TCF Bank 2006 Annual Report Download - page 71

2006 Form10-K 51
Investments in Affordable Housing Limited
Partnerships Investments in affordable housing consist
of investments in limited partnerships that operate qualified
affordable housing projects or that invest in other limited
partnerships formed to operate affordable housing projects.
TCF generally utilizes the effective yield method to account
for these investments with the tax credits net of the amor-
tization of the investment reflected in the Consolidated
Statements of Income as a reduction of income tax expense.
However, depending on circumstances, the equity or cost
methods may be utilized. The amount of the investment
along with any unfunded equity contributions which are
unconditional and legally binding are recorded in other
assets. A liability for the unfunded equity contributions is
recorded in other liabilities. At December 31, 2006, TCF’s
investments in affordable housing limited partnerships
were $43 million, compared with $47 million at December 31,
2005 and were recorded in other assets.
Four of these investments in affordable housing limited
partnerships are considered variable interest entities. These
partnerships are not consolidated with TCF. As of December
31, 2006 and 2005, the carrying amount of these four invest-
ments was $39.7 million and $43.7 million, respectively.
These amounts included $1.8 million and $2.3 million of
unconditional unfunded equity contributions as of December
31, 2006 and 2005, respectively, which are recorded in other
liabilities. Thus, the maximum exposure to loss on these
four investments was $39.7 million at December 31, 2006;
however, the general partner of these partnerships provides
various guarantees to TCF including guaranteed minimum
returns. These guarantees are backed by a AA credit-rated
company and significantly limit any risk of loss.
Intangible Assets Goodwill is tested for impairment
annually. Deposit base intangibles are amortized over 10
years on an accelerated basis. The Company reviews the
recoverability of the carrying values of these assets at least
annually or earlier whenever an event occurs indicating that
they may be impaired.
Stock-Based Compensation The fair value of restricted
stock is amortized to compensation expense, with a corre-
sponding increase in additional paid-in capital, over the
longer of the service period or performance period, but in no
event beyond an employee’s retirement date. For perform-
ance-based restricted stock, TCF estimates the degree to
which performance conditions will be met to determine the
number of shares which will vest and the related compensa-
tion expense prior to the vesting date. Compensation expense
is adjusted in the period such estimates change. Non-
forfeitable dividends are recorded to retained earnings for
shares of restricted stock which are expected to vest and to
compensation expense for shares of restricted stock which
are not expected to vest.
Income tax benefits related to stock compensation in
excess of grant date fair value are recognized as an increase
to additional paid-in capital upon vesting and delivery of
the stock. Any income tax benefits that are less than grant
date fair value would be recognized as a reduction of addi-
tional paid in capital to the extent of previously recognized
income tax benefits and then as compensation expense for
the remaining amount. See Note 15 for additional informa-
tion concerning stock-based compensation.
Deposit Account Overdrafts Deposit account overdrafts
are reported in consumer or commercial loans. Net losses on
uncollectible overdrafts are reported as net charge-offs in
the allowance for loan and lease losses within 60 days from
the date of overdraft. Uncollectible deposit fees are reversed
against fees and service charges and a related reserve for
uncollectible deposit fees is maintained in other liabilities.
Other deposit account losses are reported in other non-
interest expense. See Note 25 for additional information
concerning deposit account overdrafts.
Note 2. Cash and Due from Banks
At December 31, 2006, TCF was required by Federal Reserve
Board regulations to maintain reserve balances of $84.4
million in cash on hand or at the Federal Reserve Bank.
Note 3. Investments
The carrying values of investments, which approximate their
fair values, consist of the following.
At December 31,
(In thousands) 2006 2005
Federal Home Loan Bank stock, at cost:
Des Moines $ 73,630 $53,970
Chicago and Topeka 4,617 4,795
Subtotal 78,247 58,765
Federal Reserve Bank stock, at cost 20,023 20,646
Interest-bearing deposits with banks 859 532
Federal funds sold 71,000 –
Total investments $170,129 $79,943