JP Morgan Chase 2005 Annual Report Download - page 124

Notes to consolidated financial statements
JPMorgan Chase & Co.
122 JPMorgan Chase & Co. /2005 Annual Report
The following table presents the risk-based capital ratios for JPMorgan Chase and the Firm’s significant banking subsidiaries at December 31, 2005 and 2004:
Tier 1 Total Risk-weighted Adjusted Tier 1 Total Tier 1
(in millions, except ratios) capital capital assets(c) average assets(d) capital ratio capital ratio leverage ratio
December 31, 2005
JPMorgan Chase & Co.(a) $ 72,474 $ 102,437 $ 850,643 $ 1,152,546 8.5% 12.0% 6.3%
JPMorgan Chase Bank, N.A. 61,050 84,227 750,397 995,095 8.1 11.2 6.1
Chase Bank USA, N.A. 8,608 10,941 72,229 59,882 11.9 15.2 14.4
December 31, 2004
JPMorgan Chase & Co.(a) $ 68,621 $ 96,807 $ 791,373 $ 1,102,456 8.7% 12.2% 6.2%
JPMorgan Chase Bank, N.A. 55,489 78,478 670,295 922,877 8.3 11.7 6.0
Chase Bank USA, N.A. 8,726 11,186 86,955 71,797 10.0 12.9 12.2
Well-capitalized ratios(b) 6.0% 10.0% 5.0%(e)
Minimum capital ratios(b) 4.0 8.0 3.0(f)
(a) Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions, whereas the respective amounts for JPMorgan Chase reflect the elimination
of intercompany transactions.
(b) As defined by the regulations issued by the FRB, FDIC and OCC.
(c) Includes off–balance sheet risk-weighted assets in the amounts of $279.2 billion, $260.0 billion and $15.5 billion, respectively, at December 31, 2005, and $250.3 billion, $229.6 billion and
$15.5 billion, respectively, at December 31, 2004.
(d) Average adjusted assets for purposes of calculating the leverage ratio include total average assets adjusted for unrealized gains/losses on securities, less deductions for disallowed goodwill and
other intangible assets, investments in subsidiaries and the total adjusted carrying value of nonfinancial equity investments that are subject to deductions from Tier 1 capital.
(e) Represents requirements for bank subsidiaries pursuant to regulations issued under the Federal Deposit Insurance Corporation Improvement Act. There is no Tier 1 leverage component in
the definition of a well-capitalized bank holding company.
(f) The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4% depending on factors specified in regulations issued by the FRB and OCC.
The following table shows the components of the Firm’s Tier 1 and Total capital:
December 31, (in millions) 2005 2004
Tier 1 capital
Total stockholders’ equity $107,211 $ 105,653
Effect of net unrealized losses on AFS
securities and cash flow hedging activities 618 200
Adjusted stockholders’ equity 107,829 105,853
Minority interest(a) 12,660 11,050
Less: Goodwill 43,621 43,203
Investments in certain subsidiaries 401 370
Nonqualifying intangible assets 3,993 4,709
Tier 1 capital $ 72,474 $ 68,621
Tier 2 capital
Long-term debt and other instruments
qualifying as Tier 2 $ 22,733 $ 20,690
Qualifying allowance for credit losses 7,490 7,798
Less: Investments in certain subsidiaries
and other 260 302
Tier 2 capital $ 29,963 $ 28,186
Total qualifying capital $ 102,437 $ 96,807
(a) Primarily includes trust preferred securities of certain business trusts.
Note 25 – Commitments and contingencies
At December 31, 2005, JPMorgan Chase and its subsidiaries were obligated
under a number of noncancelable operating leases for premises and equipment
used primarily for banking purposes. Certain leases contain renewal options
or escalation clauses providing for increased rental payments based upon
maintenance, utility and tax increases or require the Firm to perform restoration
work on leased premises. No lease agreement imposes restrictions on the
Firm’s ability to pay dividends, engage in debt or equity financing transactions,
or enter into further lease agreements.
The following table shows required future minimum rental payments under oper-
ating leases with noncancelable lease terms that expire after December 31, 2005:
Year ended December 31, (in millions)
2006 $ 993
2007 948
2008 901
2009 834
2010 724
After 5,334
Total minimum payments required(a) 9,734
Less: Sublease rentals under noncancelable subleases (1,323)
Net minimum payment required $ 8,411
(a) Lease restoration obligations are accrued in accordance with SFAS 13, and are not reported
as a required minimum lease payment.
Total rental expense was as follows:
Year ended December 31, (in millions)(a) 2005 2004 2003
Gross rental expense $ 1,269 $ 1,187 $1,061
Sublease rental income (192) (158) (106)
Net rental expense $ 1,077 $ 1,029 $ 955
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.
At December 31, 2005, assets were pledged to secure public deposits and for
other purposes. The significant components of the assets pledged were as follows:
December 31, (in billions) 2005 2004
Reverse repurchase/securities borrowing agreements $ 320 $ 238
Securities 24 49
Loans 74 75
Other(a) 99 90
Total assets pledged $ 517 $ 452
(a) Primarily composed of trading assets.