UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
| x | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended DECEMBER 31, 2007
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-17377
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
Bank of the Commonwealth
401(k) Profit Sharing Plan
| B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
Commonwealth Bankshares, Inc.
403 Boush Street
P.O. Box 1177
Norfolk, Virginia 23510
The Bank of the Commonwealth 401(k) Profit Sharing Plan (the “Plan”) is subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). Therefore, in lieu of the requirements of Items 1-3 of Form 11-K, the following financial statements and schedule of the Plan, which have been prepared pursuant to the financial reporting requirements of ERISA, are filed as part of this Annual Report on Form 11-K:
Bank of the Commonwealth 401(k) Profit Sharing Plan
Contents
Report of Independent Registered Public Accounting Firm
Participants and Plan Administrator
Bank of the Commonwealth 401(k) Profit Sharing Plan
We have audited the accompanying statements of net assets available for benefits of Bank of the Commonwealth 401(k) Profit Sharing Plan as of December 31, 2007 and 2006, and the related statement of changes in net assets available for benefits for the year ended December 31, 2007. These financial statements and supplemental schedules are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2007 and 2006, and the changes in net assets available for benefits for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
| /s/ Goodman & Company, LLP |
| Norfolk, Virginia |
| June 27, 2008 |
1
Bank of the Commonwealth 401(k) Profit Sharing Plan
Statements of Net Assets Available for Benefits
December 31, | 2007 | 2006 | ||||
Investments | $ | 3,068,703 | $ | 2,401,238 | ||
Employer contributions receivable | 300,000 | 245,000 | ||||
Net assets available for benefits | $ | 3,368,703 | $ | 2,646,238 | ||
The accompanying notes are an integral part of these financial statements.
2
Bank of the Commonwealth 401(k) Profit Sharing Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2007
Additions to net assets attributed to | ||||
Investment income | ||||
Net depreciation in fair value of investments | $ | (84,751 | ) | |
Interest and dividends | 100,379 | |||
| 15,628 | ||||
Contributions | ||||
Employer | 300,000 | |||
Participant | 437,810 | |||
Rollover | 386,375 | |||
| 1,124,185 | ||||
Total additions | 1,139,813 | |||
Deductions from net assets attributed to | ||||
Benefits paid to participants | 409,667 | |||
Administrative expenses | 7,681 | |||
Total deductions | 417,348 | |||
Net change | 722,465 | |||
Net assets available for benefits | ||||
Beginning of year | 2,646,238 | |||
End of year | $ | 3,368,703 | ||
The accompanying notes are an integral part of these financial statements.
3
Bank of the Commonwealth 401(k) Profit Sharing Plan
Notes to Financial Statements
December 31, 2007 and 2006
| 1. | Description of Plan |
The following description of the Bank of the Commonwealth 401(k) Profit Sharing Plan (Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering substantially all employees of the Company who have completed three months of service and have attained the age of twenty and-a-half. It is subject to the provisions of the Employee Retirement Income Security Act (ERISA).
Contributions
Each year, participants may contribute between 1 and 100 percent of pretax annual compensation, as defined in the Plan. Participants may also contribute amounts representing distributions from other qualified plans. The Company may provide a matching contribution as determined at the discretion of the Company’s board of directors. Additionally, profit sharing contributions are determined at the discretion of the Company’s board of directors. Participants direct the investment of their accounts into various investment options offered by the Plan. Contributions are subject to certain limitations.
Participant Accounts
Each participant’s account is credited with the participant’s contribution and allocations of (a) the Company’s contributions and (b) plan earnings, and charged with an allocation of administrative expenses, where applicable. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting
Participants are vested immediately in their contributions plus actual earnings thereon. Vesting in the Company contribution portion of their accounts is based on years of service, as defined. A participant is 100 percent vested after 5 years of credited service.
Participant Loans
Participants may borrow from their accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their vested account balance. The loans are secured by the balance in the participant’s account and bear interest at rates which are commensurate with local prevailing rates as determined by the plan administrator. Interest rates range from 5.00% to 8.25%. Principal and interest are paid ratably through payroll deductions.
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Payment of Benefits
Generally, on termination of service a participant or beneficiary may elect to receive either a lump sum amount equal to the value of the vested interest in his or her account, or installment payments.
Forfeited Accounts
At December 31, 2007 and 2006, forfeited nonvested amounts totaled $0 and $2,457, respectively. These amounts will be used to reduce future Company contributions.
| 2. | Summary of Accounting Policies |
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 that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from those estimates and assumptions.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value except participant loans. Quoted market prices are used to determine fair market value. Participant loans are valued at cost which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date.
Payment of Benefits
Benefits are recorded when paid.
| 3. | Investments |
The following presents investments that represent 5 percent or more of the Plan’s net assets.
| December 31, | ||||||
| 2007 | 2006 | |||||
Goldman Sachs Balanced Strategy A, 80,488 shares | $ | 891,802 | * | |||
Eaton Vance Large-Cap Value Fund A, 8,947 shares | 201,491 | * | ||||
Goldman Sachs Growth Strategy Port A, 26,094 shares | 374,450 | * | ||||
Goldman Sachs Growth & Income Strategy Port, 18,576 shares | 239,255 | * | ||||
Janus Adviser Fundamental Equity Fund C, 10,864 shares | 215,973 | * | ||||
Commonwealth Bankshares, Inc. common stock, 17,394 and 9,694 shares, respectively | 276,741 | $ | 242,354 | |||
AXA Enterprise Mod-Plus Allocation A, 33,199 shares | * | 271,566 | ||||
AXA Enterprise Moderate Allocation A, 15,066 shares | * | 164,067 | ||||
AXA Enterprise Conservative Allocation A, 111,867 shares | * | 1,160,056 | ||||
| * | Investment did not represent 5 percent or more of the Plan net assets at the end of this year. |
5
During 2007, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) depreciated in value by $84,751 as follows:
Mutual funds | $ | 40,837 | ||
Common stock | (125,588 | ) | ||
| ($ | 84,751 | ) | ||
| 4. | Related Party Transactions |
The Plan invested in shares of stock of the Company. As of December 31, 2007, the Plan held 17,394 shares of Commonwealth Bankshares, Inc. common stock with a fair value of $276,741. As of December 31, 2006, the Plan held 9,694 shares of Commonwealth Bankshares, Inc. common stock with a fair value of $242,354. The Plan paid the third-party administrator $7,681 for services during 2007.
| 5. | Plan Termination |
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, participants would become 100 percent vested in their employer contributions.
| 6. | Tax Status |
The Internal Revenue Service has determined and informed the prototype sponsor by a letter dated February 6, 2003, that the prototype plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). Although the prototype plan has been amended since receiving the opinion letter, the plan administrator and the Plan’s tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
| 7. | Risks and Uncertainties |
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
| 8. | Reconciliation of the Financial Statements to the Form 5500 |
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500.
| December 31, | ||||||||
| 2007 | 2006 | |||||||
Net assets available for benefits per the financial statements | $ | 3,368,703 | $ | 2,646,238 | ||||
Employer contributions receivable | (300,000 | ) | (245,000 | ) | ||||
Net assets available for benefits per the Form 5500 | $ | 3,068,703 | $ | 2,401,238 | ||||
6
The following is a reconciliation of contributions per the financial statements for 2007 to the Form 5500.
Contributions per the financial statements | $ | 1,124,185 | ||
Employer contributions receivable, December 31, 2006 | 245,000 | |||
Employer contributions receivable, December 31, 2007 | (300,000 | ) | ||
Contributions per the Form 5500 | $ | 1,069,185 | ||
* * * * *
7
Bank of the Commonwealth 401(k) Profit Sharing Plan
Schedule of Assets (Held at End of Year)
Schedule H, Line 4i
EIN 54-0886483 Plan 001
December 31, 2007
Identity of issue, borrower, lessor or similar party | Description of investment including maturity date, rate of interest, collateral, par, or maturity value | Current value | |||||||
Goldman Sachs | 80,488 | shares of Goldman Sachs Balanced Strategy A | $ | 891,802 | |||||
Goldman Sachs | 26,094 | shares of Goldman Sachs Growth Strategy Port A | 374,450 | ||||||
* | Commonwealth Bankshares, Inc. | 17,394 | shares of common stock | 276,741 | |||||
Goldman Sachs | 18,576 | shares of Goldman Sachs Growth & Income Strategy Port | 239,255 | ||||||
Janus Adviser | 10,864 | shares of Janus Adviser Fundamental Equity Fund C | 215,973 | ||||||
Eaton Vance | 8,947 | shares of Eaton Vance Large-Cap Value Fund A | 201,491 | ||||||
Goldman Sachs | 119,557 | shares of Goldman Sachs Instl Liquid Assets Port S | 119,557 | ||||||
Oppenheimer | 3,379 | shares of Oppenheimer Small & Mid Cap Value Fund C | 109,053 | ||||||
Goldman Sachs | 6,562 | shares of Goldman Sachs Equity Growth Strategy Port A | 102,562 | ||||||
Goldman Sachs | 5,828 | shares of Goldman Sachs Strategic International Equity A | 98,368 | ||||||
Goldman Sachs | 3,105 | shares of Goldman Sachs Growth & Income Fund A | 81,312 | ||||||
RS Partners | 2,037 | shares of RS Partners Fund A | 62,770 | ||||||
Goldman Sachs | 1,955 | shares of Goldman Sachs Structured U.S. Equity A | 56,511 | ||||||
American Funds | 3,978 | shares of Bond Fund of America R2 | 51,949 | ||||||
Goldman Sachs | 6,411 | shares of Goldman Sachs High Yield Fund A | 48,853 | ||||||
* | MG Trust Company | Interest-bearing cash | 33,536 | ||||||
Goldman Sachs | 1,016 | shares of Goldman Sachs Structured Large Cap Growth A | 14,553 | ||||||
Goldman Sachs | 194 | shares of Goldman Sachs Government Income A | 2,906 | ||||||
* | Participant loans | Maturing through December 2012, interest rates ranging from 5.00% to 8.25%, collateralized by participant accounts | 87,061 | ||||||
| $ | 3,068,703 | ||||||||
| * | Identified as a party-in-interest |
See report of independent registered public accounting firm.
8
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the plan administrator of the Plan has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| BANK OF THE COMMONWEALTH | ||
| 401(k) PROFIT SHARING PLAN | ||
| (Name of Plan) | ||
/s/ Cynthia A. Sabol, CPA | ||
| Cynthia A. Sabol, CPA | ||
| Date: June 27, 2008 | ||
| Executive Vice President and Chief Financial Officer | ||
| BANK OF THE COMMONWEALTH, Plan Administrator | ||
