and in the process of collection. When a loan or lease is placed on non-accrual status, unless collection of all principal and interest is considered to be assured, uncollected interest accrued in prior years is charged off against the allowance for loan and lease losses. Interest accrued in the current year is reversed. For those non-accrual leases that have been funded on a non-recourse basis by third-party finan- cial institutions, the related debt is also placed on non-accrual status. Interest payments received on non-accrual loans and leases are gen- erally applied to principal unless the remaining principal balance has been determined to be fully collectible.  impaired. Deposit based intangibles are amortized over 10 years on an accelerated basis. The Company reviews the recoverability of the carrying values of these assets annually or whenever an event occurs indicating that they may be impaired. See Note 9 for additional information concerning intangible assets and goodwill. Premises and Equipment Premises and equipment are carried at cost and are depreciated or amortized on a straight-line basis over their estimated useful lives.  Other Real Estate Owned Other real estate owned is recorded at the lower of cost or fair value minus estimated costs to sell at the date of transfer to other real estate owned. If the fair value of an asset minus the estimated costs to sell should decline to less than the carry- ing amount of the asset, the deficiency is recognized in the period in which it becomes known and is included in other non-interest expense. Investments in Affordable Housing Investments in afford- able 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 pro- jects. TCF generally utilizes the effective yield method to account for these investments with the tax credits net of the amortization of the investment reflected in the Consolidated Statements of Income as a reduction of income tax expense, however, depend- ing on circumstances, the equity or cost methods may be utilized. The amount of the investment along with any unfunded equity con- tributions 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, 2002, TCF’s investments in affordable housing were $27.2 million, compared with $2.1 million at December 31, 2001. Intangible Assets On January 1, 2002, TCF adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead tested for impairment annually. Upon adoption of SFAS No. 142, TCF performed impairment testing and concluded that goodwill was not At December 31, 2002, TCF was required by Federal Reserve Board (“FRB”) regulations to maintain reserve balances of $43.7 million in cash on hand or at various Federal Reserve Banks. Derivative Financial Instruments TCF utilizes derivative finan- cial instruments to meet the ongoing credit needs of its customers and in order to manage the market exposure of its residential loans held for sale and its commitments to extend credit for residential loans. Derivative financial instruments include commitments to extend credit and forward mortgage loan sales commitments. TCF does not use derivatives to manage its interest rate risk position. See Notes 19 and 20 for additional information concerning these derivative financial instruments. Stock-Based Compensation Effective January 1, 2000, TCF adopted prospectively the recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” for stock-based grants beginning in 2000. Under SFAS No. 123, the fair value of an option or similar equity instrument on the date of grant is amortized to expense over the vesting period of the grant. TCF applied the intrin- sic value based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” as amended, for stock-based transactions through December 31, 1999. Accordingly, no compensation expense has been recognized for any stock option grants made prior to 2000. Compensation expense for restricted stock under SFAS No. 123 and APB Opinion No. 25 is recorded over the vesting periods. The amount of stock option grants accounted for under APB Opinion No. 25 and the related pro-forma impact on net income and earn- ings per share had the recognition provisions of SFAS No. 123 been applied to such grants during 2002, 2001 and 2000 is not mate- rial. See Note 17 for additional information concerning stock- based compensation.  page 53 2. Cash and Due from Banks