LCMS Convention Workbook St. Louis, Missouri — 2010, Page 78

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78

SYNOD REPORTS

ing this period, thus providing more thorough, integrated advice and
assistance.
In 2007, LCEF partnered with several outside funding sources
to find ways to help large schools refinance their mortgage at even
lower rates through tax-exempt bond funding. Partnering with two
state-financing agencies—the Missouri Health and Educational
Facilities Authority and the Colorado Educational and Cultural
Facilities Authority—LCEF was able to provide LCMS schools with
tax-exempt financing, resulting in loan rates at a net savings for our
schools of up to 1.5%. These savings allow the ministries to use those
valuable dollars for mission and ministry outreach.
2007–8

In 2008, LCEF celebrated 30 years of incorporation, a result of
many people dedicating themselves to serving God’s plan for more
than 100 years through church extension and ensuring it will serve
on for eternity.
In 2008, LCEF increased its emphasis on partnerships that expand
ministry opportunities. Though there were many challenges within
the economy, financial and real estate markets, and loan and housing industries, LCEF’s mission statement remained at the heart of all
decisions, allowing God’s light to lead the way. By remaining conservative stewards of the assets entrusted to the mission, LCEF was
able to support His work in many ways, such as
•		approving a loan to the Evangelical Lutheran Church of Latvia,
which previously operated for decades under Soviet rule;
•		assisting additional Lutheran schools to gain money-saving
tax-exempt financing;
•		growing the rostered church worker loan program and loan
options;
•		increasing the Capital Funding Services capabilities to meet
the needs of churches; and
•		offering new investment options that promote good stewardship and provide needed loan funds at the same time.
New investment opportunities were introduced to expand participation and partnership among LCMS members. The Family
Emergency StewardAccount®, which helps investors set aside funds
for unexpected needs, and the FlexPlus Health Savings Account
(HSA), for use with qualified high-deductible health plans, provides
investors products that address changes in personal finance.
Ministry Services supported the church-planting initiative and
church revitalization efforts of the LCMS by underwriting the
Strategic Ministry Planning process and demographic analysis for
selected Ablaze! Covenant Congregations. These complimentary
services provided vital assistance to the missions as they strove to
establish their ministry vision and reach more people.
Working with the Synod to help Lutheran schools remain healthy,
LCEF introduced LCEF Marketing Resources (www.lcefmarketing.
com) in fiscal 2009, an online source for branded direct-marketing
and communication materials for schools of all levels. This is an
extension of the Neighbor-to-Neighbor Mailing List service offered
by Demographic Services, and it efficiently answers the question
many schools had of what to mail/distribute in recruitment and retention efforts. These materials establish a professional brand image at
a reasonable price.
In spite of the economic downturn, LCEF continued to maintain a
strong capital position to support growth and operations and provide
investor protection. The liquidity position remained robust, with an
investment portfolio in excess of $300 million in marketable securi-

ties and line-of-credit arrangements totaling $100 million. Total assets
at the end of fiscal 2008 were more than $1.8 billion.
Subprime mortgages were a constant source of national news during this period. LCEF, however, was not negatively impacted by direct
investments in these products. LCEF’s loan portfolio—mostly comprised of loans to congregations and other ministries—experienced
a slight rise in the loan delinquency rate, but there were few foreclosures and minimal write-offs. LCEF did experience losses during
fiscal year 2008 due to falling property values on real estate securing certain loans. These losses were fully provided for in year-end
financials, with LCEF’s net income—after the reserves for real estate
collateral were covered—totaling $2.9 million.
LCEF works with outside professional financial advisors to
construct and maintain a diversified, conservative, and prudent investment portfolio. LCEF had no direct investment and minimal indirect
investment in the financial firms that failed late in 2008. LCEF did
hold Fannie Mae and Freddie Mac fixed-income securities, but they
were backed by the federal government and did not expose LCEF to
financial losses. During calendar 2008 and early 2009, the majority of the investment portfolio was in fixed-income investments
with a smaller amount invested in a diversified portfolio of equities.
Since LCEF is required to record its investments at market value on
a month-end basis, LCEF’s financial statements reflect values in both
volatile and stable market conditions.
2008–9

The extended economic recession and downturn in the equity and
real estate markets impacted the financial condition of LCEF in fiscal 2009. However, steps were taken to improve LCEF’s financial
position, reduce risk, and ensure the availability of its services and
loan funds.
LCEF experienced strong operating income in fiscal year 2009
and into the beginning of fiscal 2010, driven by an increase in net
interest income that was the result of falling interest costs on investor
payables. The economic downturn, however, impacted the cash flow
of some of the congregations and schools borrowing from LCEF. As a
result, loan delinquencies increased to 6.4% from 2.7%. In addition,
impaired loans (defined as a loan placed on nonaccrual status or with
restructured terms) increased to $63 million of the $1.5 billion loan
portfolio as of June 30, 2009. To accommodate this impact, LCEF
increased its provision for loan losses to $6.8 million. Consistent
with our mission of being a ministry partner, LCEF works closely
with organizations to assist them in addressing their financial concerns and to keep loans current. At fiscal 2009 year-end, the total
operating income totaled $4.6 million, an increase of $2.6 million
compared to the prior year.
Due to the substantial downturn in the equity markets, LCEF experienced net investment losses totaling $28.9 million, or 10.6% of
LCEF’s average investment balance. With declining real estate values, LCEF recorded net losses resulting from updated real estate
valuations and foreclosed assets totaling $1.4 million. The positive
operating income described above was offset by these losses, resulting in a total net loss for the fiscal year of $24.8 million.
LCEF deemed it prudent to reduce risk in light of these major
economic issues and to accommodate the increasing rate of loan delinquencies. The investment portfolio was reallocated to include only
conservative, fixed-income investments. This change in investment
strategy realized a substantial portion of the 10.6% in investment
losses described above.
Since LCEF’s ability to meet future loan demand is contingent on
its capital strength and liquidity, gifting opportunities were used to

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