Cabela's 2012 Annual Report Download - page 31

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the ability of our Financial Services segment to engage in securitization transactions on favorable terms or at all
could be adversely affected by disruptions in the capital markets or other events, which could adversely affect our
business and cause our Financial Services segment to lose an important source of capital.
Furthermore, even if we are able to securitize our credit card loans consistent with past practice, poor
performance of our securitized loans, including increased delinquencies and credit losses, lower payment rates,
or a decrease in excess spreads below certain thresholds, could result in a downgrade or withdrawal of the ratings
on the outstanding securities issued in our securitization transactions, cause “early amortization” or “early
redemption” of these securities, or result in higher required credit enhancement levels. This could jeopardize
our ability to complete other securitization transactions on acceptable terms, decrease our liquidity, and force
us to rely on other potentially more expensive funding sources, to the extent available, which would decrease
our profitability.
Our current funding strategy also includes a continued reliance on certificates of deposit to help fund growth
and maturing securitizations. If there is an increase in other financial institutions relying on the certificates of
deposit market for liquidity and funding, competition in the deposits market may increase. In addition, FDIC
deposit insurance coverage may be reduced. Either of these events could result in less funds available or funds
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 2012, 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 2012, 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 June 7, 2012, the FDIC and the other
federal banking agencies announced they are seeking comment on proposed rules that would revise and replace
the agencies’ current capital rules. Among other things, the proposed rules would 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 proposed rules include a supplementary leverage ratio for depository
institutions subject to the advanced approaches capital rules. Also, we have significant potential obligations
in the form of the unused credit lines of our cardholders. At the end of 2012, these unfunded amounts totaled
approximately $21 billion. Draws on these lines of credit could materially exceed predicted line usage. If WFB
ceases to qualify as well-capitalized or if a new common equity tier 1 capital requirement and a higher minimum
tier 1 capital requirement are adopted, 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.