UNITED STATES SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549


FORM 10-K/A


Amendment
No. 1


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


For
the fiscal year ended December 31, 2007




or


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


Commission
file number: 000-51949




Valley
Commerce Bancorp


(Exact
name of Registrant as specified in its charter)


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





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


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





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





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




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




o Yes þ No




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




o Yes þ No





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




þ Yes o No





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





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





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





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




o Yes þ No





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




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




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




DOCUMENTS
INCORPORATED BY REFERENCE




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











EXPLANATORY
NOTE





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





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














2


ITEM
8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










The
Shareholders and


Board
of Directors


Valley
Commerce Bancorp





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





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





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








/s/
Perry-Smith
LLP








Sacramento,
California


March 19,
2008







3


VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 CONSOLIDATED
BALANCE SHEET
 
 December
31, 2007 and 2006
 
 
 2007
              
              
              2006ASSETSCash
      and cash equivalents
              
              $
              9,297,346
              
              
              $
              13,265,547Available-for-sale
      investment securities, at fair value (Notes 3 and 7)
              
              
              56,615,000
              
              
              
              55,298,000Loans,
      less allowance for loan losses of $1,757,591 in 2007 and $1,745,582
      in 2006 (Notes 4, 7, 9 and 13)
              
              
              199,514,271
              
              
              
              182,331,506Bank
      premises and equipment, net (Note 5)
              
              
              3,037,063
              
              
              
              1,832,177Cash
      surrender value of bank-owned life insurance (Note 14)
              
              
              6,184,531
              
              
              
              5,934,563Accrued
      interest receivable and other assets (Note 12)
              
              
              4,432,665
              
              
              
              5,002,900Total
      assets
              
              $
              279,080,876
              
              
              $
              263,664,693LIABILITIES
      AND SHAREHOLDERS' EQUITYDeposits:Non-interest
      bearing
              
              $
              66,992,568
              
              
              $
              63,019,956Interest
      bearing (Note 6)
              
              
              148,393,500
              
              
              
              144,556,213Total
      deposits
              
              
              215,386,068
              
              
              
              207,576,169Accrued
      interest payable and other liabilities
              
              
              1,778,548
              
              
              
              1,399,787Short-term
      debt (Note 7)
              
              
              21,804,000
              
              
              
              17,600,000Long-term
      debt (Note 7)
              
              
              8,146,049
              
              
              
              8,547,638Junior
      subordinated deferrable interest debentures (Note 8)
              
              
              3,093,000
              
              
              
              3,093,000Total
      liabilities
              
              
              250,207,665
              
              
              
              238,216,594Commitments
      and contingencies (Note 9)Shareholders'
      equity (Note 10):Serial
      preferred stock - no par value; 10,000,000 shares authorized; none
      issued
              
              
              -
              
              
              
              -Common
      stock - no par value; 30,000,000 shares authorized; issued and outstanding
      – 2,396,435 shares in 2007 and 2,215,765 shares in 2006
              
              
              23,511,066
              
              
              
              20,683,720Retained
      earnings
              
              
              5,423,324
              
              
              
              5,040,381Accumulated
      other comprehensive loss, net of taxes (Notes 3 and 15)
              
              
              (61,179
              )
              
              
              (276,002
              )Total
      shareholders' equity
              
              
              28,873,211
              
              
              
              25,448,099Total
      liabilities and shareholders’ equity
              
              $
              279,080,876
              
              
              $
              263,664,693
 
 The
accompanying notes are an integral
 part of
these consolidated financial statements
 
 4
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 CONSOLIDATED
STATEMENT OF INCOME
 
 For
the Years Ended December 31, 2007, 2006 and 2005
 
 
 2007
              
              
              2006
              
              
              2005Interest
      income:Interest
      and fees on loans
              
              $
              16,113,423
              
              
              $
              14,448,209
              
              
              $
              10,511,090Interest
      on investment securities:Taxable
              
              
              1,581,892
              
              
              
              1,444,707
              
              
              
              1,459,998Exempt
      from Federal income taxes
              
              
              771,368
              
              
              
              719,117
              
              
              
              303,267Interest
      on Federal funds sold
              
              
              3,658
              
              
              
              137,749
              
              
              
              229,197Total
      interest income
              
              
              18,470,341
              
              
              
              16,749,782
              
              
              
              12,503,552Interest
      expense:Interest
      on deposits (Note 6)
              
              
              5,802,852
              
              
              
              4,306,344
              
              
              
              2,028,091Interest
      on short-term borrowings (Note 7)
              
              
              695,062
              
              
              
              610,911
              
              
              
              52,523Interest
      on long-term borrowings (Note 7)
              
              
              362,665
              
              
              
              380,212
              
              
              
              393,303Interest
      on junior subordinated deferrable interest debentures (Note
    8)
              
              
              270,690
              
              
              
              263,310
              
              
              
              208,787Total
      interest expense
              
              
              7,131,269
              
              
              
              5,560,777
              
              
              
              2,682,704Net
      interest income before provision for loan losses
              
              
              11,339,072
              
              
              
              11,189,005
              
              
              
              9,820,848Provision
      for loan losses (Note 4)
              
              
              -
              
              
              
              -
              
              
              
              368,768Net
      interest income after provision for loan losses
              
              
              11,339,072
              
              
              
              11,189,005
              
              
              
              9,452,080Non-interest
      income:Service
      charges
              
              
              590,900
              
              
              
              546,514
              
              
              
              513,859Loss
      on sale of available-for-sale investment securities, net (Note
      3)
              
              
              (1,145
              )
              
              
              (52,737
              )
              
              
              (48,494
              )Mortgage
      loan brokerage fees
              
              
              76,636
              
              
              
              125,085
              
              
              
              136,183Earnings
      on cash surrender value of lifepolicies (Note
      14)
              
              
              258,134
              
              
              
              153,394
              
              
              
              103,851Other
              
              
              230,140
              
              
              
              223,693
              
              
              
              182,347Total
      non-interest income
              
              
              1,154,665
              
              
              
              995,949
              
              
              
              887,746Non-interest
      expense:Salaries
      and employee benefits (Notes 4 and 14)
              
              
              4,770,498
              
              
              
              4,260,909
              
              
              
              3,777,496Occupancy
      and equipment (Notes 5 and 9)
              
              
              1,073,196
              
              
              
              890,337
              
              
              
              756,664Other
      (Note 11)
              
              
              2,855,193
              
              
              
              2,501,930
              
              
              
              2,275,859Total
      non-interest expense
              
              
              8,698,887
              
              
              
              7,653,176
              
              
              
              6,810,019Income
      before provision for income taxes
              
              
              3,794,850
              
              
              
              4,531,778
              
              
              
              3,529,807Provision
      for income taxes (Note 12)
              
              
              1,134,000
              
              
              
              1,576,000
              
              
              
              1,367,000Net
      income
              
              $
              2,660,850
              
              
              $
              2,955,778
              
              
              $
              2,162,807Basic
      earnings per share (Note 10)
              
              $
              1.13
              
              
              $
              1.28
              
              
              $
              0.95Diluted
      earnings per share (Note 10)
              
              $
              1.09
              
              
              $
              1.22
              
              
              $
              0.90
 
 The
accompanying notes are an integral
 part of
these consolidated financial statements.
 
 5
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 
 For
the Years Ended December 31, 2007, 2006 and 2005
 
 AccumulatedOtherCompre-
              
              
              Total
              
              
              TotalCommon Stock
              
              
              
              
              
              hensive
              
              
              Share-
              
              
              Compre-Retained
              
              
              Loss
              
              
              holders’
              
              
              hensiveShares
              
              
              Amount
              
              
              Earnings
              
              
              (Net of Taxes)
              
              
              Equity
              
              
              IncomeBalance,
      January 1, 2005
              
              
              1,788,258
              
              
              $
              14,451,969
              
              
              $
              1,959,281
              
              
              $
              (78,612
              )
              
              $
              16,332,638Comprehensive
      income (Note 15):Net
      income
              
              
              
              
              
              
              
              
              
              
              2,162,807
              
              
              
              
              
              
              
              2,162,807
              
              
              $
              2,162,807Other
      comprehensive loss, net of tax:Net
      change in unrealized losses on available-for-sale investment
      securities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (466,509
              )
              
              
              (466,509
              )
              
              
              (466,509
              )Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1,696,298Proceeds
      from sale of stock (Note 10):
              
              
              299,250
              
              
              
              3,880,321
              
              
              
              
              
              
              
              
              
              
              
              3,880,321Balance,
      December 31, 2005
              
              
              2,087,508
              
              
              
              18,332,290
              
              
              
              4,122,088
              
              
              
              (545,121
              )
              
              
              21,909,257Comprehensive
      income (Note 15):Net
      income
              
              
              
              
              
              
              
              
              
              
              2,955,778
              
              
              
              
              
              
              
              2,955,778
              
              
              $
              2,955,778Other
      comprehensive loss, net of tax:Net
      change in unrealized losses on available-for-sale investment
      securities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              269,119
              
              
              
              269,119
              
              
              
              269,119Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              3,224,897Stock
      dividend
              
              
              104,123
              
              
              
              2,032,481
              
              
              
              (2,032,481
              )Cash
      paid for fractional shares
              
              
              
              
              
              
              
              
              
              
              (5,004
              )
              
              
              
              
              
              
              (5,004
              )Stock
      options exercised and  related tax benefit
              
              
              24,134
              
              
              
              280,230
              
              
              
              
              
              
              
              
              
              
              
              280,230Stock-based
      compensation expense
              
              
              
              
              
              
              38,719
              
              
              
              
              
              
              
              
              
              
              
              38,719Balance,
      December 31, 2006
              
              
              2,215,765
              
              
              
              20,683,720
              
              
              
              5,040,381
              
              
              
              (276,002
              )
              
              
              25,448,099Comprehensive
      income (Note 15):Net
      income
              
              
              
              
              
              
              
              
              
              
              2,660,850
              
              
              
              
              
              
              
              2,660,850
              
              
              $
              2,660,850Other
      comprehensive income, net of tax:Net
      change in unrealized losses on available-for-sale investment
      securities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              214,823
              
              
              
              214,823
              
              
              
              214,823Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              2,875,673Stock
      dividend
              
              
              110,603
              
              
              
              2,158,974
              
              
              
              (2,158,974
              )Cash
      paid for fractional shares
              
              
              
              
              
              
              
              
              
              
              (5,392
              )
              
              
              
              
              
              
              (5,392
              )Stock
      repurchase
              
              
              (27,440
              )
              
              
              (268,267
              )
              
              
              (113,541
              )
              
              
              
              
              
              
              (381,808
              )Stock
      options exercised and related tax benefit
              
              
              97,507
              
              
              
              892,229
              
              
              
              
              
              
              
              
              
              
              
              892,229Stock-based
      compensation expense
              
              
              
              
              
              
              44,410
              
              
              
              
              
              
              
              
              
              
              
              44,410Balance,
      December 31, 2007
              
              
              2,396,435
              
              
              $
              23,511,066
              
              
              $
              5,423,324
              
              
              $
              (61,179
              )
              
              $
              28,873,211
 (Continued)
 
 6
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 (Continued)
 For
the Years Ended December 31, 2007, 2006 and 2005
 
 
 
 2007
              
              
              2006
              
              
              2005Disclosure
      of reclassification amount, net of taxes (Note 15):Unrealized
      holding gains (losses) arising during the year
              
              $
              214,054
              
              
              $
              235,394
              
              
              $
              (496,223
              )Less:
      reclassification adjustment for losses included in net
    income
              
              
              (769
              )
              
              
              (33,725
              )
              
              
              (29,714
              )Net
      change in unrealized losses on available-for-sale investment
      securities
              
              $
              214,823
              
              
              $
              269,119
              
              
              $
              (466,509
              )
 
 
 The
accompanying notes are an integral
 part of
these consolidated financial statements.
 
 7
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 CONSOLIDATED
STATEMENT OF CASH FLOWS
 
 For
the Years Ended December 31, 2007, 2006 and 2005
 
 2007
              
              
              2006
              
              
              2005Cash
      flows from operating activities:Net
      income
              
              $
              2,660,850
              
              
              $
              2,955,778
              
              
              $
              2,162,807Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for loan losses
              
              
              -
              
              
              
              -
              
              
              
              368,768(Decrease)
      increase in deferred loan origination fees, net
              
              
              (131,895
              )
              
              
              (199,771
              )
              
              
              176,033Depreciation
              
              
              315,365
              
              
              
              242,116
              
              
              
              194,531Amortization
      of intangibles
              
              
              62,538
              
              
              
              62,538
              
              
              
              62,538Net
      loss on sale of available-for-sale investment securities,
    net
              
              
              1,145
              
              
              
              52,737
              
              
              
              48,494Dividends
      on Federal Home Loan Bank stock
              
              
              (79,100
              )
              
              
              (54,900
              )
              
              
              (29,300
              )Accretion
      (amortization) of investment securities, net
              
              
              (23,459
              )
              
              
              38,099
              
              
              
              819,551Loss
      on disposition of premises and equipment
              
              
              16,470
              
              
              
              -
              
              
              
              8,208Provision
      for deferred income taxes
              
              
              (77,000
              )
              
              
              2,000
              
              
              
              (251,000
              )Tax
      benefits on stock-based compensation
              
              
              (335,893
              )
              
              
              (125,828
              )
              
              
              -Increase
      in cash surrender value of bank owned life insurance
              
              
              (249,968
              )
              
              
              (153,394
              )
              
              
              (103,851
              )Stock-based
      compensation expense
              
              
              44,410
              
              
              
              38,719
              
              
              
              -Decrease
      (increase) in accrued interest receivable and other assets
              
              
              627,659
              
              
              
              (354,558
              )
              
              
              (512,561
              )Increase
      in accrued interest payable and other liabilities
              
              
              378,761
              
              
              
              111,387
              
              
              
              453,812Net
      cash provided by operating activities
              
              
              209,883
              
              
              
              2,614,923
              
              
              
              3,398,030Cash
      flows from investing activities:Proceeds
      from matured and called available-for-sale investment
      securities
              
              
              7,615,000
              
              
              
              1,658,100
              
              
              
              4,500,000Proceeds
      from sales of available-for-sale investment securities
              
              
              1,533,619
              
              
              
              2,731,795
              
              
              
              3,951,507Purchases
      of available-for-sale investment securities
              
              
              (12,530,396
              )
              
              
              (11,082,486
              )
              
              
              (24,836,258
              )Proceeds
      from principal repayments from available-for-sale mortgage-backed
      securities
              
              
              2,427,545
              
              
              
              2,152,829
              
              
              
              2,462,904Net
      increase in loans
              
              
              (17,050,870
              )
              
              
              (32,141,121
              )
              
              
              (35,701,170
              )Redemption
      (purchase) of Federal Home Loan Bank stock, net
              
              
              246,400
              
              
              
              (714,100
              )
              
              
              (405,000
              )Purchase
      of premises and equipment
              
              
              (1,544,749
              )
              
              
              (850,977
              )
              
              
              (392,469
              )Proceeds
      from sale of premises and equipment
              
              
              8,028
              
              
              
              -
              
              
              
              -Premiums
      paid for life insurance policies
              
              
              -
              
              
              
              (3,000,000
              )
              
              
              -Net
      cash used in investing activities
              
              
              (19,295,423
              )
              
              
              (41,245,960
              )
              
              
              (50,420,486
              )
 
 (Continued)
 
 8
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 CONSOLIDATED
STATEMENT OF CASH FLOWS
 (Continued)
 For
the Years Ended December 31, 2007, 2006 and 2005
 
 
 2007
              
              
              2006
              
              
              2005Cash
      flows from financing activities:Net
      increase (decrease) increase in noninterest bearing and interest-bearing
      deposits
              
              $
              14,956,957
              
              
              $
              (655,498
              )
              
              $
              25,884,925Net
      (decrease) increase in time deposits
              
              
              (7,147,058
              )
              
              
              15,650,553
              
              
              
              10,272,285Proceeds
      from the issuance of stock
              
              
              -
              
              
              
              -
              
              
              
              3,880,321Proceeds
      from exercised stock options
              
              
              556,336
              
              
              
              154,402
              
              
              
              -Cash
      paid to repurchase common stock
              
              
              (381,808
              )
              
              
              -
              
              
              
              -Tax
      benefits from stock-based compensation
              
              
              335,893
              
              
              
              125,828
              
              
              
              -Net
      increase in short-term borrowings
              
              
              4,204,000
              
              
              
              17,600,000
              
              
              
              -Payments
      on long-term advances
              
              
              (401,589
              )
              
              
              (591,982
              )
              
              
              (182,852
              )Cash
      paid to repurchase fractional shares
              
              
              (5,392
              )
              
              
              (5,004
              )
              
              
              -Net
      cash provided by financing activities
              
              
              12,117,339
              
              
              
              32,278,299
              
              
              
              39,854,679Decrease
      in cash and cash equivalents
              
              
              (3,968,201
              )
              
              
              (6,352,738
              )
              
              
              (7,167,777
              )Cash
      and cash equivalents at beginning of year
              
              
              13,265,547
              
              
              
              19,618,285
              
              
              
              26,786,062Cash
      and cash equivalents at end of year
              
              $
              9,297,346
              
              
              $
              13,265,547
              
              
              $
              19,618,285Supplemental
      disclosure of cash flow information:Cash
      paid during the year for:Interest
      expense
              
              $
              7,184,869
              
              
              $
              5,472,442
              
              
              $
              2,613,323Income
      taxes
              
              $
              740,000
              
              
              $
              1,750,000
              
              
              $
              1,453,000Non-cash
      investing activities:Net
      decrease (increase) in unrealized loss on available-for-sale
      securities
              
              $
              340,454
              
              
              $
              458,074
              
              
              $
              (761,802
              )
 
 
 The
accompanying notes are an integral
 part of
these consolidated financial statements.
 
 9
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 1.
              THE
      BUSINESS OF VALLEY COMMERCE BANCORP
 
 On
February 2, 2002, Valley Commerce Bancorp (the "Company") was incorporated as a
bank holding company for the purpose of acquiring Valley Business Bank (the
"Bank"), formerly Bank of Visalia, in a one bank holding company
reorganization.  The new corporate structure provides the Company and
the Bank greater flexibility to expand and diversify.  The
reorganization was completed on November 21, 2002, subsequent to which the Bank
continued its operations as previously conducted, but as a wholly owned
subsidiary of the Company.
 
 The Bank
commenced operations in 1996 under the name Bank of Visalia and changed its name
during 2005 to Valley Business Bank.  The Bank operates branches in
Visalia, Fresno, Woodlake and Tipton, and a loan production office in
Tulare.  The Bank's deposits are insured by the Federal Deposit
Insurance Corporation (FDIC) up to applicable legal limits.  The
Bank's primary source of revenue is generated from providing loans to customers
who are predominately small and middle market businesses and individuals
residing in the surrounding areas.
 
 2.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 Consolidation and Basis of
Presentation
 
 The
consolidated financial statements include the accounts of the Company and the
accounts of its wholly-owned subsidiary, Valley Business Bank.  All
significant intercompany balances and transactions have been
eliminated.
 
 Valley
Commerce Trust I, a wholly-owned subsidiary formed for the exclusive purpose of
issuing trust preferred securities, is not consolidated into the Company's
consolidated financial statements and, accordingly, is accounted for under the
equity method.  The Company’s investment in the Trust is included in
accrued interest receivable and other assets on the consolidated balance
sheet.  The junior subordinated debentures issued and guaranteed by
the Company and held by the Trust are reflected as debt in the consolidated
balance sheet.
 
 The
accounting and reporting policies of Valley Commerce Bancorp and subsidiary
conform with accounting principles generally accepted in the United States of
America and prevailing practices within the banking industry.
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions.  These estimates and assumptions affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from these
estimates.
 
 Segment
Information
 
 Management
has determined that since all of the banking products and services offered by
the Company are available in each branch of the Bank, all branches are located
within the same economic environment and management does not allocate resources
based on the performance of different lending or transaction activities, it is
appropriate to aggregate the Bank branches and report them as a single operating
segment.  No customer accounts for more than 10 percent of revenues
for the Company or the Bank.
 
 10
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(Continued)
 
 Reclassifications
 
 Certain
reclassifications have been made to prior years’ balances to conform to
classifications used in 2007.
 
 Stock
Dividends
 
 On May
15, 2007 and February 21, 2006 the Board of Directors declared a 5% stock
dividend payable on June 20, 2007 and May 16, 2006, respectively, to
shareholders of record on June 6, 2007 and April 28, 2006,
respectively.  All per share and stock option data in the consolidated
financial statements have been retroactively restated to reflect the stock
dividend.
 
 Cash and Cash
Equivalents
 
 For the
purpose of the statement of cash flows, cash, due from banks and Federal funds
sold are considered to be cash equivalents.  Generally, Federal funds
are sold for one day periods.  Cash held with other federally insured
institutions in excess of FDIC insured limits as of December 31, 2007 was
$981,000.
 
 Investment
Securities
 
 Investments
are classified as available-for-sale.  Available-for-sale securities
are reported at fair value, with unrealized gains and losses excluded from
earnings and reported, net of taxes, as accumulated other comprehensive income
(loss) within shareholders' equity.
 
 Gains or
losses on the sale of securities are computed on the specific identification
method.  Interest earned on investment securities is reported in
interest income, net of applicable adjustments for accretion of discounts and
amortization of premiums.
 
 Investment
securities are evaluated for impairment on at least a quarterly basis and more
frequently when economic or market conditions warrant such an evaluation to
determine whether a decline in their value is other than
temporary.  Management utilizes criteria such as the magnitude and
duration of the decline and the intent and ability of the Company to retain its
investment in the issues for a period of time sufficient to allow for an
anticipated recovery in fair value, in addition to the reasons underlying the
decline, to determine whether the loss in value is other than
temporary.  The term "other than temporary" is not intended to
indicate that the decline is permanent, but indicates that the prospects for a
near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the
carrying value of the investment.  Once a decline in value is
determined to be other than temporary, the value of the security is reduced and
a corresponding charge to earnings is recognized.
 
 11
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Investment in Federal Home
Loan Bank Stock
 
 As a
member of the Federal Home Loan Bank System, the Bank is required to maintain an
investment in the capital stock of the Federal Home Loan Bank.  The
investment is carried at cost.  At December 31, 2007, 2006, and 2005,
Federal Home Loan Bank stock totaled $1,658,600, $1,825,900, and $1,056,900
respectively.  On the consolidated balance sheet, Federal Home Loan
Bank stock is included in accrued interest receivable and other
assets.
 
 Loans
 
 Loans are
stated at principal balances outstanding.  Interest is accrued daily
based upon outstanding loan balances.  However, when, in the opinion
of management, loans are considered to be impaired and the future collectibility
of interest and principal is in serious doubt, loans are placed on nonaccrual
status and the accrual of interest income is suspended.  Any interest
accrued but unpaid is charged against income.  Payments received are
applied to reduce principal to the extent necessary to ensure
collection.  Subsequent payments on these loans, or payments received
on nonaccrual loans for which the ultimate collectibility of principal is not in
doubt, are applied first to earned but unpaid interest and then to
principal.
 
 A loan is
considered impaired when, based on current information and events, it is
probable that the Bank will be unable to collect all amounts due (including both
principal and interest) in accordance with the contractual terms of the loan
agreement.  An impaired loan is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical matter, at the loan's observable market price or the fair value
of collateral if the loan is collateral dependent.
 
 Substantially
all loan origination fees, commitment fees, direct loan origination costs and
purchased premiums and discounts on loans are deferred and recognized as an
adjustment of yield, to be amortized to interest income over the contractual
term of the loan.  The unamortized balance of deferred fees and costs
is reported as a component of net loans.
 
 The
Company may acquire loans through a business combination or a purchase for which
differences may exist between the contractual cash flows and the cash flows
expected to be collected due, at least in part, to credit
quality.  When the Company acquires such loans, the yield that may be
accreted (accretable yield) is limited to the excess of the Company's estimate
of undiscounted cash flows expected to be collected over the Company's initial
investment in the loan.  The excess of contractual cash flows over
cash flows expected to be collected may not be recognized as an adjustment to
yield, loss, or a valuation allowance.  Subsequent increases in cash
flows expected to be collected generally are recognized prospectively through
adjustment of the loan's yield over its remaining life.  Decreases in
cash flows expected to be collected are recognized as an
impairment.  The Company may not "carry over" or create a valuation
allowance in the initial accounting for loans acquired under these
circumstances.  At December 31, 2007 and 2006, there were no loans
being accounted for under this policy.
 
 12
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Allowance for Loan
Losses
 
 The
allowance for loan losses is maintained to provide for losses related to
impaired loans and other losses that can be expected to occur in the normal
course of business.  The determination of the allowance is based on
estimates made by management, to include consideration of the character of the
loan portfolio, specifically identified problemloans,
potential losses inherent in the portfolio taken as a whole and economic
conditions in the Company's service area.
 
 Classified
loans and loans determined to be impaired are evaluated by management for
specific risk of loss. In addition, reserve factors are assigned to currently
performing loans based on historical loss rates for each identified loan type
adjusted to reflect current economic and market conditions.
 
 The
allowance is established through a provision for loan losses which is charged to
expense.  Management reviews the adequacy of the allowance for loan
losses at least quarterly, to include consideration of the relative risks in the
portfolio and current economic conditions. The allowance is adjusted based on
that review if, in management’s judgment, changes are warranted.
 
 Allowance for Losses Related
to Undisbursed Loan Commitments
 
 The
Company maintains a separate allowance for losses related to undisbursed loan
commitments.  Management estimates the amount of probable losses by
applying a loss reserve factor to the unused portion of undisbursed lines of
credit.  The allowance totaled $40,000 at December 31, 2007 and 2006,
respectively and is included in accrued interest payable and other liabilities
in the consolidated balance sheet.
 
 Other Real
Estate
 
 Other
real estate includes real estate acquired in full or partial settlement of loan
obligations.  When property is acquired, any excess of the Bank's
recorded investment in the loan balance and accrued interest income over the
estimated fair market value of the property is charged against the allowance for
loan losses.  Subsequent gains or losses on sales or writedowns
resulting from impairment are recorded in other income or expenses as
incurred.  The Company did not hold other real estate as of December
31, 2007 and 2006.
 
 Bank Premises and
Equipment
 
 Bank
premises and equipment are carried at cost.  Depreciation is
determined using the straight-line method over the estimated useful lives of the
related assets.  The useful lives of premises are estimated to be
twenty to thirty years.  The useful lives of furniture, fixtures and
equipment are estimated to be two to ten years.  Leasehold
improvements are amortized over the life of the asset or the life of the related
lease, whichever is shorter.  When assets are sold or otherwise
disposed of, the cost and related accumulated depreciation or amortization are
removed from the accounts, and any resulting gain or loss is recognized in
income for the period.  The cost of maintenance and repairs is charged
to expense as incurred.
 
 Intangible
Assets
 
 Intangible
assets consist of core deposit intangibles related to branch acquisitions and
are amortized using the straight-line method over ten years.  The Bank
periodically evaluates whether events and circumstances have occurred that may
affect the estimated useful life or the remaining balance of the core deposit
intangibles resulting in impairment of the intangible
asset.  Amortization expense totaled $62,538 for each of the years in
the three-year period ended December 31, 2007.  The core deposit
intangibles totaled $7,718 and $70,256 at December 31, 2007 and 2006,
respectively.
 
 13
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Income
Taxes
 
 The
Company files its income taxes on a consolidated basis with its
subsidiary.  The allocation of income tax expense (benefit) represents
each entity's proportionate share of the consolidated provision for income
taxes.
 
 Deferred
tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax
bases.  Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.  On
the consolidated balance sheet, net deferred tax assets are included in accrued
interest receivable and other assets.
 
 Accounting for Uncertainty
in Income Taxes
 
 On
January 1, 2007, the Company adopted Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”).  FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with FASB Statement No. 109, Accounting for Income
Taxes.  FIN 48 prescribes a recognition threshold and
measurement standard for the financial statement recognition and measurement of
an income tax position taken or expected to be taken in a tax
return.  In addition, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
 
 The
provisions of FIN 48 have been applied to all tax positions of the Company
as of January 1, 2007.  Only tax positions that met the
more-likely-than-not recognition threshold on January 1, 2007 were
recognized or continue to be recognized upon adoption.  The Company
previously recognized income tax positions based on management's estimate of
whether it was reasonably possible that a liability had been incurred for
unrecognized income tax benefits by applying FASB Statement No. 5, Accounting for
Contingencies.  The adoption of FIN 48 did not have a
material impact on the Company's financial position, results of operations or
cash flows.
 
 When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained.  The benefit of a tax
position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not
that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any.  Tax positions taken are not
offset or aggregated with other positions.  Tax positions that meet
the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority.  The portion of the
benefits associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated interest and penalties that
would be payable to the taxing authorities upon examination.
 
 Interest
expense and penalties associated with unrecognized tax benefits, if any, are
classified as income tax expense in the consolidated statement of
income.
 
 14
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Earnings
Per Share
 
 Basic
earnings per share (EPS), which excludes dilution, is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period.  Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock, such as stock options, result in the issuance of common
stock.  The treasury stock method has been applied to determine the
dilutive effect of stock options in computing diluted EPS.
 
 Stock-Based
Compensation
 
 At
December 31, 2007, the Company had two stock-based compensation plans, the
Valley Commerce Bancorp Amended and Restated 1997 Stock Option Plan and the
Valley Commerce Bancorp 2007 Equity Incentive Plan, which are more fully
described in Note 10.  Effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123(R), Share Based Payment (“SFAS
123(R)”), using the modified prospective application transition method, which
requires recognizing expense for options granted prior to the adoption date
equal to the fair value of the unvested amounts over their remaining vesting
period based on the grant date fair value estimated in accordance with the
original provisions of SFAS No. 123 Accounting for Stock Based
Compensationand compensation cost for all share based payments granted
subsequent to January 1, 2006 based on the grant date fair values estimated in
accordance with the provisions of SFAS 123(R). The Company applied the
alternative transition method in calculating its pool of excess tax benefits
available to absorb future tax deficiencies as provided by FSP FAS 123(R)-3,
Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards. During
the year ended December 31, 2006, 10,500 options were awarded. Prior periods
have not been restated to reflect the results of operations in 2005 as if the
Company had recorded compensation expense based on the fair value of the options
granted as prescribed by SFAS No. 123.
 
 Prior to
January 1, 2006, the Company accounted for the stock-based compensation plan
under the recognition and measurement principles of Accounting Practice Bulletin
Opinion No. 25, (“APB 25”) Accounting for Stock Issued to
Employees, and related Interpretations.  No stock-based
compensation expense was reflected in net income, as all options granted under
the plan had an exercise price equal to the market value of the underlying
common stock on the date of grant.
 
 During
the years ended December 31, 2007 and 2006, the Company recorded expenses of
$44,410 and $38,719, respectively as a result of adopting SFAS
123(R).  The Company’s net income for years ended December 31, 2007
and 2006 was $31,402 and $31,510, respectively, lower than if management had
continued to account for share-based compensation under APB 25.  For
the years ended December 31, 2007 and 2006 basic and diluted earnings per did
not change as a result of the adoption of SFAS 123(R).
  As of
December 31, 2007, there was $292,766 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under
Incentive and Stock Option Plans described more fully in Note 10. That cost is
expected to be recognized over a weighted average period of 2.8
years.
 
 In
accordance with SFAS 123 (R), beginning in 2006 the Company has presented excess
tax benefits from the exercise of stock-based compensation awards as a financing
activity in the consolidated statement of cash flows.
 
 15
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 The
following table illustrates the pro forma effect on consolidated net income and
earnings per share in 2005 as if the Company had recorded compensation expense
based on the fair value of the options granted as prescribed by SFAS No.
123:
 
 
 For
      the YearEnded December 31,
2005(In
      Thousands)Net
      income as reported
              
              $
              2,162,807Deduct:
      Total stock-based compensation expense determined under the fair value
      based method for all awards, net of related tax effects
              
              
              (29,000
              )Pro
      forma net income
              
              $
              2,133,807Basic
      earnings per share - as reported
              
              $
              0.95Basic
      earnings per share - pro forma
              
              $
              0.94Diluted
      earnings per share - as reported
              
              $
              0.90Diluted
      earnings per share - pro forma
              
              $
              0.89
 
 
 The
Company determines the fair value of the options previously granted on the date
of grant using a Black-Scholes option pricing model that uses assumptions based
on expected option life, expected stock volatility and the risk-free interest
rate. The expected volatility assumptions used by the Company are based on the
historical volatility of the Company’s common stock over the most recent period
commensurate with the estimated expected life of the Company’s stock
options.  The Company bases its expected life assumption on its
historical experience and on the terms and conditions of the stock options it
grants to employees. The risk-free rate is based on the U.S. Treasury yield
curve for the periods within the contractual life of the options in effect at
the time of the grant. The Company also makes assumptions regarding estimated
forfeitures that will impact the total compensation expenses recognized under
the Plans.
 
 The fair
value of each option is estimated on the date of grant using the following
assumptions.
 
 There
were 38,500 stock options granted in 2007 and 10,500 in 2006.  There
were no stock options granted in 2005. The fair value of each option granted in
2007 and 2006 was estimated on the date of grant using an option-pricing model
with the following assumptions:
 
 
 2007
              
              
              2006Weighted
      average fair value of options granted
              
              $
              7.42
              
              
              $
              7.99Dividend
      yield
              
              
              N/A
              
              
              
              N/AExpected
      volatility
              
              
              28.22
              %
              
              
              11.27
              %Risk-free
      interest rate
              
              
              3.49
              %
              
              
              5.11
              %Expected
      option life
              
              7.5
      years
              
              
              7.5
      years
 
 16
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Impact of New Financial
Accounting Standards
 
 Fair
Value Measurements
 
 In
September 2006, the FASB issued Statement No. 157 (“SFAS 157”), Fair Value
Measurements.  SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 applies whenever other standards require (or permit)
assets or liabilities to be measured at fair value but does not expand the use
of fair value in any new circumstances.  In this standard, the FASB
clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing the asset or liability.  In
support of this principle, SFAS 157 establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.  The
provisions of SFAS 157 are effective for financial statements issued for fiscal
years beginning after November 15, 2007 and interim periods within those fiscal
years.  The provisions should be applied prospectively, except for
certain specifically identified financial instruments.  The Company
adopted SFAS 157 on January 1, 2008 and management does not believe its adoption
will have a material impact on the Company’s financial position, results of
operations or cash flows.
 
 Fair
Value Option for Financial Assets and Financial Liabilities
 
 In
February 2007, the FASB issued Statement No. 159 (“SFAS 159”), The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115.  This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value at specified
election dates.  The entity will report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each
subsequent reporting date.  The fair value option: (a) may be applied
instrument by instrument, with a few exceptions, such as investments otherwise
accounted for by the equity method; (b) is irrevocable (unless a new election
date occurs); and (c) is applied only to entire instruments and not to portions
of instruments.  The provisions of SFAS 159 are effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007.  The Company adopted SFAS 159 on January 1, 2008 and management
did not elect the fair value option for any of its financial
instruments.
 
 Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements
 In
September 2006, the FASB ratified the consensuses reached by the Task Force on
Issue No. 06-4 (“EITF 06-4”), Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements.  A question arose when an employer enters into an
endorsement split-dollar life insurance arrangement related to whether the
employer should recognize a liability for the future benefits or premiums to be
provided to the employee.  EITF 06-4 indicates that an employer should
recognize a liability for future benefits and that a liability for the benefit
obligation has not been settled through the purchase of an endorsement type
policy.  An entity should apply the provisions of EITF 06-4 either
through a change in accounting principle through a cumulative-effect adjustment
to retained earnings as of the beginning of the year of adoption or a change in
accounting principle through retrospective application to all prior
periods.  The provisions of EITF 06-4 are effective for fiscal years
beginning after December 15, 2007.  The Company adopted EITF 06-04 on
January 1, 2008 and management determined that a liability of approximately
$102,000 will be recorded as of January 1, 2008, with a corresponding reduction
as a cumulative-effect adjustment to retained earnings.
 
 17
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Impact of New Financial
Accounting Standards (Continued)
 
 Accounting
for Business Combinations
 
 In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), Business
Combinations“SFAS No. 141(R)”).  SFAS No. 141(R), among other
things, establishes principles and requirements for how the acquirer in a
business combination (i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired business, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination.  The Company is required to adopt
SFAS No. 141(R) for all business combinations for which the acquisition date is
on or after January 1, 2009.  Earlier adoption is
prohibited.  This standard will change the accounting treatment for
business combinations on a prospective basis.
 
 3.
              AVAILABLE-FOR-SALE
      INVESTMENT SECURITIES
 
 The
amortized cost and estimated fair value of available-for-sale investment
securities at December 31, 2007 and 2006 consisted of the
following:
 
 
 2007Gross
              
              
              Gross
              
              
              EstimatedAmortized
              
              
              Unrealized
              
              
              Unrealized
              
              
              FairCost
              
              
              Gains
              
              
              Losses
              
              
              ValueDebt
      securities:U.S.
      Treasury and Government agencies
              
              $
              17,544,088
              
              
              $
              80,246
              
              
              $
              (70,334
              )
              
              $
              17,554,000Mortgage-backed
      securities
              
              
              16,853,448
              
              
              
              191,633
              
              
              
              (85,081
              )
              
              
              16,960,000Municipal
      securities
              
              
              19,303,490
              
              
              
              41,984
              
              
              
              (226,474
              )
              
              
              19,119,000Corporate
      debt securities
              
              
              3,005,110
              
              
              
              651
              
              
              
              (23,761
              )
              
              
              2,982,000$
              56,706,136
              
              
              $
              314,514
              
              
              $
              (405,650
              )
              
              $
              56,615,000
 
 
 Net
unrealized losses on available-for-sale investment securities totaling $91,136
were recorded, net of $29,957 in tax benefits, as accumulated other
comprehensive loss within shareholders' equity at December 31,
2007.  Proceeds and realized losses from the sale of
available-for-sale investment securities for the year ended December 31, 2007
totaled $1,508,855 and $1,145, respectively.
 
 
 2006Gross
              
              
              Gross
              
              
              EstimatedAmortized
              
              
              Unrealized
              
              
              Unrealized
              
              
              FairCost
              
              
              Gains
              
              
              Losses
              
              
              ValueDebt
      securities:U.S.
      Government agencies
              
              $
              20,324,780
              
              
              $
              6,276
              
              
              $
              (282,056
              )
              
              $
              20,049,000Mortgage-backed
      securities
              
              
              12,422,446
              
              
              
              65,105
              
              
              
              (250,551
              )
              
              
              12,237,000Municipal
      securities
              
              
              18,949,602
              
              
              
              141,331
              
              
              
              (34,933
              )
              
              
              19,056,000Corporate
      debt securities
              
              
              4,032,762
              
              
              
              -
              
              
              
              (76,762
              )
              
              
              3,956,000$
              55,729,590
              
              
              $
              212,712
              
              
              $
              (644,302
              )
              
              $
              55,298,000
 
 18
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 3.
              AVAILABLE-FOR-SALE INVESTMENT
      SECURITIES (Continued)
 
 Net
unrealized losses on available-for-sale investment securities totaling $431,590
were recorded, net of $155,588 in tax benefits, as accumulated other
comprehensive loss within shareholders' equity at December 31,
2006.  Proceeds and realized losses from the sale of
available-for-sale investment securities for the year ended December 31, 2006
totaled $3,907,737 and $52,737, respectively. Proceeds and realized gains from
the sale of available-for-sale investment securities for the year ended December
31, 2005 totaled $3,951,507 and $48,494, respectively.
 
 Investment
securities with unrealized losses at December 31, 2007 are summarized and
classified according to the duration of the loss period as follows:
 
 
 Less than 12 Months
              
              
              12 Months or More
              
              
              TotalFair
              
              
              Unrealized
              
              
              Fair
              
              
              Unrealized
              
              
              Fair
              
              
              UnrealizedValue
              
              
              Losses
              
              
              Value
              
              
              Losses
              
              
              Value
              
              
              LossesDebt
      securities:U.S.
      Treasury and Government agencies
              
              $
              1,489,000
              
              
              $
              (3,015
              )
              
              $
              8,741,000
              
              
              $
              (67,306
              )
              
              $
              10,230,000
              
              
              $
              (70,321
              )Mortgage-backed
      securities
              
              
              992,000
              
              
              
              (598
              )
              
              
              5,687,000
              
              
              
              (84,449
              )
              
              
              6,679,000
              
              
              
              (85,047
              )Municipal
      securities
              
              
              12,384,000
              
              
              
              (212,787
              )
              
              
              1,035,000
              
              
              
              (13,450
              )
              
              
              13,419,000
              
              
              
              (226,237
              )Corporate
      debt
              
              
              -
              
              
              
              -
              
              
              
              2,478,000
              
              
              
              (23,761
              )
              
              
              2,478,000
              
              
              
              (23,761
              )Securities
              
              $
              14,865,000
              
              
              $
              (216,400
              )
              
              $
              17,941,000
              
              
              $
              188,966
              
              
              $
              32,806,000
              
              
              $
              (405,366
              )
 
 
 
 Investment
securities with unrealized losses at December 31, 2006 are summarized and
classified according to the duration of the loss period as follows:
 
 Less than 12 Months
              
              
              12 Months or More
              
              
              TotalFair
              
              
              Unrealized
              
              
              Fair
              
              
              Unrealized
              
              
              Fair
              
              
              UnrealizedValue
              
              
              Losses
              
              
              Value
              
              
              Losses
              
              
              Value
              
              
              LossesDebt
      securities:U.S.
      Government Agencies
              
              $
              364,000
              
              
              $
              (4,459
              )
              
              $
              18,689,000
              
              
              $
              (277,597
              )
              
              $
              19,053,000
              
              
              $
              (282,056
              )Mortgage-backed
      Securities
              
              
              1,357,000
              
              
              
              (3,795
              )
              
              
              7,529,000
              
              
              
              (246,806
              )
              
              
              8,886,000
              
              
              
              (250,601
              )Municipal
      securities
              
              
              4,004,000
              
              
              
              (14,759
              )
              
              
              2,341,000
              
              
              
              (20,174
              )
              
              
              6,345,000
              
              
              
              (34,933
              )Corporate
      debt
              
              
              -
              
              
              
              -
              
              
              
              3,956,000
              
              
              
              (76,762
              )
              
              
              3,956,000
              
              
              
              (76,762
              )Securities
              
              $
              5,725,000
              
              
              $
              (23,013
              )
              
              $
              32,515,000
              
              
              $
              (621,339
              )
              
              $
              38,240,000
              
              
              $
              (644,352
              )
 
 19
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 3.
              AVAILABLE-FOR-SALE INVESTMENT
      SECURITIES (Continued)
 
 U.S. Treasury and Government
Agencies
 
 At
December 31, 2007, the Company held 31 U.S. Treasury and Government agency
securities of which 3 were in a loss position for less than twelve months and 18
were in a loss position and had been in a loss position for twelve months or
more.  Management believes the unrealized losses on the Company's
investments in direct obligations of the U.S. Treasury Government Agencies were
caused by interest rate increases.  The contractual terms of those
investments do not permit the issuer to settle the securities at a price less
than the amortized costs of the investment.  Because the decline in
market value is attributable to changes in interest rates and not credit
quality, and because the Company has the ability and intent to hold those
investments until a recovery of fair value, which may be maturity, the Company
does not consider those investments to be other-than-temporarily impaired at
December 31, 2007.
 
 Mortgage-backed
Obligations
 
 At
December 31, 2007, the Company held 45 mortgage-backed obligations of which 1
was in a loss position for less than twelve months and 27 were in a loss
position and had been in a loss position for twelve months or
more.  Management believes the unrealized losses on the Company's
investments in mortgage obligations were caused by interest rate
increases.  The contractual cash flows of these investments are
guaranteed by an agency of the U.S. government.  Accordingly, it is
expected that the securities will not be settled at a price less than the
amortized cost of the Company's investment. Because the decline in market value
is attributable to changes in interest rates and not credit quality, and because
the Company has the ability and intent to hold those investments until a
recovery of fair value, which may be maturity, the Company does not consider
those investments to be other-than-temporarily impaired at December 31,
2007.
 
 Obligations of States and
Political Subdivision
 
 At
December 31, 2007, the Company held 60 obligations of states and political
subdivision securities of which 37 were in a loss position for less than twelve
months and 3 were in a loss position and had been in a loss position for twelve
months or more.  Management believes the unrealized losses on the
Company's investments in obligations of states and political subdivision
securities were primarily caused by interest rate increases.  Because
the Company has the ability and intent to hold those investments until a
recovery of fair value, which may be maturity, the Company does not consider
those investments to be other-than-temporarily impaired at December 31,
2007.
 
 Corporate Debt
Securities
 
 At
December 31, 2007, the Company held 6 corporate debt securities of which 5 were
in a loss position and had been in a loss position for twelve months or
more.  Management believes the unrealized losses on the Company's
investments in corporate debt securities were caused primarily by interest rate
increases.  Because the decline in market value is attributable to
changes in interest rates and not credit quality, and because the Company has
the ability and intent to hold those investments until a recovery of fair value,
which may be maturity, the Company does not consider those investments to be
other-than-temporarily impaired at December 31, 2007.
 
 20
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 3.
              AVAILABLE-FOR-SALE INVESTMENT
      SECURITIES (Continued)
 
 The
amortized cost and estimated fair value of investment securities at December 31,
2007 by contractual maturity are shown below.  Expected maturities
will differ from contractual maturities because the issuers of the securities
may have the right to call or prepay obligations with or without call or
prepayment penalties.
 
 EstimatedAmortized
              
              
              FairCost
              
              
              ValueWithin
      one year
              
              $
              10,489,277
              
              
              $
              10,416,000After
      one year through five years
              
              
              5,076,526
              
              
              
              5,091,000After
      five years through ten years
              
              
              7,390,928
              
              
              
              7,453,000After
      ten years
              
              
              16,895,957
              
              
              
              16,695,00039,852,688
              
              
              
              39,655,000Investment
      securities not due at a single maturity date:Mortgage-backed
      securities
              
              
              16,853,448
              
              
              
              16,960,000$
              56,706,136
              
              
              $
              56,615,000
 
 At
December 31, 2007 and 2006, all investment securities were pledged to secure
either public deposits or borrowing arrangements.
 
 21
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 4.
              LOANS
      AND THE ALLOWANCE FOR LOAN LOSSES
 
 Outstanding
loans are summarized below:
 
 December 31,2007
              
              
              2006Commercial
              
              $
              41,823,876
              
              
              $
              41,103,607Real
      estate - mortgage
              
              
              106,872,707
              
              
              
              92,639,046Real
      estate – construction
              
              
              44,896,223
              
              
              
              44,272,460Agricultural
              
              
              4,987,839
              
              
              
              4,693,307Consumer
      and other
              
              
              2,994,997
              
              
              
              1,804,343201,575,642
              
              
              
              184,512,763Deferred
      loan fees, net
              
              
              (303,780
              )
              
              
              (435,675
              )Allowance
      for loan losses
              
              
              (1,757,591
              )
              
              
              (1,745,582
              )$
              199,514,271
              
              
              $
              182,331,506
 
 Certain
loans were pledged to secure borrowing arrangements (see Note 7).
 
 Changes
in the allowance for loan losses were as follows:
 
 Year Ended
December 31,2007
              
              
              2006
              
              
              2005Balance,
      beginning of year
              
              $
              1,745,582
              
              
              $
              1,766,115
              
              
              $
              1,400,818Provision
      charged to operations
              
              
              -
              
              
              
              -
              
              
              
              368,768Losses
      charged to allowance
              
              
              -
              
              
              
              (20,833
              )
              
              
              (3,471
              )Recoveries
              
              
              12,009
              
              
              
              300
              
              
              
              -Balance,
      end of year
              
              $
              1,757,591
              
              
              $
              1,745,582
              
              
              $
              1,766,115
 
 At
December 31, 2007 and 2006, there were no loans considered to be
impaired.  The average recorded investment in impaired loans for the
years ended December 31, 2006 and 2005 was $8,680 and $26,476, respectively.
Interest income recognized by the Company on a cash basis during the years ended
December 31, 2007, 2006, and 2005 was not considered significant.
 
 At
December 31, 2007 and 2006, there were no nonaccrual loans.  There was
no interest foregone on nonaccrual loans for the years ended December 31, 2007,
2006, and 2005.
 
 Salaries
and employee benefits totaling $687,155, $551,154 and $221,278 have been
deferred as loan origination costs during the years ended December 31, 2007,
2006 and 2005, respectively.
 
 22
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 5.
              PREMISES
      AND EQUIPMENT
 
 Premises
and equipment consisted of the following:
 
 December 31,2007
              
              
              2006Furniture
      and equipment
              
              
              2,334,786
              
              
              
              1,836,403Construction
      in progress
              
              
              756,617
              
              
              
              53,889Premises
              
              
              614,477
              
              
              
              614,477Leasehold
      improvements
              
              
              522,057
              
              
              
              303,286Land
              
              
              452,320
              
              
              
              452,3204,680,257
              
              
              
              3,260,375Less
      accumulated depreciation and amortization
              
              
              (1,643,194
              )
              
              
              (1,428,198
              )3,037,063
              
              
              
              1,832,177
 
 Depreciation
and amortization included in occupancy and equipment expense totaled $315,365,
$242,116 and $194,531 for the years ended December 31, 2007, 2006 and 2005,
respectively.
 
 6.
              INTEREST-BEARING
      DEPOSITS
 
 Interest-bearing
deposits consisted of the following:
 
 December 31,2007
              
              
              2006Savings
              
              $
              8,355,350
              
              
              $
              8,575,919Money
      market
              
              
              48,844,837
              
              
              
              40,000,066NOW
      accounts
              
              
              29,076,881
              
              
              
              26,716,738Time,
      $100,000 or more
              
              
              44,013,799
              
              
              
              47,871,287Other
      time
              
              
              18,102,633
              
              
              
              21,392,203$
              148,393,500
              
              
              $
              144,556,213
 
 23
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 6.
              INTEREST-BEARING
      DEPOSITS (Continued)
 
 Aggregate
annual maturities of time deposits are as follows:
 
 Year
      EndingDecember 31,2008
              
              $
              60,394,5422009
              
              
              1,461,6542010
              
              
              260,236$
              62,116,432
 
 Interest
expense recognized on interest-bearing deposits consisted of the
following:
 
 Year Ended
December 31,2007
              
              
              2006
              
              
              2005Savings
              
              $
              68,879
              
              
              $
              95,780
              
              
              $
              67,109Money
      market
              
              
              1,545,160
              
              
              
              1,175,225
              
              
              
              376,226NOW
      accounts
              
              
              767,979
              
              
              
              723,834
              
              
              
              385,852Time,
      $100,000 or more
              
              
              2,453,317
              
              
              
              1,491,363
              
              
              
              738,638Other
      time
              
              
              967,517
              
              
              
              820,142
              
              
              
              460,266$
              5,802,852
              
              
              $
              4,306,344
              
              
              $
              2,028,091
 
 7.
              BORROWING
      ARRANGEMENTS
 
 Lines of
Credit
 
 The Bank
had unsecured lines of credit with two correspondent banks which, in the
aggregate, amounted to $13,000,000 at December 31, 2007 and
2006.  There were no borrowings outstanding under either of these
borrowing arrangements as of December 31, 2007 and 2006.
 
 Federal Home Loan Bank
Advances
 
 At
December 31, 2007 and 2006 the Bank could borrow up to 49% of pledged real
estate mortgage loans from the Federal Home Loan Bank of San Francisco
(FHLB).  As of December 31, 2007 and 2006, the Bank had pledged loans
with total carrying values of $56,102,000 and $55,260,000,
respectively.  At December 31, 2007 borrowings were comprised of
$21,804,000 in short-term (one day) adjustable rate debt with an interest rate
of 3.25%, and $8,146,049 of long-term fixed rate debt with a weighted average
interest rate and maturity of 4.38% and 2.2 years, respectively. At December 31,
2006, the Company had $17,600,000 in short-term (one) day adjustable rate debt
with an interest rate of 5.25% and long-term debt totaling $8,547,638 with a
weighted average interest rate and maturity of 4.33% and 3.1 years,
respectively.
 
 24
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 7.
              BORROWING ARRANGEMENTS
      (Continued)
 
 Federal Home Loan Bank
Advances (continued)
 
 As of
December 31, 2007 and 2006, outstanding long-term advances from the Federal Home
Loan Bank (FHLB) consisted of the following:
 
 2007
              
              2006Amount
              
              
              Rate
              
              Maturity Date
              
              Amount
              
              
              Rate
              
              Maturity Date$
              200,000
              
              
              
              2.27
              %
              March
      26, 2007$
              900,000
              
              
              
              3.08
              %
              March
      6, 2008
              
              
              900,000
              
              
              
              3.08
              %
              March
      6, 20081,600,000
              
              
              
              2.67
              %
              May
      27,2008
              
              
              1,600,000
              
              
              
              2.67
              %
              May
      27, 2008250,000
              
              
              
              3.71
              %
              October
      22, 2008
              
              
              250,000
              
              
              
              3.71
              %
              October
      22, 2008900,000
              
              
              
              3.94
              %
              April
      27, 2009
              
              
              900,000
              
              
              
              3.94
              %
              April
      27, 2009400,000
              
              
              
              4.51
              %
              May
      12, 2009
              
              
              400,000
              
              
              
              4.51
              %
              May
      12, 2009953,614
              
              
              
              7.41
              %
              June
      22, 2010
              
              
              978,361
              
              
              
              7.41
              %
              June
      22, 2010100,000
              
              
              
              5.09
              %
              May
      12, 2011
              
              
              100,000
              
              
              
              5.09
              %
              May
      12, 2011792,435
              
              
              
              4.01
              %
              December
      6, 2011
              
              
              969,277
              
              
              
              4.01
              %
              December
      6, 20111,250,000
              
              
              
              4.44
              %
              December
      6, 2011
              
              
              1,250,000
              
              
              
              4.44
              %
              December
      6, 20111,000,000
              
              
              
              6.02
              %
              January 2, 2012
              
              
              1,000,000
              
              
              
              6.02
              %
              January 2, 2012$
              8,146,049
              
              
              
              
              
              
              
              $
              8,547,638
 
 Future
principal payments of outstanding FHLB advances are as follows:
 
 Year
      EndingDecember 31,2008
              
              $
              2,961,7022009
              
              
              1,522,3462010
              
              
              1,100,3512011
              
              
              1,561,6502012
              
              
              1,000,000$
              8,146,049
 
 25
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 8.
              JUNIOR
      SUBORDINATED DEFERRABLE INTEREST
DEBENTURES
 
 Valley
Commerce Trust I is a Delaware business trust formed by the Company with capital
of $93,000 for the sole purpose of issuing trust preferred securities fully and
unconditionally guaranteed by the Company.  During the second quarter
of 2003, Valley Commerce Trust I (the "Trust") issued 3,000 Floating Rate
Capital Trust Pass-Through Securities ("Trust Preferred Securities"), with a
liquidation value of $1,000 per security, for gross proceeds of
$3,000,000.  The entire proceeds of the issuance were invested by the
Trust in $3,093,000 of Floating Rate Junior Subordinated Deferrable Interest
Debentures (the "Subordinated Debentures") issued by the Company, with identical
maturity, repricing and payment terms as the Trust Preferred
Securities.  The Subordinated Debentures represent the sole assets of
the Trust. The Subordinated Debentures mature on April 7, 2033, bear a current
interest rate of 8.54% (based on 3-month LIBOR plus 3.30%), with repricing and
payments due quarterly.  The Subordinated Debentures are redeemable by
the Company, subject to receipt by the Company of prior approval from the
Federal Reserve Board of Governors, on any January 7, April 7, July 7 or October
7 on or after April 7, 2008.  The redemption price is par plus accrued
interest, except in the case of redemption under a special event which is
defined in the debenture.  The Trust Preferred Securities are subject
to mandatory redemption to the extent of any early redemption of the junior
subordinated debentures and upon maturity of the junior subordinated debentures
on April 7, 2033.
 
 Holders
of the Trust Preferred Securities are entitled to a cumulative cash distribution
on the liquidation amount of $1,000 per security at an initial rate per annum of
4.59%.  For each successive period beginning on January 7, April 7,
July 7 or October 7 of each year, the rate will be adjusted to equal the 3-month
LIBOR plus 3.30% provided, however, that prior to July 7, 2008, such annual rate
does not exceed 12.50%.  As of December 31, 2007, the rate was
8.54%.  The Trust has the option to defer payment of the distributions
for a period of up to five years, as long as the Company is not in default on
the payment of interest on the junior subordinated debentures.  The
Trust Preferred Securities were sold and issued in private transactions pursuant
to an exemption from registration under the Securities Act of 1933, as
amended.  The Company has guaranteed, on a subordinated basis,
distributions and other payments due on the Trust Preferred
Securities.
 
 The
unamortized deferred costs related to the junior subordinated debentures, which
are included in other assets on the consolidated balance sheet, at December 31,
2007 and 2006 were $3,000 and $21,000, respectively, and the amortization for
each of the three years ended December 31, 2007 was $18,000.
 
 26
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 9.
              COMMITMENTS
      AND CONTINGENCIES
 
 Leases
 
 The
Company leases its Fresno and Visalia branch offices, its Tulare loan production
office, and its administrative office under noncancelable operating leases which
expire in September 2017, November 2009, January 2008, and June 2008,
respectively.  The Visalia branch office lease contains two options to
renew the lease for five year periods.  Future minimum lease payments
are as follows:
 
 Year
      EndingDecember 31,2008
              
              $
              275,9492009
              
              
              218,1422010
              
              
              94,9422011
              
              
              94,9422012
              
              
              99,828Thereafter
              
              
              543,820$
              1,327,623
 
 Rental
expense included in occupancy and equipment expense totaled $309,657, $293,504,
and $250,968 for the years ended December 31, 2007, 2006 and 2005,
respectively.
 
 Federal Reserve
Requirements
 
 Banks are
required to maintain reserves with the Federal Reserve Bank equal to a
percentage of their reservable deposits.  The Company had no
reservable deposits.
 
 Financial Instruments With
Off-Balance-Sheet Risk
 
 The
Company is a party to financial instruments with off-balance-sheet risk in the
normal course of business in order to meet the financing needs of its
customers.  These financial instruments include commitments to extend
credit and letters of credit.  These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized on the consolidated balance sheet.
 
 The
Company's exposure to credit loss in the event of nonperformance by the other
party for commitments to extend credit and letters of credit is represented by
the contractual amount of those instruments.  The Company uses the
same credit policies in making commitments and letters of credit as it does for
loans included on the consolidated balance sheet.
 
 27
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 9.
              COMMITMENTS AND CONTINGENCIES(Continued)
 
 Financial Instruments With
Off-Balance-Sheet Risk (Continued)
 
 The
following financial instruments represent off-balance-sheet credit
risk:
 
 December 31,2007
              
              
              2006Commitments
      to extend credit
              
              $
              53,452,752
              
              
              $
              44,128,000Standby
      letters of credit
              
              $
              209,463
              
              
              $
              1,169,000
 
 Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since some of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.  The Bank evaluates
each customer's creditworthiness on a case-by-case basis.  The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the
borrower.  Collateral held varies, but may include real property, bank
deposits, debt or equity securities or business assets.
 
 Standby
letters of credit are conditional commitments written to guarantee the
performance of a customer to a third party.  These guarantees are
primarily related to the purchases of inventory by commercial customers and are
typically short-term in nature.  Credit risk is similar to that
involved in extending loan commitments to customers and, accordingly, evaluation
and collateral requirements similar to those for loan commitments are
used.  The fair value of the liability related to the Company’s
stand-by-letters of credit, which represents the fees received for issuing the
guarantee, was not considered significant at December 31, 2007 or
2006.  The Company recognizes these fees as revenue over the term of
the commitment or when the commitment is used.
 
 At
December 31, 2007, consumer loan commitments represent approximately 4% of total
commitments and are generally unsecured.  Commercial loan commitments
represent approximately 73% of total commitments and are generally secured by
various assets of the borrower.  Real estate loan commitments
represent the remaining 23% of total commitments and are generally secured by
property with a loan-to-value ratio not to exceed 80%.
 
 Significant Concentrations
of Credit Risk
 
 The
Company grants real estate mortgage, real estate construction, commercial,
agricultural and consumer loans to customers throughout the cities of Visalia,
Tulare, Fresno, Woodlake and Tipton, California.
 
 Although
the Company has a diversified loan portfolio, a substantial portion of its
portfolio is secured by commercial and residential real
estate.  However, personal and business income represent the primary
source of repayment for a majority of these loans.
 
 
 28
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 9.
              COMMITMENTS AND CONTINGENCIES(Continued)
 
 Contingencies
 
 The
Company is subject to legal proceedings and claims which arise in the ordinary
course of business.  In the opinion of management, the amount of
ultimate liability with respect to such actions will not materially affect the
financial position or results of operations of the Company.
 
 10.
              SHAREHOLDERS'
      EQUITY
 
 Dividend
Restrictions
 
 The
Company's ability to pay cash dividends is dependent on dividends paid to it by
the Bank and limited by California corporation law.  Under California
law, the holders of common stock of the Company are entitled to receive
dividends when and as declared by the Board of Directors, out of funds legally
available, subject to certain restrictions.  The California general
corporation law prohibits the Company from paying dividends on its common stock
unless: (i) its retained earnings, immediately prior to the dividend payment,
equals or exceeds the amount of the dividend or (ii) immediately after giving
effect to the dividend, the sum of the Company's assets (exclusive of goodwill
and deferred charges) would be at least equal to 125% of its liabilities (not
including deferred taxes, deferred income and other deferred liabilities) and
the current assets of the Company would be at least equal to its current
liabilities, or, if the average of its earnings before taxes on income and
before interest expense for the two preceding fiscal years was less than the
average of its interest expense for the two preceding fiscal years, at least
equal to 125% of its current liabilities.
 
 Dividends
from the Bank to the Company are restricted under California law to the lesser
of the Bank's retained earnings or the Bank's net income for the latest three
fiscal years, less dividends previously declared during that period, or, with
the approval of the Department of Financial Institutions, to the greater of the
retained earnings of the Bank, the net income of the Bank for its last fiscal
year, or the net income of the Bank for its current fiscal year.  As
of December 31, 2007, the maximum amount available for dividend distribution
under this restriction was approximately $8,866,000.  In addition, the
Company's ability to pay dividends is subject to certain covenants contained in
the indentures relating to the Trust Preferred Securities issued by the business
trust (see Note 8).
 
 29
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 10.           SHAREHOLDERS' EQUITY(Continued)
 
 
 Earnings Per
Share
 
 A
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations is as follows:
 
 WeightedAverageNumber
      ofNet
              
              
              Shares
              
              
              Per
      ShareFor the Year Ended
              
              Income
              
              
              Outstanding
              
              
              AmountDecember 31,
      2007Basic
      earnings per share
              
              
              2,660,850
              
              
              
              2,358,353
              
              
              $
              1.13Effect
      of dilutive stock options
              
              
              
              
              
              
              90,536Diluted
      earnings per share
              
              
              2,660,850
              
              
              
              2,449,889
              
              
              $
              1.09December 31,
      2006Basic
      earnings per share
              
              
              2,955,778
              
              
              
              2,312,140
              
              
              
              1.28Effect
      of dilutive stock options
              
              
              
              
              
              
              116,940Diluted
      earnings per share
              
              
              2,955,778
              
              
              
              2,429,080
              
              
              
              1.22December 31,
      2005Basic
      earnings per share
              
              
              2,162,807
              
              
              
              2,274,093
              
              
              
              0.95Effect
      of dilutive stock options
              
              
              
              
              
              
              133,510Diluted
      earnings per share
              
              
              2,162,807
              
              
              
              2,407,603
              
              
              
              0.90
 
 Shares of
common stock issuable under stock options for which the exercise prices are
greater than the average market prices are not included in the computation of
diluted earnings per share due to their antidilutive effect.  There
were 10,500 options excluded form the computation of diluted earnings per share
for the year ended December 31, 2007.  There were no options excluded
from the computation of diluted earnings per share for the years ended December
31, 2006 and 2005.
 
 30
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 10.
              SHAREHOLDERS' EQUITY(Continued)
 
 Stock-Based
Compensation
 
 The
Company has two active share base compensation plans. On May 15, 2007, the
Company’s shareholders approved the Valley Commerce Bancorp 2007 Equity
Incentive Plan (“Incentive Plan”).  The Incentive Plan provides for
awards of stock options, restricted stock awards, qualified performance based
awards and stock grants.  Under the Incentive Plan, 122,007 shares of
common stock are reserved for issuance to employees and directors under
incentive and nonstatutory agreements. During the year ended December
31, 2007 a total of 38,500 options were granted under the Incentive Plan.
On February 17, 2007 the Valley Commerce Bancorp Amended and Restated 1997 Stock
Option Plan (“Prior Plan”) expired. Under the Prior Plan, 137, 359 shares of
common stock are reserved for issuance. Subsequent to the 10,500 options granted
during the year ended December 31, 2006, there were no additional options
granted under the Prior Plan and no further grants may be made under this plan.
The purpose of the plans is to promote the long-term success of the Company and
the creation of shareholder value.  The Board of Directors believes
that the availability of stock options and other forms of stock awards will be a
key factor in the ability of the Company to attract and retain qualified
individuals.
 
 The plans
require that the option price may not be less than the fair market value of the
stock at the date the option is granted, and that the stock must be paid in full
at the time the option is exercised.  Payment in full for the option
price must be made in cash or with Company common stock previously acquired by
the optionee and held by the optionee for a period of at least six
months.  The plans do not provide for the settlement of awards in cash
and new shares are issued upon option exercise.  The options expire on
dates determined by the Board of Directors, but not later than ten years from
the date of grant.  Upon grant, options vest ratably over a one to
five year period.  The prior plan, the Valley Commerce Bancorp Amended
and Restated 1997 stock option plan (“Prior Plan”) was established in 1997 and
expired on February 17, 2007.  A total of 38,500 options were granted
under the Incentive Plan and 137,359 options were granted under the Prior
Plan.
 
 A summary
of the activity within the Plans follows:
 
 
 For
      the Year Ended December 31, 2007WeightedWeighted
              
              AverageAverage
              
              RemainingExercise
              
              Contractual
              
              AggregateShares
              
              
              Price
              
              Term
              
              Intrinsic
      ValueIncentive:Options
      outstanding at January 1, 2006
              
              
              37,515
              
              
              $
              8.20Options
      granted
              
              
              -
              
              
              
              -Options
      exercised
              
              
              (1,619
              )
              
              
              7.76Options
      cancelled
              
              
              -
              
              
              
              -Options
      outstanding at December 31, 2006
              
              
              35,896
              
              
              
              8.20Options
      granted
              
              
              38,500
              
              
              
              14.50Options
      exercised
              
              
              (1,914
              )
              
              
              6.79Options
      cancelled
              
              
              (608
              )
              
              
              11.52Options
      outstanding at December 31, 2007
              
              
              71,874
              
              
              
              11.58
              
              7.55
      years
              
              $
              427,984Options
      vested or expected to vest at December 31, 2007
              
              
              70,707
              
              
              
              11.60
              
              6.00
      years
              
              $
              820,084
              (1)Options
      exercisable at December 31, 2007
              
              
              29,662
              
              
              
              7.79
              
              5.33
      years
              
              $
              289,011
              (1)Nonstatutory:Options
      outstanding at January 1, 2006
              
              
              213,937
              
              
              $
              7.47
 
 31
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 Options
      granted
              
              
              10,500
              
              
              
              18.58Options
      exercised
              
              
              (23,726
              )
              
              
              6.03Options
      cancelled
              
              
              (1,042
              )
              
              
              7.07Options
      outstanding at December 31, 2006
              
              
              199,669
              
              
              
              7.47Options
      granted
              
              
              -
              
              
              
              -Options
      exercised
              
              
              (95,684
              )
              
              
              5.68Options
      cancelled
              
              
              -
              
              
              
              -Options
      outstanding at December 31, 2007
              
              
              103,985
              
              
              
              9.10
              
              5.48
      years
              
              $
              887,080Options
      vested or expected to vest at December 31, 2007
              
              
              103,227
              
              
              
              8.04
              
              6.83
      years
              
              $
              517,143Options
      exercisable at December 31, 2007
              
              
              93,517
              
              
              
              8.36
              
              5.48
      years
              
              $
              862,022
 
 (1)
              10,500
      options at an average price are excluded from intrinsic value because they
      are not in the money.
 
 The
aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the quoted price of the Company’s common
stock for options that were in-the-money at December 31, 2007.  There
were 97,507 and 24,345 options exercised during the years ended December
31, 2007 and 2006, respectively.  There were 25,345 options exercised
during the year ended December 31, 2006.  The total intrinsic value of
options exercised during the years ended December 31, 2007, 2006, and 2005 was
$1,152,962, $331,737, and $0, respectively.  The total fair value of
shares vested during the years ended December 31, 2007, 2006, and 2005 was
$219,283, $295,328, and $265,229, respectively. Cash received from option
exercise for the years ended December 31, 2007 and 2006 was $556,335 and
$154,402, respectively.  The total tax benefit of the non-qualified
options exercised in 2007 and 2006 was $335,894 and $125,828,
respectively.
 
 There
were 38,500 incentive stock options granted in 2007 and 10,500 non-statutory
options granted in 2006.  The Company bases the fair value of the
options granted on the date of grant using a Black-Scholes option pricing model
that uses assumptions based on expected option life and the level of estimated
forfeitures, expected stock volatility, risk free interest rate, and dividend
yield.  The Company uses historical data to estimate expected option
life.  Stock volatility is based on the historical volatility of the
Company’s stock.  The risk-free rate is based on the U. S. Treasury
yield curve for the periods within the contractual life of the options in effect
at the time of grant.
 
 Regulatory
Capital
 
 The
Company and the Bank are subject to certain regulatory capital requirements
administered by the Board of Governors of the Federal Reserve System and the
Federal Deposit Insurance Corporation (FDIC).  Failure to meet these
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial
statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting
practices.  The Company's and the Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
 
 Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets and of Tier 1 capital to average
assets.  Each of these components is defined in the
regulations.  Management believes that the Company and the Bank met
all their capital adequacy requirements as of December 31, 2007 and
2006.
 
 32
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 10.
              SHAREHOLDERS' EQUITY(Continued)
 
 Regulatory Capital
(Continued)
 
 In
addition, the most recent notification from the FDIC categorized the Bank as
well capitalized under the regulatory framework for prompt corrective
action.  To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set
forth below.  There are no conditions or events since that
notification that management believes have changed the Bank's
category.
 
 December 31,2007
              
              
              2006Amount
              
              
              Ratio
              
              
              Amount
              
              
              RatioLeverage
      RatioValley
      Commerce Bancorp and Subsidiary
              
              $
              31,927,000
              
              
              
              11.5
              %
              
              $
              28,654,000
              
              
              
              11.1
              %Minimum
      regulatory requirement
              
              $
              11,101,000
              
              
              
              4.0
              %
              
              $
              10,346,000
              
              
              
              4.0
              %Valley
      Business Bank
              
              $
              31,538,000
              
              
              
              11.4
              %
              
              $
              28,336,000
              
              
              
              11.0
              %Minimum
      requirement for "Well-Capitalized" institution
              
              $
              13,871,000
              
              
              
              5.0
              %
              
              $
              12,926,000
              
              
              
              5.0
              %Minimum
      regulatory requirement
              
              $
              11,097,000
              
              
              
              4.0
              %
              
              $
              10,341,000
              
              
              
              4.0
              %Tier 1 Risk-Based
      Capital RatioValley
      Commerce Bancorp and Subsidiary
              
              $
              31,927,000
              
              
              
              13.8
              %
              
              $
              28,654,000
              
              
              
              13.5
              %Minimum
      regulatory requirement
              
              $
              9,233,000
              
              
              
              4.0
              %
              
              $
              8,500,000
              
              
              
              4.0
              %Valley
      Business Bank
              
              $
              31,538,000
              
              
              
              13.7
              %
              
              $
              28,336,000
              
              
              
              13.4
              %Minimum
      requirement for "Well-Capitalized" institution
              
              $
              13,844,000
              
              
              
              6.0
              %
              
              $
              12,738,000
              
              
              
              6.0
              %Minimum
      regulatory requirement
              
              $
              9,230,000
              
              
              
              4.0
              %
              
              $
              8,492,000
              
              
              
              4.0
              %Total Risk-Based
      Capital RatioValley
      Commerce Bancorp and Subsidiary
              
              $
              33,684,000
              
              
              
              14.6
              %
              
              $
              30,399,000
              
              
              
              14.3
              %Minimum
      regulatory requirement
              
              $
              18,465,000
              
              
              
              8.0
              %
              
              $
              17,000,000
              
              
              
              8.0
              %Valley
      Business Bank
              
              $
              33,296,000
              
              
              
              14.4
              %
              
              $
              30,081,000
              
              
              
              14.2
              %Minimum
      requirement for "Well-Capitalized" institution
              
              $
              23,074,000
              
              
              
              10.0
              %
              
              $
              21,230,000
              
              
              
              10.0
              %Minimum
      regulatory requirement
              
              $
              18,459,000
              
              
              
              8.0
              %
              
              $
              16,984,000
              
              
              
              8.0
              %
 
 33
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 10.
              SHAREHOLDERS'
      EQUITY(Continued)
 
 Stock
Repurchase
 
 On
November 13, 2007 the Company announced that its Board of Directors authorized a
common stock repurchase plan.  The plan calls for the repurchase up to
an aggregate of $3,000,000 of the Company’s common stock.  The
repurchases will be made from time to time by the Company in the open market or
privately negotiated transactions as conditions allow and all shares repurchased
under this plan will be returned to authorized but unissued
shares.  The number, price and timing of the repurchases shall be at
the Company’s sole discretion and the plan may be re-evaluated depending on
market conditions, liquidity needs or other factors.  The Board, based
on such re-evaluations, may suspend, terminate, modify or cancel the plan at any
time without notice.  During 2007 the Company repurchased 27,440
shares at an average price of $13.91 for a total cost of $381,808.
 
 11.
              OTHER
      EXPENSES
 
 Other
expenses consisted of the following:
 
 Year Ended
December 31,2007
              
              
              2006
              
              
              2005Data
      processing
              
              $
              494,863
              
              
              $
              459,981
              
              
              $
              422,158Operations
              
              
              479,803
              
              
              
              454,229
              
              
              
              414,485Professional
      and legal
              
              
              507,920
              
              
              
              330,101
              
              
              
              310,928Promotional
              
              
              304,774
              
              
              
              268,374
              
              
              
              258,360Telephone
      and postal
              
              
              213,401
              
              
              
              205,804
              
              
              
              171,117Assessment
      and insurance
              
              
              197,225
              
              
              
              114,270
              
              
              
              124,506Supplies
              
              
              187,834
              
              
              
              180,384
              
              
              
              236,859Amortization
      expense
              
              
              62,538
              
              
              
              62,538
              
              
              
              62,538Other
      expenses
              
              
              406,835
              
              
              
              426,249
              
              
              
              274,908$
              2,855,193
              
              
              $
              2,501,930
              
              
              $
              2,275,859
 
 34
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 12.
              INCOME
      TAXES
 
 The
provision for income taxes for the years ended December 31, 2007 and 2006
consisted of the following:
 
 Federal
              
              
              State
              
              
              Total2007Current
              
              $
              809,000
              
              
              $
              402,000
              
              
              $
              1,211,000Deferred
              
              
              (40,000
              )
              
              
              (37,000
              )
              
              
              (77,000
              )Provision
      for income taxes
              
              $
              769,000
              
              
              $
              365,000
              
              
              $
              1,134,0002006Current
              
              $
              1,107,000
              
              
              $
              467,000
              
              
              $
              1,574,000Deferred
              
              
              (6,000
              )
              
              
              8,000
              
              
              
              2,000Provision
      for income taxes
              
              $
              1,101,000
              
              
              $
              475,000
              
              
              $
              1,576,0002005Current
              
              $
              1,188,000
              
              
              $
              403,000
              
              
              $
              1,591,000Deferred
              
              
              (195,000
              )
              
              
              (56,000
              )
              
              
              (251,000
              )Provision
      for income taxes
              
              $
              993,000
              
              
              $
              347,000
              
              
              $
              1,340,000
 
 35
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 12.
              INCOME TAXES
      (Continued)
 
 Deferred
tax assets (liabilities) consisted of the following:
 
 December 31,2007
              
              
              2006Deferred
      tax assets:Allowance
      for loan losses
              
              $
              740,000
              
              
              $
              740,000Unrealized
      loss on available-for-sale investment securities
              
              
              30,000
              
              
              
              156,000Deferred
      compensation
              
              
              499,000
              
              
              
              356,000Intangible
      assets
              
              
              92,000
              
              
              
              82,000Future
      benefit of state income tax deduction
              
              
              20,000
              
              
              
              73,000Total
      deferred tax assets
              
              
              1,381,000
              
              
              
              1,407,000Deferred
      tax liabilities:Bank
      premises and equipment
              
              
              (34,000
              )
              
              
              (74,000
              )Loan
      costs
              
              
              (261,000
              )
              
              
              (197,000
              )Other
              
              
              (35,000
              )
              
              
              (36,000
              )Total
      deferred tax liabilities
              
              
              (330,000
              )
              
              
              (307,000
              )Net
      deferred tax assets
              
              $
              1,051,000
              
              
              $
              1,100,000
 
 Management
believes that it is more likely than not that it will realize the above deferred
tax assets in future periods; therefore, no valuation allowance has been
provided against its deferred tax assets.
 
 The
provision for income taxes differs from amounts computed by applying the
statutory Federal income tax rate to operating income before income
taxes.  The items comprising these differences consisted of the
following:
 
 Year Ended
December 31,2007
              
              
              2006
              
              
              2005Rate
              
              
              Rate
              
              
              RateFederal
      income tax expense, at statutory rate
              
              
              34.0
              %
              
              
              34.0
              %
              
              
              34.0
              %State
      franchise tax, net of Federal tax effect
              
              
              7.2
              %
              
              
              7.2
              %
              
              
              7.2
              %Interest
      on obligations of states and political subdivisions
              
              
              (6.0
              )%
              
              
              (4.8
              )%
              
              
              (2.7
              )%Net
      increase in cash surrender value of bank-owned life
    insurance
              
              
              (2.2
              )%
              
              
              (1.2
              )%
              
              
              (1.0
              )%Other
              
              
              (3.1
              )%
              
              
              (0.4
              )%
              
              
              1.2
              %Total
      income tax expense
              
              
              29.9
              %
              
              
              34.8
              %
              
              
              38.7
              %
 
 36
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 12.
              INCOME TAXES
      (Continued)
 
 The
Company and its subsidiary file income tax returns in the U.S. federal and
California jurisdictions.  There are currently no pending U.S.
federal, state, and local income tax or non-U.S. income tax examinations by tax
authorities.
 
 With few
exceptions, the Company is no longer subject to tax examinations by U.S. Federal
taxing authorities for years ended before December 31, 2004, and by state and
local taxing authorities for years ended before December 31, 2003.
 
 The
unrecognized tax benefits and the interest and penalties accrued by the Company
as of December 31, 2007 were not significant.
 
 13.
              RELATED
      PARTY TRANSACTIONS
 
 During
the normal course of business, the Company enters into transactions with related
parties, including executive officers and directors.  These
transactions include borrowings from the Company with substantially the same
terms, including rates and collateral, as loans to unrelated
parties.  The following is a summary of the aggregate activity
involving related party borrowers during 2007:
 
 Balance,
      January 1, 2007
              
              $
              4,359,782Disbursements
              
              
              7,952,031Amounts
      repaid
              
              
              (3,855,377
              )Balance,
      December 31, 2007
              
              $
              8,456,436Undisbursed
      commitments to related parties, December 31, 2007
              
              $
              4,065,350
 
 14.
              EMPLOYEE
      BENEFIT PLANS
 
 Employee Retirement
Plan
 
 The
Company adopted the Valley Business Bank 401(k) Profit Sharing Plan, effective
January 1, 1997.  All employees that work 30 or more hours per week
with more than 3 months of service are eligible to participate in the
plan.  Eligible employees may elect to make tax deferred contributions
of their salary up to the maximum amount allowed by law.  The Company
matched 70% of the employees’ contributions, applicable to contributions of up
to 6% of the employees’ annual salary beginning in April 2006.  Prior
to that the Company had matched 50% of the employees’ contributions, applicable
to contributions of up to 6% of the employees annual salary.  Company
contributions vest at a rate of 20% annually.  Bank contributions for
the years ended December 31, 2007, 2006, and 2005 totaled $112,583, $89,493, and
$47,211 respectively.
 
 37
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 14.
              EMPLOYEE BENEFIT PLANS
      (continued)
 
 Salary Continuation and
Retirement Plans
 
 Salary
continuation plans are in place for three executives. Under these plans, the
executives will receive monthly payments after retirement until
death.  These benefits are substantially equivalent to those available
under split-dollar life insurance policies purchased by the Bank on the lives of
the executives.  In addition, the estimated present value of these
future benefits is accrued over the period from the effective dates of the plans
until the participants' expected retirement dates.  The expense
recognized under these plans for the years ended December 31, 2007, 2006, and
2005 totaled $229,774, $184,807, and $195,232, respectively. Income earned on
these policies, net of expenses, totaled $111,813, $108,034, and $103,851 for
the years ended December 31, 2007, 2006 and 2005, respectively.
 
 In
connection with these agreements, the Bank purchased single premium life
insurance policies with cash surrender values totaling $6,184,531 and $5,934,563
at December 31, 2007 and 2006, respectively.  Income earned on these
policies, net of expenses, totaled $249,968, $153,394 and $103,851 for the years
ended December 31, 2007, 2006 and 2005, respectively.  Income earned
on these policies is not subject to Federal and State income tax.
 
 15.
              COMPREHENSIVE
      INCOME
 
 Comprehensive
income is reported in addition to net income for all periods
presented.  Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of other comprehensive income
(loss) that historically has not been recognized in the calculation of net
income.  The unrealized gains and losses on the Company's
available-for-sale investment securities are included in other comprehensive
income (loss).  Total comprehensive income and the components of
accumulated other comprehensive income (loss) are presented in the consolidated
statement of changes in shareholders’ equity.
 
 At
December 31, 2007, 2006 and 2005, the Company held securities classified as
available-for-sale which had unrealized losses as follows:
 
 TaxBefore
              
              
              Benefit
              
              
              AfterTax
              
              
              (Expense)
              
              
              TaxFor the Year Ended
      December 31, 2007Other
      comprehensive loss:Unrealized
      holding losses
              
              $
              339,309
              
              
              $
              (125,255
              )
              
              $
              214,054Reclassification
      adjustment for losses included in net income
              
              
              (1,145
              )
              
              
              376
              
              
              
              (769
              )Total
      other comprehensive loss
              
              $
              340,454
              
              
              $
              (125,631
              )
              
              $
              214,823
 
 38
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 15.
              COMPREHENSIVE INCOME
      (continued)
 
 TaxBefore
              
              
              Benefit
              
              
              AfterTax
              
              
              (Expense)
              
              
              TaxFor the Year Ended
      December 31, 2006Other
      comprehensive loss:Unrealized
      holding losses
              
              $
              405,337
              
              
              $
              (169,943
              )
              
              $
              235,394Reclassification
      adjustment for losses included in net income
              
              
              (52,737
              )
              
              
              19,012
              
              
              
              (33,725
              )Total
      other comprehensive loss
              
              $
              458,074
              
              
              $
              (188,955
              )
              
              $
              269,119For the Year Ended
      December 31, 2005Other
      comprehensive loss:Unrealized
      holding losses
              
              $
              (810,296
              )
              
              $
              314,073
              
              
              $
              (496,223
              )Reclassification
      adjustment for gains included in net income
              
              
              (48,494
              )
              
              
              18,780
              
              
              
              (29,714
              )Total
      other comprehensive loss
              
              $
              (761,802
              )
              
              $
              295,293
              
              
              $
              (466,509
              )
 
 
 16.
              DISCLOSURES
      ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
 
 Estimated
fair values are disclosed for financial instruments for which it is practicable
to estimate fair value.  These estimates are made at a specific point
in time based on relevant market data and information about the financial
instruments.  These estimates do not reflect any premium or discount
that could result from offering the Company's entire holdings of a particular
financial instrument for sale at one time, nor do they attempt to estimate the
value of anticipated future business related to the instruments.  In
addition, the tax ramifications related to the realization of unrealized gains
and losses can have a significant effect on fair value estimates and have not
been considered in any of these estimates.
 
 Because
no market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding current
economic conditions, risk characteristics of various financial instruments and
other factors.  These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision.  Changes in assumptions could significantly
affect the fair values presented.
 
 The
following methods and assumptions were used by management to estimate the fair
value of its financial instruments at December 31, 2007 and 2006:
 
 Cash and cash
equivalents:  For cash and cash equivalents, the carrying
amount is estimated to be fair value.
 
 Investment
securities:  For investment securities, fair values are based
on quoted market prices, where available.  If quoted market prices are
not available, fair values are estimated using quoted market prices for similar
securities and indications of value provided by brokers.
 
 39
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 16.
              DISCLOSURES ABOUT FAIR VALUE OF
      FINANCIAL INSTRUMENTS
(continued)
 
 Loans:  For
variable-rate loans that reprice frequently with no significant change in credit
risk, fair values are based on carrying values.  The fair values for
other loans are estimated using discounted cash flow analyses, using interest
rates currently being offered at each reporting date for loans with similar
terms to borrowers of comparable creditworthiness.  The carrying
amount of accrued interest receivable approximates its fair value.
 
 Cash surrender value of
Bank-owned life insurance:  The fair values of life insurance
policies are based on current cash surrender values at each reporting date
provided by the insurers.
 
 Federal Home Loan Bank
stock:  For Federal Home Loan Bank stock, cost approximates
fair value.
 
 Deposits:  The
fair values for demand deposits are, by definition, equal to the amount payable
on demand at the reporting date represented by their carrying
amount.  Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow analysis using interest rates offered at
each reporting date by the Bank for certificates with similar remaining
maturities.  The carrying amount of accrued interest payable
approximates its fair value.
 
 Long-term
debt:  The fair values of fixed-rate borrowings are estimated
by discounting their future cash flows using rates at each reporting date for
similar instruments.  The fair values of variable rate borrowings are
based on carrying value.
 
 Junior subordinated
deferrable interest debentures:  The fair value of junior
subordinated deferrable interest debentures was determined based on the current
market value for the like kind instruments of a similar maturity and
structure.
 
 Commitments to extend
credit:  Commitments to extend credit are primarily for
variable rate loans and standby letters of credit.  For these
commitments, there is no difference between the committed amounts and their fair
values.  Commitments to fund fixed rate loans and standby letters of
credit are at rates which approximate fair value at each reporting
date.  The fair value of the commitments at each reporting date were
not significant and not included in the accompanying table.
 
 December 31, 2007
              
              
              December 31, 2006Carrying
              
              
              Fair
              
              
              Carrying
              
              
              FairAmount
              
              
              Value
              
              
              Amount
              
              
              ValueFinancial
      assets:Cash
      and cash equivalents
              
              $
              9,297,346
              
              
              $
              9,297,346
              
              
              $
              13,265,547
              
              
              $
              13,265,547Available-for-sale
      investment securities
              
              
              56,615,000
              
              
              
              56,615,000
              
              
              
              55,298,000
              
              
              
              55,298,000Loans,
      net
              
              
              199,514,271
              
              
              
              192,838,151
              
              
              
              182,331,506
              
              
              
              184,830,865Cash
      surrender value of life insurance policies
              
              
              6,184,531
              
              
              
              6,184,531
              
              
              
              5,934,563
              
              
              
              5,934,563Accrued
      interest receivable
              
              
              2,774,065
              
              
              
              2,774,065
              
              
              
              1,437,161
              
              
              
              1,437,161FHLB
      stock
              
              
              1,658,600
              
              
              
              1,658,600
              
              
              
              1,825,900
              
              
              
              1,825,900Financial
      liabilities:Deposits
              
              
              215,386,068
              
              
              
              214,836,974
              
              
              
              207,576,169
              
              
              
              207,667,710Short-term
      debt
              
              
              21,804,000
              
              
              
              21,804,000
              
              
              
              17,600,000
              
              
              
              17,600,000Long-term
      debt
              
              
              8,146,049
              
              
              
              7,977,153
              
              
              
              8,547,638
              
              
              
              8,215,627
 
 40
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 Junior
      subordinated deferrable interest debentures
              
              
              3,093,000
              
              
              
              3,093,000
              
              
              
              3,093,000
              
              
              
              3,093,000Accrued
      interest payable
              
              
              231,342
              
              
              
              209,463
              
              
              
              231,342
              
              
              
              284,942
 
 41
 
 VALLEY
COMMERCE BANCORP AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 
 17.
              PARENT
      ONLY FINANCIAL STATEMENTS
 
 CONDENSED
      BALANCE SHEETDecember
      31, 2007 and 20062007
              
              
              2006ASSETSCash
      and due from banks
              
              $
              378,772
              
              
              $
              113,078Investment
      in bank subsidiary
              
              
              31,484,801
              
              
              
              28,129,997Other
      assets
              
              
              214,957
              
              
              
              402,302$
              32,078,530
              
              
              $
              28,645,377LIABILITIES
      ANDSHAREHOLDERS'
      EQUITYOther
      liabilities
              
              $
              112,319
              
              
              $
              104,278Junior
      subordinated debentures due to subsidiary grantor trust
              
              
              3,093,000
              
              
              
              3,093,000Total
      liabilities
              
              
              3,205,319
              
              
              
              3,197,278Shareholders'
      equity:Common
      stock
              
              
              23,511,066
              
              
              
              20,683,720Retained
      earnings
              
              
              5,423,324
              
              
              
              5,040,381Accumulated
      other comprehensive loss,net of taxes
              
              
              (61,179
              )
              
              
              (276,002
              )Total
      shareholders' equity
              
              
              28,873,211
              
              
              
              25,448,099$
              32,078,530
              
              
              $
              28,645,377
 
 42
 
 17.
              PARENT ONLY FINANCIAL
      STATEMENTS (Continued)
 
 STATEMENT
      OF INCOMEFor
      the Years Ended December 31, 2007, 2006 and 20052007
              
              
              2006
              
              
              2005Income:Earnings
      from investment in Valley Commerce Trust I
              
              $
              8,139
              
              
              $
              7,917
              
              
              $
              6,279Expenses:Interest
      on junior subordinated deferrable interest debentures
              
              
              270,690
              
              
              
              263,310
              
              
              
              208,787Other
      expenses
              
              
              531,689
              
              
              
              390,647
              
              
              
              292,941Total
      expenses
              
              
              802,379
              
              
              
              653,957
              
              
              
              501,728Loss
      before equity in undistributed income of subsidiary
              
              
              (794,240
              )
              
              
              (646,040
              )
              
              
              (495,449
              )Equity
      in undistributed income of subsidiary
              
              
              3,128,090
              
              
              
              3,335,818
              
              
              
              2,454,256Income
      before income taxes
              
              
              2,333,850
              
              
              
              2,689,778
              
              
              
              1,958,807Income
      tax benefit
              
              
              327,000
              
              
              
              266,000
              
              
              
              204,000Net
      income
              
              $
              2,660,850
              
              
              $
              2,955,778
              
              
              $
              2,162,807
 
 43
 
 17.
              PARENT ONLY FINANCIAL
      STATEMENTS (Continued)
 
 STATEMENT
      OF CASH FLOWSFor
      the Years Ended December 31, 2007, 2006 and 20052007
              
              
              2006
              
              
              2005Cash
      flows from operating activities:Net
      income
              
              $
              2,660,850
              
              
              $
              2,955,778
              
              
              $
              2,162,807Adjustments
      to reconcile net income to net cash provided by operating
      activities:Undistributed
      net income of subsidiary
              
              
              (3,128,090
              )
              
              
              (3,335,818
              )
              
              
              (2,454,256
              )Stock-based
      compensation expense
              
              
              32,519
              
              
              
              18,847
              
              
              
              -Tax
      benefits on stock-based compensation
              
              
              (335,893
              )
              
              
              (125,828
              )
              
              
              -Decrease
      in other assets
              
              
              523,238
              
              
              
              77,182
              
              
              
              10,536Increase
      (decrease) in other liabilities
              
              
              8,041
              
              
              
              (4,007
              )
              
              
              (67,128
              )Net
      cash used in operating activities
              
              
              (239,335
              )
              
              
              (413,846
              )
              
              
              (348,041
              )Cash
      flows from investing activities:Investment
      I bank subsidiary
              
              
              -
              
              
              
              -
              
              
              
              (7,500,000
              )Cash
      flows from financing activities:Cash
      paid for fractional shares
              
              
              (5,392
              )
              
              
              (5,004
              )
              
              
              -Proceeds
      from the exercise of stock options
              
              
              556,336
              
              
              
              154,402
              
              
              
              -Tax
      benefits from stock-based compensation
              
              
              335,893
              
              
              
              125,828
              
              
              
              -Cash
      paid to repurchase common stock
              
              
              (381,808
              )
              
              
              -
              
              
              
              -Net
      proceeds from sale of common stock
              
              
              -
              
              
              
              -
              
              
              
              3,880,321Net
      cash provided by financing activities
              
              
              505,029
              
              
              
              275,226
              
              
              
              3,880,321Increase
      (decrease) in cash and cash equivalents
              
              
              265,694
              
              
              
              (138,620
              )
              
              
              (3,967,720
              )Cash
      and cash equivalents at beginning of year
              
              
              113,078
              
              
              
              251,698
              
              
              
              4,219,418Cash
      and cash equivalents at end of year
              
              $
              378,772
              
              
              $
              113,078
              
              
              $
              251,698
 
 44




ITEM
15. EXHIBITS




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




45


SIGNATURES




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





Valley
Commerce Bancorp


(Registrant)


Date:
April 7, 2008


/s/
      Donald A. GillesDonald
      A. GillesPresident/Chief
      Executive Officer/s/
      Roy O. EstridgeRoy
      O. EstridgeExecutive
      Vice President/ChiefFinancial
      Officer


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




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


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


46


EXHIBIT
INDEX




Exhibit
            Description of
      Document3.1
            Articles
      of Incorporation of the Company, as amended (1)3.2
            Bylaws
      of the Company (1)4.3
            Specimen
      Stock Certificate (2)10.1
            Valley
      Commerce Bancorp Amended and Restated 1997 Stock Option Plan
      (1,3)10.2
            Lease
      of premises at 200 South Court Street, Visalia (1)10.3
            Executive
      Supplemental Compensation Agreement with Donald A.
      Gilles  (1,3)10.4
            Executive
      Supplemental Compensation Agreement with Roy O. Estridge (1,
      3)10.5
            Executive
      Supplemental Compensation Agreement with Allan W. Stone (1,
    3)10.6
            Valley
      Commerce Bancorp Amended and Restated 1997 Stock Option Plan (1,
      3)10.7
            Valley
      Commerce Bancorp 2007 Equity Incentive Plan (4)10.8
            Indenture
      between Valley Commerce Bancorp and Wells Fargo Bank National Association
      as Trustee, Junior Subordinated Debt Securities Due April 7, 2033
      (1)10.9
            Junior
      Subordinated Debt Security Due 2003 of Valley Commerce Bancorp
      (1)10.10
            Guaranty
      Agreement of Valley Commerce Bancorp in favor of Wells Fargo Bank National
      Association as Trustee (1)21
            Subsidiaries
      of the Company (1)24
            Powers
      of Attorney (included on signature pages) (5)31
            Rule
      13a-14(a)/15d-14(a) Certifications32
            Section
      1350 Certifications


_______________________________________


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


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


(3)
            Management
      contract or compensatory plan or
arrangement.


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


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




47