Taking Comfort in Our Faith, Mission

LCEF is committed to professional and prudent management, with a ministry heart, as we protect investors' interests and remain a vital partner to the Lutheran Church—Missouri Synod (LCMS) for loans and ministry services. While the extended economic recession, the downturn in the real estate markets and volatility of the equity markets are challenging, we remain well-capitalized with a strong liquidity position. The debt crisis in Europe and the recent downgrade in the United States' credit rating by Standard & Poor's, while of deep concern to us all, will not directly impact our ability to serve our investors and LCMS partners.

As you would expect, we carefully watch events such as these. However, we never lose sight of our mission: serving the LCMS for this and upcoming generations of faithful Christians. We recognize the importance of maintaining our capital strength in order to provide opportunities for ministries.

LCEF's strength is based on the balance we maintain between loans and investment dollars. Even in light of economic conditions, investments in LCEF remain steady and we have funds available for loans to churches, schools, universities and seminaries, as well as rostered church workers. We have been blessed with borrowers that continue their financial commitment to LCEF. Nearly 96% of borrowers continue to make timely payments within the terms of their loan agreements even in these challenging times.

LCEF continually monitors how best to strengthen our stewardship of resources. We have taken specific actions to maintain our financial strength and ability to meet the mission. Some important points for you to know:

• Our total assets in fiscal 2011 (July 1, 2010 through June 30, 2011) were $1.84 billion, with net assets at $162 million.
• The capital-to-asset ratio improved in fiscal 2011 to 10.42% (inclusive of our loan-loss reserve) from 10.17% in fiscal 2010. Well-capitalized banks typically maintain capital-to-asset ratios of 9% while we strive to maintain a ratio of around 11%.
• Loan delinquency rates are well below the national average. LCEF's loan delinquency rate in fiscal 2011 decreased to 3.88% compared to the delinquency rate of 7.24% in fiscal 2010. Just as other financial institutions that hold mortgages, LCEF has increased its loan-loss reserves. We work with ministries that are having difficulty making their debt payments and resolve to keep them focused on serving their community while maintaining their commitment.
• LCEF's operating income improved in fiscal 2011, totaling $7.8 million. Through cost savings and improved efficiencies, LCEF was able to limit operating expense increases this year.
• LCEF has a small portion of funds set aside for investment. Conservatively invested, the portfolio consists mostly of high-quality fixed-income assets to limit risk and realize a consistent return. In 2011, LCEF moved a minimal amount into equities, representing just 1.2% ($21.6 million) of the total invested portfolio.

We stay prepared as best we can, but know that God has great plans for us as long as we stay true to His Word. We keep all of our country's leaders in our prayers for the best outcomes we as humans can bring about.