The Episcopal Theological Seminary of the Southwest (the Seminary), is a nonprofit organization incorporated in the State of Texas on 2 April 1952. The purpose of the Seminary is to form men and women for their service of Christ in lay and ordained ministry and the larger society through a comprehensive program of theological education, training, and clinical professional counseling. The Seminary is supported by contributions and foundation support, investment income, oil and gas royalties, rental income, and student tuition. The Seminary is located in Austin, Texas.
BASIS OF ACCOUNTING The Seminary uses the accrual basis of accounting. Revenues are recognized when earned regardless of when received. Expenses are recognized when incurred regardless of when paid. FINANCIAL STATEMENT PRESENTATION Net assets are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Net Assets Without Donor Restrictions Net assets available for use in general operations and not subject to donor restrictions. The Board has designated, from net assets without donor restrictions, funds for maintenance and the Iona center. Net Assets With Donor Restrictions Net assets subject to donor-imposed restrictions. Some donor restrictions are temporary in nature, such as those that will be met by the passage of time or other events specified by the donor. Other donor-imposed restrictions are perpetual in nature, where the donor stipulates that resources be maintained in perpetuity. Donor-imposed restrictions are released when a restriction expires, that is when the stipulated time has elapsed, when the stipulated purpose for which the resource was restricted has been fulfilled, or both. SUBSEQUENT EVENTS The Seminary has evaluated subsequent events through the date of the Independent Auditor’s Report, the date the financial statements were available to be issued. INVESTMENTS Investments are stated at their readily determinable fair values in the statement of financial position. Unrealized gains and losses are included in the change in net assets. FUNCTIONAL ALLOCATION OF EXPENSES The financial statements report certain categories of expenses that are attributed to more than one program or supporting function. Therefore, expenses require allocation on a reasonable basis that is consistently applied. The estimates are reviewed periodically and the allocations revised, if necessary, 7 to reflect changes in the activities of the organization. The expenses that are allocated are payroll, group insurance, pension, depreciation, bank and investment fees, computer, repairs and maintenance, travel, workgrants, property insurance, food services, telephone/internet, trustee fees, entertainment, professional development, events, dues, and other which are allocated based on time spent on each area as estimated by management. Utilities are allocated based on square footage of the areas used for each function. INVENTORY Bookstore inventory is reported at the lower of cost or net realizable value determined by the average cost method of accounting. FIXED ASSETS Fixed assets are recorded at cost at the date of purchase. Donations of fixed assets are recorded as contributions at their estimated fair value. Such donations are reported as contributions without donor restrictions unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as contributions with donor restrictions. The Seminary reports expirations of donor restrictions when donated assets are placed into service. The Seminary reclassifies net assets with donor restrictions to net assets without donor restrictions at that time. Depreciation expense is provided by the straight-line method over the estimated useful lives of the various assets ranging from 3 to 65 years. ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE Contributions and pledges received are recorded as either donor restricted or unrestricted support depending on the existence or nature of any donor restrictions. As donor or time restrictions are satisfied net assets are reclassified to net assets without donor restrictions. The Seminary’s policy is to report restricted support that is satisfied in the year of the receipt first as donor restricted and then reclassify to net assets without donor restrictions. Contributions are recorded as revenue when the pledge is received. The allowance for uncollectible pledges is based on management’s evaluation of potential uncollectible pledges receivable. Pledges due within one year are recorded at their net realizable value. Pledges that are expected to be collected in future years are recorded at the present value of the expected future cash flows. TUITION REVENUE Tuition is earned based upon each student’s progression throughout the course for which that student is enrolled. When a student begins a course of study a receivable is recorded as education services are provided. After the add/drop date, a contract receivable is recorded for the total remaining tuition with a corresponding amount of unearned tuition (contract liability). Tuition is typically due at the beginning of each academic semester. The performance obligation of delivering educational services 8 is simultaneously received and consumed by the students, therefore the revenue is recognized ratably over the academic year. All amounts received prior to the commencement of the academic year are deferred to the applicable period. Scholarships provided to students are recorded as a reduction from the posted tuition at the time revenue is recognized. There is no significant financing component because payments are typically received within one year. Tuition is also received through governmental financial aid through the Department of Education (ED) Federal Student Loan program. The Seminary receives tuition payments through reimbursements against a student’s financial aid from ED. DEFERRED REVENUE Certain tuition and fees attributable to the next year were received in the current year. Such revenue is deferred to more accurately match revenues in the correct accounting period to which they relate. FEDERAL INCOME TAXES The Seminary is exempt from Federal income taxes under IRS Code Section 501(c)(3), except to the extent it has unrelated business activities. The Seminary is subject to income tax on income from limited partnership investment holdings, which is considered unrelated trade or business income. Due to immaterial taxes owed, no accrual of income taxes is reported in these financial statements.
Due within one year $2,443,067 Due in one to five years 4,380,711 6,823,778 Less 1.5% - 7.04% discount on long term pledges (826,286) Less allowance on uncollectible pledges (80,252) $5,917,240
The Seminary had cash balances of $12,814,615 in excess of FDIC coverage at 31 May 2025. Additionally, the Seminary had investment balances of $46,534,688 in unsecured brokerage accounts at 31 May 2025. 77% of outstanding pledges receivable was due from three donors at 31 May 2025.
The Seminary owns mineral interests in approximately 542 real properties managed by Bank of America Specialty Asset Management (BOASAM), 182 of which are producing properties. The Seminary’s mineral properties and royalty interests have a current market value (CMV) of $2,726,271 at fiscal year end. CMV is calculated by BOASAM as the total of the last 60 months’ royalty revenues plus $100 per producing mineral property. BOASAM does not warrant the accuracy of this valuation and shall not be liable for its use by other parties. No studies have been performed to evaluate the depletion and remaining production of these mineral properties. The CMV is not reflective of the actual fair market value (FMV) of the Seminary’s mineral properties, as the FMV can only be determined by an 9 independent appraisal or purchase offer for the properties. In accordance with generally accepted accounting principles in the United States, the CMV of the Seminary’s mineral properties is neither recognized on management’s internally prepared statement of financial position nor in the independent external auditor’s annual audited statement of financial position, but is otherwise noted here for financial statement users’ information.
The Seminary is holding cash and mutual funds totaling $82,461 as the custodial agent for various other organizations.
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Short-term cash funds $1,147,203 $0 $0 Equity funds $33,144,430 $0 $0 Real estate investment trust funds $0 $1,861,388 $0 Fixed income bond funds $0 $10,982,186 $0 Long-term pledges received in the current fiscal year $0 $1,651,682 $0 Level 2 Valuations The fair value of investments in bonds and real estate investment trust funds is based on quoted market prices in active markets as well as valuation methodologies using discounted cash flows and observable credit ratings. Contributions of long-term pledges receivable were valued by management based on expected future cash flows discounted at a current market interest rate.
The Seminary has a revolving line of credit with a financial institution for $9,000,000 with an interest rate of LIBOR plus 1.5%; at year end the rate was 5.95%. Monthly payments of interest only are required until maturity on 25 October 2025. The line of credit is collateralized by marketable securities held at State Street Global Advisors. The balance on the line of credit is $1,800,000 at year end. The outstanding principal balance is due upon maturity. The Seminary has a line of credit with a financial institution for $6,000,000 with an interest rate of LIBOR plus 1.75%. Monthly payments of interest only are required until maturity on 20 December 2026. The line of credit is collateralized by all accounts held by the Seminary. There were no draws on this line of credit during the year and no balance was outstanding at year end. The Seminary has a letter of credit with a financial institution for $502,850 that matures 15 July 2025. The Texas Higher Education Coordinating Board is the beneficiary of this letter of credit. There were no draws on this letter of credit during the year and no balance was outstanding at year end. Subsequent to year end, this letter of credit was renewed and increased for a total principal of $510,000, scheduled to mature 15 July 2026.
Land and land improvements $327,202 Buildings and improvements 11,446,155 Residential property and buildings (including land of $2,323,472) 4,201,604 Equipment 879,011 Library building 20,735,894 Library books 301,982 College Court apartments 473,620 Furniture and equipment 1,026,102 Vehicles 44,144 Accumulated depreciation (7,907,325) $31,528,389 Information required for Financial Responsibility Supplemental Schedule: Pre-implementation fixed assets, net $9,607,431 Post-implementation fixed assets, net with no related outstanding debt 21,920,958 $31,528,389
During the year, the Seminary received contributions and pledges of $595,642 from members of the Board of Trustees and organizations associated with the Board of Trustees, faculty and staff. At year end, $515,768 was due from organizations associated with the Board of Trustees, members of the Board of Trustees, faculty and staff.
Balances of net assets without donor restrictions at year end: Undesignated $25,956,561 Board designated Iona center 876,235 Maintenance (Lehman funds) 980,788 1,857,023 $27,813,584
Balances of net assets with donor restrictions at year end: Time restricted Pledges restricted in perpetuity not yet collected $588,935 Fiscal 2026 264,994 After fiscal 2026 49,025 902,954 Purpose restricted Scholarship 7,435,073 Faculty 3,716,388 Counseling program 3,603,960 Capital 2,552,948 Iona Center 5,588,054 Other 2,003,858 24,900,281 Perpetual in nature Scholarship 10,074,017 Faculty 19,051,006 Endowment 9,539,998 Bertha Sadler Means Racial Justice Endowment 3,000,000 Capital 3,159 41,668,180 $67,471,415 Net assets released from donor restrictions during the year: Satisfaction of purpose restrictions Scholarship $1,847,432 Faculty 3,542,231 Endowment 1,047,894 Counseling program 770,772 Iona Center 705,175 Other 232,164 8,145,668 Expiration of time restrictions Pledges restricted for fiscal 2025 515,081 $8,660,749
The Seminary’s endowment is comprised of numerous individual funds that are donor restricted to support students, faculty, and operations of the Seminary. Interpretation of Relevant Law The Seminary has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date to the donor- restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Seminary classifies donor-restricted net assets as (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified as net assets with donor restrictions to be held in perpetuity is classified as net assets with donor restrictions until those amounts are appropriated for expenditure by the Seminary in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Seminary considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: • The duration and reservation of the fund • The purposes of the Seminary and the donor-restricted endowment fund • General economic conditions • The possible effect of inflation and deflation • The expected total return from income and the appreciation of investments • Other resources of the Seminary • The investment policies of the Seminary Return Objectives and Risk Parameters The Seminary 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. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of 4% over the Consumer Price Index while assuming a moderate level of investment risk. Additionally, the endowments will be measured against a flat 8% annual target. The objective shall be measured over an annualized, rolling five and ten year time frame. Actual returns in any given year may vary from this amount. Spending Policy and How the Investment Objectives Relate to Spending Policy The Seminary has a policy of appropriating for distribution each year approximately 6% or less of its endowment fund’s average fair value over the prior 12 quarters through the March 31st preceding the fiscal year in which the distribution is planned. In establishing this policy, the Seminary considered the long-term expected return on its endowment. Accordingly, over the long term, the Seminary expects the current spending policy to allow its endowment to grow at an average of 3% annually. This is consistent with the Seminary’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. The distributions for the year ended 31 May 2025 approximated 15%, including ordinary releases for operations and academic scholarships, and investment management expense. 13 Changes in endowment net assets for the year: With Donor Restrictions Beginning endowment net assets $47,608,217 Contributions 194,280 Net investment gain (loss) 5,476,111 Appropriations for expenditure (5,044,582) Ending endowment net assets $48,234,026 Endowment net asset composition by type of fund as of year end: With Donor Restrictions Original gift amount to be maintained in perpetuity Accumulated investment earnings Total Scholarships $10,074,017 $3,546,586 $13,620,603 Faculty 19,051,006 2,139,168 21,190,174 Capital 3,159 97,285 100,444 Bertha Sadler Means Racial Justice 3,000,000 782,807 3,782,807 Endowment 9,539,998 0 9,539,998 $41,668,180 $6,565,846 $48,234,026 Endowment assets are held in: Investments $46,154,419 Cash 2,079,607 $48,234,026
Investments consist of: Short-term cash funds $1,147,205 Fixed income bond funds 10,982,186 Real estate investment trust funds 1,861,386 Equity funds 33,144,430 $47,135,207 14 Investments are held for the following purposes: Endowment with donor restrictions $46,154,419 Board designated 980,788 $47,135,207 The total investment balance is in excess of the original gifts required to be held in perpetuity.
Net assets without donor restrictions $27,813,584 Less: plant assets (31,528,389) Plus: plant related debt 1,800,000 Net assets without donor restriction exclusive of plant assets and plant related debt ($1,914,805)
Financial assets available for general expenditure, within one year of the statement of financial position date, comprise the following: Cash $12,277,266 Investments 47,135,207 Accounts receivable 169,241 Pledges receivable, net 5,917,240 65,498,954 Less: amounts unavailable for general expenditure within one year, due to donor-imposed restrictions and time restrictions (67,206,421) Less: amounts designated by the Board for a specific purpose (1,857,023) ($3,564,490) As part of the Seminary’s liquidity management, financial assets are structured to be available as general expenditures, liabilities, and other obligations come due. The Seminary invests cash in excess of daily requirements in investments. The Seminary has several investment accounts. The general investment accounts hold investments that are available for general expenditure. The Seminary’s endowment funds consist of donor-restricted investments. Income from donor-restricted endowments is restricted for specific purposes. Donor-restricted endowment funds are not available for general expenditure. Income from donor-restricted endowments is restricted for specific purposes, with the exception of the amounts available for general use. Donor-restricted endowment funds are not available for general expenditure. See Note 12 for additional details regarding the nature of donor-imposed restrictions on cash, pledges, 15 and investments that are not available for general expenditures within one year of the statement of financial position date. At year end, the Seminary has not maintained the required amount of assets needed to comply with donor-imposed restrictions. This was primarily due to funds expended during the year to reduce debt. The Board has designated funds for the Iona center and maintenance, see Note 11. Although the Seminary does not intend to spend from the board designated funds, other than amounts appropriated for expenditures, these amounts could be made available if necessary. See Note 8 for details regarding the Seminary’s available lines of credit.
The Seminary contributes to three retirement plans for the benefit of its employees. Retirement plan expense for the year ended 31 May 2025 totaled $535,267. PENSION PLANS FOR CLERGY FACULTY Several clergy faculty members are eligible for and participate in church defined benefit pension plans. Benefits are determined based on years of service and compensation received during that time. While these pension plans are defined benefit plans, the Seminary is only responsible for the current assessment on a cleric’s total assessable compensation, and not responsible for any future/potential shortfalls of the plans relating to the retirement benefits. PENSION PLAN FOR NON-CLERGY FACULTY/STAFF AND OTHER CLERGY FACULTY The Seminary maintains two plans; one for non-clergy faculty/staff and the other for clergy faculty. The first plan provides pension coverage to faculty through a Section 403(b) plan using tax-deferred annuity arrangements. This plan was modified as of 1 June 1999, and became a supplemental retirement plan to which any employee may contribute tax-deferred income up to the maximum allowed by law. A second plan was created 1 June 1999 for all non-clergy employees and clergy employees not covered by the defined benefit plan discussed above. During the year ended 31 May 2025 the Seminary contributed 10% of eligible employee compensation to this plan.
The Seminary’s revenue from contracts with customers, totaling $945,028, is recognized over time based on the timing of satisfaction of performance obligations. Revenue recognized over time consists of tuition and fees. CONTRACT BALANCES Accounts receivable from contracts with customers consist of the Seminary’s right to payment from students for educational services that have been provided. Accounts receivable from contracts include tuition receivable for services provided during the year. The balances of accounts receivable for tuition, excluding the allowance for credit losses, at 31 May 2025 and 2024 were $389,568 and $284,491 respectively. Contract liability balances primarily consist of deferred revenues for amounts received in one year that relates to services or events to occur in the following year. Contract liabilities consist of deferred tuition for educational services to be provided in fiscal year 2026. The balances of contract liabilities at 31 May 2025 and 2024 were $0 and $35,424 respectively, included in deferred revenue and other liabilities.
In 2025, the Seminary pursued a civil lawsuit involving a petition to modify a trust filed by the Trustee, and a subsequent petition filed by the Seminary, a beneficiary of the Trust, against the Trustee for alleged under distributions. The Seminary seeks unliquidated damages of over $1,000,000. Subsequent to year end both parties are working on a settlement agreement.
Program Administrative Fundraising Total Payroll $3,803,177 $791,280 $718,197 $5,312,654 Group Insurance 601,288 131,312 92,393 824,993 Depreciation 470,167 108,995 97,761 676,923 Pension 376,481 75,740 83,257 535,478 Scholarship Grants 374,003 0 0 374,003 Interest on Loan 0 0 286,817 286,817 Repairs and Maintenance 201,821 31,682 28,349 261,852 Interns 259,232 0 0 259,232 Utilities 236,601 11,751 5,794 254,146 Bank and Investment Fees 136,609 86,763 29,149 252,521 Travel 168,260 31,646 33,935 233,841 Property Insurance 116,067 26,907 24,134 167,108 Consultants 155,108 0 0 155,108 Legal and Audit 0 150,154 0 150,154 Computer 105,802 18,392 16,496 140,690 Workgrants 113,405 5,716 7,659 126,781 Scholarships 119,406 0 0 119,406 Contract Labor 110,405 0 0 110,405 Electronic Services 90,675 0 0 90,675 Academic Accommodations 71,515 0 0 71,515 Events 27,220 3,088 38,011 68,319 Food Services 42,422 9,834 8,821 61,077 Student Recruitment 58,673 0 0 58,673 Latinx Studies 50,793 0 0 50,793 Telephone/Internet 29,947 6,942 6,227 43,116 Professional Development 35,252 618 2,892 38,761 Entertainment 32,803 2,543 2,281 37,626 Student Activities 36,926 0 0 36,926 Cost of Sales-Books 32,477 0 0 32,477 Social Justice Efforts 32,389 0 0 32,389 Periodicals 29,691 0 0 29,691 Trustee Fees 15,258 11,252 3,173 29,683 Dues 23,535 2,080 2,206 27,821 Bad Debt 0 0 14,553 14,553 Other 450,432 33,373 75,354 559,159 $8,407,839 $1,540,068 $1,577,458 $11,525,365