CHARLOTTE REGIONAL REALTOR ASSOCIATION, INC. AND ITS SUBSIDIARY AND AFFILIATE

Transcription

1 CHARLOTTE REGIONAL REALTOR ASSOCIATION, INC. AND ITS SUBSIDIARY AND AFFILIATE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING INFORMATION As of and for the Years Ended December 31, 2016 and 2015 And Report of Independent Auditor

2 TABLE OF CONTENTS REPORT OF INDEPENDENT AUDITOR FINANCIAL STATEMENTS Consolidated Statements of Financial Position... 3 Consolidated Statements of Activities... 4 Consolidated Statements of Cash Flows... 5 Notes to Consolidated Financial Statements ACCOMPANYING INFORMATION Consolidating Statements of Financial Position Consolidating Statements of Activities Consolidating Statements of Cash Flows

3 Report of Independent Auditor The Board of Directors Charlotte Regional REALTOR Association, Inc. and its Subsidiary and Affiliate Charlotte, North Carolina We have audited the accompanying consolidated financial statements of Charlotte Regional REALTOR Association, Inc. and its Subsidiary (Carolina Multiple Listing Services, Inc.) and Affiliate (Charlotte Regional REALTOR Association Housing Opportunity Foundation), collectively referred to as the ( Association ), which comprise the consolidated statements of financial position as of December 31, 2016 and 2015, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Charlotte Regional REALTOR Association, Inc. and its Subsidiary and Affiliate as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

4 Other Matter Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying information contained in the consolidating statements of financial position, activities, and cash flows is presented for purposes of additional analysis and is not a required part of the consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated 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 referred to above is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Charlotte, North Carolina June 2,

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS Current Assets: Cash and cash equivalents $ 7,507,602 $ 5,412,656 Investments 5,012,908 5,935,858 Accounts receivable, net 50,009 67,018 Income taxes receivable 626,851 - Prepaid expenses and other assets 1,097, ,008 Inventories 293, ,236 Total Current Assets 14,588,836 12,125,776 Property and equipment, net 2,617,482 6,159,558 Deferred loan costs - 1,875 Deferred income tax asset, net 12,400 22,500 Property held for sale 3,457,973 - Beneficial interest in trust 675, ,112 Total Assets $ 21,352,070 $ 18,947,821 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable and accrued expenses $ 1,845,904 $ 1,713,418 Current portion of long-term debt - 144,963 Deferred revenue 2,054,962 1,779,647 Other liabilities 237, ,220 Total Current Liabilities 4,138,012 3,871,248 Deferred income tax liability, net 260,000 13,000 Long-term debt, net of current portion - 864,596 Total Liabilities 4,398,012 4,748,844 Net Assets: Unrestricted net assets: Unrestricted net assets, undesignated 9,877,208 3,843,559 Unrestricted net assets, equity in fixed assets net of debt 2,617,482 5,149,999 Unrestricted net assets, Board designated 4,457,642 5,205,001 16,952,332 14,198,559 Temporarily restricted net assets 1, Total Net Assets 16,954,058 14,198,977 Total Liabilities and Net Assets $ 21,352,070 $ 18,947,821 The accompanying notes to consolidated financial statements are an integral part of these financial statements 3

6 CONSOLIDATED STATEMENTS OF ACTIVITIES YEARS ENDED Unrestricted revenue and support: Services fees $ 8,711,365 $ 6,975,808 Dues 1,397,728 1,247,933 Lockbox and Supra key income 1,452,496 1,381,222 Initiation and other fees 1,145, ,028 Education income 915, ,223 REALTOR store income 189, ,245 Contributions, grants, and sponsorships 249, ,558 Special events 136, ,522 Rental income 16,399 90,559 Advertising and other revenues 404, ,507 Investment income, net 221,175 20,501 Net assets released from restrictions Total unrestricted revenue and support 14,840,365 12,340,154 Expenses: Payroll, payroll taxes, and employee benefits 3,528,056 3,130,021 MLS system and showing service expense 3,282,897 2,391,188 Lockbox costs and Supra key fees 495,125 2,529,551 Education and training 788, ,333 REALTOR store 133, ,489 Events, advocacy, and other services 397, ,188 Bank and credit card fees 372, ,117 Building operations and insurance 535, ,602 Conventions and meetings 305, ,357 Computer services 90, ,767 Depreciation 102, ,174 Interest 22,582 40,026 Legal and other professional services 238, ,345 Supplies, printing, and postage 129,661 75,966 Redevelopment of land 219, ,864 Other expenses 451, ,169 Total expenses before income taxes 11,094,319 11,595,157 Change in unrestricted net assets before income tax expense 3,746, ,997 Income tax expense, net 992, ,443 Change in unrestricted net assets 2,753, ,554 Temporarily restricted revenue and support: Contribution revenue 1,726 - Net assets released from restrictions (418) (48) Change in temporarily restricted net assets 1,308 (48) Change in total net assets 2,755, ,506 Net assets, beginning of year 14,198,977 13,637,471 Net assets, end of year $ 16,954,058 $ 14,198,977 The accompanying notes to consolidated financial statements are an integral part of these financial statements 4

7 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED Cash flows from operating activities: Change in net assets $ 2,755,081 $ 561,506 Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation 102, ,174 Change in allowance for doubtful accounts 29,404 5,475 Deferred income taxes 257,100 (94,200) Realized and unrealized (gain) loss on investments (33,083) 148,915 Change in beneficial interest (37,267) 16,628 Amortization of deferred loan costs 1,875 1,500 Changes in operating assets and liabilities: Receivables (12,395) (22,291) Prepaid expenses and other assets (776,835) 50,614 Inventories 95,613 (249,328) Income taxes receivable/payable (626,851) 4,000 Accounts payable and accrued expenses 132, ,096 Deferred revenue 275,315 (25,403) Other liabilities 3,926 3,755 Net cash flows from operating activities 2,167, ,441 Cash flows from investing activities: Purchases of property and equipment (18,878) (9,300) Contributions to beneficial interest in trust - (45,827) Proceeds from sales of investments 1,051,795 (20,468) Purchases of investments (95,762) - Net cash flows from investing activities 937,155 (75,595) Cash flows from financing activities: Repayment of long-term debt (1,009,559) (139,915) Net change in cash and cash equivalents 2,094, ,931 Cash and cash equivalents, beginning of year 5,412,656 4,874,725 Cash and cash equivalents, end of year $ 7,507,602 $ 5,412,656 Supplemental cash flow information: Income taxes paid $ 1,378,880 $ 409,768 Interest paid $ 22,582 $ 40,026 The accompanying notes to consolidated financial statements are an integral part of these financial statements 5

8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of significant accounting policies Description of the Business Charlotte Regional REALTOR Association, Inc. ( CRRA ) is a non-profit corporation organized under the laws of North Carolina. CRRA is a trade association for Charlotte, North Carolina area realtors. CRRA's mission is to lead, educate and equip members to be productive. CRRA provides educational opportunities through the Mingle School of Real Estate as well as holding seminars throughout the region. CRRA also provides its members with mediation and arbitration services, information regarding legislative actions that impact the real estate business, and other resources such as its bookstore, computer lab, and online magazine Realtor Reflections. The consolidated financial statements include the accounts of CRRA and its wholly owned subsidiary, Carolina Multiple Listing Services, Inc. ( CarolinaMLS ), which is subject to income tax. CarolinaMLS provides members of CRRA and other associations access to a comprehensive database of local properties that are available for sale. CarolinaMLS also provides certain CRRA members with the ability to purchase and lease unattended lockboxes and electronic keys to open the lockboxes. The consolidated financial statements also include the accounts of CRRA s wholly controlled entity, Charlotte Regional REALTOR Association Housing Opportunity Foundation (the Foundation ), which is exempt from income tax. The Foundation s mission is to provide support, funding and education related to housing opportunities. All significant intercompany balances and transactions have been eliminated in consolidation. Unless separately designated, the entities are collectively referred to as the ( Association ). Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ( GAAP ). Net assets and revenue, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Unrestricted Net Assets Net assets that are both undesignated and designated in nature. Undesignated, unrestricted net assets are those currently available for use in the day-to-day operation of the Association. From time to time, the Board of Directors may designate certain amounts to be utilized/invested to meet specific objectives of the Association. Such amounts are reflected as unrestricted, designated net assets. Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that may or will be met, either by fulfillment of the donor-stipulated purpose and/or the passage of time. When a restriction expires, that is when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. If a restriction is fulfilled in the same time period in which the contribution is received, the contribution is reported as unrestricted. Permanently Restricted Net Assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the Association. Generally, the donors of these assets permit the Association to use all of, or part of, the income earned on the related investments for general or specific purpose. At December 31, 2016 and 2015, the Association did not have any permanently restricted net assets. 6

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of significant accounting policies (continued) Revenue is reported as increases in unrestricted net assets unless use of the related assets is limited by donorimposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. Contributions, including unconditional promises to give, are recognized as revenue in the period received. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value. Contributions of cash and other assets are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are restricted for future periods or are restricted by the donor for specific purposes are reported as temporarily restricted support. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are recorded at the present value of their estimated future cash flows, using credit risk adjusted interest rates applicable to the years in which the pledge was received. Amortization of the resulting discount is taken into income as a contribution in subsequent years. Revenue Recognition Service fees, dues and other revenues are recorded when earned (in the applicable membership period for dues). Revenue from the sale of lock boxes and Supra keys is recorded on the date of the sale. Amounts billed or collected in advance of being earned are recorded as deferred revenue. Income Taxes CRRA and the Foundation are exempt from federal income taxes under Section 501(c)(6) and Section 501(c)(3), respectively, of the Internal Revenue Code (the Code ). CRRA and the Foundation are liable for federal and state taxes on any unrelated business income, as defined in the Code. CarolinaMLS is subject to income tax. The Association accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and attributable to certain tax deduction carryforwards. The Association follows the Financial Accounting Standards Board ( FASB ) guidance on accounting for uncertainty in income taxes. The Association s policy is to record a liability for any tax position taken that is beneficial to the Association, including any related interest and penalties, when it is more likely than not the position taken by management with respect to a transaction or class of transactions will be overturned by a taxing authority upon examination. Management believes there are no such positions as of December 31, 2016 and 2015 and, accordingly, no liability has been accrued. Property Held for Sale Property held for sale as of December 31, 2016 consists of the Greenwood Cliff Campus, 5.1 acres of land surrounding the CRRA office building. The Association will partner with the city, county, and other stakeholders to develop the land, beginning in The sale will occur in two phases. The book value of assets held for sale, net of accumulated depreciation for the first phase was $3,457,973 at December 31, The Association is no longer depreciating this property. The property to be sold in Phase 2 is still in use by the Association and has not been classified as held for sale. Advertising Expense The Association expenses advertising costs as they are incurred. Total advertising costs for the years ended December 31, 2016 and 2015, were $147,440 and $100,277, respectively. 7

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of significant accounting policies (continued) Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Association considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents, except those cash equivalents managed as part of investment strategies. Investments Investments in marketable securities with readily determinable fair values are valued in the consolidated statements of financial position at their fair value. Fair value is determined by reference to exchange or dealer-quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar investment securities. Changes in the fair value of securities are reflected as investment gains or losses in the accompanying consolidated statements of activities. Accounts Receivable Accounts receivable, consisting of trade accounts receivable, and contributions receivable are stated at cost less an allowance for doubtful accounts. Management s determination of the allowance for doubtful accounts is based on an evaluation of the accounts and contributions receivable, past experience, current economic conditions, and other risks inherent in the accounts receivable portfolio. Chargeoffs are determined on a case-by-case basis. Inventories Inventories, consisting of supplies used by real estate agents, are stated at lower of cost or market with cost based on the average cost method. Property and Equipment Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Expenditures for acquisitions, renewals and betterments are capitalized, whereas maintenance and repair costs are expensed as incurred. Expenditures paid to third parties for the development of computer software are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed from the accounts and any gains or loss are included in unrestricted revenue. These assets are reviewed for impairment whenever changes in circumstances indicate the carrying value of an asset may not be recoverable. Property and equipment in excess of $5,000 is capitalized. The estimated useful lives of assets are as follows: Buildings Building improvements Leasehold improvements Furniture and equipment Systems development costs Computer equipment 40 years years 10 years 7-10 years 10 years 3-5 years Deferred Revenue Annual membership dues are billed during the last quarter of the calendar year. Dues received in advance are recorded as deferred revenue until earned in the next calendar year. Deferred revenue also includes fee income, grant and sponsorship revenues received for future periods. Comprehensive Income and Accumulated Other Comprehensive Income As a for-profit entity, CarolinaMLS is required to present unrealized gain (loss) on securities available for sale arising during the year in other comprehensive income (loss). For purposes of presentation in the Association s consolidated financial statements, $51,904 of unrealized gains and $48,494 of unrealized losses on securities available for sale by CarolinaMLS for the years ended December 31, 2016 and 2015, respectively, have been included in investment income in the accompanying consolidated statements of activities. Related accumulated other comprehensive loss of $122,474 and $174,378 as of December 31, 2016 and 2015, respectively, has been eliminated as part of the consolidation of CarolinaMLS with the Association. 8

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of significant accounting policies (continued) Equity Interest in Joint Venture Investee companies that are not consolidated but over which CarolinaMLS exercises significant influence are accounted for under the equity method of accounting. Whether or not CarolinaMLS exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company s board of directors and ownership level. Under the equity method of accounting, an investee company s accounts are not reflected within the Association s consolidated statement of financial position and consolidated statement of activities; however, CarolinaMLS s share of the earnings or losses of a joint venture investee company entered into during 2016 is reflected in the caption MLS system and showing service expenses in the consolidated statements of activities and totaled $20,041 for the year ended December 31, CarolinaMLS s carrying value in this equity method joint venture is reflected in the caption prepaid expenses and other assets in the Association s consolidated statement of financial position and totaled $29,959 as of December 31, When CarolinaMLS s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in CarolinaMLS s financial statements unless CarolinaMLS guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, CarolinaMLS will not record its share of such income until it equals the amount of its share of losses not previously recognized. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis. Accordingly, certain costs have been allocated among the programs and supporting services benefited Programs: Education, advocacy, and other member services $ 2,023,122 $ 1,897,084 CarolinaMLS services 5,281,771 6,280,062 Foundation programs 370, ,850 7,675,773 8,556,996 Management and general 1,894,075 1,719,032 Supporting services 1,468,341 1,294,214 Fundraising 56,130 24,915 $ 11,094,319 $ 11,595,157 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from management s estimates. 9

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of significant accounting policies (continued) New Pronouncements Management has early implemented Accounting Standards Update , Balance Sheet Classification of Deferred Taxes ( ASU ). Under ASU , net deferred tax assets or liabilities are required to be presented in a single noncurrent deferred tax asset or liability. Accordingly, the Association has presented the net deferred tax asset and liability as a noncurrent asset and liability on the balance sheet. The net deferred tax asset relates to The Association, while the net deferred tax liability relates to CarolinaMLS as further disclosed in Note 12. Future Pronouncements In August of 2016, the FASB issued ASU , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. This standard changes presentation and disclosure requirements of not-for-profit entities. The primary changes are decrease in the number of net asset classes from three to two, reporting of the underwater amounts of donor-restricted endowment funds in net assets with donor restrictions, continues to allow preparers to choose between the direct method and indirect method for presenting operating cash flows, requires disclosures of qualitative information on how the not-forprofit entity manages its liquid available resources and liquidity risks and requires reporting of expenses by function and nature, as well as an analysis of expenses by both function and nature. This standard is effective for all fiscal years beginning after December 15, Note 2 Concentration of credit risk The Association s revenues and membership dues are received principally from individuals and companies engaged in the service and sale of real estate. Membership and revenue sources are generally dispersed in Charlotte and the surrounding counties of Mecklenburg, Iredell, Gaston, Cabarrus, Lincoln, Union, and Rowan. The Association s ability to collect on these accounts receivable is directly affected by economic conditions in these geographic regions. The Association places its cash and cash equivalents on deposit with financial institutions in the United States of America. The Federal Deposit Insurance Corporation covers $250,000 for substantially all depository accounts. During the year, the Association from time to time may have had amounts on deposit in excess of the insured limits. Note 3 Accounts receivable Accounts receivable consists of the following at December 31: MLS fees $ 36,174 $ 43,040 Advertising, Mingle, events 95,323 76, , ,102 Less allowance for doubtful accounts (81,488) (52,084) Accounts receivable, net $ 50,009 $ 67,018 10

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 Investments and beneficial interest in trust Investments are subject to fluctuations in market values and expose the Association to a certain degree of interest and credit risk. The following is a summary of investments and beneficial interest in trust at December 31: Investments: Government bond mutual funds $ 5,012,908 $ 5,935,858 Beneficial interest in trust 675, ,112 $ 5,688,287 $ 6,573,970 The beneficial interest in trust is held at the Foundation for the Carolinas ( FFTC ) and is invested in pooled funds of primarily common stock equities, bonds and fixed income investments, which are subject to fluctuations in market values and expose the Foundation to a certain degree of interest and credit risk. Investments include fund managers that invest in private investment funds and alternative investments as part of the asset allocation, as an alternative investment strategy with the purpose of increasing the diversity of the holdings and being consistent with the overall investment objectives. These investments are not traded on an exchange, and accordingly, may not be as liquid as investments in marketable equity or debt securities. These investment funds may invest in other investment funds, equity or debt securities, which may or may not have readily available fair values, and foreign exchange or commodity forward contracts. Management of the Foundation receives the estimate of fair value of these investments from FFTC and relies on various factors, processes and procedures to determine if the estimate of value is reasonable. However, information used by FFTC and by management is subject to change in the near term, and, accordingly, investment values and performance can be affected. The effect of these changes could be material to the financial statements. Investment income is comprised of the following for the years ended December 31: Dividends and interest $ 150,825 $ 186,044 Unrealized losses 27,583 (148,546) Realized losses 5,500 (369) Change in beneficial interest in trust 37,267 (16,628) $ 221,175 $ 20,501 11

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 Property and equipment Property and equipment consists of the following at December 31: Land and land improvements $ 2,385,334 $ 5,803,749 Buildings and building improvements 1,879,233 2,069,340 Furniture and equipment 467, ,481 Systems developments 27,595 27,595 Computer equipment 1,408,738 1,389,860 6,168,381 9,758,025 Less accumulated depreciation (3,550,899) (3,598,467) $ 2,617,482 $ 6,159,558 Depreciation expense for the years ended December 31, 2016 and 2015 was $102,981 and $119,174, respectively. Note 6 Long term debt In April 2012, the Association entered into a loan agreement with BB&T in the original amount of $1,500,000. The loan was collateralized by a security interest in the Association s institutional trust account with a requirement that the market value be at least 133% of the outstanding loan balance. The loan was repaid in full during Long-term debt consists of the following at December 31: Note payable, bearing interest at 3.5%, payable in 59 monthly installments of $14,870 with one final payment of all remaining principal and accrued interest due on April 5, $ - $ 1,009,559 Less current portion - (144,963) $ - $ 864,596 Total interest expense for the year ended December 31, 2016 and 2015, was $22,582 and $40,026, respectively. Note 7 Net assets Temporarily restricted net assets consist of the following at December 31: Purpose-restricted contribution $ 1,726 $

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 Net assets (continued) Board-designated reserves are a portion of unrestricted net assets that are available for use at the discretion of the Board. The Board-designated operating reserve is intended to provide an internal source of funds for situations such as sudden increase in expenses, one-time unbudgeted expenses, unanticipated loss in revenues, or uninsured losses. The minimum operating reserve equals three months of average operating costs. The balance of Board-designated net assets held by the Association at December 31, 2016 and 2015, respectively, is calculated as follows: Total unrestricted net assets $ 16,952,332 $ 14,198,559 Less equity in fixed assets, net of related debt (2,617,482) (5,149,999) Unrestricted net assets available for designation 14,334,850 9,048,560 Less Board designated amounts for: Operating reserves 3,102,100 2,779,900 Technology and capital asset reserves 249, ,084 Debt reserve - 1,362,905 Greenwood Cliff Task Force reserve 130,568 - Legal reserve 300, ,000 Quasi-endowment 675, ,112 4,457,642 5,205,001 Undesignated net assets $ 9,877,208 $ 3,843,559 Note 8 Board designated endowment fund The Board of Directors has designated a portion of unrestricted net assets as funds functioning as endowments totaling $675,379 and $638,112 at December 31, 2016 and 2015, respectively. The Board designated endowment fund is to be used for the continued support of Foundation operations. It is the intent of the Board to accumulate earnings until the balance in the total fund reaches at least $1,000,000. In 2003, these funds were transferred to the Foundation for the Carolinas creating a trust in which the Foundation has a beneficial interest (see Note 4). As required by GAAP, net assets associated with this endowment fund, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. As of December 31, 2016 and 2015, there were no donor-imposed restrictions on these endowment funds. 13

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 Board designated endowment fund (continued) The purpose of the endowment is to provide a method for funding of the Foundation s growth and allow the investment of these endowed funds for long-term projects. The funds are invested in the asset allocation strategy recommended by the Foundation for the Carolina s Investment Committee, long-term growth. This diverse mix of investments seeks to provide a predictable stream of funding to programs supported by the endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, the endowment assets are invested in a manner that is intended to produce results that provide an average annual real rate of return, net of fees, equal to or greater than spending, administrative fees, and inflation (Consumer Price Index). Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, it 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). Accordingly, the investment target allocation guidelines are as follows: global equities 62.9%, global fixed income 14.2%, real assets 8%, and diversifying strategies 14.9%. Funds available for distribution from the fund are based upon a 5% spending plan using a twelve quarter rolling average of fund assets and is evaluated on an annual basis for prudence. No amounts were withdrawn from the fund for 2016 and The following schedule represents changes in unrestricted, Board designated endowment net assets for the years ended December 31: Beginning of year $ 638,112 $ 608,913 Contributions - 45,827 Investment return 43,852 (8,920) Investment fees (6,585) (7,708) End of year $ 675,379 $ 638,112 Note 9 Fair value measurements of assets and liabilities In accordance with guidance on fair value measurements for financial instruments, fair value is defined as the price that the Association would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. The fair value guidance establishes a three-tier hierarchy to distinguish between 1) inputs that reflect the assumptions that market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs), and 2) inputs that reflect the reporting entity s own assumptions about the assumptions that market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. 14

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 Fair value measurements of assets and liabilities (continued) The inputs are summarized in the three levels listed below: Level 1 Quoted prices in active markets that are accessible at the measurement date for identical securities. Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable either directly or indirectly. Level 3 Prices or valuations that require using significant unobservable inputs in determining fair value. The inputs into the determination of fair value require significant judgment or estimation by the investment manager. The following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value. Mutual Funds Investments in mutual funds valued at the quoted prices in an active market are classified within Level 1 of the fair value hierarchy. Beneficial Interest in Trust Beneficial interests in trusts are valued using the fair value of the assets in the trust as a practical expedient unless facts and circumstances indicate the fair value of the assets in the trust differs from the fair value of the beneficial interests. Beneficial interests in trust are classified within Level 3 of the fair value hierarchy. The changes in unrestricted, board designated net assets in Note 8 presents a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The following table summarizes the valuation of the Association s investments measured at fair value on a recurring basis at December 31, 2016 and 2015: Government bond mutual funds Beneficial interest in trust Government bond mutual funds Beneficial interest in trust 2016 Level 1 Level 2 Level 3 Total $ 5,012,908 $ - $ - $ 5,012, , ,379 $ 5,012,908 $ - $ 675,379 $ 5,688, Level 1 Level 2 Level 3 Total $ 5,935,858 $ - $ - $ 5,935, , ,112 $ 5,935,858 $ - $ 638,112 $ 6,573,970 A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The beneficial interest in trust is valued using the fair value of the assets in the trust as a practical expedient unless facts and circumstances indicate the fair value of the assets in the trust differs from the fair value of the beneficial interests. There have been no changes in the methodologies used at December 31, 2016 and

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 Multiple listing services agreement In January 2015, the CarolinaMLS and North Carolina Mountains Multiple Listing Services ( NCMMLS ) entered into a contract for CarolinaMLS to operate and serve as the wholesale vendor for NCMMLS. As the wholesale MLS system vendor, CarolinaMLS provides core services to NCMMLS as well as training and support for its subscribers for a fee. The initial term of the agreement is three years and will continue month to month thereafter unless terminated by either party. Total fees under this service agreement were $1,285,010 and $315,520 for the years ended December 31, 2016 and 2015, respectively, and are included in services fees on the accompanying consolidated statements of activities. Note 11 Employee benefit plan The Association maintains a defined contribution 401(k) Savings and Retirement Plan for all eligible employees. The Association matches employee contributions at 100% of such contributions up to 4% of pay. The Association may make annual discretionary contributions based on a percentage of employee s gross current year earnings. During the years ended December 31, 2016 and 2015, the Association s contributions expensed were $171,664 and $81,854, respectively. Note 12 Income taxes Income tax expense for the Association, including the wholly-owned subsidiary, is comprised of the following components for the years ended December 31: Current tax expense $ 667,173 $ 277,643 Deferred tax benefit 325,100 (94,200) Income tax expense $ 992,273 $ 183,443 A net deferred income tax asset or liability has been provided for the net income tax effect of temporary differences between the carrying amount of assets and liabilities for tax purposes over the amount for financial reporting purposes and also for net operating loss and charitable contributions available to offset future taxable income. 16

19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 Income taxes (continued) Deferred income tax accounts are detailed as follows at December 31: 2016 Benefit of carryforward of expenses available to offset future taxable income Benefit of unrealized loss on securities available to offset future taxable income Payments on future liabilities made in the current period Financial reporting net carrying value of property and equipment in excess of net carrying value for income tax purposes Less valuation allowance Net deferred income tax asset (liability) By entity: The Association CarolinasMLS Net deferred income tax asset (liability) 2015 Benefit of carryforward of expenses available to offset future taxable income Benefit of unrealized loss on securities available to offset future taxable income Financial reporting net carrying value of property and equipment in excess of net carrying value for income tax purposes Less valuation allowance By entity: The Association CarolinasMLS Net deferred income tax asset (liability) Asset Liability Net $ 262,000 $ - $ 262,000 68,000-68,000 - (336,000) (336,000) - (6,000) (6,000) (235,600) - (235,600) $ 94,400 $ (342,000) $ (247,600) $ 12,400 $ - $ 12,400 - (260,000) (260,000) $ 12,400 $ (260,000) $ (247,600) Asset Liability Net $ 287,000 $ - $ 287,000 - (21,000) (21,000) - (22,000) (22,000) (234,500) - (234,500) $ 52,500 $ (43,000) $ 9,500 $ 10,500 $ - $ 10,500 12,000 (13,000) (1,000) $ 22,500 $ (13,000) $ 9,500 17

20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 Income taxes (continued) The principal differences between the income tax provision in the consolidated financial statements, and the tax resulting from applying the federal statutory rate to change in unrestricted net assets before income tax expense, results primarily from nondeductible expenses, state income taxes and changes to the valuation allowance. The following charitable contribution carryforwards are available at December 31, Their future deductibility is subject to future year taxable income. Carryforward Amount Expiration 2012 $ 70, , , , , The principal differences between the income tax provision in the financial statements, and the tax resulting from applying the federal statutory rate to net income before tax provision, results primarily from nondeductible expenses, state income taxes and changes to the valuation allowance. Management has provided a valuation allowance for certain deferred tax assets that it believes more likely than not cannot be recovered. The valuation allowance increased $1,000 and $56,800 for the years ended December 31, 2016 and 2015, respectively. Note 13 Leases Future minimum lease payments under operating leases for office equipment have monthly required payments ranging from $320 to $665 with expiration dates through January At December 31, 2016, future minimum lease payments are as follows: Note 14 Subsequent events $ $ 26,674 26,674 2,222 55,570 The Association has evaluated subsequent events through June 2, 2017, in connection with the preparation of these consolidated financial statements, which is the date the consolidated financial statements were available to be issued. 18

21 ACCOMPANYING INFORMATION

22 CONSOLIDATING STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2016 Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated ASSETS Current Assets: Cash and cash equivalents $ 3,897,803 $ 3,498,336 $ 111,463 $ - $ 7,507,602 Investments 3,016,285 1,996, ,012,908 Accounts receivable, net 36,315 5,809 7,885-50,009 Income taxes receivable - 626, ,851 Due from affiliate organizations 114, (114,694) - Prepaid expenses and other current assets 135, , ,097,843 Inventories 124, , ,623 Investment in subsidiary 5,286, (5,286,611) - Total Current Assets 12,611,189 7,259, ,348 (5,401,305) 14,588,836 Property and equipment 5,691, , ,318,930 Less accumulated depreciation (3,098,023) (603,425) - - (3,701,448) 2,593,575 23, ,617,482 Deferred income tax asset, net 12, ,400 Property held for sale 3,457, ,457,973 Beneficial interest in trust , ,379 Total Assets $ 18,675,137 $ 7,283,511 $ 794,727 $ (5,401,305) $ 21,352,070 19

23 CONSOLIDATING STATEMENTS OF FINANCIAL POSITION (CONTINUED) DECEMBER 31, 2016 LIABILITIES AND NET ASSETS Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Current Liabilities: Accounts payable and accrued expenses $ 1,682,556 $ 162,292 $ 1,056 $ - $ 1,845,904 Deferred revenues 799,654 1,255, ,054,962 Other liabilities 4, , ,146 Due to affiliated organization - 86,746 27,948 (114,694) - Total Current Liabilities 2,486,802 1,736,900 29,004 (114,694) 4,138,012 Deferred income tax liability, net - 260, ,000 Total Liabilities 2,486,802 1,996,900 29,004 (114,694) 4,398,012 Net Assets: Unrestricted net assets: Unrestricted net assets, undesignated 9,788,590-88,618-9,877,208 Unrestricted net assets, equity in fixed assets 2,617, ,617,482 Unrestricted net assets, Board designated 3,782, ,379-4,457,642 Temporarily restricted net assets - - 1,726-1,726 Accumulated other comprehensive loss - (122,474) - 122,474 - Common stock, $1 par value; 100,000 shares authorized; 75,000 shares issued and - 75,000 - (75,000) - outstanding Retained earnings - 5,334,085 - (5,334,085) - Total Net Assets 16,188,335 5,286, ,723 (5,286,611) 16,954,058 Total Liabilities and Net Assets $ 18,675,137 $ 7,283,511 $ 794,727 $ (5,401,305) $ 21,352,070 20

24 CONSOLIDATING STATEMENTS OF ACTIVITIES YEAR ENDED DECEMBER 31, 2016 Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Unrestricted revenue and support: Services fees $ - $ 8,711,365 $ - $ - $ 8,711,365 Dues 1,397, ,397,728 Lockbox and Supra key income 720,354 1,452,496 - (720,354) 1,452,496 Initiation and other fees 477, , ,145,210 Education income 915, ,024 REALTOR store income 189, ,703 Contributions, grants, and sponsorships 145, ,815 (249,000) 249,211 Special events , ,686 Rental income 323, (307,500) 16,399 Advertising and other revenues 67, , ,950 Investment income, net 2,006, ,539 37,267 (1,929,529) 221,175 Management fees 2,399, (2,399,420) - Net assets released from restrictions Total unrestricted revenue and support 8,643,246 11,275, ,186 (5,605,803) 14,840,365 Expenses: Payroll, payroll taxes, and employee benefits 3,528, ,528,056 Management fee and allocated expenses (629,469) 2,781, ,596 (2,399,420) - MLS system expenses - 1,196, ,196,995 Showing service expense - 2,085, ,085,902 Lockbox costs and Supra key fees - 1,215,479 - (720,354) 495,125 Education and training 751,022 37, ,216 REALTOR store 133, ,320 Member events 124, , ,382 Advocacy and other services 114,299-30, ,263 Payments to outlying counties - 70, ,900 Bank and credit card fees 143, ,350 1, ,143 Building rent and operations 492, ,500 - (307,500) 492,570 Computer services 90, ,570 Contributions 278,274 20,000 58,000 (249,000) 107,274 21

25 CONSOLIDATING STATEMENTS OF ACTIVITIES (CONTINUED) YEAR ENDED DECEMBER 31, 2016 Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Expenses (continued): Conventions, seminars, and meetings $ 180,275 $ 125,259 $ 81 $ - $ 305,615 Depreciation 62,000 40, ,981 Dues and subscriptions 25,317 29, ,090 Interest 22, ,582 Liability insurance 43, ,205 Legal and other professional services 141,790 96, ,748 Promotional materials 147, ,440 Supplies, printing, and postage 86,648 43, ,661 Redevelopment of land 219, ,432 Other expenses 38,212 25,357 7,280-70,849 Total expenses before income taxes 5,993,376 8,303, ,263 (3,676,274) 11,094,319 Change in unrestricted net assets before income tax expense 2,649,870 2,971,782 53,923 (1,929,529) 3,746,046 Income tax expense (refund), net (49,980) 1,042, ,273 Change in unrestricted net assets 2,699,850 1,929,529 53,923 (1,929,529) 2,753,773 Unrestricted net assets, beginning 13,488,485 3,357, ,074 (3,357,082) 14,198,559 Unrestricted net assets, ending 16,188,335 5,286, ,997 (5,286,611) 16,952,332 Temporarily restricted revenue and support: Contributions - - 1,726-1,726 Net assets released from restrictions - - (418) - (418) Change in temporarily restricted net assets - - 1,308-1,308 Temporarily restricted net assets, beginning Temporarily restricted net assets, ending - - 1,726-1,726 Change in total net assets $ 2,699,850 $ 1,929,529 $ 55,231 $ (1,929,529) $ 2,755,081 22

26 CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2016 Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Cash flows from operating activities: Change in net assets $ 2,699,850 $ 1,929,529 $ 55,231 $ (1,929,529) $ 2,755,081 Adjustments to reconcile change in net assets to cash from operating activities: Depreciation 62,000 40, ,981 Change in allowance for doubtful accounts 18,419 10, ,404 Deferred income tax expense (1,900) 259, ,100 Reinvestment of investment income, net (1,929,529) - - 1,929,529 - Realized and unrealized (gains) losses on investments 18,821 (51,904) - - (33,083) Change in beneficial interest - - (37,267) - (37,267) Amortization of deferred loan costs 1, ,875 Changes in operating assets and liabilities: Receivables (12,622) 6,866 (6,639) - (12,395) Income taxes receivable - (626,851) - - (626,851) Prepaid expenses and other assets 133,580 (910,415) - - (776,835) Inventories (8,786) 104, ,613 Accounts payable and accrued expenses 270,956 (136,458) (2,012) - 132,486 Deferred revenue 115, , ,315 Due to/from affiliates 164,868 (161,667) (3,201) - - Other liabilities 4,592 (666) - - 3,926 Net cash flows from operating activities 1,537, ,583 6,112-2,167,350 23