Loblaw : Banque le Choix du Président du T2 de 2022 – Informations à fournir au titre du 3e pilier de Bâle III (en traduction)

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President's Choice Bank

BASEL III PILLAR 3 DISCLOSURES

June 30, 2022

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Table of Contents
Table of Contents ..................................................................................................................................................................................................	2
TABLE 1 - OVERVIEW & SCOPE OF APPLICATION ...............................................................................................................................	3
TABLE 2/3 - CAPITAL STRUCTURE AND ADEQUACY ...........................................................................................................................	6
TABLE 4 - CREDIT RISK: GENERAL DISCLOSURES FOR ALL BANKS .............................................................................................	9
TABLE 5 - CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO THE STANDARDIZED APPROACH ................	12
TABLE 6	- CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB APPROACHES ..............................................	12
TABLE 7	- CREDIT RISK MITIGATION.....................................................................................................................................................	12
TABLE 8	- GENERAL DISCLOSURE FOR EXPOSURES RELATED TO COUNTERPARTY CREDIT RISK ...............................	12
TABLE 9	- SECURITIZATION: DISCLOSURE FOR STANDARDISED APPROACH.........................................................................	13
TABLE 10	/11 - MARKET RISK .....................................................................................................................................................................	14
TABLE 12	- OPERATIONAL RISK ...............................................................................................................................................................	15
TABLE 13	- EQUITIES: DISCLOSURES FOR BANKING BOOK POSITIONS.....................................................................................	15
TABLE 14	- INTEREST RATE RISK.............................................................................................................................................................	15
LIQUIDITY RISK ..............................................................................................................................................................................................	16
CURRENCY RISK .............................................................................................................................................................................................	17

Basel III Pillar 3 Disclosures - President's Choice Bank

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TABLE 1 - OVERVIEW & SCOPE OF APPLICATION

This document represents the Basel III Pillar 3 disclosures for President's Choice Bank ("PC Bank" or the "the Bank"). These disclosures are made pursuant to OSFI's Pillar 3 Disclosure Requirements issued in April 2017. Basel III, is part of the Basel Committee's continuous effort to enhance the banking regulatory framework. It builds on the International Convergence of Capital Measurement and Capital Standards document (Basel II). Basel III is structured around 3 pillars:

• Pillar 1: Minimum Capital Requirements
• Pillar 2: The Supervisory Review Process
• Pillar 3: Market Discipline

Pillar 3 complements both Pillars 1 and 2, by setting disclosure requirements which will allow market participants to assess key pieces of information on the scope of application, capital, risk exposures, risk assessment processes, and hence the capital adequacy of PC Bank.

OSFI requires all institutions to implement the Basel III framework, and the new composition of capital disclosure requirements. This report is unaudited and is reported in thousands of Canadian dollars, unless otherwise disclosed. The report is available on-line at https://www.loblaw.ca/en/investors-reports.

In Q1 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. On March 27, 2020, OSFI announced a series of regulatory adjustments to support the financial and operational resilience of federally regulated banks, insurers and private pension plans. This includes adjusting a number of regulatory capital, liquidity and reporting requirements. The Bank implemented the regulatory adjustment for the capital treatment of expected credit losses ("ECL") where a portion of the ECL that would otherwise be included in Tier 2 capital to instead be included in Common Equity Tier 1 (CET1) and Tier 1 capital. The regulatory adjustment incorporates the after-tax difference of the general allowances between a reporting period and December 31, 2019 subject to a scaling factor. The regulatory adjustments are effective from fiscal 2020 to 2022.

President's Choice Bank Overview

PC Bank is a Schedule I Canadian chartered bank governed by the Bank Act (Canada) and is a wholly owned subsidiary of Loblaw Companies Limited ("LCL"). Waterford Reinsurance Inc. ("Waterford"), a wholly owned subsidiary of PC Bank, was incorporated under the laws of Barbados. Waterford is authorized to conduct in the business of insurance. For accounting purposes under International Financial Reporting Standards ("IFRS"), PC Bank consolidates the results of Waterford. For regulatory capital purposes, Waterford is not consolidated as insurance subsidiaries are outside the scope of regulatory consolidation. As at June 30, 2022, PC Bank's investment in Waterford of $2,364 thousand was under 10% of the Common Equity Tier 1 Capital, the capital deduction threshold limit. Therefore, the amount was not deducted from the Common Equity Tier 1 Capital, and was risk weighted at 250%.

In association with other financial institutions, PC Bank offers, under the President's Choice Financial® brand, financial services products to individuals who reside in Canada. The key business lines of PC Bank are as follows:

Credit Card

PC Bank launched its credit card program in 2001 and currently offers the President's Choice Financial MasterCard ("PC MasterCard") across Canada. The PC MasterCard product attributes include no annual fee and a competitive rewards program which allows customers to earn and redeem PC Optimum Points for free groceries and other

Basel III Pillar 3 Disclosures - President's Choice Bank

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products at participating stores within the LCL's network and certain e-commerce sites. PC Bank records the credit card receivables and associated funding on its balance sheet.

GIC's

PC Bank launched a broker originated GIC program in 2010. The GIC's offered by PC Bank are eligible for deposit insurance from Canadian Deposit Insurance Corporation ("CDIC"). PC Bank issues nominee name GIC's through a number of brokers in Canada.

PC Money Account

In September 2020, PC Bank launched the PC Money Account as a no-fee bank account that offers PC Optimum loyalty points on everyday banking transactions. The balances in the PC Money Accounts are eligible for deposit insurance from CDIC.

Corporate Governance

The Bank maintains a rigorous corporate governance structure as follows:

• Board of Director's Oversight
  o Risk Committee o Audit Committee
  o Conduct Review Committee o Governance Committee
• Senior Management Oversight through the following:

1. Enterprise Risk Management Committee ("ERMC") - provides stewardship over the identification, definition, assessment, management, control, measurement, monitoring and reporting of PC Bank's enterprise risks.
2. • Asset Liability Committee ("ALCO") - assists the Risk Committee of the Board in
   • • Overseeing PC Bank's risk management activities by providing strategic direction on the management of liquidity risk, interest rate risk, investment risk, and other aspects of Asset Liability Management;
     • Ensuring that PC Bank has the appropriate quantity and quality of capital, considering its strategic direction & business plans, its risk profile, its emerging risks and stress tests; and
     • Proactively assessing the balance sheet dynamics, having regard to economic data and forecasts, PC Bank's legal structure, market developments, accounting pronouncements, etc.
   • Credit Risk and Fraud Management Committee ("CRFMC") - has the following key responsibilities:
   • • Providing a governance structure that oversees the Credit Risk Management program, including the associated strategies, policies and procedures;
     • Ensuring that Credit Risk and Fraud Risk forecasts are appropriate giving consideration to PC Bank's strategic directions, risk profile and appetite, emerging risks and stress tests;
     • Providing guidance on the methodology to continually identify, define, assess, manage, and report Credit Risk and Fraud Risk exposure.

Basel III Pillar 3 Disclosures - President's Choice Bank

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• Operational Risk Management Committee ("ORMC") - is responsible for planning, directing, monitoring and controlling the impact of PC Bank's risks arising from its operations. Its key responsibilities include:
• • Ensuring PC Bank's compliance with operational mandates, policies and procedures, and governing legislation;
  • Overseeing risk appetite, business continuity management, information security, internal control, outsourcing, social media, legal and regulatory risks management;
  • Overseeing the anti-money laundering and anti-terrorist program;
  • Overseeing other operational risks.

• 1. Internal Audit ("IAS") - assists Management in accomplishing its objectives by bringing a systematic, objective and disciplined approach to evaluate and improve the effectiveness of PC Bank's risk management, control and governance processes.
• The corporate governance structure diagram