President s Choice Bank

Transcription

1 Basel III Pillar 3 Disclsures President s Chice Bank Page 1 f 17 President s Chice Bank BASEL III PILLAR 3 DISCLOSURES December 31, 2015

2 Basel III Pillar 3 Disclsures President s Chice Bank Page 2 f 17 Table f Cntents Table f Cntents... 2 TABLE 1 OVERVIEW & SCOPE OF APPLICATION... 3 TABLE 2/3 CAPITAL STRUCTURE AND ADEQUACY... 5 TABLE 4 CREDIT RISK: GENERAL DISCLOSURES FOR ALL BANKS... 7 TABLE 5 CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO THE STANDARDIZED APPROACH TABLE 6 CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB APPROACHES TABLE 7 CREDIT RISK MITIGATION TABLE 8 GENERAL DISCLOSURE FOR EXPOSURES RELATED TO COUNTERPARTY CREDIT RISK TABLE 9 SECURITIZATION: DISCLOSURE FOR STANDARDISED APPROACH TABLE 10 /11 MARKET RISK TABLE 12 OPERATIONAL RISK TABLE 13 EQUITIES: DISCLOSURES FOR BANKING BOOK POSITIONS TABLE 14 INTEREST RATE RISK LIQUIDITY RISK CURRENCY RISK REMUNERATION... 16

3 Basel III Pillar 3 Disclsures President s Chice Bank Page 3 f 17 TABLE 1 OVERVIEW & SCOPE OF APPLICATION This dcument represents the Basel III Pillar 3 disclsures fr President s Chice Bank ( PC Bank r the the Bank ). These disclsures are made pursuant t OSFI s Pillar 3 Disclsure Requirements issued in Nvember 2007, and OSFI s Basel III Pillar 3 requirements Advisry issued in July Basel III, issued in June 2011, is part f the Basel Cmmittee's cntinuus effrt t enhance the banking regulatry framewrk. It builds n the Internatinal Cnvergence f Capital Measurement and Capital Standards dcument (Basel II). Basel III is structured arund 3 pillars: Pillar 1: Minimum Capital Requirements Pillar 2: The Supervisry Review Prcess Pillar 3: Market Discipline Pillar 3 cmplements bth Pillars 1 and 2, by setting disclsure requirements which will allw market participants t assess key pieces f infrmatin n the scpe f applicatin, capital, risk expsures, risk assessment prcesses, and hence the capital adequacy f PC Bank. OSFI requires all institutins t implement the Basel III framewrk, and the new cmpsitin f capital disclsure requirements. This dcument presents capital structure and adequacy calculatins based n Basel III guidelines n bth an All-in basis (after the transitin perid fr the phasing-in f deductins ends n January 1, 2019) and a Transitinal basis (befre January 1, 2019) as per OSFI requirement. This reprt is unaudited and is reprted in Thusands f Canadian Dllars, unless therwise disclsed. President s Chice Bank Overview PC Bank is a Schedule I Canadian chartered bank gverned by the Bank Act (Canada) and is a whlly wned subsidiary f Lblaw Cmpanies Limited ( LCL ). In assciatin with ther financial institutins, PC Bank ffers, under the President s Chice Financial brand, a cmplete line f retail financial services prducts t individuals wh reside in Canada. The key business lines f PC Bank are as fllws: Credit Card PC Bank launched its credit card prgram in 2001 and currently ffers the President s Chice Financial MasterCard ( PC MasterCard ) acrss Canada. The PC MasterCard prduct attributes include n annual fee and a cmpetitive rewards prgram which allws custmers t earn and redeem PC Pints fr free grceries at LCL stres. PC Bank recrds the credit card receivables and assciated funding n its balance sheet. In 2014, PC Bank launched the ffering f its prepaid MasterCard. Cre Banking PC Bank launched its cre banking business in 1998 thrugh a strategic partnership with a majr Canadian Chartered Bank ( Strategic Partner ). Under the President s Chice Financial brand, retail banking prducts are sld nline and in LCL stres at banking pavilins perated by the Strategic Partner. All depsits, investments and lending prducts issued under the PC Financial brand are recrded by the Strategic Partner n its balance sheet. PC Bank earns incme thrugh this partnership.

4 Basel III Pillar 3 Disclsures President s Chice Bank Page 4 f 17 GIC s PC Bank launched a brker riginated GIC prgram in The GIC s ffered by PC Bank are insured by Canadian Depsit Insurance Crpratin ( CDIC ). PC Bank sells nminee name GIC s thrugh a number f brkers in Canada. Crprate Gvernance The Bank maintains a rigrus crprate gvernance structure as fllws: Bard f Directr s Oversight Risk Cmmittee Audit Cmmittee Cnduct Review Cmmittee Gvernance Cmmittee Senir Management Oversight thrugh the fllwing: Asset Liability Cmmittee ( ALCO ) assists the Risk Cmmittee f the Bard in Overseeing PC Bank s risk management activities by prviding strategic directin n the management f liquidity risk, interest rate risk, investment risk, and ther aspects f Asset Liability Management; Ensuring that PC Bank has the apprpriate quantity and quality f capital, cnsidering its strategic directin & business plans, its risk prfile, its emerging risks and stress tests; and Practively assessing the balance sheet dynamics, having regard t ecnmic data and frecasts, PC Bank s legal structure, market develpments, accunting prnuncements, etc. Enterprise Risk Management Cmmittee ( ERMC ) prvides stewardship ver the identificatin, definitin, assessment, management, cntrl, measurement, mnitring and reprting f PC Bank s enterprise risks. Credit Risk and Fraud Management Cmmittee ( CRFMC ) has the fllwing key respnsibilities: Prviding a gvernance structure that versees the Credit Risk Management prgram, including the assciated strategies, plicies and prcedures; Ensuring that Credit Risk and Fraud Risk frecasts are apprpriate giving cnsideratin t PC Bank s strategic directins, risk prfile and appetite, emerging risks and stress tests; Prviding guidance n the methdlgy t cntinually identify, define, assess, manage, and reprt Credit Risk and Fraud Risk expsure. Operatinal Risk Management Cmmittee ( ORMC ) is respnsible fr planning, directing, mnitring and cntrlling the impact n PC Bank f risks arising frm its peratins. Its key respnsibilities include: Ensuring PC Bank s cmpliance with peratinal mandates, plicies and prcedures, and gverning legislatin; Overseeing risk appetite, business cntinuity management, infrmatin security, internal cntrl, utsurcing, scial media, legal and regulatry risks management; Overseeing the anti-mney laundering and anti-terrrist prgram;

5 Basel III Pillar 3 Disclsures President s Chice Bank Page 5 f 17 Overseeing ther peratinal risks. Internal Audit ( IAS ) assists Management in accmplishing its bjectives by bringing a systematic, bjective and disciplined apprach t evaluate and imprve the effectiveness f PC Bank s risk management, cntrl and gvernance prcesses. TABLE 2/3 CAPITAL STRUCTURE AND ADEQUACY QUALITATIVE DISCLOSURES PC Bank Risk Management PC Bank calculates its regulatry capital based n the fllwing methdlgies: PC Bank manages its credit risk using the standardized apprach PC Bank des nt maintain a trading prtfli, and has minimal market risk frm its high quality liquid asset prtfli; and PC Bank s peratinal risk is mnitred using the Basic Indicatr Apprach. PC Bank has implemented a cmprehensive Internal Capital Adequacy Assessment Prcess ( ICAAP ) t identify and assess the material risks that PC Bank faces t ensure that sufficient quality and quantity f capital is available. PC Bank is cnfident that the Pillar I and Pillar II calculatins are apprpriate given the PC Bank s business mdel, inherent risks, internal cntrls and tls t manage risks and residual risks. The results f the ICAAP perfrmed by PC Bank cnclude that the Bank is strngly capitalized. The guiding principles f ICAAP are summarized belw: Prprtinality: The design f the Bank s ICAAP is prprtinate t the risk level, cmplexity and scale f PC Bank s activities. Frward Lking: In the prcess f ICAAP, PC Bank cnsiders nt nly the existing risks faced but als the emerging risks and future business strategies. Onging exercise: PC Bank s ICAAP is nt a static ne-time prcess but rather a dynamic and cntinuus exercise t ensure that the PC Bank has rbust risk management systems and pssesses sufficient capital at all times fr risks. Evlving-nature: ICAAP is cntinuusly mnitred fr imprvement in accrdance with changes t the risk prfile and business plans f PC Bank. Use test: The methdlgy and risk limit structures used t measure and cmpute risk under ICAAP is integrated within the day t day risk practices f PC Bank thrugh the ERM risk mnitring prgram. Specific limits and tlerances are mnitred fr capital & capital ratis n a mnthly basis by the ERMC t ensure that PC Bank stays within it risk appetite fr all capital risks including thse relating t ICAAP. Grss Cmmn Equity Tier I Capital The capital structure f PC Bank cnsists f the fllwing which cmbine t frm PC Bank s Grss Cmmn Equity Tier I Capital: Cmmn Shares; Retained Earnings; Cntributed Surplus; and Accumulated Other Cmprehensive Incme ( AOCI ) The Bank is a whlly wned subsidiary f Lblaw Cmpanies Limited. The Bank has authrized an unlimited number f cmmn shares withut par value. As at December 31, 2015, PC Bank had 42,002 cmmn shares issued and utstanding.

6 Basel III Pillar 3 Disclsures President s Chice Bank Page 6 f 17 QUANTITATIVE DISCLOSURES All-in Transitinal Ttal Capital 1 Directly issued qualifying cmmn share capital plus related stck surplus 47,412 2 Retained Earnings 828,950 3 Accumulated ther cmprehensive incme (and ther reverves) Cmmn Equity Tier 1 capital befre regulatry adjustments 877, Ttal regulatry adjustments t Cmmn Equity Tier 1 (21,061) 29 Cmmn Equity Tier 1 Capital (CET1) 856, , Additinal Tier 1 capital (AT1) - 45 Tier 1 capital (T1= CET1 + AT1) 856, , Tier 2 capital (T2) - 59 Ttal Capital (TC= T1 + T2) 856, ,292 Risk Weighted Assets Calculatin (Standard Apprach) 60 Ttal Risk Weighted Assets 3,064,267 3,076,237 Captial Rati 61 Cmmn Equity Tier 1 (as % f risk-weighted assets) 27.94% 28.23% 62 Tier 1 (as % f risk-weighted assets) 27.94% 28.23% 63 Ttal Capital (as % f risk-weighted assets) 27.94% 28.23% OSFI All-in Target December 31, Cmmn Equity Tier 1 capital all-in target rati 7.0% 70 Tier 1 capital all-in target rati 8.5% 71 Ttal capital all-in target rati 10.5%

7 Basel III Pillar 3 Disclsures President s Chice Bank Page 7 f 17 Leverage Rati disclsure as at December 31, 2015 On-balance sheet expsures 1 On-balance sheet items (excluding derivatives, SFTs and grandfathed securitizatin expsures but including cllateral) 3,065,100 2 (Asset amunts deducted in determining Basel III "all-in" Tier 1 capital) (21,061) 3 Ttal n-balance sheet expsures (excluding derivatives and SFTs) 3,044,039 Derivative Expsures 4 Replacement cst assciated with all derivative transactins (i.e. net f 3,812 eligible cash variatin margin) 5 Add-n amunt fr PFE assciated with all derivative transactins Ttal derivative expsures 4,279 Other ff-balance sheet expsures 17 Off-balance sheet expsure at grss ntinal amunt 9,103, (Adjustments fr cnversin t credit equivalent amunt) (8,193,231) 19 Off-balance sheet items 910,359 Capital and Ttal Expsures 20 Tier 1 capital 856, Ttal Expsures 3,958,677 Leverage Ratis 22 Basel III leverage rati TABLE 4 CREDIT RISK: GENERAL DISCLOSURES FOR ALL BANKS QUALITATIVE DISCLOSURES The credit risk assciated with PC Bank s credit card prtfli is defined as the risk f financial lss resulting frm the failure f a debtr, fr any reasn, t fully hnur its financial r cntractual bligatins. PC Bank is expsed t credit risk thrugh: Acquisitin strategies that grant credit t new clients; and Accunt management strategies that grant additinal credit t existing clients.

8 Basel III Pillar 3 Disclsures President s Chice Bank Page 8 f 17 PC Bank acts as an unsecured lender with the bjective f managing a prtfli f receivables within the Bard apprved credit risk appetite and in accrdance with the Credit Risk Management & Fraud Plicy. The Credit Risk and Fraud Management Department ( CRFM ) is mandated t manage the prtfli and ensure that its cncentratins and risk metrics are within the limits prescribed by the risk appetite. T achieve this, CRFM must develp effective credit granting, prtfli management, cllectin and fraud detectin plicies and prcedures which cntrl the nature, characteristics, diversity and quality f the credit card prtfli. CRFM must effectively measure and reprt n key risk indicatrs at a department level as well as t external and internal versight persnnel. In additin t regular audit and regulatry versight activities, the bard has established the Credit Risk and Fraud Management Cmmittee. The cmmittee is respnsible t assess, review and mnitr credit and fraud risks t the bank. This includes versight f the key indicatrs, strategy changes, mdel validatin and plicy/prcess change management activities that have been deemed material. All cmmittee activities are regularly reprted t the Bard via the cmmittee reprt and the Enterprise Risk Management Cmmittee Reprt f the bank. Allwance fr Credit Card Lsses The measurement f the allwance fr credit card lsses is cntained within the Bard f Directrs apprved Allwance fr Credit Risk plicy. The allwance fr credit card lsses is established fr impaired lans n the PC Bank s lan prtfli when a lss event has ccurred. PC Bank fllws cllective allwance apprach in measuring the allwance fr credit card lsses. Objective evidence used t identify impaired lans is the cardhlder entering int bankruptcy and/r defaulting/becming delinquent n their lan bligatin. Key prtfli perfrmance metrics which impact the lan lss amunt, such as mnthly write-ff rates as a percentage f average receivables and delinquency measures, as well as key macr-ecnmic data are used in assessing the adequacy f the allwance fr credit card lsses. The allwance fr credit card lsses is reviewed and recmmended by the VP, Credit Risk and the Chief Financial Officer t the Bard f Directrs fr ultimate apprval. Fr accunting purpses, credit card lans are stated at their amrtized cst, which is net f an allwance fr credit card lsses. Any credit card lan with a payment that is cntractually 180 days in arrears, r where likelihd f cllectin is cnsidered remte, is written ff. QUANTITATIVE DISCLOSURES The fllwing infrmatin prvides quantitative analysis f PC Bank s ttal credit card prtfli by accunt balance, credit limit, delinquency and gegraphy.

9 Basel III Pillar 3 Disclsures President s Chice Bank Page 9 f 17 Ttal Accunts as at December Number f Percentage f Receivables Percentage f Accunt Balances Accunts Ttal Accunts Outstanding (in $) Ttal Receivables Credit Balance 194, % $ (18,238,727) -0.65% N Balance 2,021, % $ % LT r equal $ , % $ 111,652, % $ t $ , % $ 207,942, % $1, t $3, , % $ 847,630, % $3, t $5, , % $ 615,829, % $5, t $10, , % $ 741,197, % GT $10, , % $ 320,653, % Ttals 3,794, % $ 2,826,667, % Ttal Accunts as at December Number f Percentage f Receivables Percentage f Credit Limits Accunts Ttal Accunts Outstanding (in $) Ttal Receivables LT r equal $ , % $ 12,984, % $ t $ , % $ 85,330, % $1, t $3, , % $ 439,468, % $3, t $5, , % $ 467,365, % $5, t $10, , % $ 887,429, % GT $10, , % $ 934,088, % Ttals 3,794, % $ 2,826,667, %

10 Basel III Pillar 3 Disclsures President s Chice Bank Page 10 f 17 Ttal Accunts as at December Number f Percentage f Receivables Percentage f Days Delinquent Accunts Ttal Accunts Outstanding (in $) Ttal Receivables Current (1) 3,696, % $ 2,634,871, % 1 day t 29 days 62, % $ 122,057, % 30 days t 59 days 13, % $ 25,022, % 60 days t 89 days 7, % $ 14,891, % 90 days + 13, % $ 29,824, % Ttals 3,794, % $ 2,826,667, % Nte 1: Current categry includes zer balance, credit balance, and transfers accunts. Ttal Accunts as at December Number f Percentage f Receivables Percentage f Prvince Accunts Ttal Accunts Outstanding (in $) Ttal Receivables Alberta 463, % $ 370,690, % British Clumbia 540, % $ 366,321, % Manitba 156, % $ 138,461, % New Brunswick 59, % $ 42,172, % Newfundland & Labradr 23, % $ 18,347, % Nva Sctia 105, % $ 79,480, % Nrthwest Territries 2, % $ 1,501, % Nunavut % $ 217, % Ontari 1,998, % $ 1,510,297, % Prince Edward Island 14, % $ 9,923, % Quebec 329, % $ 204,900, % Saskatchewan 92, % $ 80,237, % Yukn 4, % $ 3,280, % Other 3, % $ 835, % Ttals 3,794, % $ 2,826,667, %

11 Basel III Pillar 3 Disclsures President s Chice Bank Page 11 f 17 Allwance fr Credit Card Lsses: The fllwing are the changes in the allwance fr credit card lsses fr the twelve mnths ended December 31, 2015: Allwance fr Credit Card Lsses, beginning f year $ 53,958 Prvisin fr credit card lsses 117,594 Recveries 16,329 Write-ffs (133,642) Allwance fr Credit Card Lsses, December 31, 2015 $ 54,239 TABLE 5 CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO THE STANDARDIZED APPROACH PC Bank invests in gvernment issued r guaranteed securities and cash depsit with regulated financial institutins. (see details in Table 8). TABLE 6 CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB APPROACHES PC Bank manages credit risk using the standardised apprach, and as such, the bank des nt have any prtflis subject t the Internal Ratings-Based (IRB) apprach. TABLE 7 CREDIT RISK MITIGATION PC Bank s lans receivable cnsists f credit card receivables exclusively. The credit card lans are unsecured and are nt guaranteed. The bank invests in gvernment issued r guaranteed securities and cash depsits with regulated financial institutins. PC Bank has immaterial credit risk frm its high quality liquid asset prtfli. TABLE 8 GENERAL DISCLOSURE FOR EXPOSURES RELATED TO COUNTERPARTY CREDIT RISK PC Bank des nt have large cunterparty expsure t financial guarantrs, investment banks r derivative cunterparties. PC Bank cnservatively manages its cunterparty credit risk expsures by setting internal limits n ttal expsure, tenr and ratings fr each f the cunterparties. During 2015, PC Bank entered int USD freign exchange frward agreements t hedge its expsure n certain USD payables. These agreements, which mature n varius dates up t December 2016, qualify fr hedge accunting as cash flw hedges f future freign currency transactins. In the secnd quarter f 2015, in cnnectin with expected funding needs in the latter half f 2015, PC Bank entered int bnd frward agreements t hedge its expsure t interest rate changes prir t btaining financing. These agreements matured in 2015, and qualified fr hedge accunting as cash flw hedges f future interest payments. Subsequent t the end f 2015, PC Bank entered int interest rate swaps and shrt term bnd frwards t manage its interest rate expsures. These agreements qualified fr hedge accunting.

12 Basel III Pillar 3 Disclsures President s Chice Bank Page 12 f 17 The cunterparty expsure t the derivative cunterparties has been included in the table belw. QUANTITATIVE DISCLOSURES December 31, 2015 Amunt Risk Weight Depsits with Regulated Financial Institutins $ 18,782 20% Depsits with Regulated Financial Institutins $ 9,698 50% Gvernment Issued r Guaranteed Securities $ 184,310 0% Derivatives expsures $ 4,279 20% TABLE 9 SECURITIZATION: DISCLOSURE FOR STANDARDISED APPROACH QUALITATIVE DISCLOSURES Securitizatin Risk is defined as the inability t secure suitable securitizatin arrangements fr funding purpses and PC Bank s failure t meet the securitizatin cvenant requirements. PC Bank acts as the riginatr and spnsr f its securitizatin prgram. PC Bank des nt invest in asset backed securities r prvide liquidity facilities fr asset backed cmmercial paper. PC Bank is dependent n its securitizatin prgram t finance a prtin f its credit card receivables. The securitizatin prgram includes fllwing tw key channels. Term Ntes issued by Eagle Credit Card Trust: During 2010, Eagle Credit Card Trust issued $350 millin f 3.58% senir and subrdinated medium term ntes which matured and were repaid n December 17, During 2013, Eagle Credit Card Trust issued $400 millin f senir and subrdinated term ntes with a maturity date f Octber 17, 2018 at a weighted average interest rate f 2.91%. In September 2015, Eagle Credit Card Trust issued $250 millin f senir and subrdinated term ntes with a maturity date f September 17, 2020 at a weighted average interest rate f 2.23%. Asset Backed Cmmercial Paper issued by Other Independent Securitizatin Trusts at variable rates which matures by On August 25, 2014, Eagle engaged Fitch t rate its utstanding series f ntes. The ratings are disclsed in the table belw. On Octber 8, 2014, Mdy s annunced that it upgraded Eagle Class B Ntes t Aa2 (sf) and Class C Ntes t A2 (sf) fr bth series. Eagle Class A Ntes were cnfirmed by Mdy s fr Aaa (sf) rating. On April 30, 2015 Mdy s upgraded the tw series f Class C Ntes t A1 (sf).

13 Basel III Pillar 3 Disclsures President s Chice Bank Page 13 f 17 During 2015, PC Bank recrded a $55 millin net reductin f c-wnership interest in the securitized receivables held with the Other Independent Securitizatin Trusts. Subsequent t the end f 2015, PC Bank reduced $100 millin f c-wnership interests in the securitized receivables held by the Other Independent Securitizatin Trusts. Eagle Credit Card Trust - Ratings Infrmatin As at December 31, 2015 DBRS Fitch Mdy's Eagle Series Class A Ntes AAA (sf) AAA (sf) Aaa (sf) Eagle Series Class B Ntes A (sf) A (sf) Aa2 (sf) Eagle Series Class C Ntes BBB (sf) BBB (sf) A1 (sf) Eagle Series Class A Ntes AAA (sf) AAA (sf) NA Eagle Series Class B Ntes A (sf) A (sf) NA Eagle Series Class C Ntes BBB (sf) BBB (sf) NA QUANTITATIVE ANALYSIS: (In Millins f Canadian Dllars) December 31, 2015 Credit card receivables, net f allwance fr impairment $ 2,774 Securitized t Eagle Credit Card Trust $ 650 Securitized t Other Independent Securitizatin Trusts $ 550 TABLE 10 /11 MARKET RISK PC Bank des nt maintain a trading prtfli, and has minimal market risk frm its high quality liquid asset prtfli. TABLE 12 OPERATIONAL RISK PC Bank uses the basic indicatr apprach t measure peratinal risk.

14 Basel III Pillar 3 Disclsures President s Chice Bank Page 14 f 17 TABLE 13 EQUITIES: DISCLOSURES FOR BANKING BOOK POSITIONS PC Bank des nt have any banking bk r equity prtflis. Therefre, the bank has n equity risk. TABLE 14 INTEREST RATE RISK QUALITATIVE DISCLOSURES Interest Rate Risk is defined as the risk f lss resulting frm changes in interest rates r in the vlatility f interest rates; this includes the rising cst f funds and lwer margins experienced as interest rates rise. T mitigate this risk, the Bank undertakes the fllwing mitigatin steps: The Interest Rate Risk Plicy is the key Bard plicy that gverns Interest Rate risk at PC Bank. Key principles f the Interest Rate Risk Plicy are: Preserving the lng-term value f the spread incme generated by its business, regardless f changes in interest rates Managing asset and liability cash flws in a way that maximizes earnings within apprved risk appetite levels; Management is respnsible fr mnitring, managing and reprting interest rate risk in accrdance with Bard apprved plicies. ALCO meets n a mnthly basis and reviews the cst f funds by channel, the funding plan, the fixed flating mix and n a mnthly basis reviews the sensitivity f Net Interest Incme f PC Bank and regulatry capital t parallel and nn-parallel mvement in interest rates. ALCO reprts t the Risk Cmmittee f the Bard n a quarterly basis. On an annual basis, the Risk Cmmittee f the Bard apprves the Interest Rate Risk Management plan. Frm time t time, PC Bank may enter int derivative cntracts t manage interest rate risk. In the secnd quarter f 2015, in cnnectin with expected funding needs in the latter half f 2015, PC Bank entered int bnd frward agreements t hedge its expsure t interest rate changes prir t btaining financing. QUANTITATIVE ANALYSIS Limit Structure - PC Bank mnitrs the fllwing limits t ensure adherence t the abve listed plicies Fixed Flating Mix REQUIREMENT: An adequate mix f fixed and flating-rate instruments serves t ensure diversificatin f interest rate expsure. The acceptable range fr the flating prtin f the mix is set t be between 10% and 40%. The acceptable range fr the fixed prtin f the mix is set t be between 60% and 90%. As f December 31, 2015, PC Bank had 20% f the expsures that were flating in nature and 80% fixed in nature.

15 Basel III Pillar 3 Disclsures President s Chice Bank Page 15 f 17 Net Interest Incme ( NII ) Sensitivity (All measured in Canadian Dllars) REQUIREMENT: Fr ±200 bps adverse parallel mvement in interest rates, impact nt mre than 7.5% f 12-mnth frward Net Interest Incme. As f December 31, 2015, Net Interest Incme sensitivity rati f PC Bank was 3.52% fr a 200 bps adverse mvement in interest rates. Market Value Sensitivity (All measured in Canadian Dllars) REQUIREMENT: Fr ±200 bps parallel mvement the impact n regulatry capital is nt mre than 10% As f December 31, 2015, Market Value sensitivity f PC Bank was 2.31% fr a 200 bps adverse mvement in interest rates. LIQUIDITY RISK PC Bank s apprach t managing liquidity risk Liquidity refers t the capacity f PC Bank t generate r btain sufficient cash r its equivalent in a timely manner at a reasnable price t meet its cmmitments as they fall due and t fund new business pprtunities as part f ging-cncern peratins. Liquidity risk is the ptential fr lsses t be incurred frm hlding insufficient liquidity t survive a cntingent stress event. In May 2014, OSFI released the final Guideline n Liquidity Adequacy Requirements ( LAR ). The LAR guideline establishes tw minimum standards based n the Basel III framewrk: the Liquidity Cverage Rati ( LCR ) effective January 1, 2015, and the net Stable Funding Rati (NSFR) effective January 1, The Bank is required t cmply with a LCR limit frm January During 2015, PC Bank was in cmpliance with the LCR requirements. PC Bank hlds liquid assets in the frm f balances with banks and high quality securities sufficient t meet its regulatry and peratinal needs as well as expected and unexpected utflws. Liquid assets are als mnitred daily and supprted by a range f early warning indicatrs. As at December 31, 2015, liquid assets were $213 millin. PC Bank has a cmprehensive liquidity risk framewrk guided by: Bard apprved plicies reviewed at least annually; Bard apprved funding plan that prvides effective diversificatin in the surces and tenr f funding; Sensitivity analysis and stress testing n a regular basis fr a variety f scenaris; and Ensuring Treasury peratins are supprted by apprpriate expertise and capabilities.

16 Basel III Pillar 3 Disclsures President s Chice Bank Page 16 f 17 CURRENCY RISK PC Bank is expsed t immaterial currency risk as the bank carries insignificant assets in freign currency. Frm time t time, PC Bank may enter int derivative cntracts t manage currency risk related t expenses paid t the US vendrs. Please refer t Table 8 fr further infrmatin. REMUNERATION QUALITATIVE DISCLOSURES Overall Cmpnents f Cmpensatin The framewrk f PC Bank cmpensatin prgram fr senir executives is cmprised f base salary, shrt-term cash incentives and a lng term incentive plan. Base salary reflects the senir executives : (a) level f respnsibility (b) skill and experience, (c) market value f the psitin and (d) verall perfrmance bth individually and in their business unit. Rles reviewed against market, internal cmparatrs and external cmparatrs. Base salary is reviewed annually and as required by market cnditins. Shrt Term Incentive Plan PC Bank s shrt term incentive plan ( STIP ) is designed t mtivate the senir executives t meet the crpratin s annual business and financial bjectives. Every fiscal year, the perfrmance f each individual is measured against the achievement f specific financial and perfrmance gals which vary frm year t the next. The STIP prgram is based n perfrmance against varius different perfrmance measures that are designed t fcus bth executive and clleagues n key drivers f the business as well as value creatin ver bth the shrt and lng term. The STIP is a self-funded prgram with minimum financial threshld gals must be achieved in rder t be eligible fr a payut. Shrt-term incentive award targets are determined based n specific factrs including rle cmplexity, scpe and impact f a rle ver a 12 mnth perid. All participating clleagues have a shrt term cash incentive target that is expressed as a percentage f base salary determined by psitin and level within the rganizatin. Depending n actual perfrmance relative t set perfrmance targets, cash payuts range frm zer t the maximum target within each range. The STIP targets range frm % fr the senir executives. Lng Term Incentive Plans Lblaw Cmpanies Limited ( LCL ) s equity-based Lng Term Incentive Plan (LTIP) is designed t mtivate senir executives and increase sharehlder value. PC Bank executives participate in the LCL s LTIP prgram which awards lng term incentives in the frm f LCL stck ptins, restricted share units ( RSUs ), and Perfrmance Share Units ( PSUs ). The value f the stck ptins and RSUs are directly linked t the change in value f LCL Cmmn Shares. Executive are eligible fr LTIP grants generally n an annual basis. The size f the annual award f grants that an executive is eligible t receive is determined as part f the executive s ttal LTIP award. PSUs are a frm f at-risk lng-term cmpensatin intended t mtivate executives t deliver n business bjectives. The target number f PSUs granted each year takes int accunt the scpe f the executive s rle, his/her impact n the business and the cmpetitive market practice. The Stck Optin plan, RSU and PSU plans are managed by LCL and administered by a LCL Gvernance Cmmittee - wh apprve participants, make grants f ptins and establish limitatins, restrictins and cnditins upn any grants f ptins. Full details regarding the 2015 LCL Stck Optin, RSU and PSU plans are included in the May 2015 Lblaw Management Prxy Circular, available n

17 Basel III Pillar 3 Disclsures President s Chice Bank Page 17 f 17 QUANTITATIVE DISCLOSURES Shrt Term Incentive Payments Ttal Number f Recipients Ttal Value PC Bank Senir Management Recipients in $ 2,331 PC Bank Senir Management Recipients in $ 2,083 Stck Optin Plan Ttal Number f Recipients Grant Date Fair Value Vesting Schedule Vesting Schedule PC Bank Senir Management Recipients in $ 3,371 20% per year 7 years PC Bank Senir Management Recipients in $ 5,037 20% per year 7 years Restricted Share Unit Plan ( RSU s) and Perfrmance Share Unit Plan ( PSU s) Ttal Number f Recipients Grant Date Fair Value Perfrmance Perid End Date PC Bank Senir Management Recipients in $ 1, Mar-17 t 7-May-17 PC Bank Senir Management Recipients in $ 1,548 5-Mar-18 Bard f Directrs Cmpensatin PC Bank Bard f Directrs' fee and expenses $ 528 $ 614