CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION THE EPISCOPAL DIOCESE OF WEST VIRGINIA

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION THE EPISCOPAL DIOCESE OF WEST VIRGINIA DECEMBER 31, 2014 AND 2013

2 CONTENTS PAGE INDEPENDENT AUDITORS REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statements of financial position 3 Consolidated statements of activities and changes in net assets 4 Consolidated statements of cash flows 5 Notes to consolidated financial statements 6 OTHER FINANCIAL INFORMATION Independent auditors report on other financial information 17 Schedule of unrestricted net assets 18 Schedule of restricted net assets 19 Consolidating statement of financial position 20 Consolidating statement of activities and changes in net assets 21 Consolidating statement of cash flows 22

3 INDEPENDENT AUDITORS REPORT To the Diocesan Council and Trustees The Episcopal Diocese of West Virginia Charleston, West Virginia We have audited the accompanying consolidated financial statements of The Episcopal Diocese of West Virginia, which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, and the related 2014 consolidated statement of activities and changes in net assets, and statements of cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 2 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Episcopal Diocese of West Virginia as of December 31, 2014 and 2013, and changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information We have previously audited the Episcopal Diocese of West Virginia s 2013 consolidated financial statements, and our report dated August 22, 2014 expressed an unmodified opinion on those audited consolidated financial statements. In our opinion, the summarized comparative information presented herein of the consolidated statement of activities and changes in net assets for the year ended December 31, 2013 is consistent in all material respects with the audited consolidated financial statement from which it has been derived. Charleston, West Virginia July 31, 2014

5 The Episcopal Diocese of West Virginia CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31 ASSETS CURRENT LIABILITIES Cash and cash equivalents $ 207,022 $ 192,763 Accounts receivable, net of allowance 83,531 76,347 Other current assets 45,138 56,254 Total current assets 335, ,364 PROPERTY AND EQUIPMENT Buildings and improvements 5,220,047 4,351,582 Office equipment 96,737 75,002 Furniture and fixtures 35,121 33,621 Automobiles 143, ,056 Other depreciable property 8,713 8,713 5,503,674 4,611,974 Accumulated depreciation (1,800,718) (1,595,567) 3,702,956 3,016,407 Land 307, ,305 Land and buildings held for sale or reversion to member congregations 169, ,444 Total property and equipment 4,180,260 4,288,156 OTHER ASSETS Investments 14,994,949 14,807,907 Historical property 152, ,000 Mineral interest rights 94,500 94,500 Total other assets 15,241,449 15,054,407 $ 19,757,400 $ 19,667,927 The accompanying notes are an integral part of these consolidated financial statements.

6 3 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts and grants payable $ 299,683 $ 360,395 Funds due others 72,669 47,484 Total current liabilities 372, ,879 OTHER LIABILITIES Accrued pension obligation 59,510 6,093 NET ASSETS Unrestricted Undesignated 5,846,868 5,909,502 Designated for specific purposes 364, ,512 Total unrestricted 6,211,488 6,348,014 Temporarily restricted 9,570,553 9,362,444 Permanently restricted 3,543,497 3,543,497 Total net assets 19,325,538 19,253,955 $ 19,757,400 $ 19,667,927

7 The Episcopal Diocese of West Virginia 4 CONSOLIDATED STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS Years ended December 31 SUPPORT AND REVENUES Temporarily Permanently Consolidated Unrestricted Restricted Restricted Total Total Missionary apportionment $ 1,321,508 $ - $ - $ 1,321,508 $ 1,295,769 Special purpose fund contributions 116, , ,069 Restricted fund contributions - 25,025-25,025 38,079 Unrestricted contributions 39, ,121 40,480 Investment gain (loss), net 142, , ,223 2,160,305 Camp, bookstore and gift shop 92, , ,751 Other income 38, , ,288 Satisfaction of program restrictions 659,870 (659,870) Total support and revenues 2,410, ,109-2,618,823 3,857,741 EXPENSES Children, youth and young adult ministry 40, ,569 30,937 Spiritual growth and faith development 118, , ,269 Mission and evangelism 451, , ,762 Ministry support 1,318, ,318,758 1,199,876 Bishop discretionary 47, ,231 37,603 Camps and conferences 263, , ,748 Special purpose fund 51, ,270 52,844 General and administrative 198, , ,475 Other expenses Total expenses 2,490, ,490,027 2,295,514 (Decrease) / increase in net assets before other changes (79,313) 208, ,796 1,562,227 Other changes in net assets Change in pension funded status (57,213) - - (57,213) 113,983 Increase in net assets (136,526) 208,109-71,583 1,676,210 Net assets, beginning of year 6,348,014 9,362,444 3,543,497 19,253,955 17,577,745 Net assets, end of year $ 6,211,488 $ 9,570,553 $ 3,543,497 $ 19,325,538 $ 19,253,955 The accompanying notes are an integral part of these consolidated financial statements.

8 The Episcopal Diocese of West Virginia 5 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 CASH FLOWS FROM OPERATING ACTIVITIES Increase in net assets $ 71,583 $ 1,676,210 Adjustments to reconcile change in net assets to cash used in operating activities Depreciation 205, ,673 Restricted contributions (25,026) (38,079) Loss on disposal of property and equipment - 2,269 Realized and unrealized (gains) losses on investments (726,251) (1,922,596) Decrease (increase) in assets Accounts receivable (9,558) (16,882) Other current assets 11,116 (36,084) Increase (decrease) in liabilities Accounts payable (58,339) 107,977 Funds due others 25,185 (22,094) Accrued pension obligation 53,417 (120,829) Net cash used in operating activities (452,722) (233,435) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (97,255) (8,556) Purchases of investments (229,426) (18,066,685) Sale of investments 768,636 18,293,713 Net cash provided by investing activities 441, ,472 CASH FLOWS FROM FINANCING ACTIVITIES Restricted contributions 25,026 38,079 Net cash provided by financing activities 25,026 38,079 Net increase in cash and cash equivalents 14,259 23,116 Cash and cash equivalents, beginning of year 192, ,647 Cash and cash equivalents, end of year $ 207,022 $ 192,763 The accompanying notes are an integral part of these consolidated financial statements.

9 The Episcopal Diocese of West Virginia 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 and 2013 NOTE A - NATURE OF ACTIVITIES Nature of Activities The Episcopal Diocese of West Virginia (the Diocese ) is the corporate expression of the Church consisting of all Protestant Episcopal Church congregations and clergy in all counties of West Virginia. The Diocese is responsible for the mission and the governance of the Protestant Episcopal Church throughout its geographical district. The Hampshire Corporation is owned by the Diocese and leases the land to the Peterkin Conference Center (the Center ) for a nominal amount. All assets owned by Hampshire Corporation are recorded on the Diocese s books and reflected in the consolidated financial statements. The Diocese is supported primarily through contributions from member churches in West Virginia. The Center was organized in 1945 and is incorporated as a nonprofit organization in accordance with Section 501(c)(3) of the Internal Revenue Code. The Center is dedicated to offering an environment that nurtures Christian community, growth, and ministry. The Center is supported primarily through camp and gift shop revenue and through a grant from the Diocese in the amount of $285,504 and $214,931 for the years ended December 31, 2014 and 2013, respectively. The Diocese and the Center are related through common council members. The Diocesan Council shares its council members with the Center. In the accompanying notes to the consolidated financial statements, the Diocese and the Center are collectively referred to as the Organization. NOTE B - SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The consolidated financial statements of the Organization have been prepared on the accrual basis of accounting and, accordingly, include all significant accounts receivable, accounts payable, and other liabilities. The Organization s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Basis of Consolidation The accompanying consolidated financial statements include the accounts of the Diocese and the Center. All significant intercompany account balances and transactions have been eliminated in the accompanying consolidated financial statements. Basis of Presentation The Organization reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets include resources that are not temporarily or permanently restricted by the donor and are available for operations of the entity without limitation. Unrestricted net assets also include resources restricted by donor-imposed criteria for which the restrictions are met within the same period as the funds are received. Designated amounts represent those net assets that the Organization has set aside for a particular purpose. Temporarily restricted net assets include those resources restricted by the donor, grantor, or other outside party that either expires with the passage of time or by action of the Organization.

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7 Permanently restricted net assets include assets and contributions for which the donor stipulates that resources be maintained permanently by the Organization. Generally, the donor permits the Organization to use or expend part or all of the income derived from the donated assets. Such assets are comprised of endowments, which are subject to the restrictions of gift instruments requiring that the principal be invested in perpetuity. Spending of the related investment income is governed by the Organization s investment policy. Use of Estimates The preparation of consolidated financial statements requires management to make estimates. These estimates affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The actual results could vary from those estimates. Statement of Cash Flows For purposes of reporting the consolidated statement of cash flows, the Organization considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Concentrations of Credit Risk The Organization maintains cash in non-interest bearing accounts with federally insured banks. At various times the balances in these accounts may be in excess of federally insured limits. The Organization also maintains interest bearing accounts with a federally insured bank that are insured up to a maximum of $250,000. As of December 31, 2014, the account balance is $22,774. The Organization derives its principal support from annual missionary apportionments of member congregations. Accounts Receivable The Organization provides an allowance for doubtful accounts, if necessary, equal to the estimated losses that may be incurred in the collection of all receivables based on management s assessment and historical performance. The Organization has recorded $53,779 and $11,000 for allowance for doubtful accounts as of December 31, 2014 and 2013, respectively. Property and Equipment Property and equipment, except land and buildings held for sale or reversion to member congregations, are reported at cost, or if donated, at the approximate fair value at the time of donation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Normal maintenance and repairs are charged to expense as incurred. Depreciation expense for the years ended December 31, 2014 and 2013 was $205,151 and $136,673, respectively. Land West Virginia state law does not permit religious organizations to own more than sixty acres of land in any single location. Accordingly, approximately 1,300 acres of the Center s site are owned by the Hampshire Corporation, an entity formed for this specific purpose. Land and Buildings Held for Sale or Reversion to Member Congregations All congregations in the Diocese are governed by the Constitution and Canons of the Diocese, as well as those of the Episcopal Church. In accordance with Title III Canon 5 of the Canons of the Diocese, when a congregation becomes extinct or dissolves, or ceases to use its property for religious or charitable purposes, the charge and custody of the property vests in the Ecclesiastical Authority. It is the policy of the Diocese that such

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8 property and equipment reverts to the Diocese unless the property is transferred to another congregation, or to another use, through the approval of the Diocesan Council. The Diocese may hold the property until such time a new congregation is formed or the property is sold. Property held for sale or reversion to a member congregation is not depreciated. The Diocese records all of the property and land held for sale at estimated fair value. Management uses a variety of methods, including but not limited to obtaining appraisals, to determine an estimated fair value for the property held for sale. Management reviews the recoverability of the carrying value of long-lived assets. Management also reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any write-downs due to impairment are charged to operations at the time impairment is identified. The final sale of such properties could result in an amount realized that may differ materially from the estimated values recorded by management. If a reversion occurs in the form of a transfer from the Diocese to a new congregation, it would be recognized as an expense in the year of the transfer. On January 1, 2014, the Diocese identified three previously reverted properties as being utilized by local community and non-profit organizations. Since the usage of these properties benefits local communities and furthers the mission of the Diocese, the properties have been reclassified as buildings and improvements and are being depreciated on a straight-line basis over the estimated remaining useful lives of the properties. Investments and Investment Income Investments in debt and equity securities are measured at fair value in the consolidated statements of financial position. Investment income or loss (including realized and unrealized gains and losses on investments, interest and dividends) is included in the change in net assets. Investments acquired by gift or bequest are recorded at fair value at the date of acquisition. Fair values are determined principally from published sources. Investment Risk The Organization 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 change could materially affect the amounts reported in the consolidated financial statements. Historical Properties The Diocese records the fair value of historical properties at the time of receipt and management evaluates for impairment on an annual basis. Mineral Interests On occasion, the Diocese receives donations and/or bequests transferring land ownership and/or mineral rights. These rights are recorded at the fair market value at the time of the donation. The royalties received from these interests during the years ended December 31, 2014 and 2013 were $38,511 and $96,639, respectively, and are included in other income. Funds Due to Others The Diocese has received funds for designated purposes, which are then transferred to the appropriate party. In these instances, the Organization is strictly a pass-through entity and does not own these assets. Revenue Recognition Missionary apportionments, contributions, and other gifts are reported as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Contributions are recognized at the time of the donor s pledge.

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9 Donated Services The Diocese pays for most services requiring specific expertise; however, both clergy and lay members volunteer their time and perform a variety of tasks that assist the Diocese with specific ministry programs, campaign solicitations, and various committee assignments. No amounts have been reported in the consolidated financial statements for such donated services for the years ended December 31, 2014 and Income Taxes The Internal Revenue Service has ruled that the Diocese is a taxexempt organization as defined under section 501(c)(3) of the Internal Revenue Code; accordingly, no provision for federal income taxes has been made in the consolidated financial statements. The Organization is also exempt from state income taxes. The Diocese has determined that it does not have any material unrecognized tax benefits or obligations as of December 31, 2014 and Subsequent Events Management has evaluated the effects subsequent events would have on the consolidated financial statements through July 31, 2014, which is the date the consolidated financial statements were available to be issued. No matters were identified subsequent to year-end that would have a material effect on the Organization s consolidated financial statements. Reclassifications Certain items in the December 31, 2013 financial statements have been reclassified to conform to the December 31, 2014 financial presentation. These reclassifications had no effect on the previously reported changes in net assets. NOTE C - INVESTMENTS The Diocese reports investments in equity securities with readily determinable fair values and all investments in debt securities at fair value in the consolidated statements of financial position. The unrealized gain and loss on investments is reported in the consolidated statements of activities and changes in net assets and is included in investment income. At December 31, 2014, the cost and estimated market values of investments held by an investment manager were as follows: Estimated Cost Market Value Restricted cash equivalents $ 533,673 $ 533,673 Mutual funds and common stock 12,962,374 14,241,309 Parish and Clergy loans receivable 219, ,967 $ 13,716,015 $ 14,994,949 Investment gain (loss) reported in the accompanying consolidated 2014 statement of activities and changes in net assets consists of the following: Interest, dividends and other income earned $ 305,310 Unrealized gain, net 573,472 Realized gain, net 152,779 Expenses/fees (46,338) Total investment gain, net $ 985,223

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10 At December 31, 2013, the cost and estimated market values of investments held by an investment manager were as follows: Estimated Cost Market Value Restricted cash equivalents $ 865,213 $ 865,213 Mutual funds 13,000,733 13,708,855 Parish and Clergy loans receivable 233, ,839 $ 14,099,785 $ 14,807,907 Investment gain (loss) reported in the accompanying consolidated 2013 statement of activities and changes in net assets consists of the following: Interest, dividends and other income earned $ 262,280 Unrealized loss, net 423,426 Realized gain, net 1,499,170 Expenses/fees (24,571) Total investment gain, net $ 2,160,305 NOTE D - DEFINED BENEFIT PENSION PLANS The Diocese participates in a defined benefit plan sponsored by The Church Pension Fund Clergy Pension Plan, which is a multi-employer pension plan for clergy. Contributions are made by the employer, The Episcopal Diocese of West Virginia, and are pooled together in a trust maintained by the Church Pension Fund. The Plan covers all full time clergy employees of The Diocese. As of the report date, the pension protection act zone status was unavailable from the plan. The contributions for the years ended December 31, 2014 and 2013 were $57,804 and $56,648, respectively. The Diocese also participates in a defined benefit plan sponsored by the Church Pension Group for lay employees, which is a multi-employer pension plan for lay employees. Contributions are made by the employer, the Episcopal Diocese of West Virginia, and are pooled together in a trust maintained by the Church Pension Fund. The Plan covers all full time lay employees of the Organization. As of the report date, the pension protection act zone status was unavailable from the plan. The contributions for the years ended December 31, 2014 and 2013 were $14,979 and $13,209, respectively. NOTE E - EMPLOYEE BENEFITS Employees are entitled to paid personal days off, depending on job classification, length of service, and other factors. It is impracticable to estimate the amount of compensation for future absences, and accordingly, no liability has been recorded in the accompanying financial statements. The company s policy is to recognize the costs of compensated absences when actually paid to employees. Pension Plans The Diocese has historically sponsored a non-contributory defined benefit pension plan covering substantially all full-time lay employees meeting minimum age and service requirements. The plan is a multi-employer plan that includes employees of The Diocese, the Peterkin Conference Center, and Sandscrest Conference and Retreat Center. The plan generally provides benefits based on years of credited service and annual earnings. Effective December 31, 2011, this plan was frozen for both new plan entrants and plan accruals. No curtailment expense was recorded as a result of the freeze.

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11 Details regarding the plan at the December 31 measurement date are as follows: Change in benefit obligations: Projected benefit obligations, beginning of year $ 535,869 $ 588,973 Interest cost 26,003 24,209 Actuarial loss/(gain) 69,753 (40,715) Benefits paid (27,468) (36,598) Projected benefit obligation, end of year 604, , Change in plan assets: Fair value of plan assets, beginning of year $ 529,776 $ 462,051 Actual return on plan assets 40,205 84,759 Employer contributions 2,134 19,564 Benefits paid (27,468) (36,598) Fair value of plan assets, end of year 544, ,776 Unfunded Status at End of Year $ (59,510) $ (6,093) Amounts recognized as other change in net assets Amortization of net gain $ 14,553 $ 19,098 Amortization of transition obligation (asset) (6,233) (6,233) Net experience gain (loss) (65,533) 101,118 $ (57,213) $ 113,983 Components of net periodic pension costs: Interest cost $ 26,003 $ 24,209 Return on assets (35,983) (31,642) Net actuarial loss recognition 14,553 19,098 Transition obligation amortization (6,233) (6,233) Net periodic pension cost (income) $ (1,660) $ 5,432 Weighted-average assumptions as of December 31: Discount rate 4.00% 5.00% Expected return on plan assets 7.0% 7.0% Rate of compensation increase 0% 0% The Diocese s portion of total plan contributions in 2014 and 2013 were $2,134 and $19,564, respectively. The 2015 minimum projected required contribution is expected to be zero. The following defined benefit pension payments, which reflect expected future service, as appropriate, are expected to be paid:

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12 Year ending December 31, 2015 $ 86, , , , ,254 Thereafter 238,673 Total $ 596,496 The Organization has adopted an investment policy with regard to its pension plan assets. The investment policy has been formulated by the Diocesan Council based upon consideration of a wide range of policies and describes the prudent investment processes deemed appropriate in which the Organization engages. Plan assets are allocated among the following categories: Asset Category December 31, 2014 % Plan Assets Target Range December 31, 2013 % Cash and cash equivalents $ 13,218 2% 0%-30% $ 13,022 2% Mutual Funds: Equities 396,024 73% 40%-70% 376,247 71% Fixed income 135,405 25% 30%-50% 140,507 27% Total $ 544, % 100% $ 529, % The following table sets forth by level, within the fair value hierarchy, the plan s assets at fair value as of December 31, 2014: Plan Assets as Fair Value as of December 31, 2014 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 13,218 $ - $ - $ 13,218 Mutual funds: Domestic equity 256, ,443 Balanced funds 139, ,581 Fixed income 135, ,405 Total plan assets at fair value $ 544,647 $ - $ - $ 544,647 The following table sets forth by level, within the fair value hierarchy, the plan s assets at fair value as of December 31, 2013: Plan Assets as Fair Value as of December 31, 2013 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 13,022 $ - $ - $ 13,022 Mutual funds: Domestic equity 251, ,028 Balanced funds 125, ,219 Fixed income 140, ,507 Total plan assets at fair value $ 529,776 $ - $ - $ 529,776

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13 Included in unrestricted net assets at December 31, 2014 and 2013 is an unrecognized actuarial loss of $283,417 and $232,438, respectively, which has not yet been recognized in net periodic benefit cost. The actuarial loss and transition obligation amortization recognized during the years ending December 31, 2014 and 2013 is $14,553 and $19,098, respectively. NOTE F - FAIR VALUE OF MEASUREMENTS FASB ASC 820, Fair Value Measurements and Disclosures ( ASC 820 ), clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Organization utilizes market data or assumptions that market participants would use in pricing the asset or liability. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions. A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following table presents the investments carried at fair value as of December 31: 2014 Level 1 Level 2 Level 3 Total Non-debt securities: Cash and cash equivalents $ 533,673 $ - $ - $ 533,673 Common Stock 8,399, ,399,879 Mutual funds: Domestic equity 3,821, ,821,254 Fixed income 2,020, ,020,177 Total non-debt securities 14,774, ,774,983 Debt securities: Parish & clergy loans , ,966 Total debt securities , ,966 Total investments at fair value $ 14,774,983 $ - $ 219,966 $ 14,994,949

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14 The following table presents the investments carried at fair value as of December 31: 2013 Level 1 Level 2 Level 3 Total Non-debt securities: Cash and cash equivalents $ 865,213 $ - $ - $ 865,213 Mutual funds: 5,765, ,765,471 Domestic equity 1,876, ,876,865 International equity 1,718, ,718,800 Fixed income 4,347, ,347,719 Total non-debt securities 14,574, ,574,068 Debt securities: Parish & clergy loans , ,839 Total debt securities , ,839 Total investments at fair value $ 14,574,068 $ - $ 233,839 $ 14,807,907 Level 3 Gains and Losses The table below sets forth a summary of changes in the fair value of the Level 3 assets for the years ended December 31: Balance, beginning of year $ 233,839 $ 217,574 Loan principal payments received (38,873) (26,385) Loans issued during the year 25,000 42,650 Balance, end of year $ 219,966 $ 233,839 The following is a description of the Organization s valuation methodologies for assets and liabilities measured at fair values. Fair value for level 1 is based on quoted market prices. Fair value for level 3 is based on the outstanding loan balance adjusted for interest, which approximates fair value.

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15 The following are other categories of assets measured at fair value at December 31, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs, primarily the use of external appraisals (Level 2); and significant unobservable inputs (Level 3): 2014 Level 1 Level 2 Level 3 Total Description: Land and buildings held for sale or reversion to member congregations $ - $ 169,999 $ - $ 169,999 Historical property - 152, ,000 Total investments at fair value $ - $ 321,999 $ - $ 321, Level 1 Level 2 Level 3 Total Description: Land and buildings held for sale or reversion to member congregations $ - $ 964,444 $ - $ 964,444 Historical property - 152, ,000 Total investments at fair value $ - $ 1,116,444 $ - $ 1,116,444 There were no changes during the year ended December 31, 2014, to the Organization s valuation techniques used to measure asset and liability fair values on a recurring basis. NOTE G - ENDOWMENTS The Organization s endowments consist of approximately 6 funds with the equity and fixed income fund being composed of approximately 91 subaccounts established for a variety of purposes. The funds are made up of funds owned by The Diocese and may be used for the benefit of individual churches and other endowments represented by different sub-accounts. Each sub-account can be invested in the Equity Fund, the Fixed Income Fund, or some combination of these. The target asset allocation strategy for the Equity Fund of $4,716,694 is 100% invested in equity securities. The target asset allocation for the Fixed Income Fund of $2,317,439 is 100% invested in fixed income securities. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The New Dynamics of the 90s Fund of $7,033,474 has a target asset allocation of 30% invested in fixed income securities and 70% invested in equity securities. FASB ASC , Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds ( ASC ), provides guidance on the net asset classification of donorrestricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA) and additional disclosures about an organization s endowment funds. In 2008, the State of West Virginia adopted UPMIFA. The following disclosures are made as required by ASC The Organization s management has interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment

19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 16 funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently net restricted assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. Each fund s overall performance is reviewed on a quarterly basis with long-term emphasis placed on results achieved over a three to five year period. Investments are reviewed annually, and adjusted, if necessary, after consultation with the Trustees, Investment Consultant, and Investment Managers. At times, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor requires. These deficiencies primarily result from unfavorable market conditions. There were no such deficiencies at December 31, 2014 and Changes in endowment funds for the years ended December 31 consisted of the following: 2014 Temporarily Restricted Net Assets Permanently Restricted Net Assets Total Net assets, beginning of the year: $ 1,055,280 $ 3,543,497 $ 4,598,777 Restrictions satisfied by payments (99,677) - (99,677) Other 49,670-49,670 Investment Income 93,079-93,079 Net appreciation (realized and unrealized) 187, ,885 Total changes 230, ,957 Net assets, end of year $ 1,286,237 $ 3,543,497 $ 4,829,734 Temporarily Restricted Net Assets 2013 Permanently Restricted Net Assets Total Net assets, beginning of the year: $ 407,614 $ 3,543,497 $ 3,951,111 Restrictions satisfied by payments (53,031) - (53,031) Other 76,753-76,753 Investment Income 86,466-86,466 Net appreciation (realized and unrealized) 537, ,478 Total changes 647, ,666 Net assets, end of year $ 1,055,280 $ 3,543,497 $ 4,598,777

20 OTHER FINANCIAL INFORMATION

21 INDEPENDENT AUDITORS REPORT ON OTHER FINANCIAL INFORMATION To the Diocesan Council and Trustees The Episcopal Diocese of West Virginia We have audited the consolidated financial statements of The Episcopal Diocese of West Virginia as of and for the year ended December 31, 2014, and our report thereon dated July 31, 2015, which expressed an unmodified opinion on those consolidated financial statements, appears on page 1. Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The other financial information is presented for the purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Charleston, West Virginia July 31, 2015

22 The Episcopal Diocese of West Virginia 18 SCHEDULE OF UNRESTRICTED NET ASSETS Year Ended December 31, 2014 Diocese Undesignated Receipts from Support Reclassification Beginning Restricted and of Net Other Changes Ending Net Assets Funds Revenues Expenses Assets in Net Assets Balance General operating funds $ 1,371,988 $ 659,871 $ 1,462,467 $ (2,017,946) $ - $ (57,213) $ 1,419,167 Property and equipment 1,854,731-94,813 (153,413) - - 1,796,131 Contingency fund 2, (6,362) - - (3,546) $ 3,229,535 $ 659,871 $ 1,557,280 $ (2,177,721) $ - $ (57,213) $ 3,211,752 Perterkin Undesignated General operating funds $ 42 $ - $ 131,973 $ (127,528) $ - $ - $ 4,487 Property and equipment 2,679, (49,296) - - 2,630,629 $ 2,679,967 $ - $ 131,973 $ (176,824) $ - $ - $ 2,635,116 Designated For Specific Purposes Bishop's Discretionary Fund $ 29,573 $ - $ 25,756 $ (47,231) $ - $ - $ 8,098 Bishop's Discretionary Endowment 163,119-14,831 (17,500) ,450 Other Designated Endowment Funds 134,447-10,223 (3,834) ,836 Connexions 18,484-1,655 (9,717) ,422 Ministry assistance 20, ,000 Chapel of the Resurrection Contingency fund: Equipment replacement 2, ,113 General convention - - 9, ,125 Major maintenance 2, ,326 ECM - Strider Chapel Car replacement Diocesan cluster ministry 3, ,889 Lambeth Fund 11, (11,000) Stewardship conference 3, ,800 Disciples.net Special reserve 48, (46,200) - - 2,439 $ 438,512 $ - $ 61,590 $ (135,482) $ - $ - $ 364,620 See independent auditors' report on other financial information.

23 The Episcopal Diocese of West Virginia 19 SCHEDULE OF RESTRICTED NET ASSETS Year Ended December 31, 2014 Temporarily Restricted Investment Income Interest and Realized Unrealized Restrictions Beginning Dividends Gains Gains Net Satisfied Ending Net Net Assets Net of Fees (Losses) (Losses) Contributions By Payments Other Assets New Dynamics for the 90s $ 7,097,773 $ 107,898 $ 96,241 $ 226,086 $ 25,026 $ (519,549) $ - $ 7,033,475 Episcopal Advance Loan Fund Earnings 82,775 1,029 2,862 7, ,764 Christian Century Club Fund Earnings (4,348) , (1,522) Peterkin Memorial Loan Fund Earnings 25, ,472 3, ,220 Murdock-Neal Fund Earnings 29, ,316 3, ,941 Hodges Memorial Fund Earnings 52,457 1,845 2,986 5, ,423 Equity/Fixed Income Fund Permanent Earnings 869,017 88,447 20, ,321 - (99,678) 38,841 1,104,253 Equity/Fixed Income Fund 1,209,393 29,407 10,294 42,390 - (40,644) (38,841) 1,211,999 Permanently Restricted 9,362, , , ,363 25,026 (659,871) - 9,570,553 Episcopal Advance Loan Fund 163, ,725 Christian Century Club Fund 48, ,846 Peterkin Memorial Loan Fund 87, ,964 Murdock-Neal Fund 142, ,015 Hodges Memorial Fund 89, ,334 Equity/Fixed Income Fund 3,011, ,011,613 3,543, ,543,497 Total Restricted Activity $ 12,905,941 $ 230,385 $ 136,206 $ 476,363 $ 25,026 $ (659,871) $ - $ 13,114,050 See independent auditors' report on other financial information.

24 The Episcopal Diocese of West Virginia CONSOLIDATING STATEMENT OF FINANCIAL POSITION December 31, 2014 ASSETS Consolidating Information Episcopal Diocese Peterkin Consolidated of West Virginia Conference Center Eliminations 2014 CURRENT ASSETS Cash and cash equivalents $ 202,687 $ 4,335 $ - $ 207,022 Accounts receivable, net 77,580 7,138 (1,187) 83,531 Other current assets 20,719 24,419-45,138 Total current assets 300,986 35,892 (1,187) 335,691 Buildings and improvements 1,659,562 3,560,485-5,220,047 Office equipment 40,699 56,038-96,737 Furniture and fixtures - 35,121-35,121 Automobiles 125,811 17, ,056 Other depreciable property - 8,713-8,713 1,826,072 3,677,602-5,503,674 Accumulated depreciation (741,745) (1,058,973) - (1,800,718) 1,084,327 2,618,629-3,702,956 Land 295,305 12, ,305 Land and buildings held for sale or reversion to member congregations 169, ,999 Total property and equipment 1,549,631 2,630,629-4,180,260 OTHER ASSETS Investments 14,994, ,994,949 Historical property 152, ,000 Mineral interest rights 94, ,500 Total other assets 15,241, ,241,449 $ 17,092,066 $ 2,666,521 $ (1,187) $ 19,757,400 See independent auditors' report on other financial information.

25 20 LIABILITIES AND NET ASSETS Consolidating Information Episcopal Diocese Peterkin Consolidated of West Virginia Conference Center Eliminations 2014 CURRENT LIABILITIES Accounts and grants payable $ 269,465 $ 31,405 $ (1,187) $ 299,683 Funds due others 72, ,669 Total current liabilities 342,134 31,405 (1,187) 372,352 Accrued pension obligation 59, ,510 NET ASSETS Unrestricted Undesignated 3,211,752 2,635,116-5,846,868 Designated for specific purposes 364, ,620 Total unrestricted 3,576,372 2,635,116-6,211,488 Temporarily restricted 9,570, ,570,553 Permanently restricted 3,543, ,543,497 Total net assets 16,690,422 2,635,116-19,325,538 $ 17,092,066 $ 2,666,521 $ (1,187) $ 19,757,400

26 The Episcopal Diocese of West Virginia 21 CONSOLIDATING STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS Year Ended December 31, 2014 SUPPORT AND REVENUES Consolidating Information Episcopal Diocese of West Virginia Peterkin Conference Center Temporarily Permanently Temporarily Consolidated Unrestricted Restricted Restricted Total Unrestricted Restricted Total Eliminations Total Missionary apportionment $ 1,321,508 $ - $ - $ 1,321,508 $ - $ - $ - $ - $ 1,321,508 Special purpose fund contributions 116, , ,583 Restricted fund contributions - 25,025-25, ,025 Unrestricted contributions , ,625 (285,504) 39,121 Investment gain, net 142, , , ,223 Camp, bookstore and gift shop ,852-92,852-92,852 Other income 38, , ,511 Satisfaction of program restrictions 659,870 (659,870) Total support and revenues 2,278, ,109-2,486, , ,477 (285,504) 2,618,823 EXPENSES Children, youth and young adult ministry 326, , (285,504) 40,569 Spiritual growth and faith development 118, , ,283 Mission and evangelism 451, , ,588 Ministry support 1,318, ,318, ,318,758 Bishop discretionary 47, , ,231 Camps and conferences , , ,497 Special purpose fund 51, , ,270 General and administrative , , ,831 Total expenses 2,313, ,313, , ,328 (285,504) 2,490,027 Increase (decrease) in net assets before other changes (34,462) 208, ,647 (44,851) - (44,851) - 128,796 Other changes in net assets Change in pension funded status (57,213) - - (57,213) (57,213) Increase (decrease) in net assets (91,675) 208, ,434 (44,851) - (44,851) - 71,583 Net assets, beginning of year 3,668,047 9,362,444 3,543,497 16,573,988 2,679,967-2,679,967-19,253,955 Net assets, end of year $ 3,576,372 $ 9,570,553 $ 3,543,497 $ 16,690,422 $ 2,635,116 $ - $ 2,635,116 $ - $ 19,325,538 See independent auditors' report on other financial information.

27 The Episcopal Diocese of West Virginia 22 CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Consolidating Information Episcopal Diocese Peterkin Consolidated of West Virginia Conference Center Eliminations 2014 Increase (decrease) in net assets $ 116,434 $ (44,851) $ - $ 71,583 Adjustments to reconcile change in net assets to cash provided by operating activities Depreciation 103, , ,151 Restricted contributions (25,026) - - (25,026) Interest and dividends restricted for long-term investment Realized and unrealized (gains) losses on investments (726,251) - - (726,251) Decrease (increase) in assets Accounts receivable (5,066) (3,788) (704) (9,558) Other current assets 11,333 (217) - 11,116 Increase (decrease) in liabilities Accounts payable (38,927) (20,116) 704 (58,339) Funds due others 25,185 25,185 Accrued pension obligation 53, ,417 Net cash (used in) provided by operating activities (484,934) 32,212 - (452,722) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (45,367) (51,888) - (97,255) Purchase of investments (229,426) - - (229,426) Sale of investments 768, ,636 Net cash provided by (used in) investing activities 493,843 (51,888) - 441,955 CASH FLOWS FROM FINANCING ACTIVITIES Restricted contributions 25, ,026 Interest and dividends restricted for reinvestment Net cash provided by financing activities 25, ,026 Net increase in cash and cash equivalents 33,935 (19,676) - 14,259 Cash and cash equivalents, beginning of year 168,752 24, ,763 Cash and cash equivalents, end of year $ 202,687 $ 4,335 $ - $ 207,022 See independent auditors' report on other financial information.

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