipment                                                          (20,000)
     Other liabilities                                                                 5,325
                                                                                ------------

         Cash received                                                          $  5,768,891
                                                                                ============
</TABLE>

                     The accompanying notes are an integral
                part of these consolidated financial statements.


                                       42
<PAGE>

                     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 Bank
      of Visalia (the "Bank") 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 approved by
      the Company's  shareholders on July 16, 2002, and all required  regulatory
      approvals  with  respect  to  the   reorganization   were  obtained.   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  operates  four  branches in  California,  including  branches in
      Visalia,  Fresno,  Woodlake and Tipton. 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.

      On  March  19,  2003,  the  Company  formed  Valley  Commerce  Trust  I, a
      wholly-owned  unconsolidated  subsidiary and a Delaware statutory business
      trust, for the exclusive purpose of issuing trust preferred securities.

      On May 16, 2003,  the Bank  entered into an agreement to purchase  certain
      assets and  liabilities  of the Fresno  Branch  Office of  Humboldt  Bank.
      Regulatory  approval was  subsequently  received from the Federal  Deposit
      Insurance   Corporation   and  the  California   Department  of  Financial
      Institutions,  and the transaction was consummated on October 10, 2003. On
      this date,  the Bank  acquired  the branch  assets,  comprised  of banking
      equipment  and office  furniture,  and  assumed  the  branch  liabilities,
      consisting of customer deposits.  All assets and liabilities were acquired
      at face value (without premium or discount) which approximated fair value.

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,  Bank of Visalia.  All
      significant intercompany balances and transactions have been eliminated.

      Valley   Commerce  Trust  I  is  not   consolidated   into  the  Company's
      consolidated financial statements and, accordingly, is accounted for under
      the  equity  method.  The  junior   subordinated   debentures  issued  and
      guaranteed  by the  Company  and held by the  Trust are  reflected  on the
      Company's  consolidated balance sheet in accordance with the provisions of
      FASB Interpretation No. 46, Consolidation of Variable Interest Entities.

      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.


                                       43
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      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.

      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, 2004 and 2003,  Federal
      Home Loan Bank stock totaled $622,600 and $262,300,  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.


                                       44
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Loans (Continued)
      -----------------

      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.  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.

      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.

      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  problem  loans,  potential
      losses inherent in the portfolio taken as a whole and economic  conditions
      in the Bank's service area.

      Loans determined to be impaired or classified are  individually  evaluated
      by management for specific risk of loss. In addition,  reserve factors are
      assigned to currently performing loans based on management's assessment of
      the following for each identified loan type: (1) inherent credit risk, (2)
      historical losses and, (3) where the Bank has not experienced  losses, the
      loss  experience  of peer banks.  Management  also  computes  specific and
      expected  loss  reserves  for  loan   commitments.   These  estimates  are
      particularly susceptible to changes in the economic environment and market
      conditions.

      The Bank's Loan  Committee  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.

      The allowance is established  through a provision for loan losses which is
      charged to expense.  Additions to the  allowance  are expected to maintain
      the adequacy of the total  allowance  after credit losses and loan growth.
      The allowance for loan losses at December 31, 2004 and 2003, respectively,
      reflects management's estimate of possible losses in the portfolio.


                                       45
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      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. A valuation allowance for losses on
      other real  estate is  maintained  to provide  for  temporary  declines in
      value.  The  allowance is  established  through a provision  for losses on
      other real estate which is included in other expenses. Subsequent gains or
      losses on sales or writedowns  resulting  from  permanent  impairment  are
      recorded in other income or expenses as incurred.

      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  which  occurred in prior years and are  amortized  using the
      straight-line method over ten years.  Amortization expense totaled $62,538
      for each of the years in the two-year  period ended December 31, 2004. The
      core  deposit  intangibles  totaled  $195,332 and $257,870 at December 31,
      2004 and 2003, respectively.

      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.


                                       46
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Cash and Cash Equivalents
      -------------------------

      For the purpose of the  statement  of cash flows,  cash and 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 limits as of December 31, 2004 was
      $3,059,717.

      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 which  shares in the  earnings of the  Company.  The treasury
      stock method has been applied to  determine  the dilutive  effect of stock
      options  in  computing   diluted   EPS.   Earnings  per  share  have  been
      retroactively  adjusted for the 5% stock  dividends  that occurred in 2004
      and 2003.

      Stock-Based Compensation
      ------------------------

      At December 31, 2004, the Company had one stock-based  compensation  plan,
      the Valley  Commerce  Bancorp Amended and Restated 1997 Stock Option Plan,
      which is  described  more fully in Note 10. The Company  accounts for this
      plan under the recognition  and measurement  principles of APB Opinion No.
      25, Accounting for Stock Issued to Employees, and related Interpretations.
      No  stock-based  compensation  cost is  reflected  in net  income,  as all
      options  granted  under  these  plans had an  exercise  price equal to the
      market value of the underlying common stock on the date of grant.


                                       47
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Stock-Based Compensation (continued)
      ------------------------------------

      Pro forma  adjustments  to the  Company's  consolidated  net  earnings and
      earnings  per share are  disclosed  during the years in which the  options
      become vested.  The following  table  illustrates the effect on net income
      and  earnings  per  share  if the  Company  had  applied  the  fair  value
      recognition   provisions  of  FASB  Statement  No.  123,   Accounting  for
      Stock-Based Compensation, to stock-based compensation.

                                                      2004           2003
                                                   ----------     ----------

      Net income, as reported                      $1,629,247     $1,149,011
      Deduct: Total stock-based compensation
        expense determined under the fair value
        based method for all awards, net of
        related tax effects                           (31,000)       (30,000)
                                                   ----------     ----------

      Pro forma net income                         $1,598,247     $1,119,011
                                                   ==========     ==========

      Basic earnings per share - as reported       $     1.13     $     0.81
      Basic earnings per share - pro forma         $     1.11     $     0.79

      Diluted earnings per share - as reported     $     1.06     $     0.77
      Diluted earnings per share - pro forma       $     1.04     $     0.75

      Weighted average fair value of options
        granted during the year                    $     4.10     $     2.83

      The fair value of each option was  estimated on the date of grant using an
      option-pricing model with the following assumptions:

                                                       2004          2003
                                                    ---------     ---------

      Dividend yield                                      N/A           N/A
      Expected volatility                               41.16         33.56
      Risk-free interest rate                             4.0%          3.8%
      Expected option life                          7.5 years     7.5 years

      Use of Estimates
      ----------------

      The  preparation  of financial  statements  in conformity  with  generally
      accepted  accounting  principles 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.


                                       48
<PAGE>

                     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 2004.

      Impact of New Financial Accounting Standards
      --------------------------------------------

      Other-Than-Temporary Impairment of Securities

      In June 2004, the Financial  Accounting  Standards  Board (FASB)  ratified
      Emerging   Issues  Task  Force   (EITF)   Issue   03-1,   The  Meaning  of
      Other-than-Temporary Impairment and Its Application to Certain Investments
      (EITF 03-1).  EITF 03-1 includes  additional  guidance for  evaluating and
      recording  impairment  losses on debt and equity  investments,  as well as
      disclosure  requirements for investments that are deemed to be temporarily
      impaired.  The proposed guidance  indicates that an investor must have the
      intent and ability to hold an  investment  until a forecasted  recovery of
      the fair  value up to or  beyond  the cost of the  investment  in order to
      determine  that any impairment is temporary.  In September  2004, the FASB
      delayed the effective date of the recognition and measurement  guidance of
      EITF 03-1, pending further deliberations.  The disclosures for investments
      that  are  deemed  temporarily  impaired  are  included  in  Note 2 to the
      consolidated  financial  statements.  Once the FASB  has  reached  a final
      decision on the measurement and recognition  provisions,  the Company will
      evaluate the impact of the adoption of EITF 03-1.

      Share-Based Payments

      In December 2004, the FASB issued Statement Number 123 (revised 2004) (FAS
      123 (R)),  Share-Based  Payments.  FAS 123 (R)  requires  all  entities to
      recognize  compensation  expense  in an amount  equal to the fair value of
      share-based  payments  such as stock  options  granted to  employees.  The
      Company is required to apply FAS 123 (R) on a modified prospective method.
      Under this method, the Company is required to record compensation  expense
      (as  previous  awards  continue  to  vest)  for the  unvested  portion  of
      previously granted awards that remain outstanding at the date of adoption.
      In  addition,  the  Company  may elect to adopt  FAS 123 (R) by  restating
      previously  issued  financial  statements,  basing  the  expense  on  that
      previously  reported in their pro forma  disclosures  required by FAS 123.
      FAS 123 (R) is effective for the first  reporting  period  beginning after
      December 15, 2005.  Management  has not  completed  its  evaluation of the
      effect that FAS 123 (R) will have,  but  believes  that the effect will be
      consistent with its previous pro forma disclosures.


                                       49
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

3.    AVAILABLE-FOR-SALE INVESTMENT SECURITIES

      The  amortized  cost  and  estimated  fair  value  of   available-for-sale
      investment  securities  at  December  31, 2004 and 2003  consisted  of the
      following:

<TABLE>
<CAPTION>
                                                                  2004
                                      --------------------------------------------------------------
                                                          Gross            Gross          Estimated
                                       Amortized       Unrealized       Unrealized          Fair
                                          Cost            Gains           Losses            Value
                                      ------------    ------------     ------------     ------------
<S>                                   <C>             <C>              <C>              <C>
      Debt securities:
        U.S. Government agencies      $ 20,987,517    $      5,073     $   (117,590)    $ 20,875,000
        Mortgage-backed securities       8,790,645          12,529          (49,174)       8,754,000
        Municipal securities             4,381,922          65,817          (30,739)       4,417,000
        Corporate debt securities        4,066,778           3,968          (17,746)       4,053,000
                                      ------------    ------------     ------------     ------------

                                      $ 38,226,862    $     87,387     $   (215,249)    $ 38,099,000
                                      ============    ============     ============     ============
</TABLE>

      Net unrealized losses on available-for-sale investment securities totaling
      $127,862 were  recorded,  net of $49,250 in tax benefits,  as  accumulated
      other comprehensive loss within shareholders' equity at December 31, 2004.
      Proceeds and realized gains from the sale of available-for-sale investment
      securities  for the year ended  December 31, 2004 totaled  $1,297,000  and
      $7,390, respectively.

<TABLE>
<CAPTION>
                                                                  2003
                                      --------------------------------------------------------------
                                                          Gross            Gross          Estimated
                                       Amortized       Unrealized       Unrealized          Fair
                                          Cost            Gains           Losses            Value
                                      ------------    ------------     ------------     ------------
<S>                                   <C>             <C>              <C>              <C>
      Debt securities:
        U.S. Government agencies      $  9,614,474    $     17,740     $    (63,214)    $  9,569,000
        Mortgage-backed securities       9,422,665          11,655          (61,320)       9,373,000
        Municipal securities             1,741,150          63,131           (2,281)       1,802,000
        Corporate debt securities        1,139,756           4,244        1,144,000
                                      ------------    ------------     ------------     ------------

                                      $ 21,918,045    $     96,770     $   (126,815)    $ 21,888,000
                                      ============    ============     ============     ============
</TABLE>

      Net unrealized losses on available-for-sale investment securities totaling
      $30,045 were  recorded,  net of $11,423 in tax  benefits,  as  accumulated
      other comprehensive loss within shareholders' equity at December 31, 2003.
      Proceeds and realized gains from the sale of available-for-sale investment
      securities  for the year ended December 31, 2003 totaled  $20,718,962  and
      $131,346, respectively.


                                       50
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

      Investment  securities  with  unrealized  losses at December  31, 2004 are
      summarized and classified  according to the duration of the loss period as
      follows:

<TABLE>
<CAPTION>
                                     Less than 12 Months                12 Months or More                       Total
                                -----------------------------     -----------------------------     -----------------------------
                                   Fair           Unrealized         Fair           Unrealized         Fair           Unrealized
                                   Value            Losses           Value            Losses           Value            Losses
                                ------------     ------------     ------------     ------------     ------------     ------------
<S>                             <C>              <C>              <C>              <C>              <C>              <C>
      Debt securities:
        U.S. Government
           agencies             $ 16,389,000     $    (86,573)    $  2,469,000     $    (31,017)    $ 18,858,000     $   (117,590)
        Mortgage-backed
           securities              1,589,000          (12,504)       4,335,000          (36,670)       5,924,000          (49,174)
        Municipal securities       1,975,000          (29,612)         106,000           (1,127)       2,081,000          (30,739)
        Corporate debt
           securities              2,490,000          (17,746)                                         2,490,000          (17,746)
                                ------------     ------------     ------------     ------------     ------------     ------------

                                $ 22,443,000     $   (146,435)    $  6,910,000     $    (68,814)    $ 29,353,000     $   (215,249)
                                ============     ============     ============     ============     ============     ============
</TABLE>

      At December 31, 2004,  the Company held 90 investment  securities of which
      45 were in a loss  position  for less than twelve  months and 20 were in a
      loss  position and had been in a loss  position for twelve months or more.
      Management  periodically evaluates each investment security for other than
      temporary  impairment,  relying  primarily  on industry  analyst  reports,
      observation  of  market   conditions   and  interest  rate   fluctuations.
      Management  believes it will be able to collect all amounts due  according
      to the contractual terms of the underlying  investment securities and that
      the noted  decline in fair value is  considered  temporary and due only to
      interest rate fluctuations.

      The amortized  cost and estimated  fair value of investment  securities at
      December  31,  2003 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.

<TABLE>
<CAPTION>
                                                                                  Estimated
                                                                   Amortized         Fair
                                                                      Cost           Value
                                                                  -----------    -----------
<S>                                                               <C>            <C>
      Within one year                                             $ 4,013,487    $ 4,000,000
      After one year through five years                            19,573,436     19,488,000
      After five years through ten years                            3,801,774      3,819,000
      After ten years                                               2,047,520      2,038,000
                                                                  -----------    -----------

                                                                   29,436,217     29,345,000

      Investment securities not due at a single maturity date:
           Government-guaranteed mortgage-
             backed securities                                      8,790,645      8,754,000
                                                                  -----------    -----------

                                                                  $38,226,862    $38,099,000
                                                                  ===========    ===========
</TABLE>

      Investment   securities  with  amortized  costs  totaling  $9,938,778  and
      $10,192,544 and estimated fair values totaling  $9,930,000 and $10,419,000
      were  pledged  to  secure  public   deposits  and   short-term   borrowing
      arrangements at December 31, 2004 and 2003, respectively (see Note 7).


                                       51
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

4.    LOANS

      Outstanding loans are summarized below:

                                                   December 31,
                                         --------------------------------

                                             2004               2003
                                         -------------      -------------

      Commercial                         $  34,389,292      $  27,900,065
      Real estate - mortgage                60,687,843         55,406,424
      Real estate - construction            14,693,759         10,924,521
      Agricultural                           4,535,279          4,884,691
      Consumer and other                     2,388,303          3,786,202
                                         -------------      -------------

                                           116,694,476        102,901,903

      Deferred loan fees, net                 (459,413)          (331,723)
      Allowance for loan losses             (1,400,818)        (1,392,735)
                                         -------------      -------------

                                         $ 114,834,245      $ 101,177,445
                                         =============      =============

      Changes in the allowance for loan losses were as follows:

                                                Year Ended December 31,
                                              ---------------------------

                                                  2004            2003
                                              -----------     -----------

      Balance, beginning of year              $ 1,392,735     $ 1,062,110
      Provision charged to operations             138,000         315,000
      Losses charged to allowance                (148,405)        (17,524)
      Recoveries                                   18,488          33,149
                                              -----------     -----------

      Balance, end of year                    $ 1,400,818     $ 1,392,735
                                              ===========     ===========

      The  recorded  investment  in loans that were  considered  to be  impaired
      totaled   $81,500  and   $1,038,000   at  December   31,  2004  and  2003,
      respectively.  There was no related allowance for loan losses for impaired
      loans at December 31, 2004, and $177,000 at December 31, 2003. The average
      recorded  investment  in impaired  loans for the years ended  December 31,
      2004  and  2003  was  $978,200  and  $1,200,470,  respectively.  The  Bank
      recognized  $423,000  and  $3,900 in  interest  income on a cash basis for
      impaired  loans  during  the  years  ended  December  31,  2004 and  2003,
      respectively.

      At  December  31,  2004 and 2003,  nonaccrual  loans  totaled  $81,000 and
      $1,038,000,  respectively.  Interest  foregone on nonaccrual loans totaled
      $2,700  and  $65,000  for the  years  ended  December  31,  2004 and 2003,
      respectively.

      Salaries and employee  benefits  totaling  $207,899 and $211,705 have been
      deferred as loan  origination  costs  during the years ended  December 31,
      2004 and 2003, respectively.


                                       52
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

5.    PREMISES AND EQUIPMENT

      Premises and equipment consisted of the following:

                                                     December 31,
                                              ---------------------------

                                                  2004            2003
                                              -----------     -----------

      Furniture and equipment                 $ 1,317,064     $ 1,189,249
      Premises                                    544,243         542,949
      Leasehold improvements                      206,838         175,519
      Land                                         51,894          51,894
                                              -----------     -----------

                                                2,120,039       1,959,611

             Less accumulated depreciation
                and amortization               (1,086,453)       (953,001)
                                              -----------     -----------

                                              $ 1,033,586     $ 1,006,610
                                              ===========     ===========

      Depreciation and amortization  included in occupancy and equipment expense
      totaled  $160,570 and  $127,201 for the years ended  December 31, 2004 and
      2003, respectively.

6.    INTEREST-BEARING DEPOSITS

      Interest-bearing deposits consisted of the following:

                                                     December 31,
                                             -----------------------------

                                                2004              2003
                                             -----------       -----------

      Savings                                $ 8,762,134       $ 6,771,331
      Money market                            25,112,038        22,568,213
      NOW accounts                            20,815,009        17,196,938
      Time, $100,000 or more                  23,354,908        15,410,561
      Other time                              19,985,744        17,915,979
                                             -----------       -----------

                                             $98,029,833       $79,863,022
                                             ===========       ===========

      Aggregate annual maturities of time deposits are as follows:

              Year Ending
              December 31,
              ------------

                  2005                             $36,428,615
                  2006                               2,128,910
                  2007                                 205,397
                  2008                               3,479,564
                  2009                               1,098,166
                                                   -----------

                                                   $43,340,652
                                                   ===========


                                       53
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

6.    INTEREST-BEARING DEPOSITS (Continued)

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

                                                 Year Ended December 31,
                                              ----------------------------

                                                 2004              2003
                                              ----------        ----------

      Savings                                 $   35,050        $   22,855
      Money market                               228,710           217,092
      NOW accounts                               153,313           110,614
      Time, $100,000 or more                     427,116           395,498
      Other time                                 351,048           378,400
                                              ----------        ----------

                                              $1,195,237        $1,124,459
                                              ==========        ==========

7.    BORROWING ARRANGEMENTS

      The Bank has a $2,000,000  federal funds line of credit agreement with one
      of its correspondent banks. The Bank also maintains a $1,000,000 letter of
      credit  with  another   correspondent   bank.  There  were  no  borrowings
      outstanding  under any of these borrowing  arrangements as of December 31,
      2004, and 2003.

      In  addition,  the Bank could  borrow from the  Federal  Home Loan Bank on
      either a short-term or long-term basis up to approximately $10,041,151 and
      $7,519,000  as of  December  31,  2004  and  2003,  respectively.  Various
      mortgage loans totaling  approximately  $14,534,606  and $16,138,000 as of
      December  31,  2004  and  2003,  respectively,   secured  these  borrowing
      arrangements.

      As of December 31, 2004 and 2003,  outstanding  advances  from the Federal
      Home Loan Bank (FHLB) consisted of the following:

<TABLE>
<CAPTION>
                           2004                                       2003
         ---------------------------------------    ---------------------------------------

           Amount      Rate      Maturity Date        Amount      Rate      Maturity Date
         ----------    ----     ----------------    ----------    ----     ----------------
<S>      <C>           <C>      <C>                 <C>           <C>      <C>
         $  200,000    2.20%     March 6, 2006      $  200,000    2.20%     March 6, 2006
            200,000    2.82%    October 23, 2006       200,000    2.82%    October 23, 2006
            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     1,042,102    7.41%     June 22, 2010
            900,000    3.94%     April 27, 2009      1,000,000    6.02%    January 2, 2012
                                                    ----------
            400,000    4.51%      May 12, 2009
          1,022,472    7.41%     June 22, 2010
            100,000    5.09%      May 12, 2011
          1,300,000    4.01%    December 6, 2011
          1,250,000    4.44%    December 6, 2011
          1,000,000    6.02%    January 2, 2012
         ----------

         $9,322,472                                 $5,192,102
         ==========                                 ==========
</TABLE>


                                       54
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

7.    BORROWING ARRANGEMENTS (Continued)

      Future maturities of outstanding FHLB advances are as follows:

                 Year Ending
                 December 31,
                 ------------

                     2006                           $  400,000
                     2007                              200,000
                     2008                            2,750,000
                     2009                            1,300,000
                  Thereafter                         4,672,472
                                                    ----------

                                                    $9,322,472
                                                    ==========

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 4.59% (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, 2004,  the rate was 5.37%.  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.


                                       55
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

8.    JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES (Continued)

      The  unamortized   deferred  costs  related  to  the  junior  subordinated
      debentures, which are included in other assets on the consolidated balance
      sheet,   at  December   31,  2004  and  2003  were  $57,000  and  $75,000,
      respectively,  and the  amortization for the years ended December 31, 2004
      and 2003 totaled $18,000 and $15,000, respectively.

9.    COMMITMENTS AND CONTINGENCIES

      Leases
      ------

      The  Bank   leases  its  Fresno  and  Visalia   branch   offices  and  its
      administrative office under noncancelable operating leases which expire in
      October 2007,  November 2009 and January 2006,  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,
              ------------

                  2005                                $236,641
                  2006                                 202,516
                  2007                                 188,690
                  2008                                 134,400
                  2009                                 123,200
                                                      --------

                                                      $885,447
                                                      ========

      Rental  expense  included  in  occupancy  and  equipment  expense  totaled
      $223,953  and  $171,010  for the years ended  December  31, 2004 and 2003,
      respectively.

      Federal Reserve Requirements
      ----------------------------

      Banks are  required to maintain  reserves  with the Federal  Reserve  Bank
      equal to a percentage of their reservable deposits.  The average amount of
      such reserve balances required at December 31, 2004 was $2,847,000.

      Financial Instruments With Off-Balance-Sheet Risk
      -------------------------------------------------

      The Bank 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.


                                       56
<PAGE>

                     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 Bank'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 Bank uses
      the same credit policies in making commitments and letters of credit as it
      does for loans included on the consolidated balance sheet.

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

                                                      December 31,
                                              ----------------------------

                                                  2004             2003
                                              -----------      -----------

      Commitments to extend credit            $28,643,000      $34,817,000
      Standby letters of credit               $   948,000      $   806,000

      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 Bank upon
      extension of credit,  is based on  management's  credit  evaluation of the
      borrower.  Collateral held varies,  but may include  accounts  receivable,
      crops, inventory, equipment,  income-producing commercial properties, farm
      land and residential properties.

      Standby letters of credit are conditional  commitments  issued by the Bank
      to guarantee the  performance  of a customer to a third party.  The credit
      risk involved in issuing standby letters of credit is essentially the same
      as that involved in extending  loans to  customers.  The fair value of the
      liability related to these standby letters of credit, which represents the
      fees received for issuing the guarantees,  was not significant at December
      31, 2004 and 2003. The Company  recognizes  these fees as revenue over the
      term of the commitment or when the commitment is used.

      At December 31, 2004,  consumer loan commitments  represent  approximately
      2.0% of total  commitments  and are generally  unsecured.  Commercial loan
      commitments  represent  approximately  33.4% of total  commitments and are
      generally  secured by various  assets of the  borrower.  Real  estate loan
      commitments  represent the remaining  64.6% of total  commitments  and are
      generally  secured by property  with a  loan-to-value  ratio not to exceed
      80%. In addition,  the majority of the Bank's  commitments  have  variable
      interest rates.


                                       57
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

9.    COMMITMENTS AND CONTINGENCIES (Continued)

      Significant Concentrations of Credit Risk
      -----------------------------------------

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

      Although the Bank 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.

      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, 2004,  the maximum amount
      available   for  dividend   distribution   under  this   restriction   was
      approximately $3,084,560.


                                       58
<PAGE>

                     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, 2004
      -----------------

      Basic earnings per share            $1,629,247     1,440,383    $     1.13
                                                                      ==========

      Effect of dilutive stock options                      97,671
                                          ----------    ----------

      Diluted earnings per share          $1,629,247     1,538,054    $     1.06
                                          ==========    ==========    ==========

      December 31, 2003
      -----------------

      Basic earnings per share            $1,149,011     1,421,710    $     0.81
                                                                      ==========

      Effect of dilutive stock options                      62,244
                                          ----------    ----------

      Diluted earnings per share          $1,149,011     1,483,954    $     0.77
                                          ==========    ==========    ==========

      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 no options  excluded from the  computation  of diluted
      earnings per share for the years ended December 31, 2004 and 2003.


                                       59
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

10.   SHAREHOLDERS' EQUITY (Continued)

      Stock Options
      -------------

      In 1997,  the Company  established  Stock Option  Plans for which  249,284
      shares  of  common  stock are  reserved  for  issuance  to  employees  and
      directors under incentive and  nonstatutory  agreements as of December 31,
      2004.  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  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. A summary of the activity within the plans follows:

<TABLE>
<CAPTION>
                                                         2004                      2003
                                                 ---------------------     ----------------------

                                                              Weighted                   Weighted
                                                               Average                    Average
                                                              Exercise                   Exercise
                                                  Shares        Price       Shares         Price
                                                 --------     --------     --------      --------
<S>                                               <C>         <C>           <C>          <C>
      Incentive
      ---------

      Options outstanding, beginning of year       24,975     $   7.61       24,975      $   7.61

        Options granted                            12,930     $  12.70
                                                 --------                  --------

      Options outstanding, end of year             37,905     $   9.35       24,975      $   7.61
                                                 ========                  ========

      Options exercisable, end of year             16,744     $   8.37        9,162      $   7.56
                                                 ========                  ========

      Nonstatutory
      ------------

      Options outstanding, beginning of year      172,775     $   6.83      177,127      $   6.38

        Options granted                            21,275     $  12.70       15,750      $  11.11
        Options exercised                                                   (20,102)     $   6.22
                                                 --------                  --------

      Options outstanding, end of year            194,050     $   7.47      172,775      $   6.83
                                                 ========                  ========

      Options exercisable, end of year            167,050     $   6.74      152,706      $   6.48
                                                 ========                  ========
</TABLE>


                                       60
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

10.   SHAREHOLDERS' EQUITY (Continued)

      Stock Options (Continued)
      -------------------------

      A summary of options outstanding at December 31, 2004 follows:

                              Number of         Weighted
                               Options           Average           Options
                             Outstanding        Remaining        Exercisable
          Range of           December 31,      Contractual       December 31,
      Exercise Prices            2004              Life              2004
      ---------------        ------------      -----------       ------------

      Incentive
      ---------

        $ 7.49                  20,841          6.8 years           12,505
        $ 8.25                   4,134          7.9 years            1,654
        $12.70                  12,930          9.1 years            2,585
                               -------                             -------

                                37,905                              16,744
                               =======                             =======

      Nonstatutory
      ------------

        $ 6.22                 100,503          2.9 years          100,510
        $ 6.53                  19,144          5.1 years           19,145
        $ 6.79                  19,144          4.3 years           19,145
        $ 6.86                  18,234          6.0 years           18,233
        $11.11                  15,750          8.9 years            6,300
        $12.70                  21,275          9.1 years            4,257
                               -------                             -------

                               194,050                             167,590
                               =======                             =======

      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, 2004 and 2003.


                                       61
<PAGE>

                     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.

<TABLE>
<CAPTION>
                                                                       December 31,
                                                     -----------------------------------------------

                                                             2004                       2003
                                                     ---------------------     ---------------------

                                                       Amount        Ratio       Amount        Ratio
                                                     -----------     -----     -----------     -----
<S>                                                  <C>             <C>       <C>             <C>
      Leverage Ratio
      --------------

      Valley Commerce Bancorp and Subsidiary         $19,216,000     10.8%     $13,781,000     10.0%
      Minimum regulatory requirement                 $ 7,132,000      4.0%     $ 5,517,000      4.0%

      Bank of Visalia                                $14,910,000      8.4%     $13,511,000      9.8%
      Minimum requirement for "Well-Capitalized"
        institution                                  $ 8,884,000      5.0%     $ 6,892,000      5.0%
      Minimum regulatory requirement                 $ 7,107,000      4.0%     $ 5,513,000      4.0%

      Tier 1 Risk-Based Capital Ratio
      -------------------------------

      Valley Commerce Bancorp and Subsidiary         $19,216,000     14.7%     $13,781,000     13.0%
      Minimum regulatory requirement                 $ 5,228,000      4.0%     $ 4,245,000      4.0%

      Bank of Visalia                                $14,910,000     11.4%     $13,511,000     12.7%
      Minimum requirement for "Well-Capitalized"
        institution                                  $ 7,825,000      6.0%     $ 6,363,000      6.0%
      Minimum regulatory requirement                 $ 5,217,000      4.0%     $ 4,242,000      4.0%

      Total Risk-Based Capital Ratio
      ------------------------------

      Valley Commerce Bancorp and Subsidiary         $20,617,000     15.8%     $15,108,000     14.2%
      Minimum regulatory requirement                 $10,455,000      8.0%     $ 8,490,000      8.0%

      Bank of Visalia                                $16,311,000     12.5%     $14,838,000     14.0%
      Minimum requirement for "Well-Capitalized"
        institution                                  $13,042,000     10.0%     $10,605,000     10.0%
      Minimum regulatory requirement                 $10,434,000      8.0%     $ 8,484,000      8.0%
</TABLE>

      Sale of Stock
      -------------

      On December 23, 2004, the Company  completed the registration  process for
      650,000  shares of common  stock.  On that date,  the Company sold 350,750
      shares of common stock at $13 per share. Net proceeds of $3,749,233 (after
      underwriting discounts,  commissions and other costs) were received by the
      Company.  In January 2005, the remaining newly registered shares were sold
      directly by the Company.


                                       62
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

11.   OTHER EXPENSES

      Other expenses consisted of the following:

                                                 Year Ended December 31,
                                               ---------------------------

                                                  2004             2003
                                               ----------       ----------

      Data processing                          $  408,483       $  418,071
      Operations                                  366,460          309,323
      Professional and legal                      188,074          200,249
      Promotional                                 200,180          128,189
      Telephone and postal                        130,724          120,959
      Supplies                                    137,220          111,168
      Assessment and insurance                    130,854           99,393
      Amortization expense                         62,538           62,538
      Other expenses                              252,203          228,731
                                               ----------       ----------

                                               $1,876,736       $1,678,621
                                               ==========       ==========

12.   INCOME TAXES

      The provision for income taxes for the years ended December 31, 2004, 2003
      and 2002 consisted of the following:

<TABLE>
<CAPTION>
                                              Federal           State            Total
                                            -----------      -----------      -----------
<S>                                         <C>              <C>              <C>
      2004
      ----

      Current                               $   767,000      $   302,000      $ 1,069,000
      Deferred                                  (31,000)         (11,000)         (42,000)
                                            -----------      -----------      -----------

             Provision for income taxes     $   736,000      $   291,000      $ 1,027,000
                                            ===========      ===========      ===========

      2003
      ----

      Current                               $   741,000      $   227,000      $   968,000
      Deferred                                 (196,000)         (67,000)        (263,000)
                                            -----------      -----------      -----------

             Provision for income taxes     $   545,000      $   160,000      $   705,000
                                            ===========      ===========      ===========
</TABLE>


                                       63
<PAGE>

                     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,
                                                         ----------------------

                                                           2004         2003
                                                         ---------    ---------

      Deferred tax assets:
          Allowance for loan losses                      $ 588,000    $ 541,000
          Future benefit of state income tax deduction      49,000       30,000
          Deferred compensation                            156,000       93,000
          Unrealized loss on available-for-sale
             investment securities                          49,000       11,000
          Intangible assets                                 84,000       85,000
          Other                                                          22,000
                                                         ---------    ---------

                Total deferred tax assets                  926,000      782,000
                                                         ---------    ---------

      Deferred tax liabilities:
          Bank premises and equipment                      (86,000)     (60,000)
          Loan costs                                       (82,000)
          Accrual to cash                                               (58,000)
          Other                                            (14,000)

                Total deferred tax liabilities            (182,000)    (118,000)
                                                         ---------    ---------

                Net deferred tax assets                  $ 744,000    $ 664,000
                                                         =========    =========

      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:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                         -------------------------------------------------

                                                                  2004                       2003
                                                         ----------------------     ----------------------

                                                            Amount       Rate %        Amount       Rate %
                                                         -----------     ------     -----------     ------
<S>                                                      <C>               <C>      <C>               <C>
      Federal income tax expense, at statutory rate      $   903,100       34.0     $   630,400       34.0
      State franchise tax, net of Federal tax effect         190,000        7.2         129,800        7.0
      Interest on obligations of states and political
        subdivisions                                         (43,200)      (1.6)        (31,300)      (1.7)
      Other                                                  (22,900)      (0.9)        (23,900)      (1.3)
                                                         -----------     ------     -----------     ------

           Total income tax expense                      $ 1,027,000       38.7     $   705,000       38.0
                                                         ===========     ======     ===========     ======
</TABLE>


                                       64
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

13.   RELATED PARTY TRANSACTIONS

      During the normal  course of business,  the Bank enters into  transactions
      with related parties,  including  executive officers and directors.  These
      transactions  include borrowings from the Bank 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 2004:

      Balance, January 1, 2004                                  $2,952,022

          Disbursements                                          3,291,966
          Amounts repaid                                        (2,683,852
                                                                ----------

      Balance, December 31, 2004                                $3,560,136
                                                                ==========

      Undisbursed commitments to related
          parties, December 31, 2004                            $2,350,684
                                                                ==========

14.   EMPLOYEE BENEFIT PLANS

      Employee Retirement Plan
      ------------------------

      The  Company  adopted  the Bank of Visalia  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  matches
      50% of employee  contributions,  up to 3% of the employees' annual salary.
      Company  contributions vest at a rate of 20% annually.  Bank contributions
      for the  years  ended  December  31,  2004 and 2003  totaled  $35,000  and
      $34,000, respectively.

      Salary Continuation and Retirement Plans
      ----------------------------------------

      Salary  continuation  plans are in place for three key  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, 2004
      and 2003 totaled $150,657 and $109,042, respectively.

      During the year ended  December 31, 2003,  the Bank  received  proceeds of
      $589,176 in connection  with the surrendered  life insurance  policy for a
      former employee. Income earned on these policies, net of expenses, totaled
      $98,625  and  $74,557  for the years  ended  December  31,  2004 and 2003,
      respectively.


                                       65
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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 Bank'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, 2004 and 2003,  the Bank held  securities  classified  as
      available-for-sale which had unrealized (losses) gains as follows:

<TABLE>
<CAPTION>
                                                                     Tax
                                                     Before        Benefit        After
                                                       Tax        (Expense)        Tax
                                                    ---------     ---------     ---------
<S>                                                 <C>           <C>           <C>
      For the Year Ended December 31, 2004
      ------------------------------------

      Other comprehensive loss:
           Unrealized holding losses                $ (90,429)    $  34,983     $ (55,446)
           Reclassification adjustment for gains
               included in net income                   7,391        (2,847)        4,544
                                                    ---------     ---------     ---------

                   Total other comprehensive
                        loss                        $ (97,829)    $  37,830     $ (59,990)
                                                    =========     =========     =========

      For the Year Ended December 31, 2003
      ------------------------------------

      Other comprehensive loss:
           Unrealized holding losses                $(202,782)    $  95,188     $(107,594)
           Reclassification adjustment for gains
               included in net income                 131,346       (49,937)       81,409
                                                    ---------     ---------     ---------

                   Total other comprehensive
                        loss                        $(334,128)    $ 145,125     $(189,003)
                                                    =========     =========     =========
</TABLE>

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.


                                       66
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

      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, 2004 and 2003:

      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.

      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.

      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.


                                       67
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

      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.

<TABLE>
<CAPTION>
                                               December 31, 2004                December 31, 2003
                                          ----------------------------    ----------------------------

                                            Carrying          Fair          Carrying          Fair
                                             Amount          Value           Amount          Value
                                          ------------    ------------    ------------    ------------
<S>                                       <C>             <C>             <C>             <C>
      Financial assets:
        Cash and cash equivalents         $  9,036,062    $  9,036,062    $  9,989,585    $  9,989,585
        Federal funds sold                  17,750,000      17,750,000       1,765,000       1,765,000
        Interest-bearing deposits
           in banks                                                            198,000         198,000
        Available-for-sale investment
           securities                       38,099,000      38,099,000      21,888,000      21,888,000
        Loans, net                         114,834,245     115,846,000     101,177,445     102,358,300
        Cash surrender value of life
           insurance policies                2,677,318       2,677,318       1,578,963       1,578,963
        Accrued interest receivable            718,558         718,558         646,751         646,751

      Financial liabilities:
        Deposits                           156,423,904     156,592,278     119,667,971     120,044,508
        Long-term debt                       9,322,472       9,369,671       5,192,102       5,489,962
        Junior subordinated deferrable
           interest debentures               3,093,000       3,093,000       3,093,000       3,093,000
        Accrued interest payable               127,226         127,226         106,674         106,674

      Off-balance-sheet financial
        instruments:
           Commitments to extend
             credit                         28,643,000      28,643,000      34,817,000      34,817,000
           Standby letters of credit           948,000         948,000         806,000         806,000
</TABLE>


                                       68
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

17.   PARENT ONLY CONDENSED FINANCIAL STATEMENTS

                             CONDENSED BALANCE SHEET
                           December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                              2004             2003
                                                          ------------     ------------
<S>                                                       <C>              <C>
                                  ASSETS

      Cash and due from banks                             $  4,219,418     $    161,497
      Investment in bank subsidiary                         15,017,441       13,750,268
      Other assets                                             364,192          233,989
                                                          ------------     ------------

                                                          $ 19,601,051     $ 14,145,754
                                                          ============     ============

                              LIABILITIES AND
                           SHAREHOLDERS' EQUITY

      Other liabilities                                   $    175,413     $     32,880
      Junior subordinated debentures due to subsidiary
           grantor trust                                     3,093,000        3,093,000
                                                          ------------     ------------

                   Total liabilities                         3,268,413        3,125,880
                                                          ------------     ------------

      Shareholders' equity:
           Common stock                                     14,451,969        9,837,372
           Retained earnings                                 1,959,281        1,201,124
           Accumulated other comprehensive (loss),
               net of taxes                                    (78,612)         (18,622)
                                                          ------------     ------------

                   Total shareholders' equity               16,332,638       11,019,874
                                                          ------------     ------------

                                                          $ 19,601,051     $ 14,145,754
                                                          ============     ============
</TABLE>


                                       69
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

17.   PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)

                          CONDENSED STATEMENT OF INCOME
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                     2004          2003
                                                                  ----------    ----------
<S>                                                               <C>           <C>
      Income:
           Dividends declared by bank subsidiary                  $  460,000    $  400,000
           Earnings from investment in Valley Commerce
               Trust I                                                 4,509         3,245
                                                                  ----------    ----------

                   Total income                                      464,509       403,245
                                                                  ----------    ----------

      Expenses:
           Interest on junior subordinated deferrable interest
               debentures                                            149,974       107,928
           Other expenses                                            160,451        98,069
                                                                  ----------    ----------

                   Total expenses                                    310,425       205,997
                                                                  ----------    ----------

                   Income before equity in undistributed
                        income of subsidiary                         154,084       197,248

           Equity in undistributed income of subsidiary            1,327,163       886,763
                                                                  ----------    ----------

                   Income before income taxes                      1,481,247     1,084,011

                   Income tax benefit                                148,000        65,000
                                                                  ----------    ----------

                   Net income                                     $1,629,247    $1,149,011
                                                                  ==========    ==========
</TABLE>


                                       70
<PAGE>

                     VALLEY COMMERCE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

17.   PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)

                        CONDENSED STATEMENT OF CASH FLOWS
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                         2004            2003
                                                                     -----------     -----------
<S>                                                                  <C>             <C>
      Cash flows from operating activities:
           Net income                                                $ 1,629,247     $ 1,149,011
           Adjustments to reconcile net income to net cash
               provided by operating activities:
                   Undistributed net income of subsidiary             (1,327,163)       (886,763)
                   Increase in other assets                             (130,203)       (140,989)
                   Increase (decrease) in other liabilities              142,533         (82,503)
                                                                     -----------     -----------

                        Net cash provided by operating activities        314,414          38,756
                                                                     -----------     -----------

      Cash flows from investing activities:
           Investment in bank subsidiary                                              (3,000,000)
           Investment in Valley Commerce Trust I                                         (93,000)
                                                                     -----------     -----------

                        Net cash used in investing activities                         (3,093,000)
                                                                     -----------     -----------

      Cash flows from financing activities:

           Proceeds from the issuance of junior subordinated
               deferrable interest debentures                                          3,093,000
           Cash paid for fractional shares                                (5,726)         (2,259)
           Net proceeds from sale of common stock                      3,749,233
           Proceeds from the exercise of stock options                                   125,000
                                                                     -----------     -----------

                        Net cash provided by financing activities      3,743,507       3,215,741
                                                                     -----------     -----------

      Increase in cash and cash equivalents                            4,057,921         161,497

      Cash and cash equivalents at beginning of year                     161,497
                                                                     -----------     -----------

      Cash and cash equivalents at end of year                       $ 4,219,418     $   161,497
                                                                     ===========     ===========

      Non-cash investing activities:
           Net change in unrealized gain on investment
               securities available-for-sale                         $   (97,817)    $  (334,128)
</TABLE>


                                       71
<PAGE>

ITEM 8 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Perry-Smith LLP, an independent, registered public accounting firm, has served
as the independent certified public accountants for Valley Commerce Bancorp and
the Bank since 2003. Our audit committee engaged Perry-Smith LLP on March 14,
2003, as a result of a competitive bid process. Moss Adams LLP served as the
independent certified public accountants for Bank of Visalia from December 31,
1999 until December 31, 2002 and served as the independent certified public
accountants for Valley Commerce Bancorp from the date it was incorporated on
February 21, 2002, through December 31, 2002. In 2003, the audit committee
determined to conduct a bid process rather than renew the appointment of Moss
Adams LLP in an effort to ensure the best combination of services and pricing in
accounting services. Moss Adams LLP participated in the bid process, but the
audit committee decided to dismiss Moss Adams LLP on March 14, 2003 and selected
Perry-Smith LLP as its independent accountant.

Moss Adams LLP's report on our consolidated financial statements as of and for
the years ended December 31, 2002 and 2001 did not contain an adverse opinion or
a disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope, or accounting principles

In connection with the audits of the two most recent fiscal years ended December
31, 2002, there were no disagreements with Moss Adams LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Moss Adams LLP, would have caused it to make reference to the subject matter of
the disagreements in connection with its report.

ITEM 8A - CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness, as of
December 31, 2004, of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act
of 1934 (the "Exchange Act"). Based upon that evaluation, the Company's
principal executive and financial officers concluded that the Company's
disclosure controls and procedures were effective, as of December 31, 2004, in
timely providing them with material information relating to the Company, as
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act, within the time periods specified in the Securities and
Exchange Commission's rules and forms.

Changes in internal controls

There were no significant changes in the Company's internal controls or other
factors that could significantly affect those controls subsequent to the date of
the Company's evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

ITEM 8B - OTHER INFORMATION

There is no information required to be disclosed under this Item.


                                       72
<PAGE>

                                    PART III

          ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors. The persons named below are members of the Company's board of
directors and the Company's executive officers. Directors of Valley Commerce
Bancorp are also directors of Bank of Visalia. Directors' terms run until the
next annual meeting of shareholders and until their successors are duly elected
and qualified.

<TABLE>
<CAPTION>
                                                                               Principal Occupation, Business
                                            Position With         Director     Experience During Past Five Years and
Name                                Age     Company               Since        Other Information
------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>     <C>                     <C>        <C>
David B. Day                        62      Director                2000(1)    Chief Executive Officer (retired) of
                                                                               California Delinting Co., a cottonseed
                                                                               conditioning and sales firm.

Walter A. Dwelle                    59      Chairman and            1996(1)    General Partner and Manager of Nella Oil
                                            Director                           Company, an oil marketing and convenience
                                                                               store operator, since 1988.

Thomas A. Gaebe                     54      Director                 2003      Certified public accountant and partner in
                                                                               the public accounting firm of Vollmer, Daniel,
                                                                               Gaebe, Grove & Berg since 1980.

Donald A. Gilles                    61      President, CEO          1996(1)    President and CEO of Valley Commerce
                                            and Director                       Bancorp since 2002; President and CEO of
                                                                               Bank of Visalia since 1996; from 1995-1996,
                                                                               consultant to the Bank of Visalia Organizing
                                                                               Group; and from 1982 to 1995, various
                                                                               positions with Mineral King National Bank,
                                                                               including President, CEO and Director.

Philip R. Hammond, Jr.              57      Director                1999(1)    President of Philip R. Hammond
                                                                               Construction, a commercial property
                                                                               development firm, since 1976; Partner of
                                                                               Tetra Property Management LLC since
                                                                               1998; and Partner of D & H Vineyards since
                                                                               1995.

Russell F. Hurley                   54      Vice Chairman           1996(1)    Attorney and shareholder with the law firm
                                            and Director                       of Hurley & Laird since 1982.

Fred P. LoBue, Jr.                  64      Secretary and           1996(1)    President of LoBue Bros., Inc., a commercial
                                            Director                           orange packing house operation, since 1998;
                                                                               Chief Financial Officer and a director of
                                                                               LoBue Bros., Inc., since 1982; and since
                                                                               1983 President and Chairman of Harvest
                                                                               Container Corp., a manufacturer of
                                                                               corrugated boxes.
</TABLE>


                                       73
<PAGE>

<TABLE>
<CAPTION>
                                                                               Principal Occupation, Business
                                            Position With         Director     Experience During Past Five Years and
Name                                Age     Company               Since        Other Information
------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>     <C>                     <C>        <C>
Kenneth H. Macklin                  53      Director                2000(1)    Owner and President of H.R. Macklin &
                                                                               Sons, Inc., an agricultural service company
                                                                               involved in the placement of long-term farm
                                                                               loans, appraisals, farm management and real
                                                                               estate brokerage, since 1994; and since 1990
                                                                               Partner in Vintage Equipment Company, a
                                                                               farm equipment operation and leasing
                                                                               company.

Stanley J. Shamoon                  53      Director                1996(1)    President and owner of Visalia Produce
                                                                               Sales, Inc., a produce marketing firm, since
                                                                               1988; and General Partner of Kingsburg
                                                                               Kold Storage, a fruit and vegetable cold
                                                                               storage facility, since 1992.

Roy O. Estridge                     50      Executive Vice            --       Executive Vice President and Chief
                                            President and                      Financial Officer of Bank of Visalia and
                                            Chief Financial                    Valley Commerce Bancorp since 2002. Vice
                                            Officer                            President and Chief Financial Officer for
                                                                               Valley AgCredit in Visalia, California from
                                                                               1992 to 2002, with responsibility for
                                                                               financial management and strategic
                                                                               planning. Senior Vice President and Chief
                                                                               Financial Officer for Pacific Coast Farm Credit
                                                                               in Santa Rosa, California from 1989 to 1992.

Allan W. Stone                      49      Executive Vice            --       Executive Vice President and Chief Credit
                                            President and                      Officer of Valley Commerce Bancorp since
                                            Chief Credit                       2002, Executive Vice President and Chief
                                            Officer                            Credit Officer of Bank of Visalia since June
                                                                               1998.  Senior Vice President and Chief
                                                                               Credit Officer for Bank of Ventura from
                                                                               1994 to 1998.
</TABLE>

      (1)   Includes service as a director of Bank of Visalia, the predecessor
            institution of the Company.

There are no family relationships among any of our executive officers or
directors.

None of our directors is also a director of any other public company or
registered investment company.

Committees of the Board Of Directors

Audit Committee. The members of the Audit Committee are Thomas A. Gaebe,
Committee Chairman, Walter A. Dwelle, Fred P. LoBue, Jr., Russell F. Hurley, and
Kenneth H. Macklin. All members of the Audit Committee would be deemed
independent under Rule 4200(a)(15) of the NASD's listing standards. The Board of
Directors has determined that Mr. Gaebe qualifies for designation as a financial
expert member of the Audit Committee for purposes of the Sarbanes-Oxley Act.
Designation of a person as an audit committee financial expert does not result
in the person being deemed an expert for any purpose, including under Section 11
of the Securities Act of 1933. The designation does not impose on the person


                                       74
<PAGE>

any duties, obligations or liability greater than those imposed on any other
audit committee member or any other director and does not affect the duties,
obligations or liability of any other member of the audit committee or board of
directors.

The principal duties of the Audit Committee are the following: (i) engage a firm
of independent certified public accountants on behalf of the Company; (ii) meet
with the independent certified public accountants to review and approve the
scope of their audit engagement and the fees related to such work; (iii) meet
with the Company's financial management, internal audit management and
independent certified public accountants to review matters relating to internal
accounting controls, the internal audit program, the Company's accounting
practices and procedures and other matters relating to the financial condition
of the Company and its subsidiaries; and (iv) periodically report to the Board
any conclusions or recommendations that the Audit Committee may have with
respect to such matters. The Audit Committee met four times during 2004.

Personnel/Compensation Committee. The members of the Personnel/Compensation
Committee are David B. Day, Committee Chairman, Donald A. Gilles, Philip R.
Hammond, Jr., Fred P. LoBue, Jr. and Stanley J. Shamoon.

The principal duties of the Personnel/Compensation Committee are (i) the
selection, recruitment and performance evaluation of executive personnel; (ii)
making recommendations to the Board regarding the salary, benefits and incentive
compensation to be paid to the Company's executive officers; (iii) the
development of corporate-wide compensation and benefit policies; (iv) the
development of the Company's personnel policies; (v) the Company's compliance
with laws and regulations pertaining to personnel, compensation and employment
matters; and (vi) the development of employee training and internal
communications programs. The Personnel/Compensation Committee met five times
during 2004.

Loan Committee. The members of the Loan Committee are Russell F. Hurley,
Committee Chairman, Walter A. Dwelle, Donald A. Gilles, Philip R. Hammond, Jr.,
and Kenneth H. Macklin.

The Loan Committee is responsible for the approval and supervision of loans and
the development of the Company's loan policies and procedures. The Loan
Committee met 18 times during 2004.

Asset-Liability Management Committee. The members of the Asset-Liability
Management Committee are Philip R. Hammond, Jr., Committee Chairman, David B.
Day, Walter A. Dwelle, Thomas A. Gaebe, and Donald A. Gilles. Roy O. Estridge,
Executive Vice President and Chief Financial Officer, and Allan W. Stone,
Executive Vice President and Chief Credit Officer, serve as management liaisons
to the Asset-Liability Management Committee.

The Asset-Liability Management Committee is responsible for (i) the development
of policies and procedures related to liquidity and asset-liability management,
and (ii) supervision of the Company's investments. The Asset-Liability
Management Committee met five times during 2004.

Compliance Committee. The members of the Compliance Committee are Russell F.
Hurley, Committee Chairman, Fred P. LoBue, Jr., and Kenneth H. Macklin.

The principal duties of the Compliance Committee are to review, coordinate and
monitor the Company's compliance with the federal and state laws and regulations
that govern the business and activities of a registered bank holding company and
a California state-chartered commercial bank, including the Community
Reinvestment Act and the laws and regulations pertaining to equal credit
opportunity. The Compliance Committee met one time during 2004.


                                       75
<PAGE>

Executive Committee. The members of the Executive Committee are Walter A.
Dwelle, Committee Chairman, Donald A. Gilles, Russell F. Hurley, and Fred P.
LoBue, Jr.

The Executive Committee has the authority of the Board in the management of the
Company during the intervals between meetings of the Board. The Executive
Committee met 11 times during 2004.

Valley Commerce Bancorp does not have a nominating committee. The executive
committee performs the functions of a nominating committee. In this capacity,
the executive committee develops recommendations of candidates for election or
appointment to the board of directors and considers the qualifications that are
appropriate in a candidate. The board of directors has determined that all
members of the executive committee other than Mr. Gilles are independent under
standards for director independence established by Nasdaq. The executive
committee does not have a separate charter for its activities as a nominating
committee.

The Executive Committee acting as nominating committee does not have a formal
policy with regard to consideration of director candidates recommended by
shareholders. The Executive Committee has never received such a recommendation.
If it were to receive one, the Executive Committee's informal policy would be to
consider the recommendation in good faith in light of (i) the minimum
qualifications for directors set forth in the Bylaws and in the Notice of Annual
Meeting of Shareholders accompanying this Proxy Statement and (ii) whether the
recommended candidate would improve the overall expertise, experience and
judgment of the Board of Directors.

A shareholder wishing to recommend a candidate for director for consideration at
the 2006 Annual Meeting of Shareholders should submit the recommendation in
writing no later than November 25, 2005, provide the information required for
direct nominations of directors set forth in the Bylaws and in the Notice of
Annual Meeting of Shareholders accompanying this Proxy Statement, and provide
any other information that the recommending shareholder believes would be useful
to the Executive Committee acting as nominating committee in evaluating the
potential candidate.

The Company identifies new director candidates through recommendations from
existing directors and through other business associates of the Company. The
Company has not paid a fee to any third party to identify or evaluate, or to
assist in identifying or evaluating, potential nominees.

Code of Ethics

The Company has adopted a code of ethics that applies to its chief executive
officer, chief financial officer, principal accounting officer and persons
performing similar functions. The Company undertakes to provide without charge,
on request, a copy of the code of ethics. Requests should be submitted in
writing to Valley Commerce Bancorp, 200 S. Court St., Visalia, CA 93291.

ITEM 10 - EXECUTIVE COMPENSATION

The following information is furnished with respect to each of the Company's
executive officers whose compensation during 2004 exceeded $100,000.


                                       76
<PAGE>

                               Annual Compensation
                               -------------------

<TABLE>
<CAPTION>
             Name and                                                      Other Annual
        Principal Position             Year      Salary          Bonus     Compensation
        ------------------             ----      ------          -----     ------------
<S>                                    <C>      <C>             <C>          <C>
Donald A. Gilles
President and Chief Executive          2004     $149,921(1)     $  7,440     $  3,863
Officer                                2003     $128,083(1)     $  3,720     $  3,600
                                       2002     $123,063(1)     $  5,750     $  2,773
Allan W. Stone
Executive Vice President and Chief     2004     $120,423        $ 19,923     $  3,560
Credit Officer                         2003     $119,926        $  3,150     $  3,373
                                       2002     $107,012        $  4,725     $  3,282
Roy O. Estridge
Executive Vice President and Chief     2004     $ 89,902        $ 15,100     $  2,806
Financial Officer                      2003     $ 88,750        $  1,806     $  2,663
                                       2002     $ 60,535        $     --     $    425
</TABLE>

(1)   Does not include a contribution to a deferred compensation plan for the
      executive's benefit in the amount of $71,496 in 2004, $96,720 in 2003 and
      $73,700 in 2002. See "Supplemental Retirement and Life Insurance Plan"
      herein.

The Company pays the cost of premiums on life insurance policies insuring all
employees, including executive officers, in amounts equal to (i) two times each
officer's salary, up to a maximum of $200,000 in coverage; (ii) $25,000 for each
non-officer employee; (iii) $10,000 for an employee's spouse; and (iv) $5,000
for dependents of employees. The policies are payable to the employees'
designated beneficiaries. In addition, the Company provides certain incidental
personal benefits to executive officers. The incremental cost to the Company of
providing such benefits to the executive officers named above did not, for the
fiscal year ended December 31, 2004, exceed 10 percent of the compensation to
the executive officers.

Stock Option Plan

The Valley Commerce Bancorp Amended and Restated 1997 Stock Option Plan ("Plan")
is intended to promote the long-term success of the Company and the creation of
shareholder value. The Plan authorizes the Board to grant stock options to
officers, employees and directors to purchase up to 249,284 shares. Options may
be granted for terms of up to 10 years and with exercise prices not less than
fair market value at the time of grant (or 110% of fair market value if required
to qualify the option as an "incentive stock option" under the Internal Revenue
Code).


                                       77
<PAGE>

The following table sets forth certain information regarding stock options
issued under the Valley Commerce Bancorp Amended and Restated 1997 Stock Option
Plan to the executive officers named in the Summary Executive Compensation Table
during 2004:

<TABLE>
<CAPTION>
                                                                                 Potential Realizable Value
                         Number of    % of Total                                   of Assumed Annual Rates
                        Securities      Options                                 of Stock Price Appreciation
                        Underlying    Granted to     Exercise or                       for Option Term
                          Options    Employees in     Base Price    Expiration  ---------------------------
        Name              Granted     Fiscal Year       ($/Sh)         Date          5% ($)      10% ($)
-----------------------------------------------------------------------------------------------------------
<S>                        <C>             <C>          <C>          <C>            <C>          <C>
Donald A. Giles (1)        3,151           21%          $ 12.70      2/17/2014      $25,167      $63,776
Allan W. Stone               788            6%          $ 12.70      2/17/2014      $ 6,294      $15,949
Roy O. Estridge              788            6%          $ 12.70      2/17/2014      $ 6,294      $15,949
</TABLE>

Note: (1) includes 2,363 options granted as director.

Each of the named executive officers had stock options with a market value in
excess of the market price at December 31, 2004. The following table summarizes
the options held by the named executive officers at December 31, 2004.

<TABLE>
<CAPTION>
                                                        Number of Securities            Value of Unexercised
                                                       Underlying Unexercised               In-the-Money
                          Shares                             Options at                      Options at
                       Acquired on        Value               12/31/04                     12/31/04($)(1)
      Name             Exercise (#)   Realized ($)  Exercisable    Unexercisable    Exercisable   Unexcercisable
----------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>            <C>            <C>
Donald A. Gilles           None           None         23,701          4,762          $154,400       $ 49,600

Allan W. Stone             None           None          2,604          2,525          $ 19,495       $ 23,006

Roy O. Estridge            None           None          1,654          3,268          $ 13,655       $ 30,470
</TABLE>

(1)   Based upon the difference between the per share option exercise price and
      the market value of the common stock at the applicable measurement date.

Supplemental Retirement and Life Insurance Plan

In an effort to attract and retain qualified officers, the Company has
implemented a supplemental retirement and life insurance plan for the benefit of
certain executive officers.

The defined benefit portion of the plan is designed to provide participating
executive officers (currently Mr. Gilles, Mr. Estridge and Mr. Stone) at normal
retirement age with an annual retirement benefit of specified amounts to be paid
monthly for life under executive supplemental compensation agreements with each
of them. The plan has vesting schedules that are designed to create an incentive
for the officers to remain in the Company's employment to normal retirement age.

The executive officers who participate in the plan are also provided a death
benefit. This benefit is an endorsement split dollar life insurance benefit in
an amount that is the lesser of $800,000 or the net-at-risk


                                       78
<PAGE>

insurance portion of the proceeds until age 70, the lesser of $500,000 or the
net-at-risk insurance portion of the proceeds from age 70 through age 79, and
the lesser of $250,000 or the net-at-risk insurance portion of the proceeds at
age 80 and thereafter. The net-at-risk insurance portion is the amount of the
total policy proceeds less the cash value of the policy. The Company is entitled
to the remainder of the policy proceeds.

The Company's obligations under the retirement benefit portion of the plan are
not funded; however, the Company has purchased life insurance policies that are
actuarially designed to offset the annual expenses associated with the plan and
that will, given reasonable actuarial assumptions, offset all plan costs during
the lives of the executive officers and provide a complete recovery of all plan
costs upon the deaths of the executive officers. The Company has all the
ownership rights in the cash values and death benefits of the policies. The
Company has paid the premiums for the policies for the three executives in full.
The Company records annual increases in the cash values of the policies as
income, and, as benefits accrued to the three participants under the plan, the
Company records a compensation expense on a annual basis. Although the Company
believes that the actuarial assumptions it has made are reasonable and that the
policy benefits will fund substantially all of the Company's liability under
this plan, the Company will be responsible for payment of accrued benefits even
if those assumption prove to be incorrect or the Company does not receive all
the insurance cash value or proceeds that it expects.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth information as of December 31, 2004, pertaining
to beneficial ownership of our common stock (the sole class of stock
outstanding) by our current directors and named executive officers, by all our
directors and executive officers as a group and by the only shareholder known to
us who owns at least 5% of our outstanding shares. The information in the
following table has been obtained from our records or from information furnished
directly by the individual or entity to us.


                                       79
<PAGE>

For purposes of the following table, shares issuable pursuant to stock options
which may be exercised within 60 days of date set forth above are deemed to be
issued and outstanding and have been treated as outstanding in determining the
amount and nature of beneficial ownership and in calculating the percentage of
ownership of the individual possessing such ownership, but not for any other
individuals.

<TABLE>
<CAPTION>
                                                         Amount and
                                                         Nature of
Name and Address                  Relationship           Beneficial        Exercisable       Percent
of Beneficial Owner(1)            with Company           Ownership(2)      Options(3)      of Class(2)
------------------------------------------------------------------------------------------------------
<S>                               <C>                      <C>               <C>             <C>
David B. Day                      Director                  41,317            20,089          1.96%

Walter A. Dwelle                  Director                  78,655(5)         21,045          3.73%

Roy O. Estridge                   EVP and CFO                1,811             1,811            (4)

Thomas A. Gaebe                   Director                  14,745             7,245            (4)

Donald A. Gilles                  President, CEO and        32,558            24,329          1.54%
                                  Director

Philip R. Hammond, Jr             Director                  71,738(6)         20,089          3.40%

Russell F. Hurley                 Director                  72,011(7)         21,045          3.42%

Fred P. LoBue, Jr                 Director                  63,702(8)         21,045          3.02%

Kenneth H. Macklin                Director                  30,498(9)         19,178          1.45%

Stanley J. Shamoon                Director                  36,397(10)        21,045          1.73%

Allan W. Stone                    EVP and CCO                4,621(11)         2,762            (4)

All directors and executive                                448,053           179,683         19.76%
officers as a group (11 in
number)

The Banc Fund Company, LLC        Principal                198,561(12)            --          9.51%
208 South LaSalle Street          Shareholder
Chicago, Illinois 60604
</TABLE>

(1)   Except as show, the address for all persons is c/o Valley Commerce
      Bancorp, 200 South Court Street, Visalia, California, 93291.

(2)   Includes shares beneficially owned (including options exercisable within
      60 days of the Record Date, as shown in the "Exercisable Options" column),
      both directly and indirectly together with associates. Subject to
      applicable community property laws and shared voting and investment power
      with a spouse, the persons listed have sole voting and investment power
      with respect to such shares unless otherwise noted. Listed amounts include
      (i) stock dividends paid in prior years, including a five percent stock
      dividend paid on May 16, 2004 to shareholders of record as of April 27,
      2004, and (ii) a three-for-two stock split issued on September 3, 2004 to
      shareholders of record as of August 20, 2004.

(3)   Indicates number of shares subject to options currently exercisable within
      60 days of the record date.

(4)   Represents less than one percent of the outstanding shares of the
      Company's Common Stock.

(5)   Includes 34,150 shares held in a personal Individual Retirement Account.

(6)   Includes 34,119 shares held by the Philip R. Hammond Construction Company
      Profit Sharing Plan.


                                       80
<PAGE>

(7)   Includes 20,100 shares held by Milru Ranch Company, of which he is a
      general partner, and 17,008 shares held by the Hurley & Laird Retirement
      Trust, and 2,689 shares held as custodian for Joseph F. Hurley, his minor
      child.

(8)   Includes 2,001 shares held in the name of Donna S. LoBue, his wife, and
      9,022 shares held in an Individual Retirement Account.

(9)   Includes 9,820 shares held by Vintage Equipment Profit Sharing Plan.

(10)  Includes 198 shares held in the name of Adam Shamoon, his minor child.

(11)  Includes 1,000 shares held in an Individual Retirement Account.

(12)  As of March 15, 2005.

Management is not aware of any arrangements, including the pledge by any person
of the Company's shares, the operation of which may at a subsequent date result
in a change in control of the Company.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Indebtedness of Management

Some of the Company's directors and executive officers, as well as their
immediate family and associates, are customers of, and have had banking
transactions with, the Bank in the ordinary course of the Bank's business, and
the Company expects these persons to have such ordinary banking transactions
with the Bank in the future. In the opinion of management of the Company, all
loans and commitments to lend included in such transactions were made in the
ordinary course of business on the same terms, including interest rates and
collateral, as those prevailing for comparable transactions with other persons
of similar creditworthiness, and do not involve more than the normal risk of
collectability or present other unfavorable features. While the Company does not
have any limits on the aggregate amount it may lend to directors and executive
officers as a group, loans to individual directors and officers must comply with
the Company's lending policies and statutory lending limits. In addition, prior
approval of the Company's Board of Directors is required for all such loans.

Transactions With Management and Others

In 2004 there were no material transactions between the Company and any of the
Company's directors, executive officers, nominees for election as a director, or
the immediate family or associates of any of the foregoing persons, except as
follows: The Company leases office space in a building owned by the CPA firm of
director Thomas A. Gaebe to house credit and finance personnel employed by Bank
of Visalia. The lease was executed in January 2003, prior to Mr. Gaebe becoming
a director of the Company. The office space was leased under a noncancelable
operating lease for three years with an option to extend the lease for two
additional years. The leased premises consist of an office suite of
approximately 2,265 square feet in a four-story office building. The lease for
the primary operating area is a triple net lease with monthly rent of $3,171
during 2004 and January 2005 and with monthly rent of $3,284 beginning in
February 2005 until the term expires on January 31, 2006. In the event the
renewal option is exercised the annual rent to be paid will increase by
approximately 3.5% in each of the extension years. The Board has determined that
the terms of the lease are comparable to the rates available for similar space
in the area in which the leased premises are located.


                                       81
<PAGE>

ITEM 13 - EXHIBITS

The exhibits to this report are incorporated by reference to the documents set
forth on the exhibit index which is attached hereto.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Audit Committee meets with Perry-Smith LLP at least quarterly during the
year. At such times, the Audit Committee reviews both audit and non-audit
services performed by Perry-Smith as well as the fees charged for such services.
The Audit Committee has delegated its authority to the chairman of the Audit
Committee to preapprove requests for non-audit services. Among other things, the
Audit Committee or the chairman of the Committee examines the effect that
performance of non-audit services may have upon the independence of the
auditors.

Audit Fees.  Audit fees consist of fees for professional  services  rendered for
the  audit  of  the  Company's  consolidated  financial  statements,  review  of
consolidated  financial  statements included in the Company's  regulatory filing
and services  normally  provided by the  independent  auditor in connection with
regulatory filings. The aggregate amount of fees billed by Perry-Smith,  LLP for
professional  services  rendered for the audit of the Company's annual financial
statements  and review of  documents  filed  with the  Securities  and  Exchange
Commission  during the fiscal  year ended  December  31, 2004 was  $195,100  and
during the fiscal year ended December 31, 2003 was $40,900.

Audit-Related  Fees.   Perry-Smith,   LLP  did  not  perform  any  audit-related
professional services for the Company during the fiscal years ended December 31,
2004 and December 31, 2003.

Tax Fees.  Tax services  consist of compliance  fees for the  preparation of tax
returns and tax  payment-planning  services.  Tax  services  also  include  fees
relating to other tax advice,  tax  consulting  and planning  other than for tax
compliance and preparation.  The aggregate amount of fees billed by Perry-Smith,
LLP for tax  compliance,  tax advice,  tax planning and related tax services for
the fiscal  year ended  December  31,  2004 was  $10,500 and for the fiscal year
ended December 31, 2003 was $1,500.

All Other Fees. Perry-Smith, LLP did not perform any other services for the
Company during the fiscal years ended December 31, 2004 and December 31, 2003.


                                       82
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 2005.

                                       VALLEY COMMERCE BANCORP


                                       By:         /s/ Donald A. Gilles
                                           -------------------------------------
                                                     Donald A. Gilles
                                           President and Chief Executive Officer


                                       By:          /s/ Roy O. Estridge
                                           -------------------------------------
                                                      Roy O. Estridge
                                               Executive Vice President and
                                                  Chief Financial Officer

                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Donald A. Gilles or Roy O. Estridge as his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to his Report on Form 10-KSB, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Exchange Act of 1934, 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            Director and Chief Executive      March 30, 2005
------------------------------  Officer (Principal Executive
       Donald A. Gilles         Officer)


/s/ Roy O. Estridge             Chief Financial Officer           March 30, 2005
------------------------------  (Principal Financial Officer and
       Roy O. Estridge          Principal Accounting Officer)


                                       83
<PAGE>


/s/ David B. Day                Director                          March 30, 2005
------------------------------
       David B. Day


/s/ Walter A. Dwelle            Chairman and Director             March 30, 2005
------------------------------
       Walter A. Dwelle


/s/ Thomas A. Gaebe             Director                          March 30, 2005
------------------------------
       Thomas A. Gaebe


/s/ Philip R. Hammond, Jr.      Director                          March 30, 2005
------------------------------
       Philip R. Hammond, Jr.


/s/ Russell F. Hurley           Vice Chairman and Director        March 30, 2005
------------------------------
       Russell F. Hurley


/s/ Fred P. LoBue, Jr.          Secretary and Director            March 30, 2005
------------------------------
       Fred P. LoBue, Jr.


/s/ Kenneth H. Macklin          Director                          March 30, 2005
------------------------------
       Kenneth H. Macklin


/s/ Stanley J. Shamoon          Director                          March 30, 2005
------------------------------
       Stanley J. Shamoon


                                       84
<PAGE>

Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Exchange Act By Non-reporting Issuers

The issuer has not yet sent an annual report covering its last fiscal year or
proxy statement, form of proxy or other proxy soliciting material to security
holders. Such report or proxy material is to be furnished to security holders on
or about the date of the filing of the annual report on this Form. The Issuer
will furnish copies of such material to the Commission when it is sent to
security holders.


                                       85
<PAGE>

                                  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)

10.2        Lease of premises at 200 South Court Street, Visalia (1)

10.3        Executive Supplemental Compensation Agreement with Donald A. Gilles
            (1)

10.4        Executive Supplemental Compensation Agreement with Roy O. Estridge
            (1)

10.5        Executive Supplemental Compensation Agreement with Allan W. Stone
            (1)

10.6        Amended and Restated Declaration of Trust of Valley Commerce Trust I
            (1)

10.7        Indenture between Valley Commerce Bancorp and Wells Fargo Bank
            National Association as Trustee, Junior Subordinated Debt Securities
            Due April 7, 2033 (1)

10.8        Junior Subordinated Debt Security Due 2003 of Valley Commerce
            Bancorp (1)

10.9        Guaranty Agreement of Valley Commerce Bancorp in favor of Wells
            Fargo Bank National Association as Trustee (1)

16.1        Letter from Moss Adams LLP regarding change in certifying accountant
            (2)

21          Subsidiaries of the Company (1)

24          Powers of Attorney (included on signature pages)

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.


                                       86