Wells Fargo 2014 Annual Report Download - page 164

Note 6: Loans and Allowance for Credit Losses (continued)
Commitments to Lend
A commitment to lend is a legally binding agreement to lend
funds to a customer, usually at a stated interest rate, if funded,
and for specific purposes and time periods. We generally require
a fee to extend such commitments. Certain commitments are
subject to loan agreements with covenants regarding the
financial performance of the customer or borrowing base
formulas on an ongoing basis that must be met before we are
required to fund the commitment. We may reduce or cancel
consumer commitments, including home equity lines and credit
card lines, in accordance with the contracts and applicable law.
We may, as a representative for other lenders, advance
funds or provide for the issuance of letters of credit under
syndicated loan or letter of credit agreements. Any advances are
generally repaid in less than a week and would normally require
default of both the customer and another lender to expose us to
loss. These temporary advance arrangements totaled
approximately $87 billion at both December 31, 2014, and
December 31, 2013.
We issue commercial letters of credit to assist customers in
purchasing goods or services, typically for international trade. At
both December 31, 2014 and 2013, we had $1.2 billion of
outstanding issued commercial letters of credit. We also
originate multipurpose lending commitments under which
borrowers have the option to draw on the facility for different
purposes in one of several forms, including a standby letter of
credit. See Note 14 (Guarantees, Pledged Assets and Collateral)
for additional information on standby letters of credit.
When we make commitments, we are exposed to credit risk.
The maximum credit risk for these commitments will generally
be lower than the contractual amount because a significant
portion of these commitments are expected to expire without
being used by the customer. In addition, we manage the
potential risk in commitments to lend by limiting the total
amount of commitments, both by individual customer and in
total, by monitoring the size and maturity structure of these
commitments and by applying the same credit standards for
these commitments as for all of our credit activities.
For loans and commitments to lend, we may require
collateral or a guarantee. We may require various types of
collateral, including commercial and consumer real estate,
automobiles, other short-term liquid assets such as accounts
receivable or inventory and long-lived asset, such as equipment
and other business assets. Collateral requirements for each loan
or commitment may vary based on the loan product and our
assessment of a customer's credit risk according to the specific
credit underwriting, including terms and structure.
The contractual amount of our unfunded credit
commitments, including unissued standby and commercial
letters of credit, is summarized by portfolio segment and class of
financing receivable in the following table. The table excludes
standby and commercial letters of credit issued under the terms
of our commitments and temporary advance commitments on
behalf of other lenders.
Dec 31, Dec 31,
(in millions) 2014 2013
Commercial:
Commercial and industrial $ 278,093 250,986
Real estate mortgage 6,134 5,993
Real estate construction 15,587 12,612
Lease financing 3 —
Total commercial 299,817 269,591
Consumer:
Real estate 1-4 family first
mortgage 32,055 32,908
Real estate 1-4 family junior lien
mortgage 45,492 47,667
Credit card 95,062 79,049
Other revolving credit and
installment 24,816 24,216
Total consumer 197,425 183,840
Total unfunded credit
commitments $ 497,242 453,431
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