Cabela's 2013 Annual Report Download - page 30

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at unattractive rates. In addition to the non-brokered certificates of deposit market to fund growth and maturing
securitizations, we have access to the brokered certificates of deposit market through multiple financial institutions
for liquidity and funding purposes. Our ability to issue certificates of deposit is reliant on our current regulatory
capital levels. If WFB were to be classified as an “adequately-capitalized” bank, we would be required to obtain
a waiver from the FDIC in order to continue to issue certificates of deposit and would be limited to what interest
rate we can pay on deposits. At the end of 2013, WFB met the requirements for a “well-capitalized” institution, the
highest of the Federal Deposit Insurance Corporation Improvement Act’s five capital ratio levels.
We may have to reallocate capital from our Retail and Direct businesses to meet the capital needs of
our Financial Services segment, which could alter our retail store expansion program.
WFB must satisfy the capital maintenance requirements of government regulators and its agreement with
Visa U.S.A., Inc. (“Visa”). Although WFB satisfied the requirements for the “well-capitalized” classification under
the regulatory framework for prompt corrective action at the end of 2013, no assurances can be given that WFB
will continue to satisfy such requirements. A variety of factors could cause the capital requirements of WFB to
exceed our ability to generate capital internally or from third party sources. For example, government regulators
or Visa could unilaterally increase their minimum capital requirements. On July 9, 2013, the FDIC adopted interim
final rules which revise its risk-based and leverage capital requirements for FDIC-supervised institutions. These
interim final rules are substantially identical to the joint final rules issued by the Office of the Comptroller of the
Currency and the Board of Governors of the Federal Reserve System on July 2, 2013. The interim final rules and
the joint final rules implement the regulatory capital reforms recommended by the Basel Committee on Banking
Supervision in December 2010, commonly referred to as “Basel III,” and capital reforms required by the Reform
Act. Among other things, the interim final rules and the joint final rules revise the agencies’ prompt corrective
action framework by introducing a common equity tier 1 capital requirement and a higher minimum tier 1 capital
requirement. In addition, the interim final rules and the joint final rules include a supplementary leverage ratio
for depository institutions subject to the advanced approaches capital rules. The phase-in period for the interim
final rules will begin in January 2015 for WFB. Also, we have significant potential obligations in the form of the
unused credit lines of our cardholders. At the end of 2013, these unfunded amounts totaled approximately $25
billion. Draws on these lines of credit could materially exceed predicted line usage. If WFB ceases to qualify as
well-capitalized, WFB would become subject to regulatory restrictions that could materially adversely affect its
liquidity, cost of funds, and ability to conduct normal operations. If WFB’s capital requirements were to increase,
we may have to contribute capital to WFB, which may require us to raise additional debt or equity capital and/
or divert capital from our Retail and Direct businesses, which in turn could significantly alter our retail store
expansion strategy.
It may be difficult to sustain the historical growth and profitability of our Financial Services segment,
and we will be subject to various risks as we attempt to grow the business.
We may not be able to retain existing cardholders, grow account balances, or attract new cardholders and the
profits from our Financial Services segment could decline, for a variety of reasons, many of which are beyond our
control, including:
• credit risk related to the loans we make to cardholders and the charge-off levels of our credit card
accounts;
• inability of cardholders to make payments to us due to economic conditions and limited access to other
credit sources;
• inability to manage credit risk and keep credit models up to date with current consumer credit trends;
• lack of growth of potential new customers generated by our Retail and Direct businesses;
• liquidity and funding risk relating to our ability to create the liquidity necessary to extend credit to our
cardholders and provide the capital necessary to meet the requirements of government regulators and
Visa;
• operational risk related to our ability to acquire the necessary operational and organizational
infrastructure, manage expenses as we expand, and recruit management and operations personnel with
the experience to run an increasingly complex and highly-regulated business; and