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The determination of current and deferred income taxes is a crit- ical accounting policy which is based on complex analyses of many factors including interpretation of Federal and state income tax laws, the differences between tax and financial reporting basis of assets and liabilities (temporary differences), estimates of amounts due or owed such as the timing of reversal of temporary differences and current financial accounting standards. Additionally, there can be no assur- ances that estimates and interpretations used in determining income tax liabilities may not be challenged by Federal and state taxing author- ities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax liabilities. In addition, under generally accepted accounting prin- ciples, deferred income tax assets and liabilities are recorded at the current prevailing Federal and state income tax rates. If such rates change, deferred income tax assets and liabilities must be adjusted in the period of change through a charge or credit through the Consolidated Statement of Income. Further detail on income taxes is provided in Note 14 of Notes to Consolidated Financial Statements. 

## Consolidated Financial Condition Analysis 

Investments Total investments, which include interest-bearing deposits with banks, federal funds sold, Federal Home Loan Bank (“FHLB”) stock, Federal Reserve Bank stock and other investments, decreased $2.2 million to $153.7 million at December 31, 2002. The decrease primarily reflects a decrease of $2.3 million in FHLB 

stock. TCF is required to invest in FHLB stock in proportion to its level of mortgage assets (defined as mortgage-backed securities and residential and consumer 1-4 family and multi-family loans) and the level of borrowings from the FHLB. TCF had no non-investment grade debt securities (junk bonds) and there were no open trading account or investment option positions as of December 31, 2002 or 2001. 

Securities Available for Sale Securities available for sale increased $842.1 million during 2002 to $2.4 billion at December 31, 2002. This increase reflects purchases of $2 billion of mortgage- backed securities, partially offset by sales of $473.9 million in which the Company recognized $11.5 million in gains on sales of securi- ties available for sale, and normal payment and prepayment activity. At December 31, 2002, TCF’s securities available-for-sale port- folio included $2.4 billion and $18.3 million of fixed-rate and adjustable-rate mortgage-backed securities, respectively. Net unre- alized pre-tax gains on securities available for sale totaled $72.3 mil- lion at December 31, 2002, compared with $9.8 million at December 31, 2001. 

Loans Held for Sale Loans held for sale included residential mortgage and education loans. Residential mortgage loans held for sale were $277.4 million and $286.6 million at December 31, 2002 and 2001, respectively. Education loans held for sale were $199.1 mil- lion and $165.1 million at December 31, 2002 and 2001, respectively. 

Loans and Leases The following tables set forth information about loans and leases held in TCF’s portfolio, excluding loans held for sale: 

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