10-Q 1 c07825e10vq.txt QUARTERLY REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission file number 0-30505 WEST POINTE BANCORP, INC. (Exact Name of Registrant as Specified in Its Charter) Illinois 36-4149655 -------- ---------- (State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification or Organization) No.) West Pointe Bancorp, Inc. 5701 West Main Street Belleville, Illinois 62226 -------------------- ----- (Address of Principal Executive Offices) (Zip Code) (618) 234-5700 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 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 and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No 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 [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at August 11, 2006 ----- ------------------------------ Common stock $1 par value 1,029,579 ================================================================================ TABLE OF CONTENTS

2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WEST POINTE BANCORP, INC. CONSOLIDATED BALANCE SHEETS

See the accompanying notes to consolidated financial statements. 3 WEST POINTE BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See the accompanying notes to consolidated financial statements. 4 WEST POINTE BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

See the accompanying notes to consolidated financial statements. 5 WEST POINTE BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See the accompanying notes to consolidated financial statements. 6 WEST POINTE BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- PRINCIPLES OF ACCOUNTING The consolidated financial statements of West Pointe Bancorp, Inc. ("West Pointe" or the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for the banking industry and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual reporting. Reference is hereby made to the notes to consolidated financial statements contained in West Pointe's Annual Report on Form 10-K for the year ended December 31, 2005. The foregoing consolidated financial statements are unaudited. However, in the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been made. All such adjustments are of a normal recurring nature. The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet of the Company as of December 31, 2005 has been derived from the audited consolidated balance sheet of the Company as of that date. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary West Pointe Bank And Trust Company (the "Bank"), an Illinois chartered commercial bank. All material intercompany transactions and balances are eliminated. West Pointe is a bank holding company that engages in its business through its sole subsidiary. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the valuation of real estate acquired by foreclosure, management obtains independent appraisals for significant properties. Certain 2005 amounts have been reclassified where appropriate to conform to the consolidated financial statement presentation used in 2006. NOTE B -- STOCK-BASED COMPENSATION On January 1, 2006, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share Based Payment." The Company elected to use the modified prospective transition method, therefore, prior period results were not restated. Prior to adoption of SFAS 123R, stock-based compensation expense related to stock options was not recognized in the results of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on the stock option fair values. Under the modified prospective transition method, awards that were granted prior to January 1, 2006, but not fully vested at that date, will also result in compensation expense, based on the grant date fair value, with the remaining unrecognized cost being expensed over the remaining vesting period. 7 The following table summarizes the proforma effect of stock-based compensation in 2005, as if the fair value method of accounting for stock compensation had been applied:

Stock option expense recognized during the three months ended June 30, 2006 was $8,303,772 and a tax benefit of $3,031,081 was recognized. Stock option expense recognized during the six months ended June 30, 2006 was $8,365,818 and a tax benefit of $3,041,443 was recognized. Upon execution of the merger agreement, management concluded that the contingent cash settlement feature of the option plan required the recognition of an accrued liability and expense based on the fair value of outstanding options at period end. There were no stock options granted, forfeited or exercised in the first six months of 2006. NOTE C -- NET INCOME PER SHARE The calculation of net income per share is summarized as follows:

Because the Company reported a net loss for the quarter and year-to-date in 2006, the 214,000 outstanding stock options are not considered to be dilutive for this computation. NOTE D -- SUBSEQUENT EVENT MERGER INFORMATION On April 13, 2006, the Company entered into a definitive Agreement and Plan of Merger with Commerce Bancshares, Inc. ("Commerce") and CBI-Kansas, Inc., a wholly-owned subsidiary of Commerce ("CBI-Kansas"), 8 pursuant to which the Company will merge with and into CBI-Kansas with CBI-Kansas as the surviving corporation. While the required regulatory approvals have been obtained, and the Company's Shareholders have approved the merger, consummation of the merger is subject to the satisfaction of a number of customary closing conditions. The transaction is expected to be completed during the third quarter of 2006. In connection with the merger, the Bank will be merged with and into Commerce Bank, N.A., a wholly-owned subsidiary of CBI-Kansas. Upon consummation of the merger, all outstanding shares of West Pointe common stock will cease to be outstanding and will be converted into the right to receive shares of Commerce common stock or cash consideration, without interest, in accordance with the terms of the Agreement and Plan of Merger. In the merger, it is expected that Commerce will (i) issue up to 1,678,772 and no fewer than 1,099,384 shares of Commerce common stock and (ii) pay up to $20,225,000, for all shares of West Pointe common stock held by West Pointe shareholders immediately before completion of the merger. The cash consideration is limited to 25% of the total merger consideration. Commerce Stock Option: In connection with the proposed merger, West Pointe has granted to Commerce a stock option to purchase from West Pointe, under certain circumstances, shares equal to up to 19.9% of West Pointe's issued and outstanding common stock after such purchase, at a price, subject to certain adjustments, of $48.75 per share pursuant to a stock option agreement. Under certain circumstances, West Pointe may be required to repurchase the option or the shares acquired pursuant to the exercise of the option. West Pointe also has the ability, under certain circumstances, to call the stock issued pursuant to the grant. Alternatively, the option could be surrendered to West Pointe, together with any shares purchased under the option, in exchange for cash. The stock option agreement limits Commerce's total profit (as defined in the stock option agreement) to not more than $4,000,000. West Pointe Stock Options: In connection with the proposed merger, West Pointe has accelerated the vesting of all unvested stock options. In the event that the holders of such stock options do not exercise their stock options prior to the closing date, then subject to receipt of Commerce's waiver of certain closing conditions, such holders will be paid in cash in connection with the closing. Upon execution of the merger agreement, management concluded that the contingent cash settlement feature of the option plan required the recognition of an accrued liability and expense based on the intrinsic value of the outstanding stock options. West Pointe Agreements: In connection with the proposed merger, the benefits under certain of West Pointe's employment, salary continuation and split dollar agreements will vest. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion describes West Pointe's results of operations during the three-month and six-month periods ended June 30, 2006 and 2005, and its financial condition, asset quality, and capital resources as of June 30, 2006 and December 31, 2005. This discussion should be read in conjunction with West Pointe's unaudited consolidated financial statements and notes thereto. The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year. FORWARD-LOOKING STATEMENTS This filing and future filings made by West Pointe with the Securities and Exchange Commission (the "SEC"), as well as other filings, reports and press releases made or issued by West Pointe, and oral statements made by executive officers or directors of West Pointe may include forward-looking statements. These forward-looking statements are not based on historical information, but rather are based on assumptions and describe future plans, strategies, projections and expectations of West Pointe and are generally identified by use of terms "believe", "expect", "intend", "anticipate", "estimate", "project", or similar words. West Pointe's ability to predict results or the actual effect of future plans or strategies is uncertain. Factors which could have a material adverse effect on West Pointe's operations include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U. S. Government, including policies of the U. S. Treasury and the Board of Governors of the Federal Reserve System, the quality and composition of the loan or 9 investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in West Pointe's market areas and accounting principles and guidelines. Additionally, the policies of the Federal Deposit Insurance Corporation (the "FDIC"), the State of Illinois Department of Financial and Professional Regulation, the Financial Accounting Standards Board (the "FASB"), the Public Company Accounting Oversight Board (the "PCAOB") and the SEC could cause actual results to differ from those currently anticipated. All of these uncertainties, as well as others, are present in a banking operation and stockholders are cautioned that management's view of the future on which it prices its products, evaluates collateral, sets loan reserves and estimates costs of operations and regulation may prove to be other than anticipated. West Pointe assumes no obligation to update any forward-looking statements that are made from time to time. OVERVIEW West Pointe recorded net losses of $4,977,203 and $4,286,447 for the second quarter and first six months of 2006, respectively compared to net income of $930,748 and $1,817,317 for the second quarter and first six months of 2005, respectively. Net income per diluted common share was $.87 and $1.71 for the second quarter and first six months of 2005, respectively. Net losses per diluted common share totaled $4.83 and $4.17 for the second quarter and first six months of 2006. The net losses recorded during the 2006 periods were primarily attributable to the recognition of compensation expenses, net of applicable income tax benefits, associated with the acceleration of vesting and potential cash settlement of West Pointe's stock options previously granted to the Company's directors and certain officers. Such vesting acceleration is expected in connection with the proposed merger of the Company and Commerce and CBI-Kansas. Total assets at June 30, 2006 decreased $17,794,698 to $459,596,334 from $477,391,032 at December 31, 2005. At June 30, 2006, loans totaled $260,540,298 compared to $255,699,529 at December 31, 2005. At June 30, 2006, securities totaled $147,483,657 compared to $167,905,905 at December 31, 2005. West Pointe's primary funding source for assets is deposits, which totaled $375,863,151 at June 30, 2006 compared to $401,996,154 at December 31, 2005. MERGER INFORMATION On April 13, 2006, West Pointe entered into a definitive Agreement and Plan of Merger with Commerce and CBI-Kansas, pursuant to which West Pointe will merge with and into CBI-Kansas with CBI-Kansas as the surviving corporation. While the required regulatory approvals have been obtained, and the Company's shareholders have approved the transaction, consummation of the merger is subject to a number of customary closing conditions. The transaction is expected to be completed during the third quarter of 2006. In connection with the merger, the Bank will be merged with and into Commerce Bank, N.A., a wholly-owned subsidiary of CBI-Kansas. Upon consummation of the merger, all outstanding shares of West Pointe common stock will cease to be outstanding and will be converted into the right to receive shares of Commerce common stock or cash consideration without interest, in accordance with the terms of the Agreement and Plan of Merger. In the merger, it is expected that Commerce will (i) issue up to 1,678,772 and no fewer than 1,099,384 shares of Commerce common stock and (ii) pay up to $20,225,000, for all shares of West Pointe common stock held by West Pointe shareholders immediately before completion of the merger. The cash consideration is limited to 25% of the total merger consideration. In connection with the proposed merger, West Pointe has granted to Commerce a stock option to purchase from West Pointe, under certain circumstances, shares equal to up to 19.9% of West Pointe's issued and outstanding common stock after such purchase, at a price, subject to certain adjustments, of $48.75 per share pursuant to a stock option agreement. Under certain circumstances, West Pointe may be required to repurchase the option or the shares acquired pursuant to the exercise of the option. West Pointe also has the ability, under certain circumstances, to call the stock issued pursuant to the grant. Alternatively, the option could be surrendered to West Pointe, together with any shares purchased under the option, in exchange for cash. The stock option agreement limits Commerce's total profit (as defined in the stock option agreement) to not more than $4,000,000. 10 RESULTS OF OPERATIONS Table 1 summarizes West Pointe's statements of income and the change in each category for the periods presented. TABLE 1 - Comparative Statements of Income

NM-Not Meaningful 11 TABLE 1 - Comparative Statements of Income

NM-Not Meaningful 12 NET INTEREST INCOME Tax-equivalent net interest income remained stable for the second quarter and first six months of 2006 compared to the same periods of 2005. The increases in tax-equivalent interest income were offset by increases in total interest expense. Total tax-equivalent interest income increased $985,800 or 17.6% for the second quarter of 2006 compared to the same period of 2005 and increased $1,970,807 or 17.9% for the first six months of 2006 compared to the same period of 2005. The increases in tax-equivalent interest income for the periods compared were primarily due to a higher interest rate environment coupled with higher volumes of interest earning assets. Average interest earning assets increased $19,041,293 or 4.6% to $429,687,518 for the second quarter of 2006 compared to the same period of 2005 and increased $23,027,119 or 5.6% to $433,396,833 for the first six months of 2006 compared to the same period of 2005. The increases in average interest earning assets were primarily due to internal growth in the loan portfolio and an increase in securities. The average rate earned on interest earning assets increased to 6.09% for the second quarter of 2006 from 5.41% for the same period of 2005. The average rate earned on interest earning assets increased to 5.97% for the first six months of 2006 from 5.35% for the same period of 2005. The increases in the average rates earned were primarily due to the higher interest rate environment. Since the beginning of 2005, there have been twelve increases in the prime-lending rate totaling 300 basis points. West Pointe's loan portfolio yields tend to follow trends in the prime-lending rate. While loan yields tend to follow trends in the prime-lending rate, they may not follow simultaneously with such trends. Total interest expense increased $1,002,628 or 47.6% for the second quarter of 2006 compared to the same period of 2005 and increased $1,989,042 for the first six months of 2006 compared to the same period of 2005. The increases in interest expense were primarily attributable to the higher interest rate environment coupled with a higher volume of interest bearing liabilities. Average interest bearing liabilities increased 4.0% to $373,453,920 for the second quarter of 2006 compared to the same period of 2005 and increased 4.9% to $378,750,271 for the first six months of 2006 compared to the same period of 2005. The increase in average interest bearing liabilities was primarily due to increases in the average balances of savings and money market deposits, time deposits and repurchase agreements, partially offset by a decrease in the average balance of interest bearing demand deposits. The average interest rate paid on interest bearing liabilities increased to 3.33% during the second quarter of 2006 from 2.35% for the same period of 2005 and increased to 3.21% for the first six months of 2006 from 2.25% for the same period of 2005. The net interest margin was 3.19% for the second quarter of 2006 compared to 3.36% for the second quarter of 2005. The net interest margin was 3.17% for the first six months of 2006 compared to 3.37% for the same period of 2005. The decrease in the net interest margin for the periods compared resulted from the Company's cost of funds on interest bearing liabilities increasing at a faster pace than the Company's yield on interest earning assets. West Pointe management continues efforts to monitor and maintain the Company's net interest margin. PROVISION FOR LOAN LOSSES The Company did not record a provision for loan losses during the second quarter or the first six months of 2006. The Company recorded provisions for loan losses of $47,000 and $2,000 for the second quarter and first six months of 2005, respectively. The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the adequacy of the allowance for loan losses. Factors which influence management's determination of the provision for loan losses include, among other things, a review of individual loans, size and quality of the loan portfolio, current and projected economic conditions, regulatory guidelines, and historical loan loss experience. Continued improvement in asset quality indicators, in particular, lower levels of nonperforming loans and modest net charge-offs contributed to the modest provisions for loan losses recorded during the 2005 periods. Lower levels of nonperforming loans, also resulted in no provisions for loan losses being recorded during the second quarter and first six months of 2006. In addition, during 2005, the U. S. Department of Defense through the Base Realignment and Closure (BRAC) Commission determined that, unlike several other military bases, Scott Air Force Base, vital to the local economy in West Pointe's market area, was not to be considered for closure. As a result, and in accordance with management's continuing allowance for loan loss methodology review, West Pointe determined that a reserve associated with the possible closure of Scott Air Force Base was no longer necessary. Closure of the base could have resulted in additional loan loss exposure to West Pointe. During 2006, the impact on 13 the provision for loan losses that resulted from these items was offset by net loans charged off that were largely specifically reserved for at December 31, 2005. Activity in the allowance for loan losses and nonperforming loan data is presented under "ASSET QUALITY." NONINTEREST INCOME Total noninterest income was $912,534 for the second quarter of 2006 compared to $1,209,850 for the second quarter of 2005. Total noninterest income was $1,892,473 for the first six months of 2006 compared to $2,329,353 for the first six months of 2005. Service charges on deposit accounts decreased $50,918 for the second quarter of 2006 compared to the second quarter of 2005 and decreased $58,143 for the six-month periods compared. The decrease for the quarters compared partially resulted from a reduction in the volume of service charges on business deposit accounts. The decrease for the six-month periods compared partially resulted from a reduction in the volume of service charges on business deposit accounts, partially offset by modest increases in charges for insufficient funds and overdrafts. Many of West Pointe's commercial deposit accounts receive an earnings credit on balances maintained. These earnings credits are used to reduce scheduled service charges and increase or decrease as interest rates rise or fall. As a result of the higher interest rate environment, these earnings credits increased, thus reducing the level of service charges being assessed. Income from mortgage banking services decreased $6,159 for the second quarter of 2006 compared to the second quarter of 2005 and increased $1,786 for the six-month periods compared. The decrease in mortgage banking income for the quarters compared was primarily due to a slightly lower level of mortgage origination and refinancing activities. Mortgage loan sales volume depends heavily on, among other things, the strength of the local real estate market. As of June 30, 2006, management anticipates that the level of mortgage banking income will remain stable during the remainder of 2006. Income from trust fees decreased $17,073 for the second quarter of 2006 compared to the second quarter of 2005 and decreased $29,508 for the six-month periods compared. The decreases for the periods compared were partially attributable to the 2005 receipt of one-time fees charged in connection with the administration of certain estates. Income from trust fees is derived primarily from management of estates, personal trusts and investment agencies. Income from brokerage and insurance services decreased $37,507 for the second quarter of 2006 compared to the second quarter of 2005 and increased $13,106 for the six-month periods compared. The decrease in revenues from brokerage and insurance services for the quarters compared primarily relates to a reduced level of annuity sales in the second quarter of 2006 versus the second quarter of 2005. Products offered through our brokerage and insurance function include stocks, bonds, mutual funds, annuities and other non-deposit investment products. Credit card income decreased $35,451 for the second quarter of 2006 compared to the second quarter of 2005 and decreased $58,334 for the six-month periods compared. Credit card income primarily consists of revenues received from West Pointe's "debit" card product and interchange fees received on credit card transactions. During the third quarter of 2005, West Pointe sold the Company's credit card portfolio to an unaffiliated bank. The decision to sell the portfolio was based, in part, on management's analysis of the program's level of contribution to West Pointe's earnings. The sale was completed following the purchaser's due diligence examination and the execution of a definitive agreement. Despite the sale of its credit card portfolio, under the terms of the definitive agreement, West Pointe will continue to receive a portion of the interchange revenues on credit card transactions. During the second quarter of 2006, West Pointe recorded an increase in cash surrender value of life insurance of $139,414 compared to an increase in cash surrender value of life insurance of $120,071 recorded during the second quarter of 2005. During the first six months of 2006, West Pointe recorded an increase in cash surrender value of life insurance of $265,260 compared to an increase in cash surrender value of life insurance of $233,959 recorded during the first six months of 2005. These cash surrender value increases relate to various bank owned life insurance (BOLI) policies. Certain of the insurance policies serve as funding mechanisms for West Pointe's director fee deferral program. The remaining policies serve as funding mechanisms for various employee benefit plans. These BOLI policies provide certain benefits to the Company including, but not limited to, the exclusion from income taxes on the increase in their cash surrender values. The increase in income from this component of noninterest income was partially attributable to the purchase of additional BOLI policies during the second quarter of 2005. Net securities gains recorded during the second quarter and first six months of 2005 totaled $167,258 and $378,516, respectively. Net securities gains recorded during 2005 resulted from opportunities in the marketplace to take such gains. No securities gains or losses were recorded during the second quarter or first six months of 2006. Other noninterest income includes such items as interchange fees on automated teller machine (ATM) transactions, safe deposit rental fees, check printing fees, wire transfer fees and other miscellaneous fees. Collectively, the components of other noninterest income generated revenues of $70,103 and $179,596 for the second quarter and first six months of 2006, respectively, compared to $72,396 and $138,168 for the second quarter and first six months of 2005, respectively. The increase in other noninterest income for the 14 six-month periods compared was primarily attributable to the recognition of a gain of $25,056 on the sale of one of West Pointe's parcels of real property. The subject parcel of real property was purchased in the fourth quarter of 2004. The remainder of the increase in other noninterest income for the six-month periods compared was attributable to modest increases in a number of categories of noninterest income. NONINTEREST EXPENSE Total noninterest expense was $12,134,405 for the second quarter of 2006 compared to $3,227,220 for the second quarter of 2005. For the first six months of 2006, total noninterest expense was $15,564,268 compared to $6,515,896 for the same period of 2005. The increases in noninterest expense for the periods compared were primarily attributable to compensation expenses associated with the Company's stock options and increased legal and professional fees. Employee compensation and benefit expenses decreased $43,811 for the second quarter of 2006 compared to the second quarter of 2005 and decreased $7,148 for the six-month periods compared. The decreases in employee compensation and benefits for the periods compared were primarily attributable to a reduction in Company staffing levels and reduced medical insurance benefit costs. As of June 30, 2006, the Company had 119 full-time equivalent employees versus 124 full-time equivalent employees as of June 30, 2005. The decreases in employee compensation and benefit expenses that resulted from the reduced staffing levels in reduced medical insurance benefit costs were partially offset by normal merit increases and increased costs associated with the salary continuation agreements established for various company officers. Compensation expense relating to stock options of $8,303,772 and $8,365,818 was recognized during the second quarter and first six months of 2006. The Company's option plan provides for a contingent cash payout of the intrinsic value of stock options upon a change in control. Since the merger of the Company is probable, the Company recognized the expense and the resulting liability as of June 30, 2006. Net occupancy expenses increased $21,978 for the second quarter of 2006 compared to the second quarter of 2005 and increased $40,442 for the six-month periods compared. The increases in net occupancy expenses for the periods compared were primarily attributable to increased building repair and maintenance costs. Furniture and equipment expenses increased $5,470 for the first six months of 2006 compared to the first six months of 2005 and decreased modestly for the quarters compared. The modest increase in furniture and equipment expenses for the periods compared was primarily due to normal operations. Legal and professional fees increased $614,871 for the second quarter of 2006 compared to the second quarter of 2005 and increased $625,513 for the six-month periods compared. The increases in legal and professional fees for the periods compared primarily related to expenses incurred in connection with the proposed merger of the Company and Commerce. In addition to the legal expenses incurred in connection with the merger, legal and professional fees incurred in 2006 also included a professional fee in the amount of $235,000 paid to Stifel, Nicolaus & Company, Incorporated ("Stifel"). That payment was made in connection with the fairness opinion that Stifel issued to West Pointe's board of directors, which indicated that, from a financial point of view, the consideration to be received by West Pointe shareholders in the merger is fair. Data processing expenses increased $3,502 for the second quarter of 2006 compared to the second quarter of 2005 and increased $9,216 for the six-month periods compared. The increases in data processing fees for the periods compared were primarily attributable to normal operations. Advertising expenses decreased $2,033 for the second quarter of 2006 compared to the second quarter of 2005 and decreased $15,922 for the six-month periods compared. The decreases in advertising expenses for the periods compared were primarily attributable to the cost of expanded promotional activities during the second quarter and first six months of 2005. Other noninterest expense increased $10,066 for the second quarter of 2006 compared to the second quarter of 2005 and increased $24,983 for the six-month periods compared. Other noninterest expense includes such items as FDIC insurance premiums, mortgage banking expenses, contributions, telephone expenses, postage costs, certain credit card program expenses and other miscellaneous expenses. The increase in other noninterest expense for the six-month periods compared was primarily attributable to the first quarter recognition of a write down of $90,000 and a loss of $74,374 on the sale of one parcel of foreclosed property. The impact on noninterest expense that resulted from that loss was partially offset by decreases in several other components of this category. INCOME TAX EXPENSE West Pointe recorded income tax benefits of $2,984,781 and $2,870,543 for the second quarter and first six months of 2006, respectively, compared to income tax expense of $298,300 and $557,700 recorded during the second quarter and first six months of 2005, respectively. The substantial income tax benefits recorded during the 2006 periods primarily related to the acceleration of vesting and potential cash settlement of the Company's stock options, which is anticipated in connection with the merger. The 2006 income tax benefits resulting from this issue were 15 partially offset by the impact of other pre-tax net income generated by the Company. The effective income tax rates were 24.3% and 23.5% for the second quarter and first six months of 2005, respectively. The effective income tax rates resulting from the recorded income tax benefits were 37.5% and 40.1% for the second quarter and first six months of 2006, respectively. FINANCIAL CONDITION GENERAL Certain components of West Pointe's consolidated balance sheet at June 30, 2006 compared to December 31, 2005 are presented in summary form in Table 2. Total assets decreased $17,794,698 to $459,596,334 compared to $477,391,032 at December 31, 2005. The decrease in total assets was primarily due to a decrease in the volume of securities, partially offset by an increase in volume of loans. TABLE 2 - Selected Comparative Balance Sheet Items

LOANS Loans increased 1.9%, or $4,840,769 to $260,540,298 from year-end 2005 to June 30, 2006. The Company experienced growth in the commercial, financial and agricultural and real estate construction segments of the loan portfolio. The real estate construction segment of the loan portfolio increased $7,485,168 from year-end 2005 to June 30, 2006. The increases in the aforementioned segments of the loan portfolio were partially offset by decreases in the remaining segments of West Pointe's loan portfolio. Table 3 presents the composition of the loan portfolio by type of borrower and major loan category and the percentage of each to the total portfolio for the periods presented. TABLE 3 - Loan Portfolio Composition

16 LOANS HELD FOR SALE Loans held for sale increased $147,000 to $480,000 at June 30, 2006 compared to $333,000 at year-end 2005. At June 30, 2006 and December 31, 2005, loans held for sale consisted solely of mortgage loans awaiting sale in the secondary market. All loans held for sale are carried at the lower of aggregate cost or fair value. SECURITIES Total securities decreased $20,422,248 to $147,483,657 at June 30, 2006 compared to $167,905,905 at year-end 2005. The security portfolio provides a balance to interest rate and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds not needed to fund loan demand. The security portfolio also supplies securities as required collateral for certain deposits and for repurchase agreements. The majority of this decrease resulted from principal payments received on the Company's mortgage-backed securities and from maturities of securities. Proceeds from the aforementioned principal payments and maturities were partially used to fund West Pointe's increased loan demand. Additional information regarding West Pointe's repurchase agreements is presented and discussed under "Borrowings." All of West Pointe's securities are classified as available for sale. Available for sale securities are recorded at fair value. Net unrealized losses on available for sale securities totaled $4,301,207 and $2,250,271 at June 30, 2006 and December 31, 2005, respectively. The change in net unrealized losses from December 31, 2005 to June 30, 2006 was primarily attributable to a higher interest rate environment. Table 4 presents the composition of securities at their carrying values for the periods presented. TABLE 4 - Security Portfolio Composition

Table 5 presents the composition of securities with unrealized losses at June 30, 2006, presented by length of time in an unrealized loss position. TABLE 5 - Composition of Securities with Unrealized Losses

West Pointe management does not currently expect any losses to result from any unrealized losses in the portfolio, as maturities of securities and other funding sources should meet the Company's liquidity needs. Any losses taken will result from strategic or discretionary decisions to adjust the security portfolio. 17 FEDERAL HOME LOAN BANK STOCK West Pointe's holdings of Federal Home Loan Bank stock decreased $5,190,540 to $8,772,428 at June 30, 2006 from $13,962,968 at December 31, 2005. The decrease in these holdings for the periods compared resulted from a voluntarily redemption of Federal Home Loan Bank stock in June 2006. DEPOSITS West Pointe's deposit base is its primary source of liquidity and consists of deposits originating within the communities served by its banking locations. Deposits are West Pointe's primary and most reliable funding source for interest-earning assets. Total deposits decreased $26,133,003 to $375,863,151 at June 30, 2006 from $401,996,154 at year-end 2005. The noninterest bearing demand deposit and interest bearing demand deposit components of the deposit portfolio decreased $1,273,432 and $361,944, respectively, from year-end 2005. The decreases in these components of the deposit portfolio were primarily attributable to normal fluctuations. The savings and money market deposit component of the deposit portfolio decreased $27,032,566 from year-end 2005. The decrease in this component of the deposit portfolio was partially associated with a reduction in balances maintained by one commercial deposit customer. The time deposit components increased $2,534,949 from year-end 2005. The increases in the time deposit portfolio components were primarily attributable to normal growth in operations. Table 6 sets forth the composition of deposits and the percentage of each category to total deposits for the periods presented. TABLE 6 - Deposit Liability Composition

BORROWINGS Total borrowings amounted to $40,996,239 at June 30, 2006 compared to $35,502,276 at year-end 2005. At June 30, 2006, borrowings consisted of repurchase agreements, Federal Home Loan Bank advances and subordinated debentures. At year-end 2005, borrowings consisted of repurchase agreements and subordinated debentures. At June 30, 2006, repurchase agreements totaled $23,886,239 compared to $25,192,276 at year-end 2005. These borrowings serve as an alternative funding source to deposits. The majority of the Company's repurchase agreements were in the form of cash management repurchase agreement accounts. Such accounts involve the daily transfer of excess funds from noninterest bearing deposit accounts into interest bearing cash management repurchase agreement accounts. Cash management repurchase agreement accounts are marketed to commercial and individual deposit customers and are considered to be a stable source of funds. Repurchase agreements, other than cash management repurchase agreements, generally represent an alternative to short-term certificates of deposit. The decrease in repurchase agreement balances from year-end 2005 to June 30, 2006 was primarily due to normal fluctuations in this category of borrowings. At June 30, 2006, the Bank had one $6,800,000 Federal Home Loan Bank overnight advance. This overnight advance served as a funding alternative to federal funds purchased. 18 At June 30, 2006 and December 31, 2005, West Pointe had subordinated debentures totaling $10,310,000. On December 15, 2004, the Company completed a private placement to an institutional investor of $10,000,000 of floating rate trust preferred securities, through a newly formed unconsolidated Delaware trust affiliate, West Pointe Statutory Trust I (the "Trust"). The trust preferred securities mature in December 2034, are redeemable at the Company's option beginning in five years, and require quarterly distributions by the Trust to the holder of the trust preferred securities, initially at an interest rate of 4.70%, which resets quarterly at the three-month LIBOR rate plus 2.25%. As of June 30, 2006, this obligation reflected an interest rate of 7.58%. The proceeds from the sale of the trust preferred securities were used by the Trust to purchase $10,310,000 in aggregate principal amount of the Company's floating rate junior subordinated debentures. The Company used a portion of the net proceeds from the sale of the debentures to the Trust to pay off a line of credit with an unaffiliated bank. The Company is using the remainder of the net proceeds for general corporate purposes. ASSET QUALITY West Pointe's asset quality management program, particularly with regard to loans, is designed to analyze potential risk elements and to support the growth of a high quality loan portfolio. The existing loan portfolio is monitored via West Pointe's loan rating system. The loan rating system is used to determine the adequacy of the allowance for loan losses. West Pointe's loan analysis process proactively identifies, monitors and works with borrowers for whom there are indications of future repayment difficulties. West Pointe's lending philosophy is to invest in the communities served by its banking centers so that it can effectively monitor and control credit risk. At June 30, 2006, nonperforming assets totaled $1,302,433 or .28% of total assets, compared to nonperforming assets at year-end 2005 of $2,384,314 or .50% of total assets. Nonperforming assets at June 30, 2006 included $739,716 relating to two parcels of foreclosed property. All foreclosed property is held for sale and is initially recorded on an individual property basis at estimated fair value less cost to sell. Subsequent to foreclosure, management evaluates the foreclosed properties and a valuation allowance is established if the estimated fair value declines. As of June 30, 2006, management does not anticipate any significant losses upon the disposition of the remaining foreclosed property. At June 30, 2006, nonperforming loans in the commercial real estate segment of the portfolio increased $161,351 compared to December 31, 2005. At June 30, 2006, nonperforming loans in this category consisted of one loan to a commercial borrower totaling $259,796. Management is in various stages of workout to remedy or liquidate this and other nonperforming loans. Nonperforming loans in the 1-4 family residential real estate segment of the loan portfolio decreased $390,124 from year-end 2005 to June 30, 2006. The remaining categories of nonperforming loans remained relatively stable at June 30, 2006 compared to December 31, 2005. 19 Table 7 sets forth a summary of West Pointe's loan portfolio mix and nonperforming assets. TABLE 7 - Loan Portfolio Mix and Nonperforming Assets

Net recoveries for the second quarter of 2006 totaled $23,226 compared to net charge-offs of $36,751 for the second quarter of 2005. Net charge-offs for the first six months of 2006 totaled $44,434 compared to net charge-offs of $111,903 for the first six months of 2005. Net recoveries recorded during the second quarter of 2006 in the commercial real estate segment of the loan portfolio related to one loan to a commercial borrower. Charge-offs and recoveries recorded during the quarters compared in all other segments of the loan portfolio were not significant. West Pointe's allowance for loan losses at June 30, 2006 decreased to $1,957,625 from $2,583,000 at June 30, 2005 and $2,002,059 at December 31, 2005. The decrease in the allowance for loan losses at June 30, 2006 compared to June 30, 2005 resulted from net charge-offs that were largely specifically reserved for, the aforementioned recovery and a significant reduction in nonperforming loans. At June 30, 2006, the allowance for loan losses represented 347.89% of nonperforming loans compared to 106.85% at June 30, 2005 and 236.49% at December 31, 2005. Decreased levels of nonperforming loans were the primary factors resulting in the higher ratios of the allowance for loan losses to nonperforming loans at June 30, 2006 and December 31, 2005 compared to June 30, 2005. 20 Table 8 presents information pertaining to the activity in and an analysis of West Pointe's allowance for loan losses for the periods presented. TABLE 8 - Allowance For Loan Losses

CAPITAL RESOURCES CAPITAL RESOURCES Total stockholders' equity decreased $5,710,559 from $35,616,201 at December 31, 2005 to $29,905,642 at June 30, 2006. West Pointe recorded a net loss for the six-months ended June 30, 2006 of $4,286,447. The decrease to total stockholders' equity was also impacted by the change in other comprehensive loss. At June 30, 2006, West Pointe recorded an accumulated other comprehensive loss of $2,666,748 compared to $1,395,168 at December 31, 2005. The change in the accumulated other comprehensive loss is comprised of the unrealized gain or loss on available for sale securities. Financial institutions are required to maintain ratios of capital to assets in accordance with guidelines promulgated by the federal banking regulators. The guidelines are commonly known as "Risk-Based Guidelines" as they define the capital level requirements of a financial institution based upon the level of credit risk associated with holding various categories of assets. The Risk-Based Guidelines require minimum ratios of Tier 1 and Total Capital to risk-weighted assets of 4% and 8%, respectively. At June 30, 2006, West Pointe's Tier 1 and Total Capital ratios were 14.09% and 14.74%, respectively. In addition to the Risk-Based Guidelines, the federal banking agencies have established a minimum leverage ratio guideline for financial institutions (the "Leverage Ratio Guideline"). The Leverage Ratio Guideline provides for a minimum ratio of Tier 1 capital to average assets of 4%. West Pointe's leverage ratio at June 30, 2006, was 9.15%. Accordingly, West Pointe has satisfied these regulatory guidelines. 21 ADOPTION OF NEW ACCOUNTING STANDARDS On January 1, 2006, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share Based Payment." The Company elected to use the modified prospective transition method, therefore, prior period results were not restated. Prior to adoption of SFAS 123R, stock-based compensation expense related to stock options was not recognized in the results of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on the stock option fair values. Under the modified prospective transition method, awards that were granted prior to January 1, 2006, but not fully vested at that date, will also result in compensation expense, based on the grant date fair value, with the remaining unrecognized cost being expensed over the remaining vesting period. In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise's financial statements. Additionally, FIN 48 provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. Management does not expect the adoption of FIN 48 to have a material impact on the financial position or results of operations of the Company. CRITICAL ACCOUNTING POLICIES There have been no significant changes in the Company's critical accounting policies from those disclosed as of December 31, 2005. CONTRACTUAL OBLIGATIONS The Company enters into certain contractual obligations in the ordinary course of operations. The required payments under these contracts represent future cash requirements of the Company. The Company's significant fixed and determinable contractual obligations, as of June 30, 2006, are set forth in the following table:

As reflected in the above table, the Company is obligated under an operating lease agreement for the Bank's branch location in Columbia, Illinois through November 2007 with four five-year extension options granted to the Company. The lease provides that the Company may use and occupy the premises only for the purpose of maintaining and operating a branch bank. The lease calls for monthly rental payments of $3,960 through the initial term of the lease and through the period covered by the first two extension options. The monthly rental payments for the remaining extension options will be at a reasonable rate as agreed upon by the parties to the lease. Management intends to utilize the extension options as provided for under the lease. 22 OFF-BALANCE SHEET ARRANGEMENTS For information on the Company's significant off-balance sheet commitments as of December 31, 2005, see the information incorporated by reference under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change to the market risk position from that disclosed as of December 31, 2005, the end of the last fiscal year. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company's principal executive officer and principal financial officer carried out an evaluation, with the participation of the Company's other management, of the effectiveness of the Company's disclosure controls and procedures. Based upon this evaluation, the principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. It should be noted that the design of the Company's disclosure controls and procedures is based in part upon certain reasonable assumptions about the likelihood of future events, and there can be no reasonable assurance that any design of disclosure controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are, in fact, effective at a reasonable assurance level. CHANGES IN INTERNAL CONTROL There have been no changes in the Company's internal control over financial reporting identified in connection with the evaluation described in the above paragraph that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings before any court, administrative agency or tribunal, nor is the Company aware of any litigation threatened against it in any court, administrative agency, or other tribunal. The Company's wholly-owned subsidiary, the Bank, is subject to various claims, lawsuits and administrative proceedings arising in the ordinary course of business from time to time. The Bank's management is of the opinion, based upon present information, including evaluations by outside counsel, that the Bank's financial condition, results of operations or cash flows will not be materially affected by the ultimate resolution of pending or threatened legal proceedings. ITEM 1A. RISK FACTORS We may be unable to consummate our proposed merger with Commerce. The Company's proposed merger with a wholly-owned subsidiary of Commerce (described in more detail elsewhere in this Quarterly Report on Form 10-Q) is anticipated to close in the third quarter of 2006. The merger has been approved by the Company's shareholders and the required regulatory 23 approvals have been received. However, consummation of the merger is also subject to a number of other closing conditions. If the merger is not completed for any reason, the Company's reputation, operations and financial condition may be harmed. Other than as set forth above, there have been no material changes to the Risk Factors as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on March 29, 2006. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS The Company does not have any plans or programs to repurchase shares of its common stock, nor has the Company made any repurchases of its securities during the first quarter of 2006.

Approximately 218 shares were repurchased by the Company in connection with the termination of the Company's Amended and Restated Dividend Reinvestment Plan on June 12, 2006 at a per share price of $70.44. In addition, approximately 11 shares, which were repurchased by the Company from time to time over the life of the plan, were transferred from a breakage account to the Company. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Proxies were mailed to shareholders on March 29, 2006 for the Company's Annual Meeting of Shareholders, which was held on April 19, 2006. The only matter submitted to, and approved by, shareholders is listed below, as is a tabulation of voting. (1) The following persons nominated as Directors were re-elected:

Other directors continuing in office are as follows: William C. Allison, Harry E. Cruncleton, David G. Embry, Jack B. Haydon and Charles G. Kurrus, III. 24 Proxies were mailed to shareholders on June 19, 2006 for the Company's Special Meeting of Shareholders, which was held on July 20, 2006. The only matter submitted to, and approved by, shareholders is listed below, as is a tabulation of voting. (2) The proposed merger of the Company with Commerce and CBI-Kansas was approved:

ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS Exhibits: See Exhibit Index on page 27 hereof. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEST POINTE BANCORP, INC. (Registrant) DATE: August 14, 2006 By:/s/ Terry W. Schaefer --------------------- Terry W. Schaefer President and Chief Executive Officer (on behalf of the Registrant) DATE: August 14, 2006 By:/s/ Bruce A. Bone ----------------- Bruce A. Bone Executive Vice President and Chief Financial Officer (as principal financial officer) 26 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ---------- ----------- 3.1 Articles of Incorporation (1) 3.1.5 Amendment to Articles of Incorporation (2) 3.2 Bylaws of West Pointe Bancorp, Inc. (1) 11.1 Computation of Net Income Per Share (incorporated by reference to Note C of West Pointe's unaudited interim consolidated financial statements included herein). 31.1 Certification of President and Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-15(e) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Executive Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-15(e) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1) Incorporated by reference to the Company's Registration Statement on Form 10 (file no. 000-30505) at the corresponding exhibit; incorporated by reference in accordance with Item 601 of Regulation S-K. (2) Incorporated by reference to the Company's Registration Statement on Form S-3 (file no. 333-68800) at Exhibit 4.2; incorporated by reference in accordance with Item 601 of Regulation S-K. 27

WEST POINTE BANCORP INC 10-Q