The Executive Council and the Covenanted Ministries of the...

The Executive Council and the Covenanted Ministries of the United Church of Christ and Certain Affiliated Entities Combined Financial Report December 31, 2012

Contents

Independent Auditor's 1-2

Financial Statements Combined Statements of Financial Position 3 Combined Statements of Activities and Changes in Net Assets 4-5 Combined Statements of Cash Flows 6 Notes to Combined Financial Statements 7-35 Supplementary Information Details of Combined Statement of Financial Position 36 Details of Combined Statement of Activities and Changes in Net Assets 37

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Independent Auditor's Report To the Boards of Directors of The Executive Council and the Covenanted Ministries of the United Church of Christ and Certain Affiliated Entities Cleveland, Ohio Report on the Financial Statements We have audited the accompanying combined financial statements of The Executive Council and the Covenanted Ministries of the United Church of Christ and Certain Affiliated Entities (the Organization) which comprise the combined statements of financial position as of December 31, 2012 and 2011, and the related combined statements of activities and changes in net assets and cash flows for the years then ended and the related notes to the combined financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these combined 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 combined financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these combined 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 combined financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined 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 combined 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 combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Independent Auditor's Report (Continued)

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Other Matter The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the combined 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 combined financial statements. The information has been subjected to the auditing procedures applied in the audits of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 combined financial statements as a whole.

Cleveland, Ohio June 27, 2013

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The Executive Council and the Covenanted Ministries ofthe United Church of Christ and Certain Affiliated Entities

Combined Statements of Financial PositionDecember 31, 2012 and 2011

2012 2011AssetsCash and cash equivalents 5,245,026 $ 2,792,739 $ Investments 276,273,733 257,975,958 Receivables

Church building loans, net 28,898,712 27,515,990 Support, net 3,175,048 3,431,193 Property sale, net 3,276,764 2,945,777 Other, net 5,400,190 4,393,453

Publications inventory 695,842 757,281 Property held - 24,750 Prepaid expenses and other assets 836,759 589,994 Beneficial interest in trusts held by others 12,639,860 11,898,008 Property and equipment, net 16,603,496 17,520,847

Total assets 353,045,430 $ 329,845,990 $

Liabilities and Net AssetsLine of credit 4,500,000 $ 2,500,000 $ UCC Cornerstone Fund loans payable 1,046,532 1,059,281 Accounts payable 580,585 498,001 Accrued pension and other post-retirement benefits 3,503,292 3,168,939 Other accrued liabilities 2,562,507 3,483,169 Funds held for others 2,621,298 2,361,425 Other liabilities 2,001,260 1,793,957 Bond payable 3,750,000 4,125,000

Total liabilities 20,565,474 18,989,772

Net AssetsUnrestricted 145,193,770 137,124,733 Donor restricted

Temporarily 136,499,421 123,846,252 Permanently 50,786,765 49,885,233

Total net assets 332,479,956 310,856,218

Total liabilities and net assets 353,045,430 $ 329,845,990 $

See Notes to Combined Financial Statements.

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Combined Statement of Activities and Changes in Net AssetsYear Ended December 31, 2012

Temporarily PermanentlyUnrestricted Restricted Restricted Totals

Operating Revenues and SupportOur Church's Wider Mission

Basic support 7,473,387 $ -$ -$ 7,473,387 $ Special support 23,111 4,065,935 4,089,046

Gifts and donations 1,171,634 165,233 1,336,867 Other revenues

Publications and other resource sales 2,036,302 2,036,302 Total return draw 7,659,276 7,659,276 Management fees and other reimbursements 1,346,044 200,590 1,546,634 Church loan interest 1,487,777 1,487,777 Other 1,470,514 (7,160) 1,463,354

Net assets released from restrictions 9,778,163 (9,778,163) -

Total operating revenues and support 32,446,208 (5,353,565) 27,092,643

Operating ExpensesProgram services 26,267,413 26,267,413 Management and general 5,604,130 5,604,130 Fundraising 2,130,510 2,130,510

Total operating expenses 34,002,053 34,002,053

Decrease from operating activity (1,555,845) (5,353,565) (6,909,410)

Non-Operating Revenues and SupportGifts and donations 1,755,639 4,034,957 159,680 5,950,276 Interest and dividends net of total return draw (1,461,610) (1,876,480) (3,338,090) Appreciation in value of investments 9,710,250 15,771,699 25,481,949 Hotel Venture, LLC operations, net (126,599) (126,599) Change in value of beneficial interest of trusts held by others - 741,852 741,852 Change in value of split interest agreements - 76,558 76,558

Total non-operating revenues and support 9,877,680 18,006,734 901,532 28,785,946

Increase in net assets before the effect of the interestrate swap adjustment and postretirement cost 8,321,835 12,653,169 901,532 21,876,536

Interest rate swap adjustment 61,128 61,128

Postretirement related changes other than net periodicpostretirement cost (313,926) (313,926)

Increase in net assets 8,069,037 12,653,169 901,532 21,623,738

Net assets - beginning of year 137,124,733 123,639,113 50,092,372 310,856,218

Reclassification of net assets - 207,139 (207,139) -

Adjusted net assets - beginning of year 137,124,733 123,846,252 49,885,233 310,856,218

Net assets - end of year 145,193,770 $ 136,499,421 $ 50,786,765 $ 332,479,956 $


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Combined Statement of Activities and Changes in Net AssetsYear Ended December 31, 2011

Temporarily PermanentlyUnrestricted Restricted Restricted Totals

Operating Revenues and SupportOur Church's Wider Mission

Basic support 7,414,360 $ -$ -$ 7,414,360 $ Special support 24,147 4,504,517 4,528,664

Gifts and donations 1,171,555 251,865 1,423,420 Other revenues

Publications and other resource sales 2,335,564 2,335,564 Total return draw 8,074,650 8,074,650 Management fees and other reimbursements 1,556,526 40,246 1,596,772 Church loan interest 1,314,741 1,314,741 Other 1,347,145 1,338 1,348,483

Net assets released from restrictions 10,051,268 (10,051,268) -

Total operating revenues and support 33,289,956 (5,253,302) 28,036,654

Operating ExpensesProgram services 28,046,274 28,046,274 Management and general 5,419,173 5,419,173 Fundraising 3,116,965 3,116,965

Total operating expenses 36,582,412 36,582,412

Decrease from operating activity (3,292,456) (5,253,302) (8,545,758)

Non-Operating Revenues and SupportGifts and donations 265,762 3,030,627 630,964 3,927,353 Interest and dividends net of total return draw (1,409,525) (2,069,361) (3,478,886) Depreciation in value of investments (1,609,838) (3,938,308) (5,548,146) Hotel Venture, LLC operations, net (1,171,342) (1,171,342) Change in value of beneficial interest of trusts held by others - (396,796) (396,796) Change in value of split interest agreements - 134,742 134,742

Total non-operating revenues and support (3,924,943) (2,842,300) 234,168 (6,533,075)

Increase (decrease) in net assets before the effect of the interest rate swap adjustment and postretirement cost (7,217,399) (8,095,602) 234,168 (15,078,833)

Interest rate swap adjustment (104,814) (104,814)

Postretirement related changes other than net periodicpostretirement cost 637,156 637,156

Increase (decrease) in net assets (6,685,057) (8,095,602) 234,168 (14,546,491)

Net assets - beginning of year 143,400,213 132,144,292 49,858,204 325,402,709

Reclassification of net assets 409,577 (409,577) -

Adjusted net assets - beginning of year 143,809,790 131,734,715 49,858,204 325,402,709

Net assets - end of year 137,124,733 $ 123,639,113 $ 50,092,372 $ 310,856,218 $


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Combined Statements of Cash FlowsYears Ended December 31, 2012 and 2011

2012 2011Cash Flows From Operating Activities

Increase (decrease) in net assets 21,623,738 $ (14,546,491) $ Adjustments to reconcile increase (decrease) in net assets

to net cash used in operating activities:Net depreciation (appreciation) in value of investments (26,656,521) 6,808,144 Depreciation and amortization 1,079,530 1,435,052 Contributions restricted for long-term investment (159,680) (630,964) Loan loss provision 353,541 282,755 Change in value of beneficial interest in trusts held by others (741,852) 396,796 Loss (gain) on sale of property held 8,386 (742,489)

Changes in operating assets and liabilities:Support receivable 256,145 (29,015) Property sale receivable (330,987) 36,916 Other receivables 382,223 274,629 Publications inventory 61,439 (56,006) Prepaid expenses and other assets (254,740) 9,694 Accounts payable 82,584 (320,072) Accrued pension and other post-employment benefits 334,353 (577,524) Other liabilities and funds held for others (453,486) (423,254)

Net cash used in operating activities (4,415,327) (8,081,829)

Cash Flows From Investing ActivitiesPurchase of investments (12,369,745) (365,674,817) Proceeds from sale of investments 20,728,491 370,779,838 Purchase of property and equipment (154,204) (1,997,815) Proceeds from sale of property held 16,364 1,192,489 Disbursements for church building loans (3,774,410) (3,464,489) Repayments of church building loans 2,038,147 1,697,887 Contribution of beneficial interest in lead trust (1,388,960) -

Net cash provided by investing activities 5,095,683 2,533,093

Cash Flows From Financing Activities Repayment of bond payable (375,000) (375,000) Net proceeds under line of credit agreement 2,000,000 2,500,000 Proceeds from UCC Cornerstone Fund loans payable - 1,059,281 Repayment of UCC Cornerstone Fund loans payable (12,749) -

Proceeds from contributions restricted for long-term investment 159,680 630,964 Net cash provided by financing activities 1,771,931 3,815,245

Net increase (decrease) in cash and cash equivalents 2,452,287 (1,733,491)

Cash and cash equivalents Beginning 2,792,739 4,526,230

Ending 5,245,026 $ 2,792,739 $

Supplemental Disclosure of Cash Flow Information:Cash paid during the year for interest 373,473 $ 302,818 $

Supplemental Disclosure of NonCash Information:Transfer of building loans to property held -$ 24,750 $


The Executive Council and the Covenanted Ministries of the United Church of Christ and Certain Affiliated Entities Notes To Combined Financial Statements

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Note 1. Nature of Activities

The United Church of Christ (the UCC) is a Protestant denomination formed in 1957 by the Union of the Evangelical and Reformed Church and the General Council of the Congregational Christian Churches of the United States. The UCC is a "just peace" church that embraces all persons in an environment that is multiracial, multicultural, open and affirming and accessible to all who seek the Christian faith.

The national offices of the General Synod of the UCC are located in Cleveland, Ohio, and are comprised of six separately incorporated entities, all of which are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. The UCC restructured the national setting of the Church into its current structure, which took effect on July 1, 2000. The national bodies forming the new structure are the Executive Council of the General Synod of the UCC (EC), Office of General Ministries, Justice and Witness Ministries, Local Church Ministries, Wider Church Ministries (collectively referred to as the Covenanted Ministries), and the Common Services Corporation, a controlled entity of the Office of General Ministries. During 2007, the Church Building & Loan Fund (CB&LF) became a separate legal entity in order to increase CB&LF’s visibility and identity, preserve its history and enhance its fiduciary responsibility by establishing a separate Board with expertise in banking, real estate and investments. The entity is consolidated as part of Local Church Ministries. Franklinton Center at Bricks is managed by and consolidated as part of Justice and Witness Ministries. Franklinton Center at Bricks is operated as a community outreach and retreat center. UCAN, Inc. is a wholly-owned subsidiary of Wider Church Ministries and is consolidated as part of Wider Church Ministries. UCAN, Inc. assists the UCC in creating comprehensive AIDS and HIV education and prevention programs on a local, national and international basis, promotes HIV and AIDS awareness, and performs related community outreach programs. Each Covenanted Ministry has autonomy and maintains its own funds and accounts but is in covenant with the other ministries. The EC and the four covenanted ministries are organized for the following purposes:

Executive Council of the General Synod of the United Church of Christ (EC): The EC is responsible for policies relating to the mission of the UCC in its national setting, to act as the General Synod ad interim and work in cooperation with the Collegium of Officers to provide coordination and evaluation of the work of the Church.

Office of General Ministries (OGM): The Office of the General Minister and President is located in OGM. OGM's mandates include the spiritual life, unity, and well-being of the UCC; nurturing covenantal, ecumenical, and interfaith relationships; providing regular processes that focus on theological reflection throughout the UCC; and facilitating the visioning, planning, coordination, and implementation of the total mission of the UCC. Common Services Corporation is an autonomous entity lodged with OGM for financial reporting and management.

Justice and Witness Ministries (JWM): JWM's mission is to enable and encourage local churches, associations, conferences, and national expressions of the UCC to engage in God's mission at the global, national, and local level by direct involvement and action in the promotion of justice, peace, and the integrity of creation.

Local Church Ministries (LCM): LCM's mission is to encourage and support local churches of the UCC in the fulfillment of God's mission, to serve as a resource to constituents by providing special knowledge, understanding, and guidance with respect to the mandates of LCM, and to sustain relationships with other ministry partners.

Wider Church Ministries (WCM): WCM's mission is to encourage and support local churches, associations, conferences, and national expressions of the UCC to participate in the global mission of the Church; to support UCC ministries and those partner churches around the world; and to plan and conduct common global ministries with the Christian Church (Disciples of Christ).


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Note 2. Summary of Significant Accounting Policies

700 Prospect Corporation is a nonprofit corporation established to own and operate a building at 700 Prospect Avenue in Cleveland, Ohio, that serves as the principal offices and a place of worship for the national setting of the UCC and its affiliated and associated organizations that use the building. Rent for the building and related equipment is paid by the Organization and other affiliated and associated organizations. The Pension Boards, United Church Funds, Inc. (UCF), UCC Cornerstone Fund, Inc. (Cornerstone) and other organizations of the UCC are affiliated or associated organizations that maintain funds and accounts separate from the Covenanted Ministries and are not included in these combined financial statements. Basis of presentation: The combined financial statements are prepared on the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America.

Principles of combination: The combined financial statements include the accounts of the EC, OGM, JWM, LCM, WCM, and 700 Prospect Corporation (collectively referred to as the Organization), as well as the United Church of Christ Hotel Venture, LLC (Hotel Venture, LLC), the Organization's wholly owned subsidiary, whose activity is included in LCM; Local Church Ministries Church Building & Loan Fund, the Organization’s wholly controlled entity, whose activity is included in LCM; Franklinton Center at Bricks, a retreat Center managed and supported by JWM whose activity is included in JWM; and UCAN, Inc., the Organization’s wholly controlled subsidiary, whose activity is included in WCM. All significant interministry balances and transactions have been eliminated. 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 assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Net assets: Net assets comprise resources over which each governing body has discretionary control for use in carrying out the financial and operational objectives necessary to fulfill the mission, mandates, educational and charitable programs, and operations of the Organization and for purposes specified by donors. Activities of the Organization are accounted for in the following net asset types:

Unrestricted: Those assets whose use has not been limited by donors for any period of time or specific purpose. Unrestricted net assets can be designated for specific purposes by formal action of the Board of Directors of each Covenanted Ministry. Donor restricted – temporarily: Those assets whose use has been limited by donors to a specific period of time or specific purpose. Donor restricted – permanently: Those assets that have been restricted by donors to be maintained in perpetuity, the income from which can be used for unrestricted or temporarily restricted purposes.

Cash and cash equivalents: The Organization considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The Organization maintains cash at financial institutions which may at times exceed federally insured amounts. Management does not feel there is a risk of loss due to balances that exceed insured amounts.


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Note 2. Summary of Significant Accounting Policies (Continued)

Investments: Investments are carried at cost or fair value as disclosed in Notes 3 and 4. Investment income or loss, including unrealized and realized gains and losses, is reported as changes in the appropriate net assets category according to donor restriction, if any.

A total return draw on investments concept is followed whereby investment income is drawn from endowment investments based on a 3 to 6 year trailing quarterly average market value at a 4% to 5% draw rate depending upon the ministry involved and recorded in the combined statements of activities and changes in net assets as total return draw under Operating Revenues and Support. The difference between the actual earned income and the total return draw is recorded as interest and dividends net of total return draw under Non-Operating Revenues and Support. Church building loans receivable: Management reports loans receivable at their outstanding unpaid principal balances reduced by an allowance for loan losses. Loans are made to fund the construction, acquisition, and expansion of church facilities. The Board of Directors of CB&LF, at its discretion, can place delinquent loans in moratorium (not requiring principal and/or interest payments) or declare delinquent loans to be in good standing, and revise the scheduled principal and interest payments. Interest is accrued on the outstanding balance and at December 31, 2012 and 2011 interest accrued totaled $137,911 and $65,168, respectively. The Organization generally continues to accrue interest income on delinquent loans. Accrued interest on delinquent loans is considered collectible.

Allowance on church building loans receivable: Management uses the allowance method in accounting for uncollectible receivables. The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. This risk assessment is utilized to determine the necessary portfolio level allowance amount. The risk assessment has been computed based on management's judgment of current economic conditions, credit risks of the borrower and the fair value estimates of collateral dependent loans. Increases to the allowance are made by charges to the provision for loan losses. Receivables deemed to be uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are credited to the allowance. Although management believes that it uses the best information available to determine the adequacy of the allowance, future adjustments to the allowance may be necessary and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Management established an allowance for loan losses of $1,801,780 and $1,448,239 at December 31, 2012 and 2011, respectively, for possible uncollectible receivables based on circumstances that occurred during the year. The allowance consists of a specific component. The specific component relates to loans that are classified as impaired. A loan is considered impaired when it is probable, that based on current information and events, the Organization will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured on an individual basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. For such loans that are classified as impaired, the amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.


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When establishing the allowance for loan losses, management uses loan categories generally based on the nature of the loan. These loan categories and the relevant characteristics are as follows: Commercial Real Estate Church Loans: The main asset of the fund, these receivables represent active loans made for either site acquisition or for the construction of either first unit construction or upgrades to existing construction. The payment from borrowers is usually applied to principal and interest unless other arrangements have been negotiated. Commercial Real Estate Church Construction Loans: These receivables represent current construction loans. A promissory note and commitment letter will indicate the maximum loan amount that the lender has approved relative to the completed value of the project. Funds are taken from the loan through a draw process to pay material suppliers and contractors. The borrower is only charged interest on the amount borrowed during the construction period. The construction loan is reclassified as a church loan once the total amount of approved funds has been disbursed. As part of the on-going monitoring of the credit quality of the Organization’s loan portfolio, management categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt and comply with various terms of their loan agreements. The Organization considers historical payment experience, temporary loan modifications, current financial information, church membership, the length of time that the senior pastor has been installed in the church and an overall evaluation by management. Generally, all church building loans receive a financial review no less than annually to monitor and adjust, if necessary, the loan’s risk profile. The Organization categorizes loans into the following risk categories based on relevant information about the ability of the borrowers to service their debt: Excellent, Risk Rating 1: The evaluation process indicates strong loans with no identifiable risks. The loans are meeting their debt service obligation and the likelihood of realizing full repayment is excellent. There have been no temporary or permanent loan modifications to this loan in the past three years. Good, Risk Rating 2: The evaluation process indicates solid loans with minimal risks. The loans have no indication of deteriorating operational or financial conditions. There is a good possibility of realizing full repayment. Historically, there was at least one loan modification or at least one instance of a late payment made sixty days or more past the original due date. Satisfactory, Risk Rating 3: The evaluation process indicates identifiable risks. The loans may be underperforming compared to projections or standard expectations. The loans will likely experience occasional minor issues during the compliance period that should be monitored, but overall presents little risk of loss. There was at least one loan modification or at least one instance of a late payment made sixty days or more past the original due date. Watch, Risk Rating 4: The evaluation process indicates additional identifiable risks. The loans may be underperforming compared to projections or standard expectations. The loans will likely experience occasional minor issues during the compliance period that should be monitored by management regularly. There is potential for risk of loss. There was at least one loan modification or at least one instance of a late payment made sixty days or more past the original due date.


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Marginal, Risk Rating 5: The evaluation process indicates significant identifiable risks. The loans exhibit signs of weakness in operating and financial condition. The loans may continually perform poorly, requiring significant oversight. The risk of loss is likely. There was at least one loan modification or at least one instance of a late payment made sixty days or more past the original due date. Non-Performing, Risk Rating 6: Repayment of the loans has ceased and the property has been abandoned. Risk of loss is high. Foreclosure, bankruptcy or other legal action underway. Interest and fees on loans: Interest on loans is recognized over the term of each loan and is calculated using the effective interest method. The Organization determines a loan to be delinquent when payments have not been made according to contractual terms. Interest accrued in the current year and which is deemed uncollectible is reversed against interest income in the current year. Interest accrued in prior years which is deemed uncollectible is charged against the allowance. The Organization charges nominal origination fees and management has recorded these fees as earned in the year of origination. The deferral of these fees would be immaterial to the combined financial statements. Pre-1985 grants and LRC loans: In prior years, the Organization made grants referred to as Pre-1985 grants and LRC loans for which repayment is required only if the grantee leaves the UCC. Therefore, no asset is currently recorded on the combined statements of financial position. The grant purposes are noted below: Pre-1985 Grants: These assets had originally been recognized as expenses of the predecessor bodies to LCM (The Congregational Church Building Society, the Building Fund of the Board of National Missions) and legal documents filed with the stipulation that the “grants” were to be repaid if the church was ever to leave the UCC and/or close. The Organization has received sporadic payments on these grants. Management has determined that there is no value to be recorded on the books. LRC loans: These assets result from actions taken on non-performing loans whereby the Committee, based on a vote taken, required that a grant mortgage be created with the stipulation that if the church was ever to leave the UCC and/or close, the funds were to be paid in full, otherwise, these grants are maintained in perpetuity. Since the ultimate collection of these grants cannot be determined, management has determined that there is no value to be recorded on the books.

Allowance for doubtful receivables: The Organization determines its allowance for doubtful accounts for other receivables based on specific identification of uncollectible accounts and its historical collection experience. At December 31, 2012 and 2011, management has recorded an allowance of $11,342 and $84,109, respectively. Publications inventory: Publications inventory is valued at the lower of cost, generally on a first-in, first-out (FIFO) basis, or market. Property held: Real property, received in satisfaction of church building loans receivable, is recorded at the lower of estimated fair value or outstanding loan balance at the time of transfer. There was no property held at December 31, 2012. Management determined that the carrying value of property held at December 31, 2011 was not impaired.

Beneficial interest in trusts held for others: Included in investments is $2,621,298 and $2,361,425 as of December 31, 2012 and 2011, respectively, of funds held by the Organization as custodian for affiliated entities. Income and losses attributable to these funds are not included in the accompanying combined statements of activities and changes in net assets but are recorded as adjustments to the liability reported in the combined statements of financial position. In addition, the Organization serves as a custodian of funds for others.


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Beneficial interest in trusts held by others: The Organization is the beneficiary of an income stream of funds held by others. These resources are not in the Organization's possession, nor under its control. These funds are irrevocable and are held and administered by outside trustees. The beneficial interest of funds held by others are reported at fair value. The Organization's beneficial interest in funds held and administered by others generated $582,059 and $635,885 of cash sent to the Organization for the years ended December 31, 2012 and 2011, respectively. Property and equipment: The Organization capitalizes expenditures for property, equipment, furniture and fixtures, and leasehold improvements. Depreciation is calculated using a straight-line method over the estimated useful life of the asset, ranging from 3 to 40 years. Maintenance, repairs, and minor expenditures for equipment are charged to expense as incurred. Major expenditures are capitalized and depreciated over their estimated useful lives. Leasehold improvements are amortized over the shorter of the useful life or remaining life of the lease. Costs incurred related to the development of buildings and building improvements have been capitalized and are included with property and equipment in the accompanying combined statements of financial position. The Organization evaluates the recoverability of long-lived assets and measures the amount of impairment, if any, by assessing current and future levels of cash flows as well as other factors, such as business trends or economic conditions.

The Organization leases various property and equipment. Leased property that meets certain criteria are capitalized and the present value of the related lease payments are recorded as a liability. All other leases are accounted for as operating leases and the related payments are expensed ratably over the rental period. Amortization of assets under capital leases is computed utilizing the straight-line method over the shorter of the remaining lease term or the estimated useful life.

Valuation of long-lived assets: Financial Accounting Standards Board (FASB) guidance requires long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Management determined that the carrying values of long-lived assets at December 31, 2012 and 2011 were not impaired.

Other liabilities: Other liabilities are comprised of amounts due for charitable gift annuities, an interest rate swap agreement, and capital lease obligations.

Interest rate swap agreement: The interest rate swap agreement is recognized as either an asset or liability at fair value in the combined statements of financial position as a component of other liabilities with the change in the fair value reported in the combined statements of activities and changes in net assets. For the years ended December 31, 2012 and 2011, the Organization recognized gains and (losses) of $61,128 and ($104,814), respectively. Contributions: Unconditional promises to receive cash and other assets are reported at fair value at the date the promise is received, which is then recorded as the cost of the assets. Gifts of cash and other assets are reported as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor 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 combined statements of activities and changes in net assets as net assets released from restrictions.


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Revenue recognition: Support for Our Church's Wider Mission (OCWM) is recorded in the period contributed. Support receivable is recorded for actual contributions made through UCC churches during the period, which subsequently are forwarded by the conferences to the Organization. Other revenues are recorded in the period earned and include income from Hotel Venture, LLC, publication subscriptions, administrative services, and meeting registrations. General synod revenues and expenses: The biennial General Synod meeting which occurred in 2011 is funded primarily with OCWM National Basic Support receipts budgeted over a two-year period. In addition, attendees pay a registration fee. Income from the General Synod is included in other income and related expenses are included in program expenses in the combined statements of activities and changes in net assets. Hotel Venture, LLC operations, net: The net operating activity of Hotel Venture, LLC is recorded in non-operating revenues and support in the combined statements of activities. For the years ended December 31, 2012 and 2011 revenues totaled $3,675,389 and $2,961,767, respectively, and expenses totaled $3,801,988 and $4,133,109, respectively. Fair value of financial instruments: The carrying amount of cash and cash equivalents, receivables (except church building loans receivable), accrued investment income, accounts payable, accrued expenses, and due to broker for securities purchased approximates fair value due to the short-term nature of these instruments. The fair value of investments, beneficial interest in trusts, split interest agreements and the interest rate swap are estimated by the Organization using available information, including quoted market prices and appropriate valuation methodologies as more fully described in Note 4. The carrying amount of the bond payable is cost. The carrying amount of the bond payable approximates fair value because the interest rates fluctuate with market interest rates offered to the Organization for debt with similar terms and maturities. Income taxes: The Executive Council and the Covenanted Ministries of the United Church of Christ and Certain Affiliated Entities are exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and applicable state law, except for taxes pertaining to unrelated business income, if any. The Organization adopted the accounting standard on accounting for uncertainty in income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the combined financial statements. Under this guidance, the Organization may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. Examples of tax positions include the tax-exempt status of the Organization, the continued tax-exempt status of bonds issued by the Organization, and various positions related to the potential sources of unrelated business taxable income (UBIT). The tax benefits recognized in the combined financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The guidance on accounting for uncertainty in income taxes also addresses de-recognition, classification, interest and penalties on income taxes, and accounting in interim periods. At December 31, 2012, there were no unrecognized tax benefits identified or recorded as liabilities. With few exceptions, the Organization is no longer subject to tax examinations by U.S. federal tax authorities for years before 2009. The covenanted ministries are exempt from filing tax returns, due to its status as a church, however, 700 Prospect Corporation and UCAN, Inc. file a Federal Form 990 in the U.S. federal jurisdiction and the state of Ohio. Hotel Venture, LLC files a Federal Form 1065 in the U.S. federal jurisdiction and a local tax return in the state of Ohio.


14


Troubled debt restructures: Troubled debt restructuring exists when the Organization, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession (either imposed by court order, law, or between the borrower and the Organization) to the borrower that it would not otherwise consider. These concessions could include restructuring of the loan repayment schedule, extension of the terms of the loan, other changes in the terms of the loan, forgiveness of principal, and reduction of stated interest rates or accrued interest. The Executive Director negotiates loan restructuring only when such change is deemed to be the most cost-effective manner in which to maximize recovery of loan principal or interest and/or to ensure the completion or preservation of the financed project. Management has evaluated troubled debt restructurings and concluded they are not material to the combined financial statements Reclassification: Certain amounts in the 2011 combined financial statements have been reclassified, where appropriate, to conform with the current year financial presentation. Subsequent events: The Organization has evaluated subsequent events for potential recognition and/or disclosure through June 27, 2013, the date the combined financial statements were available to be issued.

Note 3. Investments

Investments at December 31 are as follows:

EC OGM JWM LCM WCM Total

UCF Alternatives Balanced Fund -$ -$ -$ 90,753,596 $ 83,780,556 $ 174,534,152 $

UCF Moderate Balanced Fund 7,628,400 10,960,267 25,087,392 29,185,188 5,818,315 78,679,562

Term Investment Notes - 8,037,302 8,037,302

Equity Securities - 10,182,509 10,182,509

Money Market Fund 1,098,916 4 966,211 2,065,131

U.S. Government Securities - 2,071,229 2,071,229

Other - 159,625 544,223 703,848

Total investments 8,727,316 $ 10,960,267 $ 25,087,392 $ 130,206,944 $ 101,291,814 $ 276,273,733 $

2012


UCF Alternatives Balanced Fund -$ -$ -$ 80,615,407 $ 74,421,334 $ 155,036,741 $

UCF Moderate Balanced Fund 6,897,468 12,629,158 24,027,906 28,852,705 6,917,799 79,325,036

Term Investment Notes - 9,666,279 9,666,279

Equity Securities - 8,962,099 8,962,099

Money Market Fund 1,000,156 632,081 734,957 2,367,194

U.S. Government Securities - 2,123,929 2,123,929

Other - 25,103 469,577 494,680

Total investments 7,897,624 $ 12,629,158 $ 24,027,906 $ 121,915,504 $ 91,505,766 $ 257,975,958 $

2011


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Note 3. Investments (Continued)

The UCF is an associated ministry of the UCC. The UCF Moderate Balanced Fund consists of approximately 35-45 percent fixed income securities and 55-65 percent equity securities. The UCF Alternatives Balanced Fund consists of approximately 40-60 percent equity fund, 20-40 percent fixed income fund and 10-30 percent alternatives fund. Investments with UCF are held as units of ownership participation. The value of these units, based on quoted market prices, is recorded at the amounts reported by UCF. The Organization has term investment notes/savings accounts that are on deposit at Cornerstone. An analysis of investment activity is as follows for the year ended December 31:

2012 2011

Total return draw 7,659,276 $ 8,074,650 $ Interest and dividends net of total return draw (3,338,090) (3,478,886) Net appreciation (depreciation) in value of investments 25,481,949 (5,548,146)

Total 29,803,135 $ (952,382) $

Realized gains on sale of investments 1,656,038 $ 32,727,542 $ Unrealized gains (losses) on investments 23,825,911 (38,275,688) Interest and dividends 4,321,186 4,595,764

Total 29,803,135 $ (952,382) $

The Organization’s investments are impacted significantly by the volatility of the financial markets and other economic events. This impact can result in positive or negative gains throughout the year.

Note 4. Fair Value Measurements

The Organization adopted ASC Topic Fair Value Measurements and Disclosures which provides a framework for measuring fair value under generally accepted accounting principles. ASC Topic Fair Value Measurements and Disclosures applies to all financial instruments that are being measured and reported on a fair value basis. For assets and liabilities that are measured using quoted prices in active markets (Level 1), total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs, discounts or blockage factors. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities (Level 2), adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets. For all remaining assets and liabilities, fair value is derived using other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques (Level 3), and not based on market exchange, dealer, or broker traded transactions. These valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.


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Note 4. Fair Value Measurements (Continued)

For the year ended December 31, 2012, the application of valuation techniques applied to similar assets and liabilities has been consistent. The following is a description of the valuation methodologies used for instruments measured at fair value: Investments: The fair value of investments, other than the pooled funds held at the UCF, is based on quoted market prices, when available, or market prices provided by recognized broker dealers. If listed prices or quotes are not available, due to the limited market activity of the instrument, fair value is based upon externally developed models that use unobservable inputs. Investments – UCF: The Organization participates in pooled funds held and managed by UCF. UCF provided the fair value of the Organization’s interest in their pooled funds. UCF’s investments in marketable equity and fixed income securities are stated at fair value as determined by quoted market prices. UCF’s investments in alternative investments are stated at fair value as determined by externally developed models that use unobservable inputs. Beneficial interest in trusts held by others: The fair value of the beneficial interest in perpetual trusts represents the Organization’s proportionate interest in the value of the trusts. The trusts are primarily invested in common and collective trust funds. The net asset value is applied as a practical expedient for the valuation of the Organization’s beneficial interest in perpetual trusts however these assets are classified as Level 3 as the investments cannot be redeemed at net asset value. Split interest agreements: The Organization is a beneficiary of certain split interest agreements that are managed by Weston, Patrick, Willard and Redding, P.A. Weston, Patrick, Willard and Redding, P.A. provided the fair value of the UCC’s interest in its split interest agreements. Interest rate swap: The fair value of the Organization’s interest rate swap was provided by a valuation expert. Certain derivatives with limited market activity are valued using externally developed models that consider unobservable market parameters. Fair value on a recurring basis: The table below presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31:

Level 1 Level 2 Level 3 TotalFinancial AssetsInvestments

UCF Alternatives Balanced Fund -$ -$ 174,534,152 $ 174,534,152 $ UCF Moderate Balanced Fund - 78,679,562 78,679,562 Equity Securities -

Mid Cap Value 10,182,509 10,182,509 Fixed Income Securities

U.S. Government Securities - 2,071,229 2,071,229 10,182,509 2,071,229 253,213,714

Term Investment Notes, Money Marketand Other 10,806,281

276,273,733 Other Assets

Beneficial Interest in TrustsHeld By Others - 12,639,860 12,639,860

Split Interest Agreements** - 4,579,938 4,579,938 Total assets 10,182,509 $ 2,071,229 $ 270,433,512 $ 293,493,531 $

Financial Liability

Interest Rate Swap -$ 598,608 $ -$ 598,608 $

2012


17


Level 1 Level 2 Level 3 TotalFinancial AssetsInvestments

UCF Alternatives Balanced Fund -$ -$ 155,036,741 $ 155,036,741 $ UCF Moderate Balanced Fund - 79,325,036 79,325,036 Equity Securities

Mid Cap Value 8,962,099 8,962,099 Fixed Income Securities -

U.S. Government Securities - 2,123,929 2,123,929 8,962,099 2,123,929 234,361,777

Term Investment Notes, Money Marketand Other 12,528,153

257,975,958 Other Assets

Beneficial Interest in TrustsHeld By Others - 11,898,008 11,898,008

Split Interest Agreements** - 3,135,774 3,135,774 Total assets 8,962,099 $ 2,123,929 $ 249,395,559 $ 273,009,740 $

Financial LiabilityInterest Rate Swap -$ 659,736 $ -$ 659,736 $

2011

The Organization participates in pooled funds held and managed by UCF through the purchase of shares of funds. UCF provides the fair value of the Organization’s interest in their pooled funds. The changes in fair value of Level 3 assets are summarized as follows:

Interest

in Trust Split Interest

Investments Held by Others Agreements ** Total

Balance, December 31, 2010 62,493,878 $ 12,294,804 $ 3,002,416 $ 77,791,098 $

Purchases and reinvestment 360,645,066 103,492 360,748,558

Sales, net (171,390,166) (53,132) (171,443,298)

Unrealized losses, net (17,387,001) (17,387,001)

Changes in value of beneficial interest

in trusts held by others - (396,796) (396,796)

Changes in value of split interest agreements - 82,998 82,998

Balance, December 31, 2011 234,361,777 11,898,008 3,135,774 249,395,559

Purchases and reinvestment 8,773,415 1,388,960 10,162,375

Sales, net (14,368,439) 12,779 (14,355,660)

Unrealized gains, net 24,446,961 (65,566) 24,381,395

Changes in value of beneficial interest

in trusts held by others - 741,852 741,852

Changes in value of split interest agreements - 107,991 107,991

Balance, December 31, 2012 253,213,714 $ 12,639,860 $ 4,579,938 $ 270,433,512 $

** The value of the split interest agreements includes the split interest agreements included in Note 9 and

the Make a Difference! split interest agreements included in Note 7.


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Fair value on a nonrecurring basis: The Organization may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. These assets consist of impaired loans and property held. For assets measured at fair value on a nonrecurring basis on hand at December 31, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:

Year EndedDecember 31,

2012 TotalLevel 1 Level 2 Level 3 Total Gains

Impaired loans -$ -$ 3,600 $ 3,600 $ -$

Carrying Value at December 31, 2012

Year EndedDecember 31,

2011 TotalLevel 1 Level 2 Level 3 Total Losses

Impaired loans -$ -$ 75,135 $ 75,135 $ -$

Property held - - 24,750 24,750 -

Total assets -$ -$ 99,885 $ 99,885 $ -$

Carrying Value at December 31, 2011

Impaired loans are non-performing church building loans receivable.

Property held was acquired in the satisfaction of a church building loan receivable as a result of a repossession of the property. The loan was written down from its carrying value to its fair value. The fair value of property held was calculated based on a signed sales contract for the property obtained subsequent to year end.

Note 5. Church Building Loans Receivable

Church building loans receivable consist of the following as of December 31:

2012 2011Church building loans receivable for:Commercial real estate:

Church loans 30,660,007 $ 24,070,126 $ Church construction loans 40,485 4,894,103

30,700,492 28,964,229 Allowance for loan loss (1,801,780) (1,448,239)

Total 28,898,712 $ 27,515,990 $


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Note 5. Church Building Loans Receivable (Continued)

Church building loans receivable and accrued interest classified by loan category consist of the following as of December 31:

Principal Interest Total Principal Interest Total

Church loans 30,660,007 $ 137,911 $ 30,797,918 $ 24,070,126 $ 65,168 $ 24,135,294 $

Church construction loans 40,485 40,485 4,894,103 4,894,103

Total Church Building Loans

Receivable and Accrued Interest 30,700,492 $ 137,911 $ 30,838,403 $ 28,964,229 $ 65,168 $ 29,029,397 $

2012 2011

Principal payments scheduled to be received for the years ended December 31, are as follows: 2013 1,161,474 $ 2014 1,136,560 2015 1,623,166 2016 1,715,841 2017 1,050,820 Thereafter 24,012,631

30,700,492 $

The following tables present the contractual aging of the church building loans receivable portfolio as of December 31:

90 Days30-59 Days 60-89 Days or More

Current Past Due Past Due Past Due Total

Church loans 28,017,247 $ 2,352,899 $ -$ 289,861 $ 30,660,007 $ Church construction loans 40,485 - - - 40,485

28,057,732 $ 2,352,899 $ -$ 289,861 $ 30,700,492 $

90 Days30-59 Days 60-89 Days or More

Current Past Due Past Due Past Due Total

Church loans 22,456,036 $ 1,472,587 $ 141,503 $ -$ 24,070,126 $ Church construction loans 4,894,103 - - - 4,894,103

27,350,139 $ 1,472,587 $ 141,503 $ -$ 28,964,229 $

2012

2011


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The following tables present the risk category of loans evaluated by internal loan receivable portfolio classification based on the most recent analysis performed and the contractual aging as of December 31:

Excellent Good Satisfactory Watch Marginal Non-Performing Total

Church loans 23,782,891 $ -$ 31,934 $ 1,093,944 $ 5,715,238 $ 36,000 $ 30,660,007 $

Church construction loans 40,485 - - - - - 40,485

23,823,376 $ -$ 31,934 $ 1,093,944 $ 5,715,238 $ 36,000 $ 30,700,492 $

Excellent Good Satisfactory Watch Marginal Non-Performing Total

Church loans 20,792,371 $ -$ -$ 522,313 $ 2,676,353 $ 79,089 $ 24,070,126 $

Church construction loans 4,894,103 - - - - - 4,894,103

25,686,474 $ -$ -$ 522,313 $ 2,676,353 $ 79,089 $ 28,964,229 $

2011

2012

The Organization categorizes loans into six risk categories based on relevant information about the ability of the borrowers to service their debt. The two main factors in considering risk are temporary loan modifications made to reduce interest or principal payments and late payments. A loan may be moved from the excellent category to one of the other five categories based on these two factors. Once a loan is out of the excellent category it is further evaluated using additional criteria to assess the church’s ability to repay the loan. Church building loans receivable considered as non-performing are loans that exhibit signs of significant weakness in operating and financial condition compared to other similar investments requiring constant oversight. The risk of loss is high. Foreclosure, abandonment, taking the deed in lieu of foreclosure, bankruptcy or other legal actions are underway. At December 31, 2012 and 2011 all church building loans are collateralized by a mortgage or deed of trust, including $3,108,299 and $2,929,832, respectively, collateralized by second mortgages on church buildings. Interest rates on outstanding loans range from zero percent to 8.0%. At December 31, 2012 and 2011, zero percent loans totaled $590,611 and $765,525, respectively, and below interest loans totaled $2,052,626 and $3,368,977, respectively. It is anticipated that the below market rate loans will be paid in full. For below market rate loans, management calculates an amount of in-kind interest income earned and contributed to the respective borrowers. The amount is equal to the loan balance multiplied by the difference between the current rate of the loan and 3.5%. The rate of 3.5% is used based on the assumption that this is a reasonable rate that a not-for-profit would pay to borrow funds. Imputed interest income and in-kind grant expense of $23,025 and $47,122 for the years ended December 31, 2012 and 2011, respectively, was recorded to reflect interest on these loans with interest rates below 3.5%. There is a risk in any loan agreement that the borrower will not repay the funds loaned. Because of this risk, lending institutions usually charge a higher interest rate to compensate for loss due to default. In the secular world, the interest rate rises as the risk increases. The Organization is designed primarily to offer loans to new church start-ups. These loans generally are considered a high risk due to the many challenges associated with starting a new church. To help overcome some of these obstacles, the interest rates charged are significantly lower than rates that would be required by an independent lending institution. Because of this difference in interest charges, these church loans, if sold to an independent lending institution, would not be valued at the Organization's book value by that institution. Therefore, an outside institution would require a discount if it were to purchase the existing loans.


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Accounting principles generally accepted in the United States of America require the disclosure of the fair value of financial instruments. Based on the lower interest rates, payment schedules, higher risk, and a limited market for church loans, management of the Organization estimates the fair value at December 31, 2012 and 2011 to be $26,923,894 and $24,892,139, respectively, if it is forced to sell the loans in a secondary market. It's management's belief that the properties and buildings that collateralize these loans, in the aggregate, have a fair value greater than the aggregate fair value of the loans. As of December 31, 2012 and 2011, commitments for future church loans of $4,004,515 and $1,825,897, respectively, have been approved by the Board of Directors of CB&LF. CB&LF is supported by investments and term investment notes with a market value of $20,622,446 and $18,703,160 at December 31, 2012 and 2011, respectively. Income and realized gains on these investments are used to support the administration of CB&LF. These investments are included with investments in the combined statements of financial position.

Note 6. Allowance on Receivables

Changes The following tables provide detail of the activity in the allowance for loan losses, by portfolio segment, for the year ended December 31:

Church Loans

Church Construction

Loans Total Allowance for loan losses

Beginning balance 1,203,534 $ 244,705 $ 1,448,239 $ Provision 598,246 (244,705) 353,541

Ending balance 1,801,780 $ -$ 1,801,780 $

Period-ended amount allocated toIndividually evaluated for impairment 32,400 $ -$ 32,400 $ Collectively evaluated for impairment 1,769,380 - 1,769,380

1,801,780 $ -$ 1,801,780 $ Loans

Individually evaluated for impairment 36,000 $ -$ 36,000 $ Collectively evaluated for impairment 30,624,007 40,485 30,664,492

30,660,007 $ 40,485 $ 30,700,492 $

2012

Church Loans

Church Construction

Loans Total Allowance for loan losses

Beginning balance 1,207,434 $ 163,747 $ 1,371,181 $ Charge-offs (205,697) - (205,697) Provision 201,797 80,958 282,755

Ending balance 1,203,534 $ 244,705 $ 1,448,239 $

Period-ended amount allocated toIndividually evaluated for impairment 3,954 $ -$ 3,954 $ Collectively evaluated for impairment 1,199,580 244,705 1,444,285

1,203,534 $ 244,705 $ 1,448,239 $ Loans

Individually evaluated for impairment 79,089 $ -$ 79,089 $ Collectively evaluated for impairment 23,991,037 4,894,103 28,885,140

24,070,126 $ 4,894,103 $ 28,964,229 $

2011


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Note 6. Allowance on Receivables (Continued)

The following tables present additional detail of impaired loans, segregated by loan category, as of December 31. The unpaid principal balance represents the recorded balance prior to any partial charge-offs. The recorded investment represents customer balances net of any partial charge-offs recognized on the loans. The interest income recognized column represents all interest income reported on either cash or accrued basis after the loan became impaired. The cash basis column represents only the interest income recognized on a cash basis after the loan was classified as impaired:

Allowance Cash Basis-Unpaid for Loan Average Interest Interest

Principal Recorded Loss Recorded Income Income Balance Investment Allocated Investment Recognized Recognized

With no related allowance recorded:Church loans -$ -$ -$ -$ -$ -$ Church construction loans - -

With an allowance recorded:Church loans 36,000 36,000 32,400 36,000 - Church construction loans - -

36,000 $ 36,000 $ 32,400 $ 36,000 $ -$ -$

2012

Allowance Cash Basis-Unpaid for Loan Average Interest Interest

Principal Recorded Loss Recorded Income Income Balance Investment Allocated Investment Recognized Recognized

With no related allowance recorded:Church loans -$ -$ -$ -$ -$ -$ Church construction loans - -

With an allowance recorded:Church loans 79,089 79,089 3,954 79,089 - Church construction loans - -

79,089 $ 79,089 $ 3,954 $ 79,089 $ -$ -$

2011


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Note 7. Support Receivable

Support receivable due from UCC conferences at December 31 is as follows:

2012 2011Our Church's Wider Mission:

National Basic Support 2,038,287 $ 2,175,111 $ Neighbors in Need 554,604 623,097 Strengthen the Church 50,016 54,106 Other 16,948 63,360

Total Our Church's Wider Mission contributions receivable 2,659,855 2,915,674

Make a Difference! capital campaign, split interest agreementsreceivable, net 515,193 515,519

Total 3,175,048 $ 3,431,193 $

Make a Difference! capital campaign contributions receivable consist of the following at December 31:

2012 2011

Due after five years 780,135 $ 800,135 $ Net present value adjustment (at 2.25%) (264,942) (284,616)

Make a Difference! contributions receivable, net 515,193 $ 515,519 $

Support receivables from Our Church's Wider Mission have been deemed fully collectible by management and it is expected these receivables will be collected within one year. Make a Difference! contributions consist of annuities and charitable remainder trusts and are deemed to be fully collectible by management.

Note 8. Property Sale Receivable

The receivable is the present value of amounts due to Organization from the sale of properties located in Japan by a WCM affiliate, as follows:

2012 2011

Gross receivable 6,115,191 $ 4,892,793 $ Net present value adjustment (2,838,427) (1,947,016)

Net receivable at present value 3,276,764 $ 2,945,777 $

The receivable is expected to be collected over the next 24 years at approximately $250,000 per year. A discount rate of 6.28 percent is used in the present value calculation. The receivable is being reduced by the reimbursement of expenses WCM incurs in Japan for support of missionaries and program grants.


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Note 9. Other Receivables

Other receivables at December 31 consist of the following:

EC OGM JWM LCM WCM 700 Prospect Total

Split interest

agreements 275,211 $ 17,881 $ 212,090 $ 462,286 $ 3,097,277 $ -$ 4,064,745 $

Other receivables - 80,904 26,702 110,590 38,374 31 256,601

Other support - 515,658 515,658

Trade - 120,706 120,706

Affiliated

organizations 21,967 23,191 45,158

Division of Overseas

Ministries - 254,741 254,741

Accrued interest - 137,911 4,670 142,581

Total 297,178 $ 98,785 $ 238,792 $ 854,684 $ 3,910,720 $ 31 $ 5,400,190 $

2012


Split interest

agreements 296,284 $ 17,654 $ 191,473 $ 432,672 $ 1,682,172 $ -$ 2,620,255 $

Other receivables 2,244 44,138 75,577 190,590 22,493 335,042

Other support - 994,373 994,373

Trade - 7,099 118,377 125,476

Reimbursements - 46,858 46,858

Affiliated

organizations 44,204 15,909 160 2,147 62,420

Division of Overseas

Ministries - 194,498 194,498

Accrued interest - 14,531 14,531

Total 342,732 $ 84,800 $ 267,050 $ 741,799 $ 2,954,925 $ 2,147 $ 4,393,453 $

2011

Split interest agreements consist of gift annuities and charitable remainder trusts where a third party is the trustee. The agreements are valued at the present value of the future benefits to be received calculated by considering life expectancy and a discount rate of 1.78% in 2012 and 1.89% in 2011.


25

Note 10. Property and Equipment, Net

Property and equipment, net consists of:

2012 2011Hotel building and office furniture and equipment leased to

management company under operating lease agreement 15,936,563 $ 15,866,070 $ Land and building leased to others under operating leases 2,176,784 2,163,094 Land 728,084 728,084 Building 2,814,683 2,814,683 Building improvements 4,922,182 4,922,182 Office furniture and equipment 1,377,364 1,363,731 Computer equipment 569,308 512,920 Automobiles 30,041 30,041 Capital leases 594,827 594,827

Total property and equipment 29,149,836 28,995,632 Accumulated depreciation (12,546,340) (11,474,785)

Property and equipment, net 16,603,496 $ 17,520,847 $

December 31,

Depreciation expense for the years ended December 31, 2012 and 2011 totaled $1,071,555 and $1,427,077, respectively. Note 11. Line of Credit The Organization maintains an unsecured demand line of credit with a bank with maximum borrowings of $5,000,000 at December 31, 2012 and 2011. At December 31, 2012, the line of credit provided for interest calculated at three-month LIBOR (0.31% and 0.53% at December 31, 2012 and 2011, respectively) plus 275 basis points. The line of credit is reviewed annually and is collateralized by guarantees from the four individual Covenanted Ministries and EC. Balances outstanding on the line of credit for the years ended December 31, 2012 and 2011 were $4,500,000 and $2,500,000, respectively. Interest expense for 2012 and 2011 amounted to $111,115 and $28,646, respectively.

Note 12. UCC Cornerstone Fund Loans Payable

Franklinton Center at Bricks obtained two separate loans from United Church Cornerstone Fund amounting to $1,000,000 and $100,000. Monthly payments total $7,098, including interest at a rate of 6.88% per annum. A final balloon payment of unpaid principal and interest is due when the loans mature in December 2018. These loans are secured by certain property. The amounts outstanding as of December 31, 2012 totaled $951,367 and $95,165, respectively. The amounts outstanding as of December 31, 2011 totaled $962,957 and $96,324, respectively. Principal payments required under the loan agreements are: 2013 13,653 $ 2014 14,622 2015 15,660 2016 16,771 2017 17,961 Thereafter 967,865

1,046,532 $


26

Note 13. Bond Payable

In January 2002, the Organization through 700 Prospect Corporation entered into a loan agreement with the County of Cuyahoga, Ohio (the Issuer) pursuant to which the Issuer agreed to loan the Organization through 700 Prospect Corporation the aggregate principal amount of $7,500,000 in connection with the issuance of the Issuer's Multi-Mode Variable Rate Civic Facility Revenue Bonds, Series 2002 with an interest rate of 1.3 percent at date of issue. The bonds require annual principal payments of $375,000 through April 2022. At December 31, 2012 and 2011, the outstanding balance on bonds amounted to $3,750,000 and $4,125,000, respectively. The bonds are guaranteed by a letter of credit from a bank that is collateralized by 700 Prospect Corporation's building. In addition, the bonds are guaranteed by the EC. A bank loan and payable to a related party were repaid in February 2002 with most of the bond proceeds. The remaining bond proceeds, after payment of bond issuance costs, may be used by 700 Prospect Corporation for general operating and maintenance purposes. The Organization maintains an interest rate risk management strategy that uses an interest rate swap derivative instrument to minimize significant, unanticipated earnings fluctuations caused by interest-rate volatility. The Organization's specific goal is to lower (where possible) the cost of its borrowed funds. On February 1, 2002, the Organization through 700 Prospect Corporation entered into an interest rate swap agreement on the bonds with KeyBank with an original notional amount of $7,500,000. At December 31, 2012 and 2011, the swap had a total notional amount of $3,750,000 and $4,125,000, respectively, which effectively changed the interest rate exposure on the variable term bonds from a rate considering prevailing financial market conditions for revenue bonds, 0.28% and 0.26% at December 31, 2012 and 2011, respectively, to a fixed rate of 4.17% less a variable rate of 70% of 1 month LIBOR, 0.15% and 0.19% at December 31, 2012 and 2011, respectively, through February 1, 2022. Amounts receivable or payable under the swap are settled by the parties monthly and recognized when incurred. The Organization is exposed to credit loss in the event of nonperformance by the counter party to the interest rate swap agreement. However, the Organization does not anticipate nonperformance by the counter party. Although the derivative is an interest rate hedge, the Organization has chosen not to account for the derivative as a “cash-flow” hedge instrument, as defined by FASB guidance, and therefore the gain or loss on the derivative is recognized as interest rate swap adjustment on the accompanying combined statements of activities and changes in net assets. 700 Prospect Corporation pays interest monthly on the outstanding principal balance of the bonds to the Bank of New York Mellon based on a variable weekly rate of interest. This weekly rate of interest is determined by the Remarketing Agent and was 0.28% and 0.26% at December 31, 2012 and 2011, respectively. Principal payments required under the loan agreement are: 2013 375,000 $ 2014 375,000 2015 375,000 2016 375,000 2017 375,000 Thereafter 1,875,000

3,750,000 $


27

Note 14. Accrued Pension and Other Post-Retirement Benefits

Defined Contribution Plan

Substantially all Organization employees are covered by a defined contribution retirement 403(b) pension plan administered by The Pension Boards - United Church of Christ, an Affiliated Ministry of the UCC. The plan is noncontributory, except for minor voluntary contributions made by certain employees. Employer contributions to the plan are 14 percent of employees' base annual salary. Upon attaining retirement eligibility, employees may select from several annuity options available for benefits. Retirement contribution expense was $1,131,196 and $1,180,471 for the years ended December 31, 2012 and 2011, respectively. The Organization's policy is to fund retirement plan expense as incurred. There were no unfunded liabilities under the plan at December 31, 2012 and 2011. WCM Defined Benefit Plan

WCM guarantees a minimum retirement income to certain overseas employees under a non-contributory defined benefit plan. WCM makes supplemental payments, as necessary, to make up any shortfall in benefits received by qualified overseas employees between the aggregate amount of Social Security and benefits under the 403(b) pension plan described above and the stipulated minimum retirement income amount guaranteed under this plan. The measurement date of this plan is December 31.

The net periodic benefit was $20,269 and $15,921 for the years ended December 31, 2012 and 2011, respectively. Benefits paid were $0 and $11,213 for the years ended December 31, 2012 and 2011, respectively. The minimum guaranteed benefit before offset is assumed not to increase for 2012 and 2011. The plan is no longer accepting participants and there are currently no participants accruing benefits. The total accrued postretirement cost accrued in the combined statements of financial position amounted to $4,542 and $11,911 for years ended December 31, 2012 and 2011, respectively.

WCM Post-Retirement Plan

WCM maintains a non-contributory medical plan for overseas personnel who retire with a minimum of 20 years of service. For such qualified retirees, WCM pays medical expenses during retirement after Medicare deductibles are satisfied. Benefits equal 80 percent of medical expenses for retirees with 20 to 24 years of service and 100 percent of medical expenses for retirees with 25 years or more of service.

The amounts reflected in the table below referenced as “Amounts not yet recognized in the Net Post Retirement Periodic Benefit Cost” represent prior service costs and actuarial losses that are being reclassified into the net periodic pension cost over the next 7 years and will reduce the future periodic benefit costs of WCM.


28

Note 14. Accrued Pension and Other Post-Retirement Benefits (Continued)

Benefits paid by the Organization were $334,949 for 2012 and $354,494 for 2011. The following summarizes the unfunded status of the plan at December 31:

2012 2011

Accumulated postretirement benefit obligation (3,498,750) $ (3,157,028) $ Plan assets

Unfunded status at December 31, (3,498,750) (3,157,028)

Unrecognized net transition obligation - - Unrecognized net loss - -

Total accrued postretirement cost accrued in the combined statements of financial position (3,498,750) $ (3,157,028) $

Amounts not yet recognized in the Net Post RetirementPeriodic Benefit Cost:

Unrecognized transition obligation 111,250 $ 333,750 $ Unrecognized net loss 874,845 351,319

986,095 $ 685,069 $

Components of net periodic pension cost: Interest cost 148,489 $ 172,569 $ Amortization of net loss 4,656 46,191 Amortization of unrecognized net transition obligation 222,500 222,500

Net periodic postretirement cost 375,645 $ 441,260 $

Net loss (gain) and net transition obligation recognized in the combined statement of activities and changes in net assets:

Net gains arising during current period 528,182 $ (324,504) $ Amounts reclassified as components of Net Periodic

Benefit Cost:Amortization of net loss (4,656) (46,191) Amortization of unrecognized net transition obligation (222,500) (222,500)

301,026 $ (593,195) $

Estimated amounts to be recognized in the next fiscal year:Amortization of net loss 72,012 $ 4,656 $ Amortization of unrecognized net transition obligation 111,250 222,500

The weighted-average assumptions as of December 31, 2012 are as follows:

Discount rate 3.0% in 2012 and 5.0% in 2011 Health care cost trend rate 6.76% decreasing to 5% in 2017

A 1% increase in the health care cost trend rate assumption would increase the liability by $216,487 on the amounts reported. A 1% decrease in the health care cost trend rate assumption would decrease the liability by $196,416 on the amounts reported.


29

Note 14. Accrued Pension and Other Post-Retirement Benefits (Continued)

Contributions are made only to pay benefits. As such, the expected contributions to the plan are equal to the expected future benefit payments. The benefits expected to be paid over each of the next five years and in the aggregate five years thereafter are as follows:

ExpectedPlan Year Benefit Payment

2013 389,914 $ 2014 377,631 2015 631,726 2016 342,648 2017 320,652 2018-2022 1,254,152

Note 15. Other Accrued Liabilities

Other accrued liabilities consist of the following as of December 31:


Funding for new and

renewing congregations -$ -$ -$ 557,724 $ -$ -$ 557,724 $

Other accrued expenses 289,260 74,101 27,897 273,709 458,776 28,569 1,152,312

MAD! conference

payable 280,849 280,849

Overseas field offices - 30,106 30,106

Income distributions - 2,315 2,315

Haiti earthquake

commitments - 489,752 489,752 Royalties - 49,449 49,449

Total other accrued

liabilities 570,109 $ 74,101 $ 27,897 $ 880,882 $ 980,949 $ 28,569 $ 2,562,507 $

2012


Funding for new and

renewing congregations -$ -$ -$ 520,959 $ -$ -$ 520,959 $

Other accrued expenses 368,460 65,467 5,226 322,277 435,383 96,198 1,293,011

MAD! conference

payable 288,049 288,049

Overseas field offices - 133,221 133,221

Income distributions - 2,315 2,315

Haiti earthquake

commitments - 1,080,500 1,080,500

Spring Storm

commitments - 99,200 99,200 Royalties - 65,914 65,914

Total other accrued

liabilities 656,509 $ 65,467 $ 5,226 $ 909,150 $ 1,750,619 $ 96,198 $ 3,483,169 $

2011


30

Note 16. Other Liabilities

Other liabilities consist of the following as of December 31:


Deferred revenue 296,027$ 13,886$ 1,421$ -$ -$ -$ 311,334$ Segregated reserves:

Conditional gifts - 91,318 91,318 Planned Giving program - 1,000,000 1,000,000

Interest rate swap obligation - 598,608 598,608 Total 296,027$ 13,886$ 1,421$ 91,318$ 1,000,000$ 598,608$ 2,001,260$


Deferred revenue -$ 31,523$ 910$ -$ -$ -$ 32,433$ Segregated reserves:

Conditional gifts - 101,788 101,788 Planned Giving program - 1,000,000 1,000,000

Interest rate swap obligation - 659,736 659,736 Total -$ 31,523$ 910$ 101,788$ 1,000,000$ 659,736$ 1,793,957$

2012

2011

Note 17. Temporarily and Permanently Restricted Net Assets

Temporarily and permanently restricted net assets are available for the following donor restricted purposes at December 31:

EC OGM JWM LCM WCM TotalMission:

Temporarily restricted 1,957,845 $ 283,160 $ 1,248,041 $ 56,332,222 $ 60,289,769 $ 120,111,037 $ Permanently restricted - 677,409 18,071,607 23,399,215 42,148,231

Service:Temporarily restricted - 10,341,104 3,350,986 13,692,090 Permanently restricted - 3,270,136 598,880 3,869,016

Make a Difference! Initiatives:Temporarily restricted 2,371,299 2,371,299 Permanently restricted 4,722,669 4,722,669

Other:Temporarily restricted - 324,995 324,995 Permanently restricted - 46,849 46,849

Total 9,051,813 $ 283,160 $ 1,925,450 $ 88,386,913 $ 87,638,850 $ 187,286,186 $

Temporarily restricted 4,329,144 $ 283,160 $ 1,248,041 $ 66,998,321 $ 63,640,755 $ 136,499,421 $

Permanently restricted 4,722,669 $ -$ 677,409 $ 21,388,592 $ 23,998,095 $ 50,786,765 $

2012


31

Note 17. Temporarily and Permanently Restricted Net Assets (Continued)


Mission:


Permanently restricted - 630,904 17,961,030 22,763,278 41,355,212

Service:

Temporarily restricted - 9,418,672 5,306,367 14,725,039

Permanently restricted - 3,263,130 496,373 3,759,503

Make a Difference! Initiatives:

Temporarily restricted 1,841,277 1,841,277

Permanently restricted 4,722,669 4,722,669

Other:

Temporarily restricted - 331,863 331,863

Permanently restricted - 47,849 47,849

Total 8,543,390 $ 339,626 $ 1,953,046 $ 82,846,778 $ 80,048,645 $ 173,731,485 $


Permanently restricted 4,722,669 $ -$ 630,904 $ 21,272,009 $ 23,259,651 $ 49,885,233 $

2011

Release of temporarily restricted net assets occurred during 2012 and 2011 as follows:

2012 2011

Satisfaction of program restrictions 8,297,646 $ 8,416,315 $ Release of endowment income 1,480,247 1,620,074 Satisfaction of time restrictions 270 14,879

Total 9,778,163 $ 10,051,268 $

Included in permanently restricted net assets are the beneficial interest in trusts held by others. These funds are held in perpetuity by outside trustees. The Organization has no control of the assets or the investment of assets. The Organization is named as the irrevocable beneficiary and has recorded the beneficial interest of funds held by others at the estimated fair value of the assets, or at the present value of the future cash flows when an irrevocable trust is established or the Organization is notified of its existence. The fair value of the beneficial interest of funds held in trust at December 31, 2012 and 2011 was $12,639,860 and $11,898,008, respectively.

Note 18. Endowment Funds

The Organization’s endowments consist of approximately 1,100 donor restricted endowment funds established for a variety of purposes. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence of donor-imposed restrictions.


32

Note 18. Endowment Funds (Continued)

Interpretation of relevant law: The Massachusetts’ version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) is applicable to Wider Church Ministries and the Ohio version is applicable to all other ministries. The Boards of Directors of the Covenanted Ministries and the Executive Council have interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net 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 portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets will be classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard prudence prescribed by UPMIFA. In accordance with UPMIFA, the Organization will consider the following factors in making a determination to appropriate or accumulate donor restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and appreciation of investments (6) Other resources of the Organization (7) The investment policies of the Organization Funds with deficiencies: From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the Organization to retain as a fund of perpetual duration. In accordance with generally accepted accounting principles, deficiencies of this nature that are reported in unrestricted net assets were $966,356 and $1,671,566 as of December 31, 2012 and 2011, respectively. Return objectives and risk parameters: The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Organization must hold in perpetuity. Under this policy, as approved by the Board of Directors, the endowment assets are invested in a manner that is intended to grow in excess of the spending rate in a conservative manner. Strategies employed for achieving objectives: To satisfy its long-term rate-of-return objectives, the Organization relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Organization targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending policy and how the investment objectives relate to spending policy: All of the Boards of Directors of the Covenanted Ministries have adopted a policy of appropriating for distribution each year a percentage of the moving three (3) or six (6) year average value of the endowment, as determined in the last quarter of the current fiscal year, and will be incorporated in the following year’s distribution as income available to programs. The percentages, as determined by each individual Board range from 4 to 5 percent, unless deemed prudent by the Board to spend a different amount in order to meet its budgetary commitments. In establishing this policy the Boards of Directors considered the long-term expected return on their endowments. Accordingly, over the long term, the Boards expect the current spending policy to allow their endowments to grow at an average of 2.5 to 3.5 percent annually. This is consistent with the Organization’s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return.


33

Note 18. Endowment Funds (Continued)

Endowment net asset composition by type of fund as of December 31:

Temporarily PermanentlyUnrestricted Restricted Restricted Total

Donor restricted endowment funds -$ 120,140,685 $ 38,146,905 $ 158,287,590 $ Funds functioning as endowment 89,611,555 89,611,555

Total endowment funds 89,611,555 $ 120,140,685 $ 38,146,905 $ 247,899,145 $


Donor restricted endowment funds -$ 110,407,832 $ 38,181,685 $ 148,589,517 $ Funds functioning as endowment 83,543,174 83,543,174

Total endowment funds 83,543,174 $ 110,407,832 $ 38,181,685 $ 232,132,691 $

2012

2011

Changes in endowment net assets for the years ended December 31:


Endowment assets, December 31, 2010 86,916,089 $ 121,831,501 $ 37,490,513 $ 246,238,103 $ Reclassification 3,827,123 (3,827,123) - Contributions/transfers in 560,388 1,385 691,172 1,252,945 Income earned on investments 1,238,691 2,831,785 4,070,476 Net realized gains on investments sold 8,299,215 23,983,219 32,282,434 Unrealized depreciation on investments (10,680,633) (27,870,735) (38,551,368) Endowment assets released from

restrictions - (1,873,125) (1,873,125) Expenditure of board designated

endowments (3,212,124) (3,212,124) Total return draw (3,405,575) (4,669,075) (8,074,650) Net change (3,372,915) (11,423,669) 691,172 (14,105,412)

Endowment assets, December 31, 2011 83,543,174 110,407,832 38,181,685 232,132,691 Reclassification 3,609,617 (3,402,478) (207,139) - Contributions/transfers in 776,459 1,001,354 172,359 1,950,172 Income earned on investments 1,425,454 2,421,394 3,846,848 Net realized gains on investments sold 1,016,509 786,166 1,802,675 Unrealized appreciation on investments 7,758,392 14,879,978 22,638,370 Endowment assets released from

restrictions - (1,536,214) (1,536,214) Expenditure of board designated

endowments (5,276,110) (5,276,110) Total return draw (3,241,940) (4,417,347) (7,659,287) Net change 6,068,381 9,732,853 (34,780) 15,766,454

Endowment assets, December 31, 2012 89,611,555 $ 120,140,685 $ 38,146,905 $ 247,899,145 $


34

Note 19. Leases

The Organization leases land and buildings to UCC churches under noncancelable operating leases. One lease agreement requires monthly payments through December 2014 and has an optional one year renewal term. The lease was modified in January 2013. Monthly lease payments for 2013 are $5,500. Starting in 2014 the payments increase to $5,700. The lease expires in December 2015. As part of the lease agreement, the lessee has the option to purchase the property at a price mutually agreed upon by the Organization and the tenant. Payments received by the Organization will be recorded as rental income. The other lease agreement calls for monthly payments of $1,000 through September 2013 then payments of $1,200 through September 2014 with an option for a one year renewal. Future minimum rent to be received under these noncancelable leases is as follows: 2013 78,800 $ 2014 79,200 2015 68,400

Total 226,400 $

The Organization leases facilities and equipment under operating leases expiring from 2015 to 2017. At December 31, 2012, future minimum rental payments required under non-cancelable operating leases in excess of one year are: 2013 207,114 $ 2014 211,941 2015 157,042 2016 20,616 2017 13,744

Total 610,457 $

Total rental expense for all operating leases was $250,642 and $244,693 for 2012 and 2011, respectively.


35

Note 20. Functional Expenses - Operating Activity

Years Ended December 31,2012 2011

Program Services ExpensesEC:

Our Church's Wider Mission 2,207,961 $ 2,072,438 $ General Synod - 1,398,554 Make a Difference! 105,159 142,357

2,313,120 3,613,349 OGM:

Proclamation, Identity and Communications 1,574,526 1,481,813 Covenantal Relations and other program expenses 360,370 363,234 Research 231,323 237,535

2,166,219 2,082,582 JWM:

Franklinton Center 806,730 716,808 Human Rights 711,409 635,793 Economic Justice 668,396 484,319 Public Life and Social Policy 600,109 667,201 Other program expenses 503,481 548,302 Racial Justice 155,011 208,283

3,445,136 3,260,706 LCM:

Congregational Vitality and Discipleship 3,068,827 3,002,130 Pilgrim Press and United Church Resources 2,149,904 2,225,076 Church Building 1,322,334 1,274,853 Ministerial Excellence, Support and Authorization 1,059,184 1,413,483 Other program expenses 683,356 813,545 Executive Minister Grants 435,426 591,821

8,719,031 9,320,908 WCM:

Overseas Personnel and Programs 7,334,286 6,513,761 Global Sharing of Resources 2,447,739 3,500,309 Other program expenses 867,550 874,113 Local Church Relations 165,777 180,299

10,815,352 11,068,482 Less: Elimination (1,191,445) (1,299,753)

Total program services expenses 26,267,413 28,046,274

Management and General Expenses 7,081,156 6,904,746

Less: elimination (1,477,026) (1,485,573) 5,604,130 5,419,173

Fundraising Expenses 2,194,552 3,187,985 Less: elimination (64,042) (71,020)

2,130,510 3,116,965 Total expenses 34,002,053 $ 36,582,412 $

Supplementary Information

36


Details of Combined Statement of Financial Position Office of Justice and

December 31, 2012 Executive General Witness Local Church Wider ChurchCouncil Ministries Ministries Ministries Ministries 700 Prospect Total

AssetsCash and cash equivalents 4,780,370 $ (2,423,571) $ (775,309) $ 1,644,964 $ 1,706,021 $ 312,551 $ 5,245,026 $ Investments 8,727,316 10,960,267 25,087,392 130,206,944 101,291,814 276,273,733 Receivables

Church building loans, net - 28,898,712 28,898,712 Support, net 3,175,048 3,175,048 Property sale, net - 3,276,764 3,276,764 Other 297,178 98,785 238,792 854,684 3,910,720 31 5,400,190

Publications inventory - 695,842 695,842 Prepaid expenses and other assets 203,183 192,182 23,877 243,176 76,920 97,421 836,759 Beneficial interest in trusts held by others - 677,409 3,527,691 8,434,760 12,639,860 Property and equipment, net - 160,529 1,276,918 9,899,363 5,266,686 16,603,496

Total assets 17,183,095 $ 8,988,192 $ 26,529,079 $ 175,971,376 $ 118,696,999 $ 5,676,689 $ 353,045,430 $

Liabilities and Net AssetsLine of credit 4,500,000 $ -$ -$ -$ -$ -$ 4,500,000 $ UCC Cornerstone Fund loan payable - 1,046,532 1,046,532 Accounts payable 17,082 231,272 24,034 140,676 135,010 32,511 580,585 Accrued pension and other post-retirement benefits - 3,503,292 3,503,292 Other accrued liabilities 570,109 74,101 27,897 880,882 980,949 28,569 2,562,507 Funds held for others - 35,801 985,937 1,599,560 2,621,298 Other liabilities 296,027 13,886 1,421 91,318 1,000,000 598,608 2,001,260 Bond payable - 3,750,000 3,750,000

Total liabilities 5,383,218 355,060 1,099,884 2,098,813 7,218,811 4,409,688 20,565,474

Net AssetsUnrestricted 2,748,064 8,349,972 23,503,745 85,485,650 23,839,338 1,267,001 145,193,770 Donor restricted

Temporarily 4,329,144 283,160 1,248,041 66,998,321 63,640,755 136,499,421 Permanently 4,722,669 677,409 21,388,592 23,998,095 50,786,765

Total net assets 11,799,877 8,633,132 25,429,195 173,872,563 111,478,188 1,267,001 332,479,956

Total liabilities and net assets 17,183,095 $ 8,988,192 $ 26,529,079 $ 175,971,376 $ 118,696,999 $ 5,676,689 $ 353,045,430 $

37


Details of Combined Statement of Activities and Changes in Net AssetsYear Ended December 31, 2012

INTER-MINISTRY700 PROSPECT ELIMINATIONS

Temporarily Permanently Temporarily Permanently Temporarily Permanently Temporarily Permanently Temporarily Permanently Temporarily PermanentlyUnrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Unrestricted Unrestricted Restricted Restricted Total

Operating Revenues and SupportOur Church's Wider Mission:

Basic support 1,578,216 $ -$ -$ 1,578,216 $ 1,857,215 $ -$ -$ 1,857,215 $ 1,069,720 $ -$ -$ 1,069,720 $ 1,770,114 $ -$ -$ 1,770,114 $ 1,198,122 $ -$ -$ 1,198,122 $ -$ -$ 7,473,387 $ -$ -$ 7,473,387 $ Special support - 1,560,856 1,560,856 23,111 23,111 768,628 768,628 210,149 210,149 2,504,369 2,504,369 (978,067) 23,111 4,065,935 - 4,089,046

Gifts and donations 47,341 47,341 69,800 3,136 72,936 186,547 64,967 251,514 274,333 97,130 371,463 633,031 633,031 (39,418) 1,171,634 165,233 - 1,336,867 Other revenues:

Publications and other resource sales - - 353,796 353,796 34,326 34,326 1,661,895 1,661,895 1,896 1,896 (15,611) 2,036,302 - - 2,036,302 Total return draw - - 666,708 666,708 1,208,376 1,208,376 3,326,736 3,326,736 2,457,456 2,457,456 7,659,276 - - 7,659,276 Management fees and other reimbursements - 30,816 30,816 186,029 186,029 - 422,234 422,234 1,106,535 169,774 1,276,309 (368,754) 1,346,044 200,590 - 1,546,634 Church loan interest - - - - 1,487,777 1,487,777 - 1,487,777 - - 1,487,777 Other 597 597 129,760 129,760 151,561 151,561 1,002,645 (7,160) 995,485 39,046 39,046 1,477,568 (1,330,663) 1,470,514 (7,160) - 1,463,354

Net assets released from restrictions - unrestricted 1,675,197 1,675,197 77,428 77,428 957,223 957,223 1,155,776 1,155,776 6,890,606 6,890,606 (978,067) 9,778,163 - - 9,778,163 Net assets released from restrictions - temporarily restricted (1,675,197) (1,675,197) (77,428) (77,428) (957,223) (957,223) (1,155,776) (1,155,776) (6,890,606) (6,890,606) 978,067 - (9,778,163) - (9,778,163)

Total operating revenues and support 3,301,351 (83,525) 3,217,826 3,363,847 (74,292) 3,289,555 3,607,753 (123,628) 3,484,125 11,101,510 (855,657) 10,245,853 12,326,692 (4,216,463) 8,110,229 1,477,568 (2,732,513) 32,446,208 (5,353,565) - 27,092,643

Operating ExpensesProgram services 2,313,120 2,313,120 2,166,219 2,166,219 3,445,136 3,445,136 8,719,031 8,719,031 10,815,352 10,815,352 (1,191,445) 26,267,413 - 26,267,413 Management and general 579,743 579,743 1,425,070 1,425,070 825,244 825,244 1,215,716 1,215,716 1,656,208 1,656,208 1,379,175 (1,477,026) 5,604,130 - 5,604,130 Fundraising 170,974 170,974 837,087 837,087 194,109 194,109 541,045 541,045 451,337 451,337 (64,042) 2,130,510 - 2,130,510

Total operating expenses 3,063,837 3,063,837 4,428,376 4,428,376 4,464,489 4,464,489 10,475,792 10,475,792 12,922,897 12,922,897 1,379,175 (2,732,513) 34,002,053 - - 34,002,053

Increase (decrease) from operating activity 237,514 (83,525) 153,989 (1,064,529) (74,292) (1,138,821) (856,736) (123,628) (980,364) 625,718 (855,657) (229,939) (596,205) (4,216,463) (4,812,668) 98,393 - (1,555,845) (5,353,565) - (6,909,410)

Non-operating revenues and supportGifts and donations - - - 10,822 10,822 1,755,639 4,034,957 148,858 5,939,454 1,755,639 4,034,957 159,680 5,950,276 Interest and dividends net of total return draw 38,935 87,291 126,226 (445,099) 1,492 (443,607) (748,366) (748,366) 213,286 (1,437,049) (1,223,763) (520,366) (528,214) (1,048,580) (1,461,610) (1,876,480) - (3,338,090) Net appreciation in value of investments 259,571 506,056 765,627 1,322,342 16,108 1,338,450 2,619,677 28,909 2,648,586 4,107,750 7,686,644 11,794,394 1,400,910 7,533,982 8,934,892 9,710,250 15,771,699 - 25,481,949 Hotel Venture, LLC operations, net - - - - (126,599) (126,599) - (126,599) - - (126,599) Change in value of beneficial interest in trusts held by others - - - 46,505 46,505 105,761 105,761 589,586 589,586 - - 741,852 741,852 Change in value of split interest agreements - (1,399) (1,399) 226 226 20,618 20,618 29,614 29,614 27,499 27,499 - 76,558 - 76,558

Total non-operating revenues and support 298,506 591,948 890,454 877,243 17,826 895,069 1,871,311 49,527 46,505 1,967,343 4,194,437 6,279,209 116,583 10,590,229 2,636,183 11,068,224 738,444 14,442,851 - - 9,877,680 18,006,734 901,532 28,785,946

Increase (decrease) in net assets before the effect of the interest rate swap adjustment and postretirement cost 536,020 508,423 1,044,443 (187,286) (56,466) (243,752) 1,014,575 (74,101) 46,505 986,979 4,820,155 5,423,552 116,583 10,360,290 2,039,978 6,851,761 738,444 9,630,183 98,393 - 8,321,835 12,653,169 901,532 21,876,536

Interest rate swap adjustment - - - - - - 61,128 61,128 61,128

Postretirement related changes other then net periodicpostretirement cost - - - - - (313,926) (313,926) - - (313,926) - - (313,926)

Increase (decrease) in net assets 536,020 508,423 - 1,044,443 (187,286) (56,466) - (243,752) 1,014,575 (74,101) 46,505 986,979 4,820,155 5,423,552 116,583 10,360,290 1,726,052 6,851,761 738,444 9,316,257 159,521 - 8,069,037 12,653,169 901,532 21,623,738

Net assets - beginning of year 2,212,044 3,613,582 4,929,808 10,755,434 8,537,258 339,626 - 8,876,884 22,489,170 1,322,142 630,904 24,442,216 80,665,495 61,574,769 21,272,009 163,512,273 22,113,286 56,788,994 23,259,651 102,161,931 1,107,480 - 137,124,733 123,639,113 50,092,372 310,856,218

Reclassification of net assets - other - 207,139 (207,139) - - - - - - 207,139 (207,139) -

Adjusted net assets - beginning of year 2,212,044 3,820,721 4,722,669 10,755,434 8,537,258 339,626 - 8,876,884 22,489,170 1,322,142 630,904 24,442,216 80,665,495 61,574,769 21,272,009 163,512,273 22,113,286 56,788,994 23,259,651 102,161,931 1,107,480 - 137,124,733 123,846,252 49,885,233 310,856,218

Net assets - end of year 2,748,064 $ 4,329,144 $ 4,722,669 $ 11,799,877 $ 8,349,972 $ 283,160 $ -$ 8,633,132 $ 23,503,745 $ 1,248,041 $ 677,409 $ 25,429,195 $ 85,485,650 $ 66,998,321 $ 21,388,592 $ 173,872,563 $ 23,839,338 $ 63,640,755 $ 23,998,095 $ 111,478,188 $ 1,267,001 $ -$ 145,193,770 $ 136,499,421 $ 50,786,765 $ 332,479,956 $

(1) Note: The Pension Boards receive 6.15% of Our Church's Wider Mission.

EXECUTIVE COUNCIL OFFICE OF GENERAL MINISTRIES TOTALLOCAL CHURCH MINISTRIESJUSTICE AND WITNESS MINISTRIES WIDER CHURCH MINISTRIES

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