JP Morgan Chase 2006 Annual Report Download - page 132

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JPMorgan Chase & Co.
130 JPMorgan Chase & Co. / 2006 Annual Report
The following table presents the risk-based capital ratios for JPMorgan Chase and its significant banking subsidiaries at December 31, 2006, and December 31, 2005:
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, 2006
JPMorgan Chase & Co.(a) $ 81,055 $ 115,265 $ 935,909 $ 1,308,699 8.7% 12.3% 6.2%
JPMorgan Chase Bank, N.A. 68,726 96,103 840,057 1,157,449 8.2 11.4 5.9
Chase Bank USA, N.A. 9,242 11,506 77,638 66,202 11.9 14.8 14.0
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
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 Federal Reserve Board, OCC and FDIC.
(c) Includes off–balance sheet risk-weighted assets in the amounts of $305.3 billion, $290.1 billion and $12.7 billion, respectively, at December 31, 2006, and $279.2 billion, $260.0 billion and
$15.5 billion, respectively, at December 31, 2005, for JPMorgan Chase and its significant banking subsidiaries.
(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 banking 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 Federal Reserve Board and OCC.
The following table shows the components of the Firm’s Tier 1 and Total capital:
December 31, (in millions) 2006 2005
Tier 1 capital
Total stockholders’ equity $ 115,790 $ 107,211
Effect of certain items in Accumulated other
comprehensive income (loss)
excluded from Tier 1 capital(a) 1,562 618
Adjusted stockholders’ equity 117,352 107,829
Minority interest(b) 12,970 12,660
Less: Goodwill 45,186 43,621
Investments in certain subsidiaries 420 401
Nonqualifying intangible assets 3,661 3,993
Tier 1 capital $ 81,055 $ 72,474
Tier 2 capital
Long-term debt and other instruments
qualifying as Tier 2 $ 26,613 $ 22,733
Qualifying allowance for credit losses 7,803 7,490
Less: Investments in certain subsidiaries
and other 206 260
Tier 2 capital $ 34,210 $ 29,963
Total qualifying capital $ 115,265 $ 102,437
(a) Includes the effect of net unrealized gains (losses) on AFS securities, cash flow hedging
activities and, at December 31, 2006, unrecognized amounts related to the Firm’s pension
and OPEB plans.
(b) Primarily includes trust preferred securities of certain business trusts.
Note 27 – Commitments and contingencies
At December 31, 2006, 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 presents required future minimum rental payments under
operating leases with noncancelable lease terms that expire after December 31,
2006:
Year ended December 31, (in millions)
2007 $ 1,058
2008 1,033
2009 962
2010 865
2011 791
After 2011 6,320
Total minimum payments required(a) 11,029
Less: Sublease rentals under noncancelable subleases (1,177)
Net minimum payment required $ 9,852
(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) 2006 2005 2004(a)
Gross rental expense $ 1,266 $ 1,239 $ 1,161
Sublease rental income (194) (192) (158)
Net rental expense $ 1,072 $ 1,047 $ 1,003
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results.
At December 31, 2006, 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) 2006 2005
Reverse repurchase/securities borrowing agreements $ 291 $ 320
Securities 40 24
Loans 117 74
Trading assets and other 108 99
Total assets pledged $ 556 $ 517