TCF Bank 2011 Annual Report Download - page 78

Notes to Consolidated Financial Statements
Note 1. Summary of Significant
Accounting Policies
Basis of Presentation The consolidated financial
statements include the accounts of TCF Financial Corporation
and its wholly owned subsidiaries. TCF Financial Corporation,
a Delaware corporation (“TCF” or the “Company”), is a
national bank holding company engaged primarily in retail
banking and wholesale banking through its primary subsidiary,
TCF National Bank (“TCF Bank”). TCF Bank owns leasing and
equipment finance, inventory finance, auto finance and
Real Estate Investment Trust (“REIT”) subsidiaries. These
subsidiaries are consolidated with TCF Bank and are included
in the consolidated financial statements of TCF Financial
Corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior
years’ financial statements to conform to the current year
presentation. For Consolidated Statements of Cash Flows
purposes, cash and cash equivalents include cash and due
from banks.
The preparation of financial statements in conformity
with U.S. Generally Accepted Accounting Principles
(“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the
reporting period. These estimates are based on information
available to management at the time the estimates are
made. Actual results could differ from those estimates.
Policies Related to Critical Accounting Estimates
Summary of Critical Accounting Estimates Critical
accounting estimates occur in certain accounting policies
and procedures and are particularly susceptible to
significant change. Policies that contain critical accounting
estimates include the determination of the allowance for
loan and lease losses, lease financings and income taxes.
Critical accounting policies are discussed with and reviewed
by TCF’s Audit Committee.
Allowance for Loan and Lease Losses The allowance
for loan and lease losses is maintained at a level believed
by management to be appropriate to provide for probable
loan and lease losses incurred in the portfolio as of the
balance sheet date, including known or anticipated
problem loans and leases, as well as for loans and
leases which are not currently known to require specific
allowances. TCF evaluates the allowance for loans and lease
losses on impaired commercial, equipment finance and
inventory finance loans, as defined in Note 7, Allowance for
Loan and Lease Losses and Credit Quality Information, non-
accrual leases and certain accruing classified commercial,
equipment finance, and inventory finance loans and leases
on an individual basis. Loans evaluated on an individual
basis are classified as “individually evaluated for loss
potential.” Loan impairment on commercial, equipment
finance and inventory finance loans is generally based
upon the present value of the expected future cash flows
discounted at the loan’s initial effective interest rate. The
fair value of the collateral for fully collateral-dependent
loans may be used to measure loan impairment. Accruing
consumer real estate loans classified as troubled debt
restructurings (“TDRs”) are also considered to be impaired
loans, as defined, with the allowance for loan losses for
such loans being determined using the present value of
expected future cash flows. See the discussion in Note 7 for
further information on the determination of the allowance
for losses on accruing consumer real estate TDRs.
The allowance for all other loans and leases is evaluated
collectively by portfolio type and classified as “collectively
evaluated for loss potential.” The collective evaluation
of incurred losses in these portfolios is based upon the
overall risk characteristics of the portfolios, changes in
the character or size of the portfolios, geographic location
and prevailing economic conditions. Additionally, the level
of historical net charge-off amounts, delinquencies in the
loan and lease portfolios, values of underlying loan and
lease collateral and other relevant factors are reviewed to
determine the amount of the allowance.
Loans and leases are charged off to the extent they
are deemed to be uncollectible. Charge-offs related
to confirmed losses are utilized in the historical data
which is used in the allowance for loan and lease losses
calculations. Consumer real estate loans are charged-off
to the estimated fair value of underlying collateral, less
estimated costs to sell, when they are placed on non-
accrual status. Additional review of the fair value, less
cost to sell, compared with the recorded value occurs upon
foreclosure and additional charge-offs are recorded if
60 TCF Financial Corporation and Subsidiaries