THE EPISCOPAL DIOCESE OF WEST TEXAS CONSOLIDATING FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND with

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1 CONSOLIDATING FINANCIAL STATEMENTS FOR THE YEARS ENDED with INDEPENDENT AUDITORS REPORT

2 TABLE OF CONTENTS Independent Auditors Report Consolidating Statement of Financial Position Consolidating Statement of Financial Position Consolidating Statement of Activities Consolidating Statement of Activities Consolidating Statement of Cash Flows Consolidating Statement of Cash Flows... 7 Notes to Consolidating Financial Statements...8

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4 CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2014 ASSETS Budget Fund Episcopal Church Corporation Episcopal Church Foundation Interfund Eliminations TOTAL 2014 Cash and cash equivalents $ 2,963,814 $ 760,113 $ 5,250,017 $ - $ 8,973,944 Investments ,940,691-52,941,201 Accounts receivable 88,774 11,596 36, ,030 Prepaid expenses 174,679 4, ,579 Notes receivable - related party, net of allowance of $652, , ,650 Notes receivable - 109, ,209 Equity interest in Christ Chapel - 335, ,000 Property and equipment, net - 16,692, ,692,536 Land held for sale, net of allowance of $360, , ,000 Assets held in trust - - 2,797,682-2,797,682 Contributions receivable from remainder trusts - 877, ,968 Beneficial interest in perpetual trusts - 2,331, ,331,362 Interfund receivable 1,680,344 18,695,654 - (20,375,998) - TOTAL $ 4,907,611 $ 40,692,498 $ 61,805,050 $ (20,375,998) $ 87,029,161 LIABILITIES AND NET ASSETS LIABILITIES: Accounts payable $ 33,917 $ 32,813 $ - $ - $ 66,730 Accrued liabilities 42, ,954 Deferred revenue 80, ,216 Line of credit - 1,990, ,990,537 Funds held for third parties 17, ,081 33,339,203-33,466,471 Liability under unitrusts - - 1,193,339-1,193,339 Interfund payable 15, ,787 20,233,275 (20,375,998) - 190,210 2,260,218 54,765,817 (20,375,998) 36,840,247 NET ASSETS: Unrestricted 3,267,007 31,090,762 41,760-34,399,529 Temporarily restricted 1,450,394 3,658,273 5,349,967-10,458,634 Permanently restricted - 3,683,245 1,647,506-5,330,751 4,717,401 38,432,280 7,039,233-50,188,914 TOTAL $ 4,907,611 $ 40,692,498 $ 61,805,050 $ (20,375,998) $ 87,029,161 See notes to consolidating financial statements 2

5 CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2013 ASSETS Budget Fund Episcopal Church Corporation Episcopal Church Foundation Interfund Eliminations TOTAL 2013 Cash and cash equivalents $ 1,965,480 $ 539,017 $ 6,305,291 $ - $ 8,809,788 Investments ,612,296-50,613,161 Accounts receivable 97,210 60,886 39, ,672 Prepaid expenses 244, ,749 Notes receivable, net of allowance of $652,069-1,064, ,064,029 Equity interest in Christ Chapel - 345, ,000 Property and equipment, net - 15,361,933-15,361,933 Land held for resale 1,140,000 1,140,000 Assets held in trust - - 2,873,664-2,873,664 Contributions receivable from remainder trusts - 854, ,930 Beneficial interest in perpetual trusts - 2,337, ,337,255 Interfund receivable 1,651,648 18,913,894 12,000 (20,577,542) - TOTAL $ 3,959,087 $ 39,477,809 $ 60,982,827 $ (20,577,542) $ 83,842,181 LIABILITIES AND NET ASSETS LIABILITIES: Accounts payable $ 41,811 $ 83,933 $ - $ - $ 125,744 Accrued liabilities 63, ,734 Deferred revenue 72, ,534 Line of credit - 2,365, ,365,537 Funds held for third parties 73,865-31,799,248-31,873,113 Liability under unitrusts - - 1,273,614-1,273,614 Interfund payable 51, ,652 20,387,274 (20,577,542) - 303,260 2,588,422 53,460,136 (20,577,542) 35,774,276 NET ASSETS: Unrestricted 2,862,556 29,210, ,630-32,234,029 Temporarily restricted (as restated) 793,271 3,989,406 5,721,524-10,504,201 Permanently restricted (as restated) - 3,689,138 1,640,537-5,329,675 3,655,827 36,889,387 7,522,691-48,067,905 TOTAL $ 3,959,087 $ 39,477,809 $ 60,982,827 $ (20,577,542) $ 83,842,181 See notes to consolidating financial statements 3

6 CONSOLIDATING STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2014 BUDGET FUND EPISCOPAL CHURCH CORPORATION EPISCOPAL CHURCH FOUNDATION Unrestricted Temporarily Restricted Permanently Restricted TOTAL Unrestricted Temporarily Restricted Permanently Restricted TOTAL Unrestricted Temporarily Restricted Permanently Restricted TOTAL Interfund Eliminations TOTAL 2014 SUPPORT AND REVENUE Apportionments $ 3,956,736 $ - $ - $ 3,956,736 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 3,956,736 Endowments and contributions - 418, ,487 20,000 1,936,014-1,956,014-89,000 6,969 95,969-2,470,470 Realized investment income 58,290 24,450-82,740 1,415, ,564-1,599, , ,162-1,994,887 Unrealized gain on investments (2,124) (3,811) - (5,935) (279,821) (54,361) - (334,182) - (91,121) - (91,121) - (431,238) Change in value of split-interest agreements ,038 (5,893) 17,145-4,293-4,293-21,438 Change in value of land held for sale (360,000) - (360,000) (360,000) Net gain on sale of fixed assets , , ,371 Fees for service 906, , , ,931 (115,546) 920,524 Designated receipts 513, ,070-1,230,939-7,376-7, ,238,315 Other revenue and rents 23, ,601 9, , ,216 Interest ,804 1,028-12, ,832 Total 5,456,511 1,156,196-6,612,707 1,178,390 2,097,659 (5,893) 3,270, ,941 (45,676) 6,969 91,234 (115,546) 9,858,551 EXPENSES Program services: General church program 164, , ,909 Missions 729, ,427 5, ,157 11, , ,410 Camps and conferences 1,825, ,825, , , ,013,969 Social services 865, , ,479 Education 103, , ,006 Communication 199, , ,391 Evangelism 4, , ,813 Specialized ministries 540, ,112 10, , ,112 Educational aid 54, ,301 13, , , , ,468 Cathedral park 32, , ,860 Other program services 167, ,870 77, ,859 63, , ,851 Total program services 4,687, ,687, , , , ,865-5,161,268 Supporting services: Bishop Jones Center 157, , ,795 Salaries and allowances 1,401, ,401, , ,859-1,446,265 Professional services 24, ,306 12, ,720 29, ,577-66,603 Property taxes and expenses , , ,495 Internal administrative fees 7, ,186 85, ,840 22, ,520 (115,546) - Insurance 183, ,370 8, , ,026 Interest , , ,742 Depreciation , , ,383 Other expenses 102, ,301 6, ,409 4, , ,121 Total supporting services 1,876, ,876, , , , ,367 (115,546) 2,573,430 Fundraising , , ,844 Total expenses 6,564, ,564,193 1,008, ,008, , ,232 (115,546) 7,737,542 Change in net assets from activities (1,107,682) 1,156,196-48, ,727 2,097,659 (5,893) 2,261,493 (150,291) (45,676) 6,969 (188,998) - 2,121,009 Transfers of net assets: Which meet donor restrictions 933,654 (668,424) - 265,230 2,118,707 (2,376,629) - (257,922) 201,385 (208,693) - (7,308) - - From (to) the budget fund (408,515) (93,139) - (501,654) (169,964) (76,212) - (246,176) 747,830 - From (to) the corporation 408,515 93, , (40,976) - (40,976) (460,678) - From (to) the foundation 169,964 76, ,176-40,976-40, (287,152) - CHANGE IN NET ASSETS 404, ,123-1,061,574 1,879,919 (331,133) (5,893) 1,542,893 (118,870) (371,557) 6,969 (483,458) - 2,121,009 NET ASSETS beginning of year 2,862, ,271-3,655,827 29,210,843 3,989,406 3,689,138 36,889, ,630 5,721,524 1,640,537 7,522,691-48,067,905 NET ASSETS end of year $ 3,267,007 $ 1,450,394 $ - $ 4,717,401 $ 31,090,762 $ 3,658,273 $ 3,683,245 $ 38,432,280 $ 41,760 $ 5,349,967 $ 1,647,506 $ 7,039,233 $ - $ 50,188,914 See notes to consolidating financial statements 4

7 CONSOLIDATING STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2013 BUDGET FUND EPISCOPAL CHURCH CORPORATION EPISCOPAL CHURCH FOUNDATION Unrestricted Temporarily Restricted Permanently Restricted TOTAL Unrestricted Temporarily Restricted Permanently Restricted TOTAL Unrestricted Temporarily Restricted Permanently Restricted TOTAL Interfund Eliminations TOTAL 2013 SUPPORT AND REVENUE Apportionments $ 3,850,260 $ - $ - $ 3,850,260 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 3,850,260 Endowments and contributions - 94,871-94,871 1,200 2,193,096-2,194,296-65,300 7,740 73,040-2,362,207 Realized investment income 73,646 35, ,430 1,451, ,731-1,627,583 (2,917) 378, ,398-2,112,411 Unrealized gain on investments 113,291 41, ,304 1,592, ,906-1,899, , ,150-2,500,133 Change in value of split-interest agreements (114,488) 285, , , , ,811 Net loss on sale of fixed assets (47) - - (47) (47) Fees for service 763, , , ,133 (104,973) 776,981 Designated receipts 527, , , , , ,100,769 Other revenue and rents 23, ,646 16, , ,639 Interest , , ,564 Total 5,351, ,049-5,955,983 3,077,335 2,702, ,536 6,065, ,216 1,065,528 7,740 1,188,484 (104,973) 13,104,728 EXPENSES Program services: General church program 144, , ,742 Missions 678, ,395 5, ,377 14, , ,772 Camps and conferences 1,601, ,601, , , ,740,175 Social services 649, , ,746 Education 92, , ,161 Communication 206, , ,658 Evangelism 6, , ,663 Specialized ministries 618, ,733 10, , ,733 Educational aid 120, ,892 24, ,500 71, , ,298 Cathedral park 17, , ,146 Other program services 168, , , , , , ,322 Total program services 4,305, ,305, , , , ,061-4,915,416 Supporting services: Bishop Jones Center 178, , ,634 Salaries and allowances 1,356, ,356,768 64, ,672 44, ,135-1,465,575 Professional services 24, ,306 12, ,500 20, ,178-56,984 Property taxes and expenses , , ,550 Internal administrative fees 6, ,000 79, ,037 19, ,936 (104,973) - Insurance 183, ,926 3, , ,782 Interest , , ,166 Depreciation , , ,865 Other expenses 103, ,817 4, ,723 4, , ,614 Total supporting services 1,853, ,853, , ,369 88, ,323 (104,973) 2,601,170 Fundraising , , ,693 Total expenses 6,159, ,159,101 1,088, ,088, , ,384 (104,973) 7,519,279 Change in net assets from activities (807,167) 604,049 - (203,118) 1,988,568 2,702, ,536 4,976,467 (261,168) 1,065,528 7, ,100-5,585,449 Transfers of net assets: Which meet donor restrictions 709,822 (489,423) - 220,399 2,191,685 (2,388,602) - (196,917) 307,997 (331,479) - (23,482) - - From (to) the budget fund (329,282) (47,403) - (376,685) (20,000) (9,119) - (29,119) 405,804 - From (to) the corporation 329,282 47, , (30,000) - (30,000) (346,685) - From (to) the foundation 20,000 9,119-29,119-30,000-30, (59,119) - CHANGE IN NET ASSETS (as restated) 251, , ,085 3,850, , ,536 4,432,865 26, ,930 7, ,499-5,585,449 NET ASSETS beginning of year (as restated) 2,610, ,123-3,232,742 25,359,872 3,693,048 3,403,602 32,456, ,801 5,026,594 1,632,797 6,793,192-42,482,456 NET ASSETS end of year (as restated) $ 2,862,556 $ 793,271 $ - $ 3,655,827 $ 29,210,843 $ 3,989,406 $ 3,689,138 $ 36,889,387 $ 160,630 $ 5,721,524 $ 1,640,537 $ 7,522,691 $ - $ 48,067,905 See notes to consolidating financial statements 5

8 CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 Episcopal Church Corporation Episcopal Church Foundation TOTAL 2014 Budget Fund Cash flows from operating activities: Increase (decrease) in net assets $ 1,061,574 $ 1,542,893 $ (483,458) $ 2,121,009 Adjustments to reconcile the change in net assets to net cash provided by (used in) operating activities: Depreciation - 507, ,383 Contributions restricted for long-term purposes - (1,762,631) (6,969) (1,769,600) Interest income restricted for long-term purposes - (579) - (579) Noncash donation of securities - - (16,322) (16,322) Reinvested dividends - - (2,680,285) (2,680,285) Unrealized loss on investments , ,007 Net realized gain on investments - - (724,003) (724,003) Net loss on fixed assets - 63, , ,419 Changes in assets and liabilities: Accounts receivable 8,436 49,290 2,916 60,642 Prepaid expenses 70,070 (4,900) - 65,170 Equity interest in Christ Chapel - 10,000-10,000 Perpetual and remainder trusts - (17,145) 75,982 58,837 Accounts payable (7,894) (51,120) - (59,014) Accrued liabilities (20,780) - - (20,780) Deferred revenue 7,982 (300) - 7,682 Funds held for third parties (56,678) 110,081 1,539,955 1,593,358 Liabilities under Unitrusts - - (80,275) (80,275) Interfund receivable (28,696) 218,240 12, ,544 Interfund payable (35,680) (11,865) (153,999) (201,544) Net cash provided by (used in) operating activities 998, ,121 (1,366,806) 284,649 Cash flows from investing activities: Purchase of investments - - (19,191,747) (19,191,747) Proceeds from sale of investments ,496,310 19,496,310 Purchase of property and equipment - (1,930,405) - (1,930,405) Proceeds from sale of property and equipment - 29,000-29,000 Payments on line of credit - (375,000) - (375,000) Repayment of notes receivable - 236, ,007 Advances on notes receivable - (154,837) - (154,837) Net cash (used in) provided by investing activities - (2,195,235) 304,563 (1,890,672) Cash flows from financing activities: Contributions restricted for long-term purposes - 1,762,631 6,969 1,769,600 Interest income restricted for long-term purposes Net cash provided by financing activities - 1,763,210 6,969 1,770,179 Net increase (decrease) in cash and cash equivalents 998, ,096 (1,055,274) 164,156 Cash and cash equivalents at beginning of year 1,965, ,017 6,305,291 8,809,788 Cash and cash equivalents at end of year $ 2,963,814 $ 760,113 $ 5,250,017 $ 8,973,944 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ - $ 51,742 $ - $ 51,742 See notes to consolidating financial statements 6

9 CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2013 Episcopal Church Corporation Episcopal Church Foundation TOTAL 2013 Budget Fund Cash flows from operating activities: Increase in net assets $ 423,085 $ 4,432,865 $ 729,499 $ 5,585,449 Adjustments to reconcile the change in net assets to net cash provided by (used in) operating activities: Depreciation - 536, ,865 Contributions restricted for long-term purposes - (1,805,505) (7,740) (1,813,245) Interest income restricted for long-term purposes - (145) - (145) Noncash donation of securities (63,910) - (16,643) (80,553) Reinvested dividends - - (2,081,256) (2,081,256) Unrealized gain on investments - (116) (5,486,995) (5,487,111) Net realized gain on investments - - (1,569,462) (1,569,462) Net loss on sale of fixed assets Changes in assets and liabilities: Accounts receivable 72,587 (47,250) 98 25,435 Prepaid expenses (12,183) - - (12,183) Equity interest in Christ Chapel - 10,000-10,000 Perpetual and remainder trusts - (171,048) (247,505) (418,553) Accounts payable 11,456 81,900 (505) 92,851 Accrued liabilities (30,694) - - (30,694) Deferred revenue 9, ,455 Funds held for third parties 55,657-5,478,935 5,534,592 Liabilities under Unitrusts ,742 71,742 Interfund receivable (263,024) (1,663,344) (12,000) (1,938,368) Interfund payable 1,902 (50,170) 1,986,636 1,938,368 Net cash provided by (used in) operating activities 204,306 1,324,124 (1,155,196) 373,234 Cash flows from investing activities: Purchase of investments - - (7,616,175) (7,616,175) Proceeds from sale of investments 63,910-8,760,200 8,824,110 Purchase of property and equipment - (5,363,934) - (5,363,934) Proceeds from sale of property and equipment - 22,000-22,000 Proceeds from line of credit - 2,365,537-2,365,537 Repayment of notes receivable - 113, ,843 Advances on notes receivable - (514,659) - (514,659) Net cash provided by (used in) investing activities 63,910 (3,377,213) 1,144,025 (2,169,278) Cash flows from financing activities: Contributions restricted for long-term purposes - 1,805,505 7,740 1,813,245 Interest income restricted for long-term purposes Net cash provided by financing activities - 1,805,650 7,740 1,813,390 Net increase (decrease) in cash and cash equivalents 268,216 (247,439) (3,431) 17,346 Cash and cash equivalents at beginning of year 1,697, ,456 6,308,722 8,792,442 Cash and cash equivalents at end of year $ 1,965,480 $ 539,017 $ 6,305,291 $ 8,809,788 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ - $ 30,166 $ - $ 30,166 See notes to consolidating financial statements 7

10 Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization The Episcopal Diocese of West Texas (the Diocese) is the governing body of the Episcopal churches in south and central Texas in an area that covers 60 counties. Programs of the organization include the support of mission churches, foreign ministries and assistance to social charities. Additionally, the Diocese operates the 76-acre Camp Capers retreat center located in Waring, Texas and the Mustang Island Conference Center located in Port Aransas, Texas. Basis of Accounting The consolidating financial statements are presented under the accrual basis, reflecting revenues as they are earned and expenses as incurred, regardless of when cash is received or disbursed. The consolidating financial statements include the financial position, the results of operation and cash flows of the Budget Fund, which represents the operating accounts of the Diocese, the Episcopal Church Corporation in West Texas, and the Episcopal Church Foundation in West Texas. The significant intercompany transactions and balances have been eliminated in consolidation. Financial Statement Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board in its Accounting Standards Codification (ASC) 958, Not-For-Profit Entities. Under ASC 958, the Diocese is required to report 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. Estimates The preparation of consolidating financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents The Diocese considers cash on hand, cash in banks and all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash held for permanently-restricted net assets amounted to $6,380 and $8,380 as of December 31, 2014 and 2013, respectively. Property and Equipment Acquisitions of property and equipment in excess of $1,000 are capitalized. Fixed assets are recorded at cost if purchased or fair value if contributed; and are depreciated using the straight-line method. Buildings are depreciated over 30 to 40 years; furniture, fixtures and equipment are depreciated over 5 to 10 years; and automobiles and other such vehicles are depreciated over 5 years. Land, fine art and construction in progress are not depreciated. Repairs and maintenance are expensed as incurred. 8

11 Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Donated Materials And Contributed Services Donated property, marketable securities, and other non-cash donations are recorded as contributions at their estimated market value at the date of donation. The Diocese receives a substantial amount of services donated by those interested in the Diocese s programs. The kinds of services provided generally involve the contribution of time to organize and administer programs. Because of the difficulty in assigning values for such services, these items are generally not reflected in the accompanying consolidating financial statements. Restricted and Unrestricted Revenue and Support Contributions received are recorded as unrestricted, temporarily-restricted, or permanently-restricted support, depending on the existence and/or nature of any donor-designated restrictions. Revenues are reported as increases in unrestricted net assets unless the use of the assets received is limited by donor-imposed restrictions. Restricted support is reported as an increase in temporarily or permanently-restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished) temporarily-restricted net assets are reclassified to unrestricted net assets and reported in the Statements of Activities as net assets released from restrictions. Absent explicit donor stipulations about the length of time long-lived assets must be maintained, the Diocese reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Subsequent Events Management has considered subsequent events through May 12, 2015, which is the date the financial statements have been available to be issued. Income Taxes The Diocese is a non-profit organization and is exempt from federal income tax under Internal Revenue Code Section 501(c)(3). In addition, the Diocese qualifies for the charitable contribution deduction under Section 509(a)(2). The Diocese also qualifies as a religious order in accordance with IRS Sections , , and This makes the Diocese exempt from filing federal Form 990, Return of Organizations Exempt from Income Tax. 9

12 Note 2 - CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following at December 31, 2014: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Cash on hand $ 2,050 $ - $ - Cash in banks 472,908 37, ,120 Cash in money markets 2,488, ,213 4,689,897 Note 3 - INVESTMENTS $ 2,963,814 $ 760,113 $ 5,250,017 Investments are stated at fair value on a recurring basis. A provision for unrealized gains or losses is made in each year to adjust to the appropriate fair value. Realized and unrealized gains or losses are determined by comparison of cost to proceeds or market, respectively. Cost is determined by historical purchase price or, in the case of donated investments, the fair value of those investments at the date of the gift. The fair value of investments held at each fund at December 31, 2014 and 2013, is as follows: Cost Fair Value Cost Fair Value Episcopal Church Corporation $ 329 $ 510 $ 329 $ 865 Episcopal Church Foundation 46,473,600 52,940,691 43,357,553 50,612,296 Investments are comprised of the following: $46,473,929 $52,941,201 $43,357,882 $50,613, Cost Fair Value Cost Fair Value Mutual funds: Equities $30,053,926 $36,622,316 $28,672,853 $36,149,485 Fixed income 16,420,003 16,318,885 14,685,029 14,463,676 $46,473,929 $52,941,201 $43,357,882 $50,613,161 10

13 Note 3 INVESTMENTS (continued) Fair value disclosures at December 31, 2014: Quoted Prices Significant Other Significant in Active Observable Unobservable Markets Inputs Inputs (Level 1) (Level 2) (Level 3) Mutual Funds - equities $ 36,622,316 $ - $ - Mutual Funds - fixed income 16,318, $ 52,941,201 $ - $ - Fair value disclosures at December 31, 2013: Quoted Prices Significant Other Significant in Active Observable Unobservable Markets Inputs Inputs (Level 1) (Level 2) (Level 3) Mutual Funds - equities $ 36,149,485 $ - $ - Mutual Funds - fixed income 14,463, $ 50,613,161 $ - $ - Note 4 - RESTRICTED USE OF CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and investments restricted permanently or for use for long-term purposes are as follows at December 31, 2014: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Cash and cash equivalents $ - $ 9,281 $ 692,093 Investments - - 2,943,520 $ - $ 9,281 $ 3,635,613 Cash and investments restricted permanently or for use for long-term purposes are as follows at December 31, 2013: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Cash and cash equivalents $ - $ 9,281 $ 1,064,353 Investments - - 2,844,474 $ - $ 9,281 $ 3,908,827 11

14 Note 5 - PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 31, 2014 and 2013: Land $ 5,151,674 $ 5,216,464 Fine Art 112, ,811 Buildings and improvements 13,600,263 13,574,307 Furniture and equipment 1,183,161 1,244,654 Automobiles 208, ,876 Construction in progress 5,845,478 4,010,402 26,102,113 24,365,514 Less accumulated depreciation 9,409,577 9,003,581 Net property and equipment $ 16,692,536 $ 15,361,933 Note 6 - CONTRIBUTIONS RECEIVABLE FROM REMAINDER TRUSTS The Diocese is the remainder beneficiary of irrevocable charitable trusts for which it is a trustee and also for which a third party is trustee. Under ASC 958, the Diocese recognizes the present value of the contribution at the date of the creation of the instrument. Present value is computed based upon the quoted market prices of the assets in trust reduced by the present value of the future payments to the donor or other beneficiaries based on life expectancy and the applicable federal mid-term discount rate. The Remainder trusts held by third party trustees use the federal mid-term discount rate as of the balance sheet date, which at December 31, 2014 and 2013 was 2.0%. For remainder trusts where the Organization is Trustee, the discount rate at the date of the trust s creation is used, which was 5% for two trusts, 7.6% for one trust and 1.4% for another trust. Changes in the value of the split-interest agreements result from revaluations of future benefits due donors and amortization of discounts initially set up to account for future benefits. These changes are reflected in the statement of activities. The interest of the Diocese in the split-interest agreements, net of the donors interest, is presented as temporarily-restricted assets. Revocable or conditional agreements are not recognized as either contributions or assets. The assets held in the various trusts consist of cash, bonds, common stocks and mutual funds having an aggregate fair market value of $4,505,115 and $4,564,608 at December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, $2,797,682 and $2,873,664, respectively, of these assets was reported as assets held in trust, with a corresponding liability to beneficiaries of $1,193,339 and $1,273,614, respectively. The remaining trust assets reflect trusts held by third party trustees and are reported as the present value of the estimated future distributions to the Diocese which were $877,968 and $854,930 at December 31, 2014 and 2013, respectively. In accordance with ASC 958, these amounts are recorded as a contribution receivable. 12

15 Note 7 - BENEFICIAL INTEREST IN PERPETUAL TRUST The Diocese is the income beneficiary of two irrevocable perpetual trusts which are held by third party trustees. Revocable or conditional agreements are not recognized. The Diocese s interest in perpetual trusts is the present value of estimated future cash receipts from the trusts, which is best measured by the fair market value of the trusts assets. This interest is classified as permanentlyrestricted net assets. The assets of these trusts consist of cash, bonds, common stocks and mutual funds. Based upon the fair market value of these assets from quoted market prices at December 31, 2014 and 2013, the beneficial interest is estimated at $2,331,362 and $2,337,255, respectively. Distributions to the Diocese, totaling $124,691 for 2014 and $72,510 for 2013, were reported as unrestricted investment income as received. Note 8 - NOTE RECEIVABLE The note receivable at December 31, 2014 of $109,209 is due from the purchaser of real property that was given to one of the parishes of the Diocese. There is a corresponding liability to the Church in Comfort, TX for this note receivable. The note is due in 60 installments of $2,175 beginning November 1, 2014, bears an interest rate of 6% and is secured by the property sold. Note 9 - FUNDS HELD FOR THIRD PARTIES The Diocese holds and invests funds for the benefit of parishes, the Good Samaritan Center (which is a related party of the Diocese) and other various religious purposes. These investments consist of cash, bonds, stocks and mutual funds and are as follows at December 31, 2014: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Churches $ - $ 110,081 $ 31,803,896 Good Samaritan Center - - 1,103,957 Other religious purposes 17, ,350 Funds invested for third parties are as follows at December 31, 2013: $ 17,187 $ 110,081 $ 33,339,203 Episcopal Episcopal Budget Church Church Fund Corporation Foundation Churches $ - $ - $ 30,377,925 Good Samaritan Center 47,037-1,003,645 Other religious purposes 26, ,678 $ 73,865 $ - $ 31,799,248 13

16 Note 10 - RESTRICTIONS ON NET ASSETS Temporarily-restricted net assets are available for the following purposes as of December 31, 2014: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Outreach, missions and development $ 349,163 $ 1,316,881 $ 780,000 Education 15, ,225 2,047,443 Pastoral programs 613, , ,025 Facilities maintenance 472, , ,156 Time restrictions - 877,968 1,604,343 $ 1,450,394 $ 3,658,273 $ 5,349,967 Temporarily-restricted net assets are available for the following purposes as of December 31, 2013: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Outreach, missions and development $ 209,903 $ 1,723,544 $ 1,140,000 Education 6, ,789 2,004,638 Pastoral programs 556, , ,033 Facilities maintenance 20, , ,803 Time restrictions - 854,930 1,600,050 $ 793,271 $ 3,989,406 $ 5,721,524 Temporarily-restricted net assets released from donor restrictions by incurring expenditures satisfying the purpose of donors are as follows for the year ended December 31, 2014: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Outreach, missions and development $ 456,636 $ - $ - Education 30,190 19, ,917 Pastoral programs 147, ,478 41,654 Facilities maintenance and construction 33,735 2,070,199 63,122 $ 668,424 $ 2,376,629 $ 208,693 14

17 Note 10 - RESTRICTIONS ON NET ASSETS (continued) Temporarily-restricted net assets released from donor restrictions by incurring expenditures satisfying the purpose of donors are as follows for the year ended December 31, 2013: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Outreach, missions and development $ 228,837 $ 75,000 $ - Education 80,955 1,500 71,906 Pastoral programs 165, ,553 40,167 Facilities maintenance and construction 13,902 2,147, ,395 $ 489,423 $ 2,388,602 $ 330,468 Permanently-restricted net asset amounts and restrictions as of December 31, 2014 are as follows: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Education $ - $ 383,500 $ 702,875 Facilities maintenance - 668,089 53,000 Pastoral programs - 75, ,631 Capital assets - 225,003 - Time restrictions - 2,331,362 - $ - $ 3,683,245 $ 1,647,506 Permanently-restricted net asset amounts and restrictions as of December 31, 2013 are as follows: Episcopal Episcopal Budget Church Church Fund Corporation Foundation Education $ - $ 383,500 $ 702,875 Facilities maintenance - 668,089 52,500 Pastoral programs - 75, ,162 Capital assets - 225,003 - Time restrictions - 2,337,255 - $ - $ 3,689,138 $ 1,640,537 15

18 Note 11 - DESIGNATIONS ON UNRESTRICTED NET ASSETS Designated unrestricted net assets available at December 31, 2014 and 2013 are as follows: Designated unrestricted: Budget Fund $ 2,554,108 $ 2,241,885 Episcopal Church Corporation 12,408,153 12,105,366 Episcopal Church Foundation Note 12 - ENDOWMENT $ 14,962,761 $ 14,347,751 The Diocese s endowment consists of donor-restricted funds established for property maintenance, scholarships, and pastoral programs. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law Management has interpreted the State Prudent Management of Institutional Funds Act (SPMIFA) as requiring the preservation of the corpus of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations of the contrary. As a result of this interpretation, the Diocese classifies as permanently-restricted net assets the original value of gifts donated to the permanent endowment and the original value of subsequent gifts to the permanent endowment. The remaining portion of the donor-restricted endowment fund that is not classified in permanentlyrestricted net assets is classified as temporarily-restricted and unrestricted net assets until those amounts are appropriated for expenditure by the Diocese in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Diocese considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: the duration and preservation of the fund, the purposes of the Diocese and the donor-restricted endowment fund, general economic conditions, the possible effect of inflation and deflation, the expected total return from income and the appreciation of investments, other resources of the Diocese, and the investment policies of the Diocese. Return Objectives and Risk Parameters The Diocese has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment. Endowment assets include those assets of donor-restricted funds that the Diocese must hold in perpetuity. Under this policy, as approved by management, the endowment assets are invested in a manner that is intended to produce regular investment returns while assuming a reasonable level of investment risk. The Diocese expects its endowment funds, over time, to provide an average total rate of return of approximately 8% annually. Actual returns in any given year may vary from this amount. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the Diocese relies on a total return strategy, in which investment returns are achieved through both current yield (interest and dividends) and capital appreciation (realized and unrealized). The Diocese targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term objectives. 16

19 Note 12 - ENDOWMENT (continued) Spending Policy and How the Investment Objectives Relate to Spending Policy The Diocese has a policy of regular distributions from its endowment funds. In establishing this policy, the Diocese considered the long-term expected return on its endowment. Accordingly, over the long term, the Diocese expects the current spending policy to allow its endowment to grow at an average rate of 4% annually, as uses of the endowment typically do not exceed growth of the endowment. These considerations resulted in distribution rates of 4.4% and 4.7% for 2014 and 2013, respectively. Composition and Change of Endowment Assets For the years ended December 31, 2014 and 2013, the endowment net assets of the Diocese did not consist of unrestricted endowment funds. The changes of donor-restricted endowment assets for the years ended 2014 and 2013 are as follows: Temporarily Permanently Restricted Restricted Total Endowment net assets December 31, 2012 $ 2,246,374 $ 2,759,678 $ 5,006,052 Contributions 2,800 7,740 10,540 Investment return: Investment income 423, ,424 Net unrealized gain 608, ,069 Total investment return 1,031,493-1,031,493 Intercompany transfer (29,239) - (29,239) Endowment assets released from restrictions (284,280) - (284,280) Endowment net assets December 31, ,967,148 2,767,418 5,734,566 Contributions 5,333 6,968 12,301 Investment return: Investment income 388, ,145 Net unrealized loss (130,397) - (130,397) Total investment return 257, ,748 Intercompany transfer (60,540) - (60,540) Endowment assets released from restrictions (188,731) - (188,731) Endowment net assets December 31, 2014 $ 2,980,958 $ 2,774,386 $ 5,755,344 17

20 Note 13 - PENSION PLAN Lay employees of the Diocese become eligible for a pension plan administered by the Church Pension Group upon completion of at least one year of service and who are twenty-five years of age, provided the employee is hired prior to the age of sixty. Clergy employees of the Diocese become eligible upon ordination. The Diocese helps to fund this plan by sending 9% of eligible Diocesan lay employees and 18% of eligible Diocesan staff clergy salaries to the Church Pension Group. Pension expense for 2014 and 2013 was $219,747 and $198,967, respectively. Note 14 - OPERATING LEASE AGREEMENTS Effective September 1, 2008 and expiring September 1, 2011, the Diocese leased land and building to the Messianic Fellowship Church of Corpus Christi, Inc. at a rate of $500 per month with a term of one year. Subsequent to December 31, 2011, this lease was restructured to lease the same land and building for $1 per year with the Messianic Fellowship Church responsible for property maintenance and upkeep. Future minimum rentals at December 31, 2014 are as follows: $1 Effective April 30, 2008, the Diocese entered into a lease agreement with Documation to lease copier equipment. This agreement calls for base monthly payments of $1,592 for 63 months. Lease payments made during 2013 was $14,180. This lease was allowed to expire in Effective November 17, 2010, the Diocese entered into a lease agreement with US Bank to lease copier equipment. This agreement calls for base monthly payments of $2,275 for 63 months. Lease payments made during 2014 and 2013 were $30,697 and $30,668, respectively. Future minimum lease payments at December 31, 2014 are as follows: $27,300; and $6,825. Effective August 29, 2014 and expiring August 31, 2015, the Diocese licensed the rights to use a baseball field to 5Diamonds Little League. The agreement calls for the licensee to maintain the baseball field and to carry liability insurance. This agreement can be extended 12 additional months and is cancellable by the Diocese throughout the term. No payments to the Diocese are required. The Episcopal Church Corporation entered into an operating lease agreement with First Baptist Church of Boulder, Colorado for the use of James Park in order to operate a Christian church camp. The lease term was for the month of July 2012, with automatic renewals for each July thereafter. The lease may be terminated by either party if done before December 31 st. The agreement calls for a payment of $5,000 annually to be paid on or before July 1 st of each year. In addition to the annual rent, the Church Corporation is obligated to pay up to $5,000 per calendar year for maintenance and repairs. Rent and repairs expense under this lease was $13,123 for The expenses for 2013 of $8,123 were higher than the terms of the lease as the Diocese purchased the property in November 2013 and spent additional money on maintenance prior to that purchase. There are no future minimum payments under this lease at December 31, Note 15 - CONCENTRATION OF CREDIT RISK The Diocese had more than the insured limit of $250,000 in one financial institution. At December 31, 2014, cash deposits exceeded federally insured limits by $3,838,164. Management monitors the creditworthiness of the institution, and believes the risk of loss due to credit risk to be remote. 18

21 Note 16 - INTENTIONS TO GIVE In connection with the Diocesan Development Campaign, the Diocese had approximately $2,642,791 and $3,676,162 in outstanding intentions to give at December 31, 2014 and 2013, respectively. The intentions to give may be rescinded or modified by the donors at any time. As such, the intentions to give do not meet the criteria for revenue recognition under ASC 958. These intentions to give are recorded as contributions when funds are received. Note 17 - RELATED PARTY TRANSACTIONS The Diocese is a related party to all congregations and schools under its authority, the Good Samaritan Center of San Antonio and Texas Military Institute. These entities receive extensive support from the Diocese and the congregations contribute apportionments to help pay for the management of the Diocese. Support received from the congregations is shown as apportionments on these consolidating financial statements and totaled $3,956,736 and $3,850,260 for the years ended December 31, 2014 and 2013, respectively. Additionally, endowments and contributions as reported on the statements of activities included amounts donated by Churches within the Diocese of $196,836 and $169,302 for the years ended December 31, 2014 and 2013, respectively. The Diocese provided direct support to the mission congregations of the Diocese, which approximated $729,578 and $678,395 for the years ended December 31, 2014 and 2013, respectively. The Diocese support of the programs at the Good Samaritan Center totaled approximately $150,750 and $225,500 for the years ended December 31, 2014 and 2013, respectively. The Diocese support of the programs of Texas Military Institute totaled approximately $129,204 and $236,402 for the years ended December 31, 2014 and 2013, respectively. Additionally, at December 31, 2014, $1,845,976 of the restricted funds in the Episcopal Church Foundation are purposed for the benefit of Texas Military Institute. The Diocese invested $430,677 and $330,000 in 2008 and 2007, respectively, to become a 50% owner of Christ Chapel at Texas State University San Marcos (Christ Chapel). The remaining 50% of this non-profit corporation is owned by the Evangelical Lutheran Church in America. Christ Chapel s assets consisted of real property with an estimated value, based on the agreed price for the property in 2007, of $1,500,000. Christ Chapel used this property, which is adjacent to the Texas State University in San Marcos, Texas, to provide campus ministries. In September of 2010, Christ Chapel sold this property for $1,500,000. The sales price consisted of cash of $750,000 and a note receivable for $750,000 at 10% interest, payable in 10 annual installments at the first of each year beginning January 1, A corresponding lease was also entered into whereas Christ Chapel leases the same property for a period of 10 years beginning September 15, Lease payments consist of $1 per year in addition to a reduction of the expected annual note payments by $20,000 per year. The Diocese s interest in half of Christ Chapel s note receivable is reported as Equity interest in Christ Chapel on the 2014 and 2013 statements of financial position. No note payments have been collected on the notes receivable to date. However, during both 2014 and 2013, the equity interest reported on the statement of financial position was reduced by $10,000, or 50% of the note receivable reduction per the lease agreement. Salary and related costs for Christ Chapel ministries were $0 for both 2014 and

22 Note 18 - NOTES RECEIVABLE - RELATED PARTY Notes receivable at December 31, 2014 and 2013 consisted of the following: Churches $ 1,525,719 $ 1,716,098 Less allowance for doubtful accounts 652, ,069 $ 873,650 $ 1,064,029 Notes receivable consist of amounts advanced to Diocese churches for capital improvements. Management periodically reviews past-due notes receivable for collectability and based on the financial condition and outlook of each church, adjusts the allowance for losses if the collectability of the note receivable is deemed to be remote. It is the policy of the Diocese to maintain records of past due notes receivable and to indefinitely maintain them in the allowance until the obligor is able to repay the debt. Interest is not accrued on loans that are past due one month or more. As of December 31, 2014, there was $337,986 of net reported notes receivable on non-accrual status. Note 19 - ASSETS HELD FOR THE BENEFIT OF CHURCHES The Diocese, through the Church Corporation, holds title to real property used by parishes within the Diocese. This real property is not recorded as assets of the Diocese and the historical costs of this property are unknown since the funds raised for construction were raised and managed by the individual parishes. Certain of these properties are encumbered for borrowings used by the parishes in construction. The Church Corporation at times may guarantee debt held on these properties; however, any guarantees are limited to funds received on the sale of said properties. Canon 21 of the Diocesan Canons provides that no real property, consecrated or unconsecrated, of any congregation, institution or other diocesan body shall be alienated or encumbered without the consent of the Church Corporation. Any debt created in such an approved transaction may encumber the property but can in no way become an obligation, direct or otherwise, of the Diocese or the Church Corporation. Note 20 LINE OF CREDIT The Diocese has a line of credit with a bank collateralized by real estate and future contributions. Terms of the underlying credit agreement call for interest due monthly at a varying rate equal to 2.25% added to the 3-month LIBOR rate. The interest rate for this line at December 31, 2014 was 2.48%. The maximum credit line, which matures January 24, 2018, is $2,500,000. Advances under this line were $1,990,537 and $2,365,537 at December 31, 2014 and 2013, respectively.. Note 21 PRIOR PERIOD ADJUSTMENT The accompanying financial statements for 2013 have been restated to correct an error concerning two restricted funds of the Episcopal Church Foundation that were reported as funds held for third parties. The effect of this restatement reduces funds held for third parties by $244,824; increases the opening balances of temporarily restricted and permanently restricted net assets by $49,612 and $152,500, respectively; and increases temporarily restricted net investment income by $42,