20-F 1 cib-20201231x20f.htm 20-F

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report ___________

For the transition period from ._____ to ____

Commission file number: 001 – 32535

BANCOLOMBIA S.A.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Republic of Colombia

(Jurisdiction of incorporation or organization)

Carrera 48 # 26-85, Avenida Los Industriales

Medellín, Colombia

(Address of principal executive offices)

Carlos Daniel Raad Baene, Investor Relations Director

Tel. +571 4885371, e-mail: craad@bancolombia.com

Calle 31 # 6-39 – Edificio San Martín, Bogotá, Colombia

(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each Class

Trading Symbol (s)

Name of each exchange on which registered

American Depositary Shares

CIB

New York Stock Exchange

Preferred Shares

New York Stock Exchange*


*     Bancolombia’s preferred shares are not listed for trading directly, but only in connection with its American Depositary Shares, which are evidenced by American Depositary Receipts, each representing four preferred shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Not applicable

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.


Not applicable

(Title of Class)

indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Common Shares

509,704,584

Preferred Shares

452,122,416

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to

Section 13 of 15(d) of the Securities Exchange Act of 1934.

Yes No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP

International Financial Reporting Standards as issued by the International Accounting Standards Board

Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes  No


TABLE OF CONTENTS

CERTAIN DEFINED TERMS

5

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

7

PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION

8

PART I

9

ITEM 1

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

9

ITEM 2

OFFER STATISTICS AND EXPECTED TIMETABLE

11

ITEM 3

KEY INFORMATION

9

A.

SELECTED FINANCIAL DATA

9

B.

CAPITALIZATION AND INDEBTEDNESS

12

C.

REASONS FOR THE OFFER AND USE OF PROCEEDS

12

D.

RISK FACTORS

13

ITEM 4

INFORMATION ON THE COMPANY

31

A.

HISTORY AND DEVELOPMENT OF THE COMPANY

31

B.

BUSINESS OVERVIEW

35

B.1

GENERAL

35

B.2

OPERATIONS

39

B.3

SEASONALITY OF DEPOSITS

39

B.4

RAW MATERIALS

39

B.5

DISTRIBUTION NETWORK

39

B.6

PATENTS, LICENSES AND CONTRACTS

41

B.7

COMPETITION

42

B.8

SUPERVISION AND REGULATION

50

B.9

CYBERSECURITY FRAMEWORK

68

B.10

COVID-19 CONSIDERATIONS

70

C.

ORGANIZATIONAL STRUCTURE

72

D.

PREMISES AND EQUIPMENT

74

E.

SELECTED STATISTICAL INFORMATION

74

E.1

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL

74

E.2

INVESTMENT PORTFOLIO

80

E.3

LOAN PORTFOLIO

80

E.4

SUMMARY OF LOAN LOSS EXPERIENCE

82

E.5

DEPOSITS

82

F.

UNRESOLVED STAFF COMMENTS

82

ITEM 5

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

83

A.

OPERATING RESULTS

83

GENERAL DISCUSSION OF THE CHANGES IN RESULTS FOR 2020 VERSUS 2019

84

B.

LIQUIDITY AND CAPITAL RESOURCES

101

B.1

LIQUIDITY AND FUNDING

101

B.2

FINANCIAL INSTRUMENTS AND TREASURY ACTIVITIES

108

B.3

COMMITMENT FOR CAPITAL EXPENDITURES

109

C.

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

109

D.

TREND INFORMATION

109

E.

OFF-BALANCE SHEET ARRANGEMENTS

111

F.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

111

G.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

112

ITEM 6

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

113

A.

DIRECTORS AND SENIOR MANAGEMENT

113

B.

COMPENSATION OF DIRECTORS AND OFFICERS

117

C.

BOARD PRACTICES

117

D.

EMPLOYEES

120

E.

SHARE OWNERSHIP

124

ITEM 7

MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS

A.

MAJOR STOCKHOLDERS

125

B.

RELATED PARTY TRANSACTIONS

126

C.

INTEREST OF EXPERTS AND COUNSEL

126

ITEM 8

FINANCIAL INFORMATION

126

A.

CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION

126


A.1

CONSOLIDATED FINANCIAL STATEMENTS

126

A.2

LEGAL PROCEEDINGS

126

A.3

DIVIDEND POLICY

126

B.

SIGNIFICANT CHANGES

127

ITEM 9

THE OFFER AND LISTING

127

A.

OFFER AND LISTING DETAILS

127

B.

PLAN OF DISTRIBUTION

128

C.

MARKETS

128

D.

SELLING STOCKHOLDERS

128

E.

DILUTION

128

F.

EXPENSES OF THE ISSUE

128

ITEM 10

ADDITIONAL INFORMATION

128

A.

SHARE CAPITAL

128

B.

MEMORANDUM AND ARTICLES OF ASSOCIATION

129

C.

MATERIAL CONTRACTS

134

D.

EXCHANGE CONTROLS

134

E.

TAXATION

135

F.

DIVIDENDS AND PAYING AGENTS

140

G.

STATEMENT BY EXPERTS

140

H.

DOCUMENTS ON DISPLAY

140

I.

SUBSIDIARY INFORMATION

140

ITEM 11

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

140

ITEM 12

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

146

PART II

147

ITEM 13

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

147

ITEM 14

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

147

ITEM 15

CONTROLS AND PROCEDURES

147

ITEM 16

RESERVED

148

A.

AUDIT COMMITTEE FINANCIAL EXPERT

148

B.

CORPORATE GOVERNANCE AND CODE OF ETHICS

148

C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

149

D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

149

E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

149

F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

150

G.

CORPORATE GOVERNANCE

150

H.

MINE SAFETY DISCLOSURES

151

PART III

151

ITEM 17

FINANCIAL STATEMENTS

151

ITEM 18

FINANCIAL STATEMENTS

151

ITEM 19

EXHIBITS

151


CERTAIN DEFINED TERMS

Unless otherwise specified or if the context so requires, in this annual report:

“ADSs” refers to the Bank’s American Depositary Shares (one ADS represents four preferred shares).

“Annual Report” refers to this annual report on Form 20-F.

“ATM” refers to automated teller machine.

“BAM” refers to Banco Agromercantil de Guatemala S.A., a banking institution organized under the laws of the Republic of Guatemala, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

“Banagrícola” refers to Banagrícola S.A., a company incorporated in Panama, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

“Banca de Inversión” refers to Banca de Inversión Bancolombia S.A. Corporación Financiera, a Subsidiary of Bancolombia S.A. organized under the laws of the Republic of Colombia that specializes in providing investment banking services.

“Banco Agrícola” refers to Banco Agrícola S.A., a banking institution organized under the laws of the Republic of El Salvador, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

“Bancolombia”, the “Bank”, “us”, “we” or “our” refers to Bancolombia S.A., a banking institution organized under the laws of the Republic of Colombia, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

“Bancolombia Panama” refers to Bancolombia Panamá S.A., a subsidiary of Bancolombia S.A. organized under the laws of the Republic of Panama that provides banking services to non-Panamanian customers.

“Bancolombia Puerto Rico” refers to Bancolombia Puerto Rico Internacional Inc an international banking subsidiary of Bancolombia S.A. organized under the laws of the Common Wealth of Puerto Rico, that provides banking services to customers that do not reside in Puerto Rico.

“Banistmo” refers to Banistmo S.A., a banking institution organized under the laws of the Republic of Panama, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

“Central Bank” refers to the Central Bank of Colombia (“Banco de la República”).

“Colombia” refers to the Republic of Colombia.

“Colombian banking GAAP” refers to generally accepted accounting principles in Colombia as regulated by Law 1314 of 2009, Decree 1851 of 2013 and as supplemented by the applicable regulations of the SFC, which differs with IFRS principally, among other differences, in (i) the recognition of impairment for loans; (ii) the classification and subsequent measurement of debt and equity investments; and (iii) the impairment of foreclosed assets. The Consolidated Financial Statements included in this Annual Report are prepared under IFRS as issued by the International Accounting Standard Board.

“Consolidated Financial Statements” refers to the audited consolidated statements of financial position of the Bank as of December 31, 2020 and 2019 and the audited consolidated statements of income, comprehensive income, changes in equity and cash flows for the years ended December 31, 2020, 2019 and 2018 and related notes included in this Annual Report.

5


“DTF” refers to the “Depósitos a Término Fijo” rate, the weighted average interest rate paid by finance corporations, commercial banks and financing companies in Colombia for time deposits with maturities of 90 days.

“Fiduciaria Bancolombia” refers to Fiduciaria Bancolombia S.A. Sociedad Fiduciaria, a Subsidiary of Bancolombia organized under the laws of Colombia which provides trust and fund management services.

“Grupo Agromercantil” refers to Grupo Agromercantil Holding S.A., a company organized under the laws of the Republic of Panama and the parent company of BAM, and its consolidated subsidiaries, unless the context otherwise requires.

“IFRS” refers to the International Financial Reporting Standards as issued by the International Accounting Standards Board.

“International Bank” refers to the Bank´s affiliates located outside Colombian territory that provide banking services, such as, Bancolombia Panama S.A., Bancolombia Puerto Rico International Inc. and Bancolombia Cayman S.A.

“IRS” refers to the U.S. Internal Revenue Service.

“NYSE” refers to the New York Stock Exchange.

“OCI” refers to Other Comprehensive Income.

“peso”, “pesos” or “COP” refer to the lawful currency of Colombia.

“preferred shares” and “common shares” refer to our issued outstanding and fully paid-in preferred and common shares, designated as “acciones con dividendo preferencial sin derecho a voto” and “acciones ordinarias”, respectively.

“Renting Colombia” refers to Renting Colombia S.A.S., a Subsidiary of Bancolombia S.A. organized under the laws of Colombia, which provides operating lease and fleet management services for individuals and companies.

“Representative Market Rate” refers to “Tasa Representativa del Mercado”, the U.S. dollar representative market rate, certified by the SFC. The Representative Market Rate is an economic indicator of the daily exchange rate on the Colombian market spot of currencies. It corresponds to the arithmetical weighted average of the rates for the purchase and sale of currencies by certain financial institutions (including Bancolombia) authorized to engage in foreign exchange transactions in Colombia.

“SEC” refers to the U.S. Securities and Exchange Commission.

“SMEs” refers to Small and Medium Enterprises.

“SMMLV” refers to “Salario Mínimo Mensual Legal Vigente”, the effective legal minimum monthly salary in Colombia. In 2020, the effective legal minimum monthly salary in Colombia was COP $877.803.

“Subsidiaries” refers to entities controlled by Bancolombia S.A. The Bank controls an investee when the Bank is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through the Bank’s power.

“Superintendency of Finance” or “SFC” refers to the Colombian Superintendency of Finance (“Superintendencia Financiera de Colombia”), a technical entity under the Ministry of Finance and Public Credit (“Ministerio de Hacienda y Crédito Público”) with functions of inspection, supervision and control over the entities involved in financial activities, capital markets, insurance and any other services related to the management, use or investment of resources collected from the public.

“Superintendency of Industry and Commerce” or “SIC” refers to the Colombian Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio de Colombia), a technical entity under the Ministry of Commerce,

6


Industry and Tourism (Ministerio de Comercio Industria y Turismo) with functions of supervision and regulation of the competition in several industries, including financial institutions.

“U.S.” or “United States” refers to the United States of America.

“U.S. dollar”, “USD”, and “US$” refers to the lawful currency of the United States.

“UVR” refers to Unidades de Valor Real, a Colombian inflation-adjusted monetary index calculated by the board of directors of the Central Bank and generally used for pricing home-mortgage loans.

“Valores Bancolombia” refers to Valores Bancolombia S.A. Comisionista de Bolsa, a Subsidiary of Bancolombia S.A. organized under the laws of the Republic of Colombia that provides brokerage and asset management services.

Our fiscal year ends on December 31, and references in this annual report to any specific fiscal year are to the 12-month period ended December 31 of such year.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains statements which may constitute forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are not based on historical facts but instead represent only the Bank’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside the Bank’s control. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “predict”, “target”, “forecast”, “guideline”, “should”, “project” and similar words and expressions are intended to identify forward-looking statements. It is possible that the Bank’s actual results may differ, possibly materially, from the anticipated results indicated in or implied by these forward-looking statements.

Information regarding important factors that could cause actual results to differ, perhaps materially, from those in the Bank’s forward-looking statements appear in a number of places in this Annual Report, principally in Item 3. “Key Information – D. Risk Factors” and Item 5. “Operating and Financial Review and Prospects”. These factors include, but are not limited to: (i) changes in general economic, business, political, social, fiscal or other conditions in Colombia, or in any of the other countries where the Bank operates such as continuing or deepening recessions and fluctuations in employment and the credit worthiness of customers beyond those taken into account in our estimates of expected credit losses, including, without limitation, those affected by COVID-19; the COVID-19 pandemic which is expected to continue to have adverse effects on our revenues due to lower levels of lending, lower interest rates, and generally the potential for material adverse effects on our financial position and results of operations, liquidity and  capital; deviations from economic assumptions that form the basis for our expected credit losses calculations (including, without limitation, as a result of the COVID-19 pandemic); (ii) changes in capital markets or in markets in general that may affect policies or attitudes towards lending; (iii) unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms; (iv) inflation, changes in foreign exchange rates and/or interest rates; (v) sovereign risks; (vi) liquidity risks; (vii) increases in delinquencies by the Bank’s borrowers; (viii) lack of acceptance of new products or services by the Bank’s targeted customers; (ix) competition in the banking, financial services, credit card services, insurance, asset management, remittances, business and other industries in which the Bank operates; (x) adverse determination of legal or regulatory disputes or proceedings and the consequences thereof (including without limitations, actions taken as a result of the COVID-19 pandemic); (xi) changes in official policies and regulations and the Colombian government’s banking policy as well as changes in laws, regulations or policies in other jurisdictions in which the Bank does business; and (xii) the negative impact on operations and financial results of the Bank resulting from widespread health emergencies, infectious diseases or pandemics, such as COVID-19; (xiii) factors specific to the Bank, including changes to the estimates and assumptions underlying our financial statements; our success in identifying risks (such as the incidence of loan delinquencies) and managing risks; our ability to achieve our financial and capital targets which may result in our failure to achieve any of the expected benefits of our strategies; model limitations or failures including, without limitation, the impact that COVID -19 may have on the performance and utilization of our models which may require us to establish additional loan loss reserves or raise additional capital; a reduction in our credit ratings, which would decrease our funding availabilty; failure to achieve regulatory stress testing; and changes to the reliability and security of our data

7


management, data privacy, information and technology infrastructure, including cyber attack threats which may impact our ability to serve clients.  

Forward-looking statements speak only as of the date they are made and are subject to change, and the Bank does not intend, and does not assume any obligation, to update these forward-looking statements in light of new information or future events arising after the date of this Annual Report.

PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION

Accounting Principles

The audited consolidated statements of financial position of the Bank as of December 31, 2020 and 2019 and the audited consolidated statements of income, of comprehensive income, changes in equity and cash flows for the years ended December 31, 2020, 2019 and 2018 and related notes (the “Consolidated Financial Statements”) included in this Annual Report were prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and the related interpretations issued by the IFRS Interpretations Committee (“IFRS IC”). All data included in this report has been prepared in accordance with IFRS as issued by the IASB, except for the data included in Item 4. B.7 Competition, which has been prepared in accordance with the local GAAP of each subsidiary.

The Consolidated Financial Statements include entities which the Bank controls, directly or indirectly. See Item 4. “Information on the Company – C. Organizational Structure” for an organizational chart depicting Bancolombia and its subsidiaries.

Currencies

The Consolidated Financial Statements are presented in Colombian pesos, which is the functional currency for Bancolombia S.A., and the presentation currency for the Consolidated Financial Statements. The Consolidated Financial Statements as of December 31, 2020 and 2019 and for the three fiscal years ended December 31, 2020, 2019, and 2018 contained in this Annual Report are expressed in millions of pesos.

This Annual Report translates certain pesos amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, the exchange rate used in this Annual Report is indicated in Note 2.D Significant Accounting Policies, section 7. Foreign subsidiaries.

Rounding Comparability of Data

Certain monetary amounts, percentages and other figures included in this Annual Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

The Bank maintains an internet site at http://www.grupobancolombia.com/. In addition, certain of the Bank’s Subsidiaries referred to in this Annual Report maintain separate internet sites. For example, Banco Agrícola, Banistmo and Banco Agromercantil de Guatemala maintain internet sites at http://www.bancoagricola.com/, http://www.banistmo.com/, and https://www.bam.com.gt/ respectively. Information included on or accessible through Bancolombia’s internet site or the internet site of any of the Subsidiaries of the Bank is not incorporated into this Annual Report or the filing. All references in this Annual Report to these and other internet sites are inactive textual references to these URLs, or “uniform resource locators”, and are for your informational reference only.

8


PART I

ITEM 1      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2      OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3      KEY INFORMATION

A.                SELECTED FINANCIAL DATA

The selected consolidated statement of financial position data as of December 31, 2020 and 2019, and the selected consolidated statement of income data for each of the periods ended December 31, 2020, 2019 and 2018, set forth below have been derived from the Consolidated Financial Statements under IFRS as issued by the IASB included in this Annual Report, except for the figures translated to U.S. dollars, which are presented for the convenience of the reader.

The selected consolidated statement of financial position data as of December 31, 2017 and 2016 have been derived from audited consolidated financial statements under IFRS as issued by IASB previously filed with the SEC as part of the Bank’s Annual Report on Form 20-F for the years ended December 31, 2017 and 2016.

The selected consolidated financial data should be read in conjunction with, and is qualified in its entirety by reference to the Consolidated Financial Statements, including the notes thereto, the audit reports of the Bank’s independent registered public accounting firms and the previously consolidated statement filed with the SEC as part of the Bank’s Annual Report on Form 20-F for the years ended December 31, 2018, 2017 and 2016.

The Consolidated Financial Statement of the Bank as of and for the year ended December 31, 2020 were audited by PwC Contadores y Auditores S.A.S., while the Consolidated Financial Statements of the Bank as of and for the years ended December 31, 2019 and 2018 were audited by PricewaterhouseCoopers Ltda. The Consolidated Financial Statements of the Bank as of and for the years ended December 31, 2017 and 2016 were audited by Deloitte and Touche Ltda.

9


As of and for the year ended December 31, 

2020(1)

2020

2019

2018

2017

2016

CONSOLIDATED STATEMENT OF INCOME DATA:

Total interest and valuation on financial instruments

USD

4,861,952

COP

16,688,650

COP

17,380,684

COP

16,116,500

COP

16,696,393

COP

15,748,805

Interest expenses

(1,708,087)

(5,863,008)

(6,179,794)

(5,670,216)

(6,232,986)

(6,053,100)

Net interest margin and valuation income on financial instruments before impairment on loans and financial leases, and other financial instruments and off balance sheet credit instruments

3,153,865

10,825,642

11,200,890

10,446,284

10,463,407

9,695,705

Credit impairment charges on loans and advances and financial leases, net(2)

(2,137,146)

(7,335,755)

(3,385,181)

(3,851,625)

(3,468,699)

(2,643,710)

Credit impairment recoveries (charges) on off balance sheet credit instruments

(47,121)

(161,743)

(26,195)

5,668

7,082

(87,442)

Allowances for credit losses on debt investments(2)

(8,434)

(28,951)

255

2,885

Net interest margin and valuation income on financial instruments after impairment on loans and financial leases and off balance sheet credit instruments

961,164

3,299,193

7,789,769

6,603,212

7,001,790

6,964,553

Total other operating income (3)

1,458,041

5,004,725

4,941,579

4,495,556

4,217,039

3,974,310

Total operating expenses

(2,329,249)

(7,995,145)

(8,253,817)

(7,482,898)

(7,226,058)

(6,970,581)

Profit before tax

89,956

308,773

4,477,531

3,615,870

3,992,771

3,968,282

Income tax

1,919

6,586

(1,262,964)

(829,435)

(1,238,598)

(1,176,832)

Profit for the year from continued operations

91,875

315,359

3,214,567

2,786,435

2,754,173

2,791,450

Net income from discontinued operations

163,497

Net income

91,875

315,359

3,214,567

2,786,435

2,754,173

2,954,947

Net income attributable to equity holders of the parent company

USD

80,406

COP

275,994

COP

3,117,351

COP

2,658,864

COP

2,615,000

COP

2,865,328

Non-controlling interest

11,469

39,365

97,216

127,571

139,173

89,619

Weighted average of Preferred and Common Shares outstanding (4)

961,827,000

961,827,000

961,827,000

961,827,000

961,827,000

Basic and diluted earnings per share to common shareholders (4)

0.10

347

3,301

2,825

2,780

3,040

From continuing operations

0.10

347

3,301

2,825

2,780

2,870

From discontinued operations

170

Basic and diluted earnings per ADS (4)

0.40

1,388

13,204

11,300

11,120

12,160

From continuing operations

0.40

1,388

13,204

11,300

11,120

11,480

From discontinued operations

680

Cash dividends declared per share

260

1,638

1,092

1,020

950

Cash dividends declared per share (stated in USD)

0.08

0.50

0.34

0.34

0.32

Cash dividends declared per ADS

1,040

6,552

4,368

4,080

3,800

Cash dividends declared per ADS (stated in USD)

0.30

2.00

1.34

1.37

1.27

(1)Translated for convenience only using the Representative Market Rate as computed and certified by the Superintendency of Finance on December 31, 2020 of 3,432.50 per USD 1.00.
(2)IFRS 9 set significant changes in the assessment of the impairment of the value of financial instruments and therefore their associated risk, going from an incurred loss model to one of expected credit loss. As of December 31, 2020, 2019 and 2018, the Bank recognized credit impairment charges based on IFRS 9 model. The allowances for the years ended December 31, 2017 and 2016 were computed under IAS 39. Accordingly, those amounts are not comparable to the amounts as of December 31, 2020, 2019 and 2018.
(3)Includes total fees and commissions net, other operating income and dividends received, and share of profits of equity method investees. See consolidated statement of income to the Consolidated Financial Statements, and for the year ended as of December 31, 2017 and 2016, see annual report previously filed with the SEC for the year ended December 31, 2017.
(4)The weighted average of preferred and common shares outstanding for the fiscal years ended December 31, 2020, 2019, 2018, 2017 and 2016 are 452,122,416 preferred shares and 509,704,584 common shares.

10


For the year ended December 31, 

2020(1)

2020

2019

2018

2017

2016

SELECTED CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA:

Assets:

Cash and cash equivalents

USD

6,904,923

COP

23,701,149

COP

23,738,042

COP

18,730,810

COP

18,165,644

COP

20,460,245

Financial assets Investments

8,609,761

29,553,003

16,822,754

17,361,475

16,377,253

13,060,653

Derivative financial instruments

815,941

2,800,719

1,902,955

1,843,708

1,134,372

1,677,970

Loans and advances to customers and financial Institutions

55,763,942

191,409,730

182,282,743

173,819,116

160,468,094

151,747,486

Allowance for loans and advances and lease losses(2)

(4,840,799)

(16,616,043)

(10,929,395)

(10,235,831)

(8,223,103)

(6,621,911)

Assets held for sale and inventories, net

148,331

509,145

518,749

636,028

377,003

273,187

Investment in associates and joint ventures

730,172

2,506,315

2,367,757

2,149,579

1,565,059

1,298,246

Investment properties

827,196

2,839,350

1,992,964

1,732,873

1,657,409

1,581,689

Premises and equipment, net (3)

1,253,402

4,302,304

3,827,865

3,368,647

3,127,405

3,115,697

Right of use assets

483,908

1,661,015

1,692,116

Goodwill and Intangible assets, net

2,187,129

7,507,321

7,233,312

7,201,855

6,631,424

6,694,037

Deferred tax, net

196,736

675,295

401,002

271,177

148,614

222,862

Other assets, net

1,374,858

4,719,202

4,237,249

3,197,045

2,479,037

2,750,883

Total assets

USD

74,455,500

COP

255,568,505

COP

236,088,113

COP

220,076,482

COP

203,908,211

COP

196,261,044

Liabilities and stockholders’ equity: Liabilities and equity

Deposits by customers

52,679,037

180,820,793

157,205,312

142,128,471

131,959,215

124,624,011

Borrowings from other financial institutions

3,263,547

11,202,126

13,959,343

16,337,964

13,822,152

18,905,843

Debt instruments in issue

5,572,205

19,126,593

19,921,515

20,287,233

19,648,714

18,704,809

Lease liabilities (4)

529,747

1,818,358

1,831,585

Other liabilities (5)

4,220,079

14,485,422

14,364,739

14,667,589

14,048,580

11,549,401

Total equity

8,190,885

28,115,213

28,805,619

26,655,225

24,429,550

22,476,980

Total liabilities and equity

USD

74,455,500

COP

255,568,505

COP

236,088,113

COP

220,076,482

COP

203,908,211

COP

196,261,044

(1)Translated for convenience only using the representative market rate as computed and certified by the Superintendency of Finance of COP 3,432.50 per U.S. 1.00 on December 31, 2020.
(2)IFRS 9 set significant changes in the assessment of the impairment of the value of financial instruments and therefore their associated risk, going from an incurred loss model to one of expected credit loss. As of December 31, 2020, 2019 and 2018, the Bank recognized credit impairment charges based on IFRS 9 model. The allowances for the years ended December 31, 2017, and 2016 were computed under IAS 39. Accordingly, those amounts are not comparable to the amounts as of December 31, 2018, 2019 and 2020.
(3)Includes interbank deposits, repurchase agreements and other similar secured borrowing, liabilities relating to assets held for sale, derivative financial instruments, preferred shares, current tax, deferred tax, net, employees benefit plans and other liabilities. See consolidated statement of financial position in the Consolidated Financial Statements.

See ―“Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – A.3. Dividend Policy”, for information about the dividends declared per share in both pesos and U.S. dollars during the fiscal years ended December 31, 2020, 2019, 2018, 2017 and 2016.

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SELECTED RATIOS

As of and for the year ended December 31, 

2020

2019

2018

2017

2016

Percentages, except for operating data

SELECTED RATIOS: (1)

Profitability ratios:

Net interest and valuation margin from continuing operations (2)

4.91

5.67

5.80

6.08

5.96

Return on average total assets from continuing operations (3)

0.11

1.35

1.28

1.30

1.49

Return on average stockholders‘ equity attributable to the owners of the parent company (4)

1.02

12.09

11.50

11.99

14.52

Efficiency ratio:

Operating expenses to net operating income from continuing operations

50.51

51.13

50.08

49.22

51.02

Operating expenses to average total assets from continuing operations

3.08

3.57

3.62

3.60

3.64

Operating expenses to productive assets from continuing operations

3.63

4.18

4.16

4.20

4.29

Capital ratios:

Technical capital to risk weighted assets (5)(6)

14.74

12.82

13.47

14.18

13.26

Credit quality data:

Past due loans to loans principal (7)

4.93

4.27

4.33

4.49

3.31

Allowances for loan and lease losses to past due loans principal

164.95

133.94

128.21

107.52

125.90

Allowance for loan and lease losses as a percentage of total loans principal

8.13

5.71

5.55

4.83

4.17

Operational data (in units):

Number of branches (8)

1,057

1,083

1,113

1,127

1,247

Number of employees (9)

30,633

31,075

31,040

31,061

34,567

(1)

Average balances used to calculate the ratios have been calculated as follows: for each year presented, for each month, the actual month-end balances were established. The average consolidated balance for such periods is the average of such month-end balances. These averages are calculated using 13 month-end balances.

(2)

Net interest and valuation on financial instruments income divided by average interest-earning assets.

(3)

Net income attributable to equity holders of the Parent Company divided by average total assets.

(4)

Net income attributable to equity holders of the Parent Company divided by average stockholders’ equity attributable to the owners of the parent company.

(5)

For an explanation of risk-weighted assets and Technical Capital, see Item 4. “Information on the Company – B. Business Overview – B.8 –Supervision and Regulation” and Item 5 “Operating and Financial Review and Prospects - B. Liquidity and Capital Resources – B.1. Liquidity and Funding - Capital Adequacy".

(6)

The Bank’s consolidated capital adequacy was computed considering balance accounts under IFRS for each year presented.

(7)

Loans that are past due more than 30 days to loans principal.

(8)

Number of branches includes branches of the Bank’s Subsidiaries. For some subsidiaries, the central office is considered a branch. Representative offices are included.

(9)

The number of employees includes employees of the Bank’s consolidated Subsidiaries. For the year 2016 Compañía de Financiamiento Tuya S.A had 2,969 employees. For the years 2017, 2018, 2019 and 2020, Tuya S.A. Compañía de Financiamiento is classified as an investment in a joint venture in the Bank’s consolidated financial statements.

B.               CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.              REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

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D.              RISK FACTORS

Investors should consider the following risks and uncertainties, and the other factors presented in this Annual Report. In addition, the information referred to below, as well as all other information presented in this Annual Report, should be considered by investors when reviewing any forward-looking statements contained in this Annual Report, in any document incorporated by reference in this Annual Report, in any of the Bank’s future public filings or press releases, or in any future oral statements made by the Bank or any of its officers or other persons acting on its behalf. If any of the following risks occur, the Bank’s business, results of operations and financial condition, its ability to raise capital and its ability to access funding could be materially and adversely affected. These risk factors should not be considered a complete list of potential risks that may affect Bancolombia. Please note that the headings reflected below are provided solely for convenience of the reader and do not indicate that a given risk applies only to the heading under which it is located. The risks described in this section include, but are not limited to, those highlighted in the following list.

Summary of Risk Factors

Summary of risks relating to Colombia and other countries where the Bank operates.

Changes in economic and political conditions and external effects in the economies in countries where the Bank operates may adversely affect the Bank’s financial condition and results of operations.
Any additional taxes resulting from changes to tax regulations or the interpretation thereof in countries in where the Bank operates, could adversely affect the Bank’s consolidated results.
Exchange rate fluctuations may adversely affect the Colombian economy, the market price of the Bank’s ADSs, and the dividends payable to holders of the Bank’s ADSs.
Colombia has experienced several periods of violence and instability that could affect the economy and the Bank.
Allegations of corruption against the government, politicians and private industry in the countries where we operate could create economic and political uncertainty and could expose us to additional credit risk.

Summary of risks relating to the Bank’s business and the banking industry.

Our financial results may be negatively affected by changes to accounting standards, changes to assumptions supporting the valuation of our goodwill and macroeconomic and other challenges and uncertainties related to the COVID-19 pandemic.
Changes in banking laws and regulations in Colombia and in other jurisdictions in which the Bank operates could adversely affect the Bank’s consolidated results.
The Bank is subject to regulatory inspections, examinations, inquiries or audits in Colombia and in other countries where it operates, and any sanctions, fines and other penalties resulting from such matters could materially and adversely affect the Bank.
An increase in constitutional public interest actions (acciones populares) or class actions (acciones de grupo) may affect the Bank’s businesses and results of operations.
Future restrictions on interest rates or banking fees could negatively affect the Bank’s profitability.
Colombian tax haven regulation could adversely affect the Bank’s business and financial results.

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The Bank and most of its Subsidiaries are subject to the U.S. Foreign Account Tax Compliance Act of 2010 and the OECD’s Automatic Exchange of Information - Common Reporting Standard (CRS).
The Bank is exposed to increased costs and liabilities in the event of the failure of its service providers to perform their obligations under key services contracts.
The Bank is subject to credit risk and estimating exposure to credit risk involves subjective and complex judgments. Additionally, the Bank is subject to concentration risks in its loan portfolio.
Risks relating to the use of quantitative models and information may adversely impact the Bank’s business strategies and results.
The Bank is subject to credit risk with respect to its non-traditional banking businesses including investing in securities and entering into derivatives transactions.
The Bank is exposed to risks associated with the mortgage loan market, as a result of the value of the collaterals.
The value of the collateral securing the outstanding principal and interest balance of the Bank’s loans may not be sufficient to cover such outstanding principal and interest.
The Bank’s results of operations are sensitive to fluctuations in interest rates and income from the Bank’s proprietary trading activities is highly volatile.
The Bank has significant exposure to sovereign risk, and especially Colombian sovereign risk, and the Bank’s results could be adversely affected by decreases in the value of its sovereign debt instruments.
The Bank is subject to market, liquidity, operational and structural risks associated with its derivative transactions.
The Bank’s businesses rely heavily on data collection, processing and storage systems, the failure of which could materially and adversely affect the Bank.
The Bank is subject to cyber-security risk.
Failures related to the Bank’s information technology infrastructure and management information systems could adversely affect the Bank.
The occurrence of natural or other disasters in the regions in which the Bank operates could impair its ability to conduct business effectively and could impact its results of operations. Also, the effects generated by climate change could have an effect on the Bank's operations, affect the financial situation of clients and cause a deterioration in the quality of the credit portfolio and investments
The Bank’s ability to attract and retain specialized talent could impact some digital business objectives.
Digital misinformation could adversely affect the Bank’s reputation as well as its operational and financial results.
Acquisitions and strategic alliances may not perform in accordance with expectations or may disrupt the Bank’s operations and adversely affect its profitability.
Downgrades in the credit ratings of the Bank, would increase their cost of borrowing funds and make their ability to raise new funds, attract deposits or renew maturing debt more difficult.

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The Bank faces risks relating to regulatory compliance in general, and in particular with respect to laws relating to anti-competitive practices, consumer protection and protection of personal data. In addition, the Bank’s policies and procedures may not be able to detect money laundering, terrorism financing, corruption or other illegal or improper activities fully or on a timely basis.
The Bank is subject to increasing competition which may adversely affect its results of operations.
Discontinuation of the London InterBank Offered Rate (“LIBOR”) could adversely affect the Bank.

Summary of risks relating to the Banks’s preferred shares and the ADSs.

Preemptive rights may not be available to holders of American Depositary Receipts (“ADRs”) evidencing ADSs.
The Bank’s preferred shares have limited voting rights.
Holders of the Bank’s ADRs may encounter difficulties in the exercise of dividend and voting rights.
Relative illiquidity of the Colombian securities markets may impair the ability of an ADR holder to sell preferred shares.
Changes in Colombia’s tax regime may affect ADRs tax treatment.

Risk Factors Relating to Colombia and Other Countries Where the Bank Operates

Changes in economic and political conditions in Colombia, Panama, El Salvador and Guatemala or in other countries where the Bank operates may adversely affect the Bank’s financial condition and results of operations.

The Bank’s financial condition, results of operations and asset quality are significantly dependent on the macroeconomic and political conditions prevailing in Colombia, Panama, El Salvador, Guatemala and the other jurisdictions where the Bank operates. Accordingly, decreases in the growth rate, periods of negative growth, increases in inflation, changes in policy, or future judicial interpretations of policies involving exchange controls and other matters such as currency depreciation, inflation, interest rates, taxation, banking laws and regulations and other political or economic developments in such jurisdictions may affect the overall business environment and may in turn negatively affect the Bank’s financial condition and results of operations.

In particular, the governments of Colombia, Panama, El Salvador and Guatemala have historically exercised substantial influence on their economies, and they are likely to continue to implement policies that will have an important impact on the business and results of operations of companies in such countries (including the Bank), market conditions, and prices and rates of return on securities of local issuers (including the Bank’s securities). Potential changes in laws, public policies and regulations may cause instability and volatility in Colombia, Panama, El Salvador and Guatemala, and their respective markets. Future developments in government policies could negatively affect the Bank’s business and financial condition and the market value of its securities.

Colombia and Panama currently have investment grade credit ratings from international rating agencies;  El Salvador and Guatemala do not. As of the date of this Annual Report, El Salvador has a long-term debt rating B- from Fitch, B3 from Moody’s, and B- by S&P. Guatemala has ratings of BB- from Fitch, Ba1 from Moody’s and BB- S&P. Downgrades in the ratings of either country, or the failure of Colombia or Panama to maintain investment grade credit ratings, could increase the Bank’s funding costs and adversely affect our results of operation and financial condition.

15


The economies of the countries in which the Bank operates are vulnerable to external effects that could be caused by significant economic difficulties experienced by their major regional trading partners or by more general contagion effects, which could have a material adverse effect on economic growth in these countries and their ability to service their public debt.

A significant decline in economic growth or a sustained economic downturn of any of Colombia, Panama, El Salvador or Guatemala’s major trading partners (i.e., the European Union, the United States, China and other Latin American countries for Colombia and the United States and European Union for Panama, Guatemala and El Salvador) could have a material adverse impact on Colombia, Panama, El Salvador and Guatemala’s balance of trade and remittances inflows, resulting in lower economic growth.

Deterioration in the economic and political situation in neighboring countries could adversely affect the economy and cause instability in Colombia, Panama, El Salvador and Guatemala by disrupting their diplomatic or commercial relationships with neighboring countries. Any future tensions may cause political and economic uncertainty, instability, market volatility, low confidence levels and higher risk aversion by investors and market participants that may negatively affect economic activity in any of those jurisdictions.

Events occurring in a market where we do not operate may cause international investors to have an increased risk perception of an entire region or class of investment, which could in turn negatively affect market prices and liquidity of securities issued or owned by the Bank.

Any additional taxes resulting from changes to tax regulations or the interpretation thereof in Colombia, Panama, El Salvador, Guatemala or other countries in where the Bank operates, could adversely affect the Bank’s consolidated results.

Uncertainty related to tax legislation represents a constant risk for us. Changes in legislation and regulation and developments resulting from judicial decisions could affect tax burdens by increasing tax rates and fees, creating new taxes, limiting deductions and exemptions, and eliminating incentives and non-taxed income. The Colombian and Salvadorian governments have significant fiscal deficits that could result in future tax increases.

On April 15th 2021, the Colombian Government submitted a new tax reform bill to be discussed and approved by the Colombian Congress. Given that the bill has been recently submitted and is yet to be debated and approved by Congress, the effects of the proposed measures are yet to be determined.

Moreover, since the bill is required to be subjected to a number of debates in Congress before its approval, we can not dismiss the possibility of changes to the measures originally proposed or the inclusion of new measures which could have a significant impact on our operations, our clients and shareholders. The aforementioned measures could include, amongst others, a surcharge for income tax which could negatively affect our results of operations and cash flow, or an increase in taxes for security holders such as the Bank´s shareholders.

In addition, national or local taxing authorities may not interpret tax regulations in the same way as we do, even though the Bank does not normally adopt aggressive positions on tax law interpretation. Different interpretations of tax regulations could result in future tax audits, litigation and associated costs, which could affect our results.

Exchange rate fluctuations may adversely affect the Colombian economy, the market price of the Bank’s ADSs, and the dividends payable to holders of the Bank’s ADSs.

Colombia has adopted a floating exchange rate system. The Central Bank maintains the power to intervene in the exchange market in order to consolidate or dispose of international reserves, and to control any volatility in the exchange rate. From time to time, including during 2020, there have been significant fluctuations in the exchange rate between the Colombian peso and the U.S. dollar. Unforeseen events in the international markets, fluctuations in interest rates, volatility of the oil price in the international markets, or changes in capital flows, may cause exchange rate instability that could generate sharp movements in the value of the peso. Because a portion of our assets and liabilities are denominated in, or indexed to, foreign currencies, especially the U.S. dollar, sharp movements in exchange rates may negatively impact our results.

16


In addition, exchange rate fluctuations may adversely impact the value of dividends paid to holders of our ADSs as well as the market price and liquidity of ADSs.

Colombia has experienced several periods of violence and instability that could affect the economy and the Bank.

Colombia has experienced periods of criminal violence over the past four decades, primarily due to the activities of guerilla groups and drug cartels. Despite the peace treaty between the Colombian government and the Revolutionary Armed Forces of Colombia (“Fuerzas Armadas Revolucionarias de Colombia or FARC”), a lasting decrease in violence or drug-related crime in Colombia or the successful integration of former guerilla members into Colombian society, may not be achieved. In 2018, the Colombian government suspended the peace negotiations with the National Liberation Army (“Ejército de Liberación Nacional” or “ELN”) and in 2019, a minority group of dissidents within FARC announced their return to illegal activities. An escalation of violence or drug-related crime may have a negative impact on the Colombian economy and on us.

Allegations of corruption against the government, politicians and private industry in the countries where we operate could create economic and political uncertainty and could expose us to additional credit risk.

Allegations of corruption against the government, politicians and private industry in the countries where we operate could create economic and political uncertainty specially, if the investigations triggered by these cases reach conviction or result in further allegations or findings of illicit conduct committed by the accused parties. Furthermore, proven or alleged wrongdoings could have adverse effects on the political and economic stability in such countries. These adverse political and economic effects may negatively impact our business, including by depressing business volumes, reducing our ability to recover amounts we have loaned to persons or projects involved in illicit or allegedly illicit conduct and/or harming our reputation.

Risk Factors relating to the Bank’s Business and the Banking Industry

Our financial results may be negatively affected by changes to accounting standards.

We report our results and financial position in accordance with IFRS as issued by the IASB. Changes to IFRS or interpretations thereof may cause our future reported results and financial position to differ from current expectations. Such changes may also affect our regulatory capital and financial ratios. We monitor potential accounting changes and when possible, we determine their potential impact and disclose significant future changes in our financial statements that we expect as a result of those changes. Currently, there are not a number of issued but not yet effective IFRS changes, that could be expected to impact our reported results, financial position and regulatory capital in the next several years. For further information about developments in financial accounting and reporting standards, see Note 2 to the Consolidated Financial Statements, “Significant Accounting Policies”.

Our financial results may be negatively affected by changes to assumptions supporting the value of our goodwill.

We test for impairment at least annually the goodwill that we have recognized with respect to the financial positions of our operating segments. Our impairment test in respect of the assets recognized as of December 31, 2020 indicated that our goodwill balances are not impaired. The impairment test requires that we make assumptions regarding estimated earnings, discount rates and long-term growth rates impacting the recoverable amount of the goodwill associated with each operating segment and on estimates of the carrying amounts of the operating segments to which the goodwill relates. If the actual results in future periods deviate from the earnings and other assumptions on which our impairment testing is based, the value of the goodwill in any one or more of our businesses may become impaired in the future, resulting in charges to income.

The outbreak of COVID-19 in the first quarter of 2020 triggered exceptional volatility in the financial markets. Accordingly, in connection with its evaluation of economic budgets, forecasts and other assumptions commonly used to determine the recoverable value of non-financial long-lived assets, the Bank considered various macroeconomic circumstances and ran multiple weighted scenarios for assessing the expected future cash flows for each cash-generating unit (“CGUs”) and took into consideration the impact of COVID-19. However, depending on the time it takes for economic

17


activity to return to pre COVID-19 levels and the uncertainty thereof, there could be adverse impacts on goodwill in future years. For further information, see Note 2 to the Consolidated Financial Statements, “Significant Accounting Policies”. We cannot predict what developments may arise in the future that may cause our assumptions to be affected.

Our financial results may be negatively affected by macroeconomic and other challenges and uncertainties related to the COVID-19 pandemic

The COVID-19 pandemic has affected all of the regions and countries where the Bank operates. The pandemic and responses to it have had, and will likely continue to have, a severe impact on global economic conditions, although the impacts will likely vary from time to time by region or country, largely depending on the duration and severity of the public health consequences, including availability of effective vaccines.

In responding to these challenges, the Bank has taken prudential measures to determine whether (a) uncertainties regarding the ability to continue generating revenues from commissions and contracts with customers has occurred, (b) going concern considerations have arisen in relation to liquidity, regulatory capital requirements and concentrations of market risk, (c) fair value adjustments are necessary for financial instruments, (d) the impact of changes in loan terms agreed to with customers were significant, (e) significant increase in credit risk (SICR) had occurred for its financial assets, and (f) any impairment of the carrying value of goodwill and long-lived assets is warranted, performing interim impairment test for all CGUs.

The extent of the impact on the Bank's financial performance and operations, including its ability to execute its business initiatives and strategies, will continue to depend on future developments in Colombia and the other countries where the Bank operates, including with respect to the further spread of COVID-19, the availability of effective vaccines, the measures adopted by governments in order to prevent the spread of the virus, the speed at which economies may recover, the fiscal and monetary policies adopted by governments, among others, which are uncertain and cannot be predicted.

The Bank could face additional challenges as a result of the COVID-19 pandemic, including legal and reputational, increase in the level of customer complaints due to service deficiencies caused by isolation measures and scrutiny regarding the implementation of its initiatives to provide relief to clients affected by the pandemic. Further, any disruption to, breaches of or attacks on the Bank's information technology systems, including from cyber incidents, could have adverse effects on the Bank’s businesses. These systems are supporting a substantial portion of the Bank’s employees who have been affected by local pandemic restrictions and have been forced to work remotely.

The impact of the pandemic on the Bank's borrowers will also vary by region, sector and industry, with some borrowers experiencing greater stress levels, which could lead to increased pressure on their results of operations and financial condition, increased borrowings or credit ratings downgrades, thus likely leading to higher credit costs for the Bank. In addition, stress levels ultimately experienced by the Bank’s borrowers may be different from and more intense than assumptions made in earlier estimates or models used by the Bank, resulting in a further increase in the Bank’s allowance for credit losses or net credit losses.

The post-pandemic environment may undergo unexpected developments or changes in financial markets, the fiscal, monetary, tax and regulatory environments and consumer and corporate customer behaviors. These developments and changes could have an adverse impact on the Bank’s results of operations and financial condition.

For further information about the current impacts of the COVID-19 pandemic on the Bank's performance and financial position as of December 31, 2020, see Note 2 “Significant Accounting Policies” and Note 31 "Risk management" to the Consolidated Financial Statements.

Changes in banking laws and regulations in Colombia and in other jurisdictions in which the Bank operates could adversely affect the Bank’s consolidated results.

Banking laws and regulations, or their official interpretation, in Colombia and in other jurisdictions in which the Bank operates, have a material effect on the Bank’s business and operations. Banking laws and regulations may change frequently, and changes may be adopted, enforced or interpreted in a manner that may have an adverse effect on the Bank’s

18


business. As a result of the social and economic hardship generated by the pandemic, the political climate in the region could result in populism and instability that may support further regulation to financial institutions. In addition, the increasing tendency towards the enhancement of financial consumer protection standards among legislators, regulators and courts, could result in additional costs for our operations.  

The Colombian Government presented to Congress an initiative to amend certain laws that regulate capital markets, and licenses and authorized activities for its participants. Also, this iniative includes broad capacities to the Government to regulate capital markets, which could lead to increased uncertainty of possible changes in the future. Although this initiative has not been discussed by Congress yet, the enactment of this reform could have an impact on the way we do business.

Furthermore, there is a trend in banking laws and regulations to authorize flexible modular licencing to financial entities whose services could compete with the segments or services offered by the Bank, which, in turn, could lead to lower margins for affected products and services and could adversely affect the Bank’s results of operations.

The Bank is subject to regulatory inspections, examinations, inquiries or audits in Colombia and in other countries where it operates, and any sanctions, fines and other penalties resulting from such inspections, examinations, inquiries or audits could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation.

The Bank is subject to comprehensive regulation and supervision by the banking authorities of Colombia, Panama, El Salvador, Guatemala and the other jurisdictions in which the Bank operates or is an issuer. These Banking authorities have broad powers to adopt regulations and impose other requirements affecting or restricting virtually all aspects of the Bank’s capitalization, organization and operations, including the imposition of anti-money laundering measures and the authority to regulate the terms and conditions on which the banks can extend credit. In the event of non-compliance with applicable regulations, the Bank could be subject to fines, sanctions or the revocation of licenses or permits to operate its business. In Colombia, for instance, if the Bank encounters significant financial problems or becomes insolvent or in danger of becoming insolvent, banking authorities would have the power to take over the Bank’s management and operations. Any sanctions, fines and other penalties resulting from non-compliance with regulations in Colombia, El Salvador, Guatemala, Panama and other jurisdictions in which the Bank operates could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation.

An increase in constitutional public interest actions (acciones populares) or class actions (acciones de grupo) may affect the Bank’s businesses and results of operations.

Under the Colombian constitution, individuals may initiate constitutional public interest or class actions to protect their collective or class rights, respectively. Colombian financial institutions, including the Bank, have experienced a high number of these actions. The great majority of such actions have been related to fees, financial services and interest rates, and their outcome is uncertain. Pursuant to Law 1425 of 2010, monetary awards for plaintiffs in constitutional actions or class actions were eliminated as of January 1, 2011. Nevertheless, individuals continue to have the right to initiate these actions against the Bank.

Future restrictions on interest rates or banking fees could negatively affect the Bank’s profitability.

In prior years, the legislature of the jurisdictions in which the Bank operates have considered various legislative and/or regulatory initiatives regarding banking fees. Although most of such initiatives have not been adopted in the past, there might be renewed attempts to impose restrictions on banking fees in the future. If we are prohibited or otherwise limited (including by limits with respect to pricing) from continuing to charge our clients for certain products or services, including specified types of transactions, or from imposing charges for products or services that might be introduced in the future, our results of operations and financial condition could be adversely affected.

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Colombian tax haven regulation could adversely affect the Bank’s business and financial results.

Decree 1966 of 2014, as modified by Decree 2095 of 2014 and Decree 1625 of 2016 designated 37 territories as non-cooperative jurisdictions or places of zero or minimum taxation (tax havens) for Colombian tax purposes, although neither Panama nor other countries in which the Bank operates, were included on this list. Twenty out of the 37 territories have signed the convention on mutual administrative assistance in tax matters. Additionally, 10 territories carried out an effective exchange of information with Colombia as of December 31, 2018 (Resolution 91 of 2019 Colombian tax authority).

As a result of the tax haven regulation, the Bank’s clients who are residents in the 37 territories would be subject to a higher withholding tax rate on interest and dividends derived from investments in the Colombian securities market (non-deductibility of payments made to such residents or entities located in tax havens could proceed unless the required tax amount has been withheld).

Similarly, the tax haven regulation states that these types of transactions are subject to the transfer pricing regime. As a result, the Bank must file a transfer pricing report and an informative report for each such transactions, regardless of the threshold. Additional information disclosure requirements for transactions with related companies could be requested by the tax authorities, any of which could have a negative impact on Bancolombia’s business and financial results due to the disallowance of certain costs and expenses.

Additionally, these transactions could increase the probability of a tax audit by the Colombian authorities.

On the other hand, in order to avoid Panama’s designation as a tax haven, Colombia and Panama signed a memorandum of understanding which states that both countries will negotiate a treaty for the avoidance of double taxation. This treaty is expected to include provisions regarding the exchange of information between Colombian and Panamanian tax authorities.

Additionally, based on the Multilateral Competent Authority Agreement, Panama enacted in 2019 an internal decree which sets forth that financial institutions are required to send information to the tax authorities in order to be shared with the Colombian government.

The Bank and most of its Subsidiaries are subject to the U.S. Foreign Account Tax Compliance Act of 2010 and the OECD’s Automatic Exchange of Information - Common Reporting Standard (CRS).

Bancolombia and most of its subsidiaries are considered foreign financial institutions (“FFIs”) under the Foreign Account Tax Compliance Act of 2010 (“FATCA”) (see “Item 4. Information on the Company – B. Business Overview – B.8. Supervision and Regulation – International regulations applicable to Bancolombia and its subsidiaries”). Additionally, Bancolombia and some of its subsidiaries are subject to the reporting obligations derived from the conventions that implement the Common Reporting Standard (“CRS”) approved by the OECD.

Given the size and the scope of the Bank’s international operations, we have taken measures and implemented procedures aimed at complying with FATCA and CRS, including transmitting to the relevant authorities the reports required under FATCA and CRS.

However, if the Bank cannot satisfy the requirements thereunder, certain payments to Bancolombia, or its Subsidiaries, may be subject to withholding under FATCA or other penalties imposed by each government. The possibility of such withholding or penalties and the need for accountholders and investors to provide certain information may discourage some customers or potential customers from banking with us, thereby adversely affecting our results of operations and financial condition. In addition, compliance with the terms of the intergovernmental agreements (“IGA”), particular agreements entered into with the IRS, the international conventions signed for the exchange of information under CRS, the laws or any other regulations enforced in the relevant jurisdictions may increase our compliance costs. Legislation and regulations implementing FATCA and CRS in some of the countries in which the Bank operates remain under development, and the reporting dates vary depending on the jurisdiction.

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The Bank is exposed to increased costs and liabilities in the event of the failure of its services providers to perform their obligations under key services contracts

The Bank enters into contracts with third parties who provide certain key services that are essential to its business. These services include online banking platforms, data processing and payment services, clearing and settlement services, software for processing credit and debit card services, and technological infrastructure, among others. The Bank faces the risk of operational disruption, failure or capacity constraints due to its dependency on such third-party vendors for certain components of its systems.

While the Bank conducts due diligence prior to engaging with third party service providers and performs ongoing monitoring of vendor controls, it does not control their operations. If any of our key service providers fails to fulfill any of their contractual obligations or cause disruptions in services (including as a result of a cyberattack, other information security event or a natural or health disaster (such as COVID-19 or other epidemics), failure to handle current or higher volumes, poor performance of services and failure to comply with applicable laws and regulations), the Bank’s ability to conduct its businesses could be adversely affected and could also negatively impact its results of operations and financial position. In addition, the Bank may be required to incur significant additional costs to find replacement providers. Furthermore, the unavailability of the services provided by some technology vendors could result in the unavailability of certain channels through which our clients execute transactions with us until a replacement provider is engaged, which could result in lost revenue, additional costs and, potentially, adverse regulatory consequences and reputational harm.

The Bank has a robust vendor selection process designed to ensure that the service providers appointed are among the most experienced and qualified available in the market. The Bank also, generally requires that service providers have contingency plans, which must be regularly updated to anticipate, identify, and mitigate these potential risks. In addition, in most cases, when contracting a critical service provider, in accordance with applicable regulation, the Bank seeks to include contractual provisions related to SLAs (service level agreements), penalty clauses and insurances to deter the service providers from failing to comply with their contractual obligations.

Notwithstanding the measures described above, the Bank may not be able to prevent all significant negative consequences in case of a material failure of its key service providers.

The Bank is subject to credit risk and estimating exposure to credit risk involves subjective and complex judgments.

A number of our products expose the Bank to credit risk. These products include loans, financial leases, guarantees and lending commitments.

The Bank estimates and establishes reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions about the ability of our borrowers to repay their loans. This process is also subject to human error as the Bank’s employees may not always be able to assign an accurate credit risk rating to a client, which may result in the Bank’s exposure to a higher credit risk than one indicated by the Bank’s risk rating system. The Bank may not be able to timely detect these risks before they occur, or due to limited resources or available infrastructure, the Bank’s employees may not be able to effectively implement its credit risk management system, which may increase the Bank’s exposure to credit risk. Moreover, the Bank’s failure to continuously refine its credit risk management system may result in a higher risk exposure for the Bank, which could materially and adversely affect its results of operations and financial position.

Overall, if the Bank is unable to effectively control the level of non-performing or poor credit quality loans in the future, or if its loan loss reserves are insufficient to cover future loan losses, the Bank’s financial condition and results of operations may be materially and adversely affected.

The amount of the Bank’s non-performing loans may increase in the future as a result of factors beyond the Bank’s control, such as changes in the income levels of the Bank’s borrowers, increases in the inflation rate or an increase in interest rates, the impact of macroeconomic trends and political events affecting Colombia and other jurisdictions in which the Bank operates or has exposure (especially Panama, El Salvador and Guatemala) or events affecting specific industries. Any of

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these developments could have a negative effect on the quality of the Bank’s loan portfolio, requiring the Bank to increase provisions for loan losses and resulting in reduced profits or in losses.

 Risks relating to the use of quantitative models and information may adversely impact the Bank’s business strategies and results.

In recent years, the use of mathematical and statistical models has spread rapidly in different areas of the Bank. The use of these models brings benefits such as objectivity, automation and efficiency. but also entails costs related to the resources required for their development as well as heightened risks.

The heightened risks arise from three fundamental sources:  

Data deficiencies in both availability and quality.
Methodological errors in the design of the model such as volatility in the estimates, inadequate simplifications or approximations, erroneous hypotheses and incorrect design.
The inappropriate use of the model which may include the application outside of its intended use, implementation errors, lack of updating or recalibration.

The use of inadequate models could negatively impact the analysis of decisions concerning business strategies, risk identification and measurement, positions valuation, performance of stress tests, capital adequacy evaluation, customer asset management, internal limits compliance or compliance of financial or regulatory information requirements and issuance of public information.

The Bank is subject to credit risk with respect to its non-traditional banking businesses including investing in securities and entering into derivatives transactions.

Non-traditional sources of credit risk can arise from, among other things: investing in securities, entering into derivative contracts under which counterparties have obligations to make payments to the Bank, and executing securities, futures, currency or commodity trades from the Bank’s proprietary trading desk that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. Any significant increases in exposure to any of these non-traditional risks, or a significant decline in the credit quality or the insolvency of any of the counterparties, could materially and adversely affect the Bank’s results of operations and financial position.

The Bank is exposed to risks associated with the mortgage loan market, as a result of the value of the collaterals.

The Bank is a significant participant in the mortgage loan markets in which it operates. Colombia’s mortgage loan market is highly regulated and has historically been affected by macroeconomic factors, as well as the mortgage loan markets of Panama, Guatemala and El Salvador. During 2020, the loan portfolio quality was impacted as a result of the implementation of financial relief strategies implemented by governments in the countries where we operate. In addition, mortgage loan portfolio has also been impacted by the value on collaterals accepted as securities for loans, considering the current market conditions and subsequent fluctuations as result of COVD-19 pandemic.

The Bank is subject to concentration of default risks in its loan portfolio. Problems with one or more of its largest borrowers may adversely affect its financial condition and results of operations.

As of December 31, 2020, the aggregate outstanding principal amount of the Bank’s 20 largest economic groups, on a consolidated basis, represented 11.6% of the Bank’s loan portfolio. No single group exposure represented more than 2% of the loan book. Problems with one or more of the Bank’s largest economic groups could materially and adversely affect the Bank’s results of operations and financial position.

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The value of the collateral securing the outstanding principal and interest balance of the Bank’s loans may not be sufficient to cover such outstanding principal and interest. In addition, the Bank may be unable to realize the full value of the collateral or guarantees securing the outstanding principal and interest balance of its loans.

The Bank’s loan collateral primarily includes real estate, assets pledged in financial leasing transactions and other assets that are located primarily in Colombia, El Salvador, Panama and Guatemala, the value of which may significantly fluctuate or decline due to factors beyond the Bank’s control. Such factors include market factors, environmental risks, macroeconomic factors and political events affecting the local economy. In addition, the Bank may face difficulties in enforcing its rights as a secured creditor. Timing delays, procedural problems enforcing collateral and local protectionism may make foreclosures on collateral and enforcement of judgments difficult. Any decline in the value of the collateral securing the Bank’s loans may result in a reduction in the recovery from collateral realization and may have an adverse impact on the Bank’s results of operations and financial condition. Additionally, isn’t it known whether the COVID-19 affected the collateral value as well as the processes to update market asset values.

The Bank is subject to market risk.

The Bank is directly and indirectly affected by changes in market conditions. Market risk, or the risk of losses in positions arising from movements in market prices, is inherent in the products and instruments associated with our operations, including loans, deposits, securities, bonds, long-term debt, short-term borrowings, proprietary trading in assets and liabilities and derivatives. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices and changes in the implied volatility of interest rates and foreign currency exchange rates, among others.

The Bank’s results of operations are sensitive to fluctuations in interest rates.

The Bank holds a substantial portfolio of loans and debt instruments that have both fixed and floating interest rates. Therefore, changes in interest rates could adversely affect our net interest margins as well as the value of the debt instruments. Increases in interest rates may reduce the market value of the Bank’s debt instruments, leading to smaller gains or larger losses on these investments. Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. On the other hand, decreases in interest rates may cause margin compression and lower net interest income as the Bank usually maintains more assets than liabilities at variable rates. Decreasing interest rates also may trigger loan prepayments which could negatively affect the Bank’s net interest income. Generally, in a declining interest rate environment, prepayment activity increases, reducing the weighted average maturity of the Bank’s interest earning assets and adversely affecting its operating results. Prepayment risk also has a significant adverse impact on the Bank’s earnings from its credit card and collateralized mortgage obligations, since prepayments could shorten the weighted average life of these portfolios, which may result in a mismatch in funding or in reinvestment of the prepayment proceeds at lower yields. In addition, these risks could significantly impact the Bank’s portfolio as well as portfolios managed by the Bank and owned by third parties. To the extent we experience withdrawals of third-party assets, our asset management revenues and related income will be adversely affected.

The Bank’s income from its proprietary trading activities is highly volatile.

The Bank derives a portion of its profits from its proprietary trading activities. Income from this activity is highly volatile and depends on numerous factors beyond the Bank’s control, such as the general market environment, overall market trading activity, interest rate levels, fluctuations in exchange rates oil prices and general market volatility. A significant decline in the Bank’s trading income, or the incurrence of a trading loss, could adversely affect the Bank’s results of operations and financial position.

The Bank has significant exposure to sovereign risk, and especially Colombian sovereign risk, and the Bank’s results could be adversely affected by decreases in the value of its sovereign debt instruments.

The Bank’s debt instruments portfolio is primarily composed of sovereign debt instruments. Therefore, the Bank’s results are exposed to credit, market, and liquidity risk associated with sovereign debt, in particular risk associated with securities

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issued or guaranteed by the Colombian Government. As of December 31, 2020, the Bank’s total debt instruments represented 11.33% of its total assets, and 45.29% of these securities were issued or guaranteed by the Colombian Government. A significant decline in the value of the securities issued or guaranteed by the Colombian Government could adversely affect the Bank’s debt instruments portfolio and consequently the Bank’s results of operations and financial position.

The Bank is subject to market, liquidity, operational and structural risks associated with its derivative transactions.

The Bank enters into derivative transactions for hedging purposes on its own account and on behalf of its customers. The Bank is subject to market, liquidity (due to the difficulty in closing out a trade prior to maturity or if bid-ask spreads are so large, representing a significant cost) and operational risk associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder). In addition, the market practice and documentation for derivative transactions is less developed in the jurisdictions in which the Bank operates as compared to other more economically developed countries, and the court systems in such jurisdictions have limited experience in dealing with issues related to derivative transactions. As a result, there are increased operating and structural risks associated with derivatives transactions in these jurisdictions.

In addition, the execution and performance of derivatives transactions depend on the Bank’s ability to develop adequate control and administrative systems, and to hire and retain qualified personnel. Moreover, the Bank’s ability to adequately monitor, analyze and report these derivative transactions depends, to a great extent, on its information technology systems. These factors may further increase the risks associated with these transactions and could materially and adversely affect the Bank’s results of operations and financial position.

The Bank is subject to operational risks and losses.

The Bank’s businesses are dependent on the ability to process a large number of transactions efficiently and accurately. Operational risks and losses can result from fraud, employee errors, technological failures and failure to properly document transactions or to obtain proper internal authorization, failure to comply with regulatory requirements, breaches of conduct of business rules, equipment failures, natural disasters or the failure of external systems. The Bank has adopted procedures to prevent and manage each of the operational risks, but there can be no assurance that our procedures will be sufficient to prevent losses resulting from these risks.

In addition, the Bank’s businesses are exposed to risk from potential non-compliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions and serious reputational or financial harm. In recent years, a number of financial institutions have suffered material losses due to the actions of employees and third parties. The precautions the Bank takes to prevent and detect employee and third-party misconduct may not always be effective.

For instance, accumulated net economic losses in 2020 increased 82.3% compared to the previous year, mainly due to processes and controls adjustments as a result of the COVID-19 pandemic, that led to greater external fraud, technological incidents and process failures. The increase in external fraud is a consequence of the social and economic crisis caused by COVID-19 and some actions implemented by the Bank in order to facilitate our client virtual transactions and reducing physical operations in branches, such as increasing of transactional amount limits for client operations and reducing the blocking rules by securities alerts in virtual channels.

The Bank’s businesses rely heavily on data collection, processing and storage systems, the failure of which could materially and adversely affect the effectiveness of its risk management, reputation and internal control system as well as its financial condition and results of operations.

All of the Bank’s principal businesses are highly dependent on the ability to timely collect and process a large amount of financial and other information at its various branches across numerous markets, at a time when transaction processes have become increasingly complex with increasing volume. The proper functioning of financial control, accounting or other data collection and processing systems is critical to the Bank’s businesses and to its ability to compete effectively.

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A partial or complete failure of any of these primary systems could materially and adversely affect the Bank’s decision-making process, its risk management and internal control systems, the quality of its service, and the Bank’s ability to respond on a timely basis to changing market conditions. If the Bank cannot maintain an effective data collection and management system, its business operations, financial condition, reputation and results of operations could be materially and adversely affected.

The Bank is also dependent on information systems to operate its website, process transactions, respond to customer inquiries on a timely basis and maintain cost-efficient operations. The Bank may experience operational problems with its information systems as a result of system failures, viruses, computer hackers or other causes. Any material disruption or slowdown of its systems could cause information, including data related to customer requests and other client information, to be lost, compromised, or to be delivered to the Bank’s clients with delays or errors, which could reduce demand for the Bank’s services and products, resulting in additional costs for the Bank and potentially fines and penalties by regulators which could materially and adversely affect the Bank’s results of operations and financial position. To guarantee service continuity, the Bank plans and implements exercises related to business continuity and disaster recovery as well as cybersecurity risks and vulnerabilities´ management, according to internal and external control areas requirements. There can be no assurance that these measures will successfully eliminate or substantially mitigate the risk associated with failure of our data collection, processing and storage systems.

The Bank is subject to cyber-security risk.

The threat of cyber-attack remains a concern for the Bank, as it does across all the financial sector. Failure to protect the Bank from such an attack may result in losses, disruption for clients or a loss of information. This could undermine the Bank´s reputation and its ability to retain clients. The most common cybersecurity threats attempt to exploit vulnerabilities in the systems, through malware or unauthorized access, to disrupt our business and/or cause data and financial loss.

There have been no material cyber-attacks during 2020. However, the risk remains that future cyber-attacks might have a material adverse effect on the Bank´s reputation, operations, and financial results.

The Bank has continued to strengthen its digital services, products and channels to allow customers to execute financial transactions through virtual channels. To make this possible, the Bank uses information technology systems on its own infrastructure, cloud services or third-party providers to receive, process, transmit and store the information assets. Such information assets are the main target of cyber threats which generally target confidential information or the integrity or availability of the systems, which could result in financial losses or regulatory penalties or negatively affect the reputation of the Bank.

The Bank’s management recognizes that the landscape of cyber-attacks is constantly evolving, and that increasingly complex techniques and tools are used by those who perpetrate such attacks. As a result, the Bank constantly invests significant resources in improving its physical and virtual security control environment and has also changed the methodologies to identify, treat and mitigate cybersecurity risks, including the identification of primary threats, technical vulnerabilities, common weaknesses of systems and information assets. With respect to third party vendors, the Bank takes certain actions to mitigate the risks associated with these relationships such as risk assessments, periodic visits, validation of the quality of software developments and data protection, assessments of their control environment and requests for implementation of action plans to mitigate cyber risks. Regardless of such efforts, given, among other factors, the large area of existing attack vectors and the incremental exposure through third parties, it is possible that not all cyber threats can be anticipated.

For further information see “ITEM 4. Information on the Company – B. Business Overview- B.9. Cybersecurity framework”.

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Failures related to the Bank’s information technology infrastructure and management information systems could adversely affect the Bank’s competitiveness, reputation, financial condition and results of operations.

In the past, the Bank faced technological failures which affected some of the Bank’s products and services. To mitigate potential failures, and obsolescence risks, and to prevent future threats, the Bank has implemented technological updates, controls and measures, such as enabling alternative channels to guarantee the clients’ uninterrupted access to our services.

The Bank recognizes the importance of having a business continuity management system and accordingly gives high priority to the design of contingency plans to avoid service interruption risks.

The occurrence of natural or other disasters in the regions in which the Bank operates could impair its ability to conduct business effectively and could impact its results of operations.

The Bank is exposed to the risk of natural or other disasters such as earthquakes, volcanic eruptions, tropical storms, floods, wind and hurricanes in the regions where it operates. Although the Bank has implemented disaster recovery systems, in the event of a natural disaster, unanticipated problems could have a material adverse effect on the Bank’s ability to conduct business in the affected region, particularly if those problems affect its computer-based data processing, transmission, storage and retrieval systems and destroy valuable data.

In addition, if a significant number of the Bank’s employees and managers became unavailable due to a natural disaster, the Bank’s ability to effectively conduct business could be severely compromised. In addition, the Bank may face added credit risk if its clients that are located in the affected region are not able to make timely payment on outstanding loans or other obligations to the Bank. A natural disaster or multiple catastrophic events could have a material adverse effect on the Bank’s business and results of operations in the affected region.

As a result of the outbreak of COVID-19, during 2020 the Bank activated its business continuity plan, enabling employees to work from home while allowing the continuity of the operation of critical business processes highlighting the maturity of our continuity plan and the mitigation of possible risks of interruption. However, we cannot assure that other disasters will not impair our operations despite the existence of such business continuity plans, therefore affecting our results of operations.

The effects generated by climate change could have an effect on the bank's operations, affect the financial situation of clients and cause a deterioration in the quality of the credit portfolio and investments.

Climate change can generate extreme climatic effects in all the countries where the Bank operates. These weather events can lead to disruptions at customer service locations and affect the value of some of the bank's real estate investments.  Some adverse weather events may also affect the financial situation of our clients and thereby affect their payment capacity and generate a deterioration in the credit quality of our loan and investment portfolio.  

Also, the Bank finances clients with business across different industries whose operations can contribute negatively to climate change. Although the Bank has been making risk appetite decisions aimed at modifying its financing model in these industries, a possible impact on the business models of these clients may affect their financial situation and the credit quality of the credit and investment portfolio and affect our reputation.

The Bank’s ability to attract and retain specialized talent could impact some digital business objectives.

The current economic landscape requires workforces to exhibit new skills and attributes such as creativity, innovation and flexibility, which are necessary to adapt the Bank’s operations to constant technological advances, and to update the Bank’s digital business models and strategies to develop new products and services. To respond to these trends, many companies, including financial institutions as the Bank, are struggling to engage employees with specialized knowledge in a variety of technological information areas, including data science, quantitative resources, information security and other technical areas, in which it is becoming more difficult to acquire and retain staff on a cost-effective basis.

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The Bank’s strategic objectives are linked to their human talent. Specifically, the development of new products, services and digital tools demands that its human talent specialized capabilities to carry out the relevant process, enabling to achieve competitive advantages with respect to its competitors.

While the Bank has implemented strategies to attract and retain experienced and skilled professionals, the lack of specialized workforce to fill positions that require this kind of knowledge in various areas could negatively affect the Bank’s ability to deal with future challenges, slow the digital business strategy execution, including development of new products and affect the Bank’s results of operation.

Digital misinformation could adversely affect the Bank’s reputation as well as its operational and financial results.

The increase in digital interconnection has increased the spread and distribution of digital content such as texts, photos, audio and videos, some of which are used with the intent to, among other purposes, commit fraud. Such digital misinformation can affect organizations, such as the Bank, if used to blackmail or defame the Bank’s reputation in order to negatively affect the trust of customers and other interest groups in the financial services industry, therefore leading to reduced business for the Bank which would negatively affect  the operational, economic and reputational performance of the Bank.

Acquisitions and strategic alliances may not perform in accordance with expectations or may disrupt the Bank’s operations and adversely affect its profitability.

An element of the Bank’s business strategy is to identify and pursue growth-enhancing strategic opportunities. The Bank may base assessments of potential acquisitions and alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect, and any future acquisitions, investments and alliances may not produce the anticipated synergies or perform in accordance with the Bank’s expectations which could adversely affect its operations and profitability. In particular, the Bank holds a minority financial investment in an infrastructure project located in Colombia through a private equity fund. In recent years, the main shareholder of the project and the concession company have faced negative press related to irregular practices. If any of these situations result in sanctions or convictions then the company in which the Bank indirectly holds a minority stake, which is the holder of a toll road concession, may suffer a reputational harm, which in turn may have an adverse impact on its results of operations and financial condition and the return on the Bank’s investment.

The Bank faces risks relating to regulatory compliance in general, and in particular with respect to laws relating to anti-competitive practices, consumer protection and protection of personal data.

The Bank is subject to laws and regulations related to anti-competitive practices, including the formation of cartels and the abuse of its dominant position. Violation of these laws and regulations may result in significant administrative sanctions imposed by the SIC.

The Bank has created a special unit responsible for overseeing and ensuring regulatory compliance in general and, in particular, compliance with regulations related to anti-competitive practices, personal data protection and consumer protection.

Moreover, to ensure compliance with regulations regarding the use and protection of personal data, the Bank is currently developing a comprehensive data protection program.

The Bank may not be able to prevent all risks associated with regulatory compliance or detect all instances of non-compliance with the regulations described above. Any failure by the Bank to detect and prevent the aforementioned practices in a timely manner could damage the Banks reputation and facing substantial fines and penalties which could adversely affect the Bank’s results of operations and financial position.

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The Bank’s policies and procedures may not be able to detect money laundering, terrorism financing, corruption or other illegal or improper activities fully or on a timely basis.

The Bank is required to comply with applicable anti-money laundering, anti-terrorism and anti-corruption laws and regulations. These laws and regulations require the Bank, among other things, to adopt and enforce “know your customer” policies and procedures and to report suspicious and large transactions to the applicable authorities. While the Bank has adopted policies and procedures aimed at preventing and detecting the use of its banking network for money laundering and terrorism financing activities and by terrorists and terrorist-related organizations and individuals generally, as the methods used by criminals evolve and become increasingly sophisticated, such policies and procedures may not completely eliminate the risk that the Bank may be used by other parties to engage in money laundering, terrorism financing, corruption or other illegal or improper activities.

The Bank is subject to laws and regulations that prohibit corrupt payments to public officials, including the U.S. Foreign Corrupt Practices Act and Colombian regulations on transnational bribery. The Bank has anti-corruption procedures, which incorporates, among others, an anti-corruption policy, training, reporting channels, monitoring, internal investigations and sanctions. While this system is designed to prevent and detect corrupt behavior, it does not completely eliminate the risk that the Bank´s employees, providers, clients or agents may engage in corrupt practices.

If the Bank fails to fully comply with applicable laws and regulations, it may face fines, penalties or other liabilities including restrictions on its ability to conduct business. In addition, the Bank’s business and reputation could suffer if it is not able to prevent and detect money laundering, terrorism financing, corruption or other illegal practices.

The Bank is subject to increasing competition which may adversely affect its results of operations.

The Bank operates in a highly competitive environment and management expects competition to increase in the jurisdictions where the Bank operates. Intensified merger activity in the financial services industry has produced larger, better capitalized and more geographically diverse firms that are capable of offering a wider array of financial products and services at more competitive prices. Also, the emergence of new financial technologies, unregulated financial intermediaries (known as “shadow banking”) and the recent enactment of regulations aimed at enabling non-Colombian residents (other than individuals) to offer loans in COP, may increase competition for the Bank. The Bank’s ability to maintain its competitive position depends mainly on its ability to fulfill new customers’ needs through the development of new products and services, the Bank’s ability to offer adequate services and strengthen its customer base through cross-selling and the Bank’s ability to bring in and retain human talent. The Bank’s business will be adversely affected if the Bank is not able to maintain efficient service strategies. In addition, the Bank’s efforts to offer new services and products may not succeed if product or market opportunities develop more slowly than expected or if the profitability of opportunities is undermined by competitive pressures.

Downgrades in the credit ratings of the Bank and its subsidiaries would increase their cost of borrowing funds and make their ability to raise new funds, attract deposits or renew maturing debt more difficult.

The Bank’s and its subsidiaries’ credit ratings are an important component of the liquidity profile of each entity, and their ability to successfully compete depends on various factors, including their financial stability as reflected by their credit ratings. A downgrade in the credit ratings of the Bank or its subsidiaries would increase their cost of raising funds from other banks or in the capital markets. Purchases of the Bank’s or its subsidiaries’ securities by institutional investors could be reduced if they suffer a decline in their credit ratings. The ability of the Bank or its subsidiaries to renew maturing debt could become restricted and the terms for such renewal more expensive if their credit ratings were to decline. The Bank’s and its subsidiaries’ lenders and counterparties in derivative transactions are sensitive to the risk of a credit rating downgrade. A downgrade in the credit rating of the Bank or its subsidiaries may adversely affect perception of their financial stability and their ability to raise deposits, which could make each entity less successful when competing for deposits and loans in the marketplace.

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Discontinuation of the London InterBank Offered Rate (“LIBOR”), and the regulation and implementation of a replacement benchmark rate could adversely affect our business, financial condition and result of operations.

In 2017, the U.K. Financial Conduct Authority announced that it would no longer require banks to submit rates for the calculation of the LIBOR benchmark after 2021. Additionally, in March 2021, the UK Financial Conduct Authority announced that the publication of LIBOR on a representative basis will cease for the one-week and two-month USD LIBOR settings immediately after December 31, 2021, and the remaining USD LIBOR settings immediately after June 30, 2023. This announcement may trigger future changes in the rules or methodologies used to calculate benchmarks or lead to the discontinuation or unavailability of benchmarks.

In order to address the discontinuation of LIBOR, a work team was organized within the Bank, which is implementing different initiatives to mitigate risks. This team is focused on (i) systems adaptation, (ii) analyzing and implementing appropriate "fallback language" and (iii) designing a strategy to approach clients. Addressing the discontinuation of LIBOR includes understanding and identifying the impacts on products, contracts, technological applications, areas and processes that could be affected, as well as the effects on customers and the calculation of possible exposure of companies in Colombia, Panama, El Salvador and Guatemala. This team is supervised by a steering committee and the Risk Committee of the board of directors.

The Bank is exposed to assets and liabilities linked to the calculation of LIBOR. For more information, see Item 5 “Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – B.1 Liquidity and Funding”.

Any failure by market participants, such as the Bank, and regulators to successfully introduce benchmark rates to replace Libor and implement effective transitional arrangements to address the discontinuation of LIBOR could result in disruption of the financial and capital markets. In addition, the transition process to an alternative reference rate could impact the Bank’s business, financial condition or result of operations, as a result of:

An adverse impact in pricing, liquidity, value, return and trading for a broad array of financial products, loans and derivatives that are included in the Bank’s financial assets and liabilities.
Extensive changes to internal processes and documentation that contain references to Libor or use formulas that depend on Libor.
Disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of provisions in LIBOR-based products such as fallback language or other related provisions.
The transition and development of appropriate systems and analytics to effectively transition the Bank’s risk management processes from Libor-based products to those based on one or more alternative reference rates in a timely manner; and
An increase in prepayments of Libor-linked loans by the Bank’s clients.

Risks Relating to the Preferred Shares and the ADSs.

Preemptive rights may not be available to holders of American Depositary Receipts (“ADRs”) evidencing ADSs.

The Bank’s by-laws and Colombian law require that, whenever the Bank issues new shares of any outstanding class, it must offer the holders of each class of shares (including holders of ADRs) the right to purchase a number of shares of such class sufficient to maintain their existing percentage ownership of the aggregate capital stock of the Bank. These rights are called preemptive rights. United States holders of ADRs may not be able to exercise their preemptive rights through The Bank of New York Mellon, which acts as depositary (the “Depositary”) for the Bank’s ADR facility, unless a registration statement under the Securities Act is effective with respect to such rights and class of shares or an exemption from the registration requirement thereunder is available. The Bank is obligated to file a registration statement or find a corresponding exemption only if it determines to extend the rights to holders of the ADRs. Although it is not obligated to, do so, the Bank intends to consider at the time of any rights offering the costs and potential liabilities associated with any

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such registration statement, the benefits to the Bank from enabling the holders of the ADRs to exercise those rights and any other factors deemed appropriate at the time before it makes a decision as to whether to file a registration statement. Accordingly, the Bank may in some cases decide not to file a registration statement.

Under the deposit agreement between the Bank and the Depositary, only the Depositary is entitled to exercise preemptive rights, and the Depositary has no obligation to make available preemptive rights to holders of ADRs. If the Bank offers or causes to be offered to the holders of any deposited securities, including preferred shares of the Bank, any rights to subscribe for additional preferred shares of the Bank or any rights of any other nature, the Depositary has discretion as to the procedure to be followed in making such rights available to any holders of ADRs or in disposing of such rights on behalf of any holders of ADRs and making the net proceeds available to such holders of ADRs. If by the terms of such rights offering or for any other reason, the Depositary does not either make such rights available to any holders of ADRs or dispose of such rights and make the net proceeds available to such holders of ADRs, then the Depositary will allow the rights to lapse. Whenever the rights are sold or lapse, the equity interests of the holders of ADRs will be proportionately diluted.

The Bank’s preferred shares have limited voting rights.

The Bank’s corporate affairs are governed by its by-laws and Colombian law. Under the Bank’s by-laws and Colombian law, the Bank’s preferred stockholders may have fewer rights than stockholders of a corporation incorporated in a U.S. jurisdiction. Under the Bank’s by-laws and Colombian corporate law, holders of preferred shares (and, consequently, holders of ADRs) have no voting rights in respect of preferred shares, other than in limited circumstances as described in “Item 10. Additional Information – B. Memorandum and Articles of Association – Voting Rights – Preferred Shares”. Holders of the Bank’s preferred shares, including holders of ADRs, are not entitled to vote for the election of directors or to influence the Bank’s management policies.

Holders of the Bank’s ADRs may encounter difficulties in the exercise of dividend and voting rights.

Holders of the Bank’s ADRs may encounter difficulties in the exercise of some of their rights with respect to the shares underlying ADRs. If the Bank makes a distribution to holders of underlying shares in the form of securities, the Depositary is allowed, in its discretion, to sell those securities on behalf of ADR holders and instead distribute the net proceeds to the ADR holders. Also, even in those limited instances in which the preferred shares represented by the ADRs have the power to vote, under some circumstances, ADR holders may not be able to vote by giving instructions to the depositary. This may occur if ADR holders do not receive from the Depositary a notice of meeting sufficiently prior to the instruction date to ensure that the Depositary will vote the preferred shares represented by the ADRs in accordance with instructions received from such holders. There are no circumstances in which holders of ADRs may vote in a way other than by providing instructions to the Depositary.

Relative illiquidity of the Colombian securities markets may impair the ability of an ADR holder to sell preferred shares.

The Bank’s common and preferred shares are listed on the Colombian Securities Exchange, which is relatively small and illiquid compared to securities exchanges in major financial centers. In addition, a small number of issuers represent a disproportionately large percentage of market capitalization and trading volume on the Colombian Securities Exchange. A liquid trading market for the Bank’s securities might not develop on the Colombian Securities Exchange. A limited trading market could impair the ability of an ADR holder to sell preferred shares (obtained upon withdrawal of such shares from the ADR facility) on the Colombian Securities Exchange in the amount and at the price and time such holder desires, and could increase the volatility of the price of the ADRs.

Changes in Colombia’s tax regime may affect ADRs tax treatment.

ADRs do not have the same tax benefits as other equity investments in Colombia. ADRs represent Bancolombia’s preferred shares and are held through a fund of foreign capital in Colombia which is subject to a specific tax regulatory regime. Accordingly, the regulations applicable in Colombia to equity investments, in particular those relating to dividends and profits from sale, are not applicable to ADRs, including the Bank’s ADRs.

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However, the tax regime applicable to ADRs may change from time to time, considering that in recent years the Colombian tax regime has had several reforms.

For more information see “Item 10. Additional Information. –E. Taxation –Colombia Taxation”.

ITEM 4           INFORMATION ON THE COMPANY

A.                   HISTORY AND DEVELOPMENT OF THE COMPANY

Bancolombia is one of the biggest Colombian financial institution, with presence in other jurisdictions such as Panama, El Salvador, Puerto Rico, Guatemala, Barbados and the Cayman Islands, providing a wide range of financial products and services to a diversified individual, corporate, and government customer base throughout Colombia, Latin America and the Caribbean region.

Bancolombia is a stock company (“sociedad anónima”) domiciled in Medellin, Colombia and operates under Colombian laws and regulations, mainly the Colombian Commercial Code, Decree 663 of 1993 and Decree 2555 of 2010. Bancolombia was incorporated in Colombia in 1945, under the name Banco Industrial Colombiano S.A. or “BIC”, and is incorporated until 2044. In 1998, the Bank merged with Banco de Colombia S.A., and changed its legal name to Bancolombia S.A. On July 30, 2005, Conavi Banco Comercial y de Ahorros S.A. and Corporación Financiera Nacional y Suramericana S.A. merged with and into Bancolombia, with Bancolombia as the surviving entity. Through this merger, Bancolombia gained important competitive advantages in retail and corporate banking which materially strengthened Bancolombia’s multi-banking franchise.

In May 2007, Bancolombia Panama acquired Banagrícola, which controls several subsidiaries, including Banco Agrícola in El Salvador, and is dedicated to banking, commercial activities, consumer activities and brokerage. Through its first international acquisition, Bancolombia gained a leadership position in the Salvadorian market.

In October 2013, Bancolombia acquired a 100% interest in the ordinary voting shares of Banistmo.

Also, in October 2013, Bancolombia Panama acquired a 40% interest in Grupo Agromercantil, the parent company of BAM, and certain other companies dedicated to securities brokerage and other financial businesses. On December 30, 2015, Bancolombia Panama acquired an additional 20% interest, resulting in control of Grupo Agromercantil.

On September 29, 2020, the Bank acquired the remaining 40% of the shareholdings of Grupo Agromercantil Holding (GAH); the purchase price paid to the seller, BFC BAM Financial Corporation, was USD 289,144,606 (COP 1,117,680). For this transaction, the Bank has recognized a financial liability to BAM Financial Corporation (BFC) in the amount of USD 290,4 million, due to its future obligations to purchase for cash the non-controlling shares of Grupo Agromercantil Holding (GAH).

Since 1995, Bancolombia has maintained a listing on the NYSE, where its ADSs are traded under the symbol “CIB”, and on the Colombian Securities Exchange, where its preferred shares are traded under the symbol “PFBCOLOM”. Since 1981 Bancolombia’s common shares have been traded on the Colombian Securities Exchange under the symbol “BCOLOMBIA”. See “Item 9. The Offer and Listing”.

Bancolombia has grown substantially over the years, both through organic growth and acquisitions.

As of December 31, 2020, Bancolombia and its consolidated subsidiaries had:

COP 255,569 billion in total assets;

COP 191,410 billion in total loans and advances to customers and financial institution;

COP 180,821 billion in total deposits by customers; and

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COP 26,545 billion in stockholders’ equity attributable to the owners of the parent company.

Bancolombia’s consolidated net income attributable to equity holders of Bancolombia S.A. for the year ended December 31, 2020 was COP 0.276 billion, representing a return on average total equity of 1.02% and a return on average total assets of 0.11%.

The address and telephone numbers of the Bank’s headquarters are as follows: Carrera 48 # 26-85, Medellín, Colombia; telephone + (574) 404-1837. The Bank’s website is: https://www.grupobancolombia.com. The Bank’s agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

The SEC maintains a website that contains reports and other information regarding registrants. All the SEC filings made electronically by registrants including Bancolombia can be accessed at www.sec.gov.

RECENT DEVELOPMENTS

Retirement of Carmenza Henao Tisnes, Chief Internal Auditor Officer of the bank and appointment of Jose Mauricio Rodríguez as new Chief Internal Auditor Officer

On June 19, 2020, Bancolombia announced the retirement of Carmenza Henao Tisnes, Chief Internal Auditor Officer of the Bank. On July 31, 2020 the Bank´s Board of Directors appointed José Mauricio Rodríguez Ríos as the new Chief Internal Auditor Officer, effective August 1, 2020. Mr Rodriguez Rios has been working with Bancolombia for more than 16 years and has held different positions within the group. He was in charge of personal, mortgages and investments auditing areas and was also Auditing Director for the Colombian operations. During the last 5 years he served as Chief Internal Auditor for Banco Agricola.

Bancolombia announced resolution of general shareholders meeting to increase the Bank´s legal reserve

On July 31, 2020 during an extraordinary general shareholders meeting, Bancolombia’s shareholders adopted a resolution to increase the Bank´s legal reserve, transferring the existing amount in the appropiated reserve for the equity reinforcement and future growth with a value of COP $3,672,419. This decision allowed Bancolombia to maintain regulatory capital levels above the required regulatory minimums.

Bancolombia closed the transaction for the acquisition of 40% of the common stock of Grupo Agromercantil Holding

On September 29, 2020 Bancolombia announced, after obtaining the necessary regulatory approvals, the closing of the transaction for the acquisition of an additional 40% of the common stock of Grupo Agromercantil Holding (GAH), a company that owns the Conglomerado Financiero Agromercantil of Guatemala, which includes among others Banco Agromercantil of Guatemala (BAM). Having consumated the acquisition, grupo bancolombia now owns 100% of the common stock of GAH. The purchase price paid to the seller, BFC BAM Financial Corporation, amounts to USD 289,145 thousand. For this transaction, the Bank has recognized a financial liability to BAM Financial Corporation (BFC) in the amount of USD 290,4 million, due to its future obligations to purchase for cash the non-controlling shares of Grupo Agromercantil Holding (GAH).

Bancolombia announced gradual cease of its Bancolombia Cayman operations

On October 5, 2020 Bancolombia announced that the Board of Directors of its subsidiary Bancolombia Panama had approved the gradual cessation of its Cayman operations. For this purpose, Bancolombia will implement a plan to migrate the portfolio and customer service operations of its subsidiary in the Cayman Islands to Bancolombia Panama, Bancolombia Sucursal Panama and Bancolombia Puerto Rico, with support from the respective commercial teams. This

32


decision has been made in line with Bancolombia´s intention to concentrate its international strategy in other markets. This process is being gradually executed and is expected to be completed in the last quarter of 2021. For further information please refer to Note 1 to the Consolidated Financial Statements included in this Annual Report.

Bancolombia enters new collective bargaining agreement

On October 22, 2020 Bancolombia and the unions Uneb and Sintrabancol entered into a new collective bargaining agreement. The agreement has a term of three years, from November 1, 2020 to October 31, 2023. The new agreement will cover more than 13,000 employees with operational level positions in the Bank and its subsidiaries Valores Bancolombia, Fiduciaria Bancolombia and Banca de Inversion Bancolombia and includes an agreement for an annual percentage salary increase for the next three years and an increase in funds allocated to education, housing loans and health insurance policies.

PUBLIC TAKEOVER OFFERS

In 2020, and as of the date of this Annual Report, there have been no public takeover offers by third parties with respect to the Bank’s shares or by the Bank in respect to another company’s shares.

CAPITAL ACQUISITIONS AND DIVESTITURES

During 2020, total capital expenditures amounted to COP 349.7 billion. Such investments were mainly focused on IT related projects (COP 73.4 billion), the expansion of the Bank’s branch and ATM network (COP 33.4 billion), the purchase of fixed assets (COP 167.8 billion), and other miscellaneous projects, including new software modules, upgrade of web contents, automation of reports, and construction of data centers (COP 75.1 billion).

In 2020, Bancolombia funded its capital expenditures with its own resources and plans to continue to fund those currently in progress in the same manner.

In 2021, the Bank expects to invest approximately COP 358.4 billion as follows: COP 104.7 billion in connection with the expansion of the Bank’s branch and ATM network, COP 42.5 billion in connection with the purchase of hardware for the expansion, updating and replacement of the current IT equipment, COP 123.7 billion in connection with other fixed assets and COP 87.5 billion in connection with strategic projects. These figures represent only an estimate and may change as a result of the continuing assessment by the Bank of its project portfolio. No assurance can be given that all such capital expenditures will be made and, if made, that such expenditures will be in the amounts currently expected.

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The following table summarizes the Bank’s capital acquisitions and divestitures in interests in other companies, for the years ending December 31, 2020, 2019 and 2018:

For the year ended December 31, 

Capital Acquisitions(1)

Type of Investment

2020

2019

2018

Total

In millions of COP

Grupo Agromercantil Holding

Subsidiary

1,117,680

(2)

1,117,680

Compañía de Financiamiento Tuya S.A.

Joint venture

37,002

26,316

5,000

68,318

Cartera Colectiva Abierta Fiducuenta

Financial Instrument

31,695

31,695

P.A Proyecto La Felicidad

Associate

12,027

12,027

P.A Proyecto Boreal

Associate

9,716

9,716

P.A Proyecto Madrid II

Associate

7,166

7,166

Servicios de Identidad Digital S.A.S

Associate

5,333

5,333

Ecosistemas Digitales S.A.S

Joint venture

4,542

4,542

VILIV S.A.S

Joint venture

1,609

1,609

Servicios Financieros S.A. de C.V.

Associate

2,300

2,300

P.A Muverang

Joint venture

2,034

2,034

Reintegra S.A.S

Associate

1,612

1,612

Cámara de Riesgo Central de Contraparte de Colombia S.A.

Financial Instrument

1,299

1,299

Equifax Inc

Financial Instrument

927

927

iShare MSCI Colombia EFT

Financial Instrument

872

872

P.A. Fideicomiso Lote Avenida San Martin

Financial Instrument

8,215

8,215

VLIPCO S.A.S.

Joint venture

4,269

4,269

Reintegra S.A.S.

Associate

3,775

1,152

4,927

SPDR S&P 500 ETF Trust

Financial Instrument

2,736

2,736

Servicios de Identidad Digital S.A.S

Associate

2,369

2,369

P.A Proyecto CRECE

Joint venture

2,200

2,200

Amazon.com Inc

Financial Instrument

1,695

1,695

Health Care Select Sector SPDR® Fund

Financial Instrument

1,649

1,649

Consumer Staples Select Sector SPDR® Fund

Financial Instrument

1,628

1,628

Financial Select Sector SPDR® Fund

Financial Instrument

1,609

1,609

iShares Core MSCI EMU UCITS ETF

Financial Instrument

1,367

1,367

iShares MSCI Eurozone ETF

Financial Instrument

1,367

1,367

Microsoft Corporation

Financial Instrument

1,033

1,033

Alphabet Inc Class A

Financial Instrument

878

878

iShares MSCI Japan ETF

Financial Instrument

871

871

Canacol Energy Ltd.

Financial Instrument

857

857

500 Luchadores II, L.P

Financial Instrument

619

619

P.A Viva Malls

Associate

274,951

274,951

FCP Fondo Inmobiliario Colombia

Subsidiary

208,995

208,995

Fondo Renta Fija Valor

Financial Instrument

16,256

16,256

P. A. Cartera Factoring Valores Simesa

Financial Instrument

25,074

25,074

CIFI (Corporación para el financiamiento y la infraestructura)

Financial Instrument

6,599

(3)

6,599

Ely Lilly Company

Financial Instrument

1,047

1,047

Walgreens Boots Alliance, Inc

Financial Instrument

434

434

Others

745

1,649

3,457

5,851

Total Acquisitions

1,236,559

65,102

542,965

1,844,626

(1)

The amount disclosed in this table corresponds to the consideration paid as a result of the acquisition of each investment.

(2)

The amount of USD 289,145 thousand has been converted at the rate of COP 3,865.47 per USD 1,00, which is the Representative Market Rate calculated on September 30, 2020, as reported by the SFC.

(3)

The amount of USD 1,122 thousand has been converted at the rate of COP 2,930.8 per USD 1,00, which is the Representative Market Rate calculated on June 30, 2018, as reported by the SFC.

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As of December 31, 

Capital Divestitures(1)

Type of Investment

2020

2019

2018

Total

In millions of COP

Residual Rights

Financial Instrument

54,724

54,724

Cementos Argos S.A.

Financial Instrument

21,920

21,920

Grupo de Inversiones Suramericana S.A.

Financial Instrument

12,615

12,615

Avianca Taca Holding S.A.

Financial Instrument

6,692

6,692

Fondo Bursátil Horizons Colombia Select DE S&P

Financial Instrument

4,660

4,660

SPDR S&P 500 ETF Trust

Financial Instrument

2,736

2,736

Cemex Latam Holding S.A.

Financial Instrument

2,099

2,099

Amazon.com Inc

Financial Instrument

1,695

1,695

Health Care Select Sector SPDR® Fund

Financial Instrument

1,649

1,649

Consumer Staples Select Sector SPDR® Fund

Financial Instrument

1,628

1,628

iShares Core MSCI EMU UCITS ETF

Financial Instrument

1,367

1,367

iShares MSCI Eurozone ETF

Financial Instrument

1,367

1,367

Grupo Nutresa S.A.

Financial Instrument

1,039

1,039

Almacenes Éxito S.A.

Financial Instrument

1,004

1,004

Ecopetrol S.A.

Financial Instrument

961

961

iShares MSCI Japan ETF

Financial Instrument

871

871

Canacol Energy Ltd.

Financial Instrument

857

2,375

3,232

SURA ASSET MANAGEMENT S.A.

Financial Instrument

423,997

423,997

EPSA S.A. E.S.P

Financial Instrument

128,450

128,450

Arrendamiento Operativo CIB S.A.C - Renting Perú (2)

Subsidiary

69,798

69,798

Concesiones CCFC S.A.

Associate

34,565

34,565

P. A. Cartera Factoring Valores Simesa

Financial Instrument

25,074

25,074

Avefarma S.A.S

Associate

20,658

20,658

CIFI (Corporación para el financiamiento y la infraestructura)

Financial Instrument

20,065

20,065

Mortgage-Backed Securities

Financial Instrument

32,773

32,773

Panamerican Pharmaceutical Holding Inc.

Associate

8,951

8,951

Servicios de Aceptación S.A.S

Joint venture

8,927

8,927

Corporación Financiera Colombiana S.A.

Financial Instrument

8,777

8,777

Glassfarma Tech S.A.S

Associate

4,424

4,424

DECEVAL

Financial Instrument

22,024

22,024

Renta Liquidez Cartera Colectiva

Financial Instrument

21,606

21,606

Bolsa de Valores de Colombia

Financial Instrument

6,752

6,752

ETB S.A. E.S.P

Financial Instrument

2,940

2,940

Davivienda S.A. Preferencial

Financial Instrument

2,490

2,490

Interconexión Eléctrica S.A.

Financial Instrument

1,976

1,976

Preferencial Grupo Sura

Financial Instrument

1,924

1,924

PA Estrategias Inmobiliarias

Financial Instrument

1,797

1,797

Clean Harbors Inc

Financial Instrument

1,650

1,650

Anheuser-Busch InBev

Financial Instrument

1,328

1,328

Johnson & Johnson

Financial Instrument

1,258

1,258

Capital Investment SAFI (2)

Subsidiary

1,148

1,148

Grupo Odinsa S.A.

Financial Instrument

95

95

Others

6,502

4,005

5,267

15,774

Total Divestitures

124,386

790,464

74,630

989,480

(1)The amount disclosed in this table correspond to the consideration received as a result of the sale of each investment.
(2)Investment wound-up in during the year 2018.

B.                BUSINESS OVERVIEW

B.1       GENERAL

COMPANY DESCRIPTION, PRODUCTS AND SERVICES

Bancolombia is a full service financial institution that offers a wide range of banking products and services to a diversified individual and corporate customer base of nearly 18 million customers. Bancolombia delivers its products and services through its regional network comprising Colombia’s largest non-Government owned banking network, El Salvador’s leading financial conglomerate, Guatemala’s fifth-largest bank, Panama’s second-largest bank and international banking subsidiaries in Panama, Cayman, Barbados and Puerto Rico, in each case measured by amount of gross loans.

Bancolombia and its subsidiaries offer the following products and services:

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Savings and Investment: The Bank offers its customers checking accounts, savings accounts, fixed term deposits and a diverse variety of investment products that fit the specific transactional needs of each client and their income bracket, which can be opened thought digital channels. The Bank also offers its clients and users the service of tax collection in all its branches, and through electronic and digital channels.

Ahorro a la Mano: This is a mobile phone-based savings account specially designed to serve low-income clients and those with no prior experience with banking products.

Financing: The Bank offers its customers a wide range of credit alternatives which include: trade financing, loans funded by domestic development banks, working capital loans, credit cards, personal loans, vehicle loans, payroll loans and overdrafts, among others.

Mortgage Banking: The Bank is a leader in the mortgage market in Colombia, providing full financial support to real estate developers and mortgages for individuals and companies.

Factoring: Bancolombia offers its clients solutions for handling their working capital and maximizing their assets turnover through comprehensive solutions to manage their accounts receivable financing.

Financial and Operating Leases: The Bank offers financial and operating leases specifically designed for acquiring fixed assets.

Capital Markets: The Bank assists its clients in mitigating market risk through hedging instruments such as, futures, forwards, options and swaps.

Trading: The bank offers an internet-based trading platform, available for retail and institutional clients, which allows them to buy/sell securities in the Colombian Securities Exchange.