JP Morgan Chase 2006 Annual Report Download - page 110

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JPMorgan Chase & Co.
108 JPMorgan Chase & Co. / 2006 Annual Report
Note 10 – Securities
Securities are classified as AFS, Held-to-maturity (“HTM”) or Trading. Trading
securities are discussed in Note 4 on page 98 of this Annual Report. Securities
are classified primarily as AFS when purchased as part of the Firm’s manage-
ment of its structural interest rate risk. AFS securities are carried at fair value
on the Consolidated balance sheets. Unrealized gains and losses after SFAS
133 valuation adjustments are reported as net increases or decreases to
Accumulated other comprehensive income (loss). The specific identification
method is used to determine realized gains and losses on AFS securities,
which are included in Securities gains (losses) on the Consolidated statements
of income. Securities that the Firm has the positive intent and ability to hold
to maturity are classified as HTM and are carried at amortized cost on the
Consolidated balance sheets. The Firm has not classified new purchases of
securities as HTM for the past several years.
The following table presents realized gains and losses from AFS securities:
Year ended December 31,
(in millions) 2006 2005 2004(b)
Realized gains $ 399 $ 302 $ 576
Realized losses (942) (1,638) (238)
Net realized Securities gains (losses)(a) $ (543) $(1,336) $ 338
(a) Proceeds from securities sold were generally within 2% of amortized cost.
(b) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results.
Note 9 – Noninterest expense
Merger costs
Costs associated with the Merger and The Bank of New York transaction are
reflected in the Merger costs caption of the Consolidated statements of
income. A summary of such costs, by expense category, is shown in the fol-
lowing table for 2006, 2005 and 2004.
Year ended December 31, (in millions) 2006 2005 2004(c)
Expense category
Compensation $26 $ 238 $ 467
Occupancy 25 (77) 448
Technology and communications and other 239 561 450
Bank of New York transaction(a) 15 ——
Total(b) $ 305 $ 722 $ 1,365
(a) Represents Compensation and Technology and communications and other.
(b) With the exception of occupancy-related write-offs, all of the costs in the table require the
expenditure of cash.
(c) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results.
The table below shows the change in the liability balance related to the costs
associated with the Merger.
Year ended December 31, (in millions) 2006 2005(b) 2004(c)
Liability balance, beginning of period $ 311 $ 952 $ —
Recorded as merger costs 290 722 1,365
Recorded as goodwill —(460) 1,028
Liability utilized (446) (903) (1,441)
Liability balance, end of period $ 155(a) $ 311 $ 952
(a) Excludes $21 million related to The Bank of New York transaction.
(b) 2005 has been revised to reflect the current presentation.
(c) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results.