Edgar Filing: BANCOLOMBIA SA

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 27, 2015

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

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

For the fiscal year ended December 31, 2014

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

For the transition period from _____________to_____________

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_____________

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)

Alejandro Mejia Jaramillo, Investor Relations Manager

Carrera 48 # 26-85, Medellín, Colombia

Tel. +574 4041837, Fax. + 574 4045146, e-mail: almejia@bancolombia.com

(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		Name of each exchange on which registered
	American Depositary Shares		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 x 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 x

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes ¨ No ¨

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

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

(Do not check if a smaller reporting company)

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 x

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 x

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 x

(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	i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	iii

PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION	iv

PART I		6

ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	6

ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	6

ITEM 3.	KEY INFORMATION	6
A.	SELECTED FINANCIAL DATA	6
B.	CAPITALIZATION AND INDEBTEDNESS	10
C.	REASONS FOR THE OFFER AND USE OF PROCEEDS	10
D.	RISK FACTORS	11

ITEM 4.	INFORMATION ON THE COMPANY	22
A.	HISTORY AND DEVELOPMENT OF THE COMPANY	22
B.	BUSINESS OVERVIEW	25
C.	ORGANIZATIONAL STRUCTURE	47
D.	PREMISES AND EQUIPMENT	49
E.	SELECTED STATISTICAL INFORMATION	49

ITEM 4 A.	UNRESOLVED STAFF COMMENTS	75

ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	75
A.	OPERATING RESULTS	75
B.	LIQUIDITY AND CAPITAL RESOURCES	96
C.	RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.	103
D.	TREND INFORMATION	103
E.	OFF-BALANCE SHEET ARRANGEMENTS	104
F.	TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS	105
G.	CRITICAL ACCOUNTING POLICIES AND ESTIMATES	105
H.	RECENT U.S. GAAP PRONOUNCEMENTS	114

ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	121
A.	DIRECTORS AND SENIOR MANAGEMENT	121
B.	COMPENSATION OF DIRECTORS AND OFFICERS	123
C.	BOARD PRACTICES	124
D.	EMPLOYEES	126
E.	SHARE OWNERSHIP	127

ITEM 7.	MAJOR STOCKHOLDERs AND RELATED PARTY TRANSACTIONS	127
A.	MAJOR STOCKHOLDERS	127
B.	RELATED PARTY TRANSACTIONS	128
C.	INTEREST OF EXPERTS AND COUNSEL	129

ITEM 8.	FINANCIAL INFORMATION	130
A.	CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION	130
B.	SIGNIFICANT CHANGES	130

ITEM 9.	THE OFFER AND LISTING	131
A.	OFFER AND LISTING DETAILS	131
B.	PLAN OF DISTRIBUTION	132
C.	MARKETS	133

D.	SELLING STOCKHOLDERS	133
E.	DILUTION	133
F.	EXPENSES OF THE ISSUE	133

ITEM 10.	ADDITIONAL INFORMATION	133
A.	SHARE CAPITAL	133
B.	MEMORANDUM AND ARTICLES OF ASSOCIATION	133
C.	MATERIAL CONTRACTS	139
D.	EXCHANGE CONTROLS	139
E.	TAXATION	140
F.	DIVIDENDS AND PAYING AGENTS	145
G.	STATEMENT BY EXPERTS	145
H.	DOCUMENTS ON DISPLAY	145
I.	SUBSIDIARY INFORMATION	145

ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	145

ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	150
D.	American Depositary Shares	150

PART II		152

ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	152

ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	152

ITEM 15.	CONTROLS AND PROCEDURES	152

ITEM 16.	RESERVED	153
A.	AUDIT COMMITTEE FINANCIAL EXPERT	153
B.	CORPORATE GOVERNANCE AND CODE OF ETHICS	153
C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	154
D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	154
E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	154
F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	154
G.	CORPORATE GOVERNANCE	155
H.	MINE SAFETY DISCLOSURES	156

PART III		157

ITEM 17.	FINANCIAL STATEMENTS	157

ITEM 18.	FINANCIAL STATEMENTS	157

ITEM 19.	EXHIBITS	157

iii

CERTAIN DEFINED TERMS

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

References to “ADSs” refer to our American Depositary Shares (one ADS represents four preferred shares).

References to the “Annual Report” refer to this annual report on Form 20-F.

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

References to “Banca de Inversión” refer 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.

References to “Banco Agrícola” refer 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.

References to “Bancolombia”, the “Bank”, “us” , “we” or “our” refer to Bancolombia S.A., a banking institution organized under the laws of the Republic of Colombia, which may also act under the name of Banco de Colombia S.A., including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

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

References to “Banistmo” refer 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.

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

References to “Colombia” refer to the Republic of Colombia.

References to “Colombian GAAP” refer to generally accepted accounting principles in Colombia.

References to “Colombian banking GAAP” refer to Colombian GAAP as supplemented by the applicable regulations of the SFC.

References to “Conavi” refer to Conavi Banco Comercial y de Ahorros S.A. as it existed immediately before the Conavi/Corfinsura merger.

References to the “Conavi/Corfinsura merger” refer to the merger of Conavi and Corfinsura with and into Bancolombia, with Bancolombia as the surviving entity, which took effect on July 30, 2005 pursuant to a Merger Agreement dated February 28, 2005.

References to “Congress” refer to the national congress of Colombia.

References to “Corfinsura” refer to Corporación Financiera Nacional y Suramericana S.A., as it existed immediately before the Conavi/Corfinsura merger, taking into account the effect of its spin-off of a portion of its investment portfolio effective July 29, 2005.

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

References to “Factoring Bancolombia” refer to Factoring Bancolombia S.A. Compañía de Financamiento, a Subsidiary of Bancolombia organized under the laws of Colombia specialized in accounts receivable financing that was liquidated on December 23, 2014 after the assignment to, and assumption by Bancolombia, of all its assets, liabilities and commercial agreements.

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

References to “Grupo Agromercantil” refer to Grupo Agromercantil Holding S.A., a company organized under the laws of the Republic of Panama, of which Bancolombia has 40% of its voting shares, and is the parent company of Banco Agromercantil of Guatemala, and its subsidiaries.

References to “IRS” refer to U.S. Internal Revenue Service.

References to “Leasing Bancolombia” refer to Leasing Bancolombia S.A. Compañía de Financiamiento, a Subsidiary of Bancolombia organized under the laws of Colombia that specializes in leasing activities, offering a wide range of financial leases, operating leases, loans, time deposits and bonds.

References to “NYSE” refer to the New York Stock Exchange.

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

References to “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.

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

References to “Representative Market Rate” refer 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.

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

References to “SMEs” refer to Small and Medium Enterprises

References to “SMMLV” refer to Salario Mínimo Mensual Legal Vigente.

The effective legal minimum monthly salary in Colombia. In 2014, the effective legal minimum monthly salary in Colombia was COP 616,000.

References to “Subsidiaries” refer to entities in which Bancolombia holds, directly or indirectly, more than 50% of the outstanding voting shares.

References to “Superintendency of Finance” or “SFC” refer 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. References to “U.S.” or “United States” refer to the United States of America.

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

References to “UVR” refer 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.

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

The term “billion” means one thousand million (1,000,000,000).

The term “trillion” means one million million (1,000,000,000,000).

Our fiscal year ends on december 31, and references in this annual report to any specific fiscal year are to the twelve-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”, and 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; (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 defaults by the Bank’s borrowers and other loan delinquencies; (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; (xi) changes in official regulations and the Colombian government’s banking policy as well as changes in laws, regulations or policies in the jurisdictions in which the Bank does business; (xii) regulatory issues relating to acquisitions; and (xiii) changes in business strategy.

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.

iii

PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION

Accounting Principles

The audited Consolidated Financial Statements (the “Consolidated Financial Statements”) are prepared following the accounting practices and the special regulations of the SFC, or, in the absence of such regulations, Colombian banking GAAP. Together, these requirements differ in certain significant respects from generally accepted accounting principles in the United States (“U.S. GAAP”). Note 31 to the Consolidated Financial Statements included in this Annual Report provides a description of the principal differences between Colombian banking GAAP and U.S. GAAP as they relate to the Consolidated Financial Statements and provides a reconciliation of consolidated net income and consolidated stockholders’ equity for the years and dates indicated herein.

For consolidation purposes under Colombian banking GAAP, financial statements of the Bank and its Subsidiaries must be prepared under uniform accounting policies. In order to comply with this requirement, financial statements of foreign Subsidiaries were adjusted as required by Colombian regulations.

For 2014, the Consolidated Financial Statements include entities in which it holds, directly or indirectly, a majority of the outstanding voting rights. The Bank consolidates directly Leasing Bancolombia, Fiduciaria Bancolombia, Banca de Inversión, Tuya S.A. Compañía de Financiamiento, Bancolombia Puerto Rico Internacional Inc., Bancolombia Panama, Valores Bancolombia Comisionista de Bolsa, FCP Fondo Colombia Inmobiliario S.A., Patrimonio Autónomo Cartera LBC and Banistmo S.A.. Some of the Bank’s Subsidiaries also consolidate their own subsidiaries. Bancolombia Panama consolidates Bancolombia Cayman S.A., Sistema de Inversiones y Negocios S.A. Sinesa, Suleasing International USA, Inc. and Banagrícola (which, in turn, consolidates Inversiones Financieras Banco Agrícola S.A. IFBA, Banco Agrícola, Arrendadora Financiera S.A. Arfinsa, Credibac S.A. de C.V., Valores Banagrícola S.A. de C.V., Banagrícola Guatemala S.A., and Bagrícola Costa Rica S.A.). Banca de Inversión consolidates BIBA Inmobiliaria S.A.S., Valores Simesa S.A., Inversiones CFNS S.A.S. (which, in turn, consolidates CFNS Infraestructura S.A.S. (currently under winding up process), Vivayco S.A.S. and Uff Móvil S.A.S.). Leasing Bancolombia consolidates Leasing Perú S.A., Renting Colombia (which, in turn, consolidates Arrendamiento Operativo CIB S.A.C., Fondo de Inversión en Arrendamiento Operativo, Renting Perú, Capital Investments SAFI S.A., and Transportempo S.A.S.). Valores Bancolombia consolidates Valores Bancolombia Panama S.A. and Suvalor Panama Fondo de Inversión S.A. Fiduciaria Bancolombia consolidates FiduPerú S.A. Sociedad Fiduciaria and Banistmo consolidates Banistmo Investment Corporation S.A., Financiera Flash S.A., Grupo Financomer S.A., Financomer S.A., Leasing Banistmo S.A., Seguros Banistmo S.A., Securities Banistmo S.A., Banistmo Capital Markets Group Inc., Banistmo Asset Management Inc., Anavi Investment Corporation S.A., Williamsburg International Corp., Van Dyke Overseas Corp., M.R.C. Investment Corp., Inmobiliaria Bickford S.A., Desarrollo del Oriente S.A., Bien Raices Armuelles S.A. , Steens Enterpresies S.A. and Ordway Holdings S.A. See “Item 4. Information on the Company – C. Selected Organizational Structure” for an organizational chart depicting Bancolombia and its subsidiaries.

Currencies

The Bank maintains accounting records in pesos. The Consolidated Financial Statements as of December 31, 2014, and 2013 and for the three years ended December 31, 2014 (collectively, including the notes thereto, the “Financial Statements”) contained in this Annual Report are expressed in millions of pesos.

This Annual Report translates certain Colombian pesos amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, such peso amounts have been translated at the rate of COP 2,392.46 per USD 1.00, which corresponds to the Representative Market Rate calculated on December 31, 2014 the last business day of the year. The SFC also calculates and certifies the average Representative Market Rate for each month for purposes of preparing financial statements and converting amounts in foreign currency to pesos. Such conversion should not be construed as a representation that the peso amounts correspond to, or have been or could be converted into, U.S. dollars at that rate or any other rate. On April 24, 2015, the Representative Market Rate was COP 2,461.17 per USD 1.00.

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 and Banistmo maintain internet sites at http://www.bancoagricola.com/ and http://www.banistmo.com/, 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 part of this Annual Report. 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.

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

SELECTED FINANCIAL DATA

The selected consolidated financial data as of December 31, 2014 and 2013, and for each of the three fiscal years in the period ended December 31, 2014 set forth below has been derived from the Consolidated Financial Statements included in this Annual Report. The selected consolidated financial data as of December 31, 2012, 2011 and 2010, and for each of the two fiscal years in the period ended December 31, 2011 set forth below have been derived from the Consolidated Financial Statements for the respective periods, which are not included herein.

The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements, related notes thereto, and the reports of the Bank’s independent registered public accounting firms.

Differences Between Colombian banking GAAP and U.S. GAAP Results

The Consolidated Financial Statements have been prepared in accordance with Colombian banking GAAP, which are the accounting principles and policies that are summarized in “Note 2. Summary of Significant Accounting Policies” to the Consolidated Financial Statements included in this Annual Report. These accounting principles and policies differ in some significant respects from U.S. GAAP.

Consolidated net income attributable to the controlling interest under U.S. GAAP for the year ended December 31, 2014 was COP 1,587,527 million (compared with COP 1,415,635 million for fiscal year 2013 and COP 1,633,563 million for fiscal year 2012). A reconciliation of consolidated net income and consolidated stockholders’ equity under U.S. GAAP is included in “Note 31. Differences between Colombian Accounting Principles for Banks and U.S. GAAP” to the Consolidated Financial Statements included in this Annual Report.

	*As of and for the year ended December 31,*
	*2014⁽¹⁾*			*2014*			*2013*			*2012*			*2011*			*2010*
	(in millions of COP and thousands of USD ⁽¹⁾, except per share and per American Depositary Share (“ADS”) amounts)
CONSOLIDATED STATEMENT OF OPERATIONS:
Colombian banking GAAP:
Interest income	USD	3,906,276		COP	9,345,608		COP	8,130,684		COP	7,661,883		COP	5,945,594		COP	4,960,640
Interest expense		(1,354,584	)		(3,240,787	)		(3,122,126	)		(2,894,860	)		(2,042,006	)		(1,571,581	)
Net interest income		2,551,692			6,104,821			5,008,558			4,767,023			3,903,588			3,389,059

Provisions for loans, finance leases and accrued interest losses, net of recoveries⁽²⁾		(574,194	)		(1,373,736	)		(1,162,679	)		(1,072,520	)		(596,417	)		(512,585	)
Provision for foreclosed assets and other assets, net of recoveries		(13,091	)		(31,318	)		(67,921	)		(38,353	)		(2,288	)		(35,130	)
Net interest income after provisions		1,964,407			4,699,767			3,777,958			3,656,150			3,304,883			2,841,344

Fees and income from services and other operating income, net		1,416,638			3,389,250			2,756,481			2,640,137			2,359,821			2,115,970
Operating expenses		(2,324,994	)		(5,562,453	)		(4,639,280	)		(4,162,382	)		(3,606,348	)		(3,098,479	)
Net operating income		1,056,051			2,526,564			1,895,159			2,133,905			2,058,356			1,858,835

Net non-operating (expenses) income excluding minority interest		(24,617	)		(58,896	)		54,427			40,938			87,406			99,293
Minority interest (loss)		54			128			(17,364	)		(5,723	)		(11,351	)		(13,217	)
Income before income taxes		1,031,488			2,467,796			1,932,222			2,169,120			2,134,411			1,944,911

Income taxes		(246,221	)		(589,075	)		(417,095	)		(467,074	)		(470,517	)		(508,417	)
Net income	USD	785,267		COP	1,878,721		COP	1,515,127		COP	1,702,046		COP	1,663,894		COP	1,436,494

Weighted average of Preferred and Common Shares outstanding⁽³⁾					941,936,589			851,827,000			845,531,918			787,827,003			787,827,003
Basic and Diluted net income per share⁽³⁾		0.83		COP	1,995		COP	1,779		COP	2,013		COP	2,112		COP	1,823
Basic and Diluted net income per ADS		3.34			7,980			7,116			8,052			8,448			7,292
Cash dividends declared per share					830			776			754			708			669
Cash dividends declared per share(stated in U.S. dollars)					0.35			0.40			0.43			0.36			0.35
Cash dividends declared per ADS					3,320			3,104			3,016			2,832			2,675
Cash dividends declared per ADS (stated in U.S. dollars)					1.39			1.61			1.71			1.46			1.40

U.S. GAAP:⁽⁴⁾
Net income attributable to the controlling interest	USD	663,554		COP	1,587,527	⁽⁶⁾	COP	1,415,635	⁽⁶⁾	COP	1,633,563	⁽⁶⁾	COP	1,043,636	⁽⁶⁾	COP	1,544,761	⁽⁶⁾
Basic and Diluted net income per common share⁽⁵⁾		0.70			1,685			1,662			1,932			1,325			1,961
Basic and Diluted net income per ADS^{(5) (6)}		2.82			6,740			6,648			7,728			5,300			7,844

⁽¹⁾

Amounts stated in U.S. dollars have been converted at the rate of COP 2,392.46 per USD 1.00, which is the Representative Market Rate calculated on December 31, 2014 (the last business day of 2014), as reported by the SFC. Such translation should not be construed as representations that the Colombian pesos amount represent, or have been or could be converted into, United States dollars at that or any other rate.

⁽²⁾

Represents the provision for loans, accrued interest losses and other receivables, net and recovery of charged-off loans. Includes a provision for accrued interest losses amounting to COP 53,469 million, COP 51,774 million, COP 48,085 million, COP 31,852 million and COP 33,540 million for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 respectively.

⁽³⁾

The weighted average of preferred and common shares outstanding for the fiscal year ended December 31, 2014 reflects 432,232,005 preferred shares and 509,704,584 common shares, for the fiscal year ended December 31, 2013 reflects 342,122,416 preferred shares and 509,704,584 common shares, for the fiscal year ended December 31, 2012 reflects 335,827,334 preferred shares and 509,704,584 common shares, and for the fiscal years ended December 31, 2011 and 2010 reflects 278,122,419 preferred shares and 509,704,584 common shares.

⁽⁴⁾

Refer to “Note 31. Differences between Colombian Accounting Principles for Banks and U.S. GAAP” of the Consolidated Financial Statements included in this Annual Report.

⁽⁵⁾

Net income per share under U.S. GAAP is presented on the basis of net income available to common stockholders divided by the weighted average number of common shares outstanding (509,704,584 for 2014, 2013, 2012, 2011 and 2010). See “Note 31. Differences Between Colombian Accounting Principles for Banks and U.S. GAAP”.

⁽⁶⁾

Basic and diluted net income per ADS for any period is defined as basic and diluted net income per share multiplied by four as each ADS is equivalent to four preferred shares of Bancolombia. Basic and diluted net income per ADS should not be considered in isolation, or as a substitute for net income, as a measure of operating performance or as a substitute for cash flows from operations or as a measure of liquidity.

CONSOLIDATED BALANCE SHEET

	*As of the year ended December 31,*
	*2014⁽¹⁾*		*2014*			*2013*			*2012*			*2011*		*2010*
	(in millions of COP and thousands of USD ⁽¹⁾, except per share and per American Depositary Share (“ADS”) amounts)
CONSOLIDATED BALANCE SHEET
Colombian banking GAAP:
Assets:
Cash and due from banks	USD	4,678,375	COP	11,192,825		COP	11,427,441		COP	7,144,015		COP	6,818,307	COP	5,312,398
Funds sold and securities purchased under agreements to resell		940,164		2,249,304			3,981,205			1,025,082			910,690		842,636
Investment securities, net		5,717,045		13,677,801			13,805,790			12,554,311			9,958,191		8,675,762
Loans and financial leases, net		42,969,736		102,803,374			85,394,012			66,739,040			58,575,846		46,091,877
Accrued interest receivable on loans and financial leases, net		278,538		666,390			560,572			524,041			439,189		317,532
Customers’ acceptances and derivatives		653,272		1,562,928			602,409			783,014			741,296		784,888
Accounts receivable, net		712,977		1,705,770			1,537,218			1,243,263			1,016,985		797,715
Premises and equipment, net		1,019,365		2,438,790			2,191,677			1,341,698			1,622,311		1,174,625
Premises and equipment under operating leases, net		1,467,654		3,511,304			2,919,181			2,191,928			1,380,057		1,006,108
Foreclosed assets, net		37,405		89,491			103,565			84,818			53,194		70,277
Prepaid expenses and deferred charges, net		228,466		546,596			690,932			772,930			785,456		319,864
Goodwill, net		1,659,668		3,970,690			3,589,203			571,373			679,861		750,968
Other assets		1,128,022		2,698,747			2,590,110			2,088,947			1,697,648		1,185,977
Reappraisal of assets		673,303		1,610,851			1,422,926			851,920			783,989		764,529
Total assets	USD	62,163,990	COP	148,724,861		COP	130,816,241		COP	97,916,380		COP	85,463,020	COP	68,095,156

Liabilities and stockholders’ equity:
Deposits	COP	39,849,035	COP	95,337,222		COP	86,556,579		COP	64,158,720		COP	52,434,492	COP	43,538,967
Borrowings⁽³⁾		5,787,576		13,846,543			12,508,092			5,271,508			7,458,926		5,250,587
Other liabilities		9,498,064		22,723,742			19,258,724			16,879,197			16,576,242		11,358,462
Stockholders’ equity		7,029,315		16,817,354			12,492,846			11,606,955			8,993,360		7,947,140
Total liabilities and stockholders’ equity	USD	62,163,990	COP	148,724,861		COP	130,816,241		COP	97,916,380		COP	85,463,020	COP	68,095,156

U.S. GAAP: ⁽²⁾
Stockholders’ equity attributable to the controlling interest	USD	6,927,811	COP	16,574,510	⁽²⁾	COP	12,146,554	⁽²⁾	COP	11,145,490	⁽²⁾	COP	8,589,202	COP	8,069,346
Stockholders’ equity per share⁽⁴⁾		7,355		17,596			14,259			13,182			10,902		10,243
Stockholders’ equity per ADS⁽⁴⁾		29,419		70,384			57,036			52,728			43,608		40,972

⁽¹⁾

⁽²⁾

Refer to “Note 31, Differences between Colombian Accounting Principles for Banks and U.S. GAAP” to the Consolidated Financial Statements included in this Annual Report.

⁽³⁾

Includes other interbank borrowing, development and other domestic banks.

⁽⁴⁾

The weighted average (rounded to the nearest million) of preferred and common shares outstanding was 942 million for the fiscal year ended December 31 2014, 852 million for the fiscal year ended December 31 2013 and 845 million for the fiscal year ended December 31, 2012, 788 million for 2011 and 2010. Stockholders’ equity per share is equal to stockholders’ equity under U.S. GAAP divided by the weighted average of preferred and common shares outstanding, stockholders’ equity per ADS is equal to stockholders’ equity per share multiplied by four preferred shares of Bancolombia (Each ADS is equivalent to four preferred shares of Bancolombia). Stockholders’ equity per share and stockholders’ equity per ADS should not be considered in isolation, or as a substitute for net income, as a measure of operating performance or as a substitute for cash flows from operations or as a measure of liquidity. The non-GAAP financial measures described in this footnote are not a substitute for the GAAP measures of financial performance and should not be considered as an alternate measure of stockholders’ equity as determined on a consolidated basis using amounts derived from the consolidated balance sheet prepared in accordance with Colombian banking GAAP.

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, 2014, 2013, 2012, 2011 and 2010.

SELECTED RATIOS

	As of and for the year ended December 31,
	2014		2013		2012		2011		2010
	(Percentages, except for operating data)
SELECTED RATIOS:⁽¹⁾
Colombian banking GAAP:
Profitability ratios:
Net interest margin⁽²⁾		5.66		5.48		6.49		6.17		6.38
Return on average total assets⁽³⁾		1.40		1.37		1.92		2.20		2.27
Return on average stockholders’ equity⁽⁴⁾		12.50		12.76		15.97		20.22		19.71
Efficiency Ratio:
Operating expenses as a percentage of interest, fees, services and other operating income		58.59		59.75		56.19		57.58		56.28
Capital ratios:
Period-end stockholders’ equity as a percentage of period-end total assets		11.31		9.55		11.85		10.52		11.67
Period-end regulatory capital as a percentage of period-end risk- weighted assets⁽⁵⁾		13.29		10.61		15.77		12.46		14.67
Credit quality data:
Non-performing loans as a percentage of total loans⁽⁶⁾		1.86		1.82		1.76		1.52		1.91
“C”, “D” and “E” loans as a percentage of total loans		3.97		4.11		3.96		3.82		4.32
Allowance for loan and accrued interest losses as a percentage of non-performing loans		240.57		253.33		268.96		306.94		274.36
Allowance for loan and accrued interest losses as a percentage of “C”, “D” and “E” loans⁽⁷⁾		112.73		112.27		119.30		121.69		121.45
Allowance for loan and accrued interest losses as a percentage of total loans		4.48		4.62		4.72		4.65		5.24

OPERATING DATA:
Number of branches⁽⁸⁾		1,072		1,093		995		954		921
Number of employees⁽⁹⁾		30,158		28,759		24,820		24,126		22,992

⁽¹⁾

Ratios were calculated on the basis of monthly averages.

⁽²⁾

Net interest income divided by average interest-earning assets.

⁽³⁾

Net income divided by average total assets.

⁽⁴⁾

Net income divided by average stockholders’ equity.

⁽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 – Capital Adequacy Requirements”.

⁽⁶⁾

Non-performing loans are small business loans that are past due 30 days or more, mortgage and consumer loans that are past due 60 days or more and commercial loans that are past due 90 days or more. (Each category includes financial leases)

⁽⁷⁾

As of the fiscal year ended December 31, 2013, the decrease in this coverage ratio is explained by the formation of past due loan (“PDLs”) during the year, which was faster than the pace of increase in allowances in the balance sheet. During the fiscal year ended December 31, 2014, this coverage ratio remained stable. See “Item 4. Information on the Company – E. Selected Statistical Information – E.3. Loan Portfolio – Classification of the loan portfolio and Credit Categories for a description of “C”, “D” and “E” Loans”.

⁽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.

Exchange Rates

On March 31, 2015, the Representative Market Rate was COP 2,598.36 per USD 1.00. The Federal Reserve Bank of New York does not report a rate for pesos; the SFC calculates the Representative Market Rate based on the weighted average of the buy/sell foreign exchange rates quoted daily by certain financial institutions, including Bancolombia, for the purchase and sale of U.S. dollars.

The following table sets forth the low and high peso per U.S. dollar exchange rates and the peso/U.S. dollar representative market rate on the last day of the month, for each of the last six months:

Recent exchange rates of pesos per U.S. dollars
Month	Low		High		Period-End

March 2015		2,522.03		2,677.97		2,598.36
February 2015		2,371.31		2,500.59		2,496.99
January 2015		2,361.54		2,452.11		2,441.10
December 2014		2,252.36		2,446.35		2,392.46
November 2014		2,076.99		2,206.19		2,206.19
October 2014		2,021.49		2,074.40		2,061.92

Source: SFC.

The following table sets forth the peso/U.S. dollar Representative Market Rate on the last day of the year and the average peso/U.S. dollar representative market rate (calculated by using the average of the Representative Market Rates on the last day of each month during the year) for each of the five most recent financial years.

Peso/USD 1.00
Representative Market Rate
Period	Period-End		Average

2014		2,392.46		2,019.38
2013		1,926.83		1,881.04
2012		1,768.23		1,798.08
2011		1,942.70		1,852.83
2010		1,913.98		1,901.67

Source: SFC.

CAPITALIZATION AND INDEBTEDNESS

Not applicable.

REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

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.

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

Changes in economic and political conditions in Colombia, El Salvador, Panama or in the 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, El Salvador, Panama and the other jurisdictions in which 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 among others, 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 impact the Bank’s financial condition and results of operations.

In particular, the governments of Colombia and El Salvador 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 entities in such countries (including the Bank), market conditions, 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 and El Salvador, and their respective markets. Future developments in government policies could impair the Bank’s business or financial condition or the market value of its securities.

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 such countries economic growth and ability to service their public debt.

A significant decline in the economic growth or a sustained economic downturn of any of Colombia’s, El Salvador’s or Panama´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 El Salvador and Panama) could have a material adverse impact on Colombia’s, El Salvador’s and Panama’s balance of trade and remittances inflows, resulting in lower economic growth.

Deterioration in the economic and political situation of neighboring countries could affect the national stability or economy of Colombia, Panama or El Salvador 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 Colombia, El Salvador and Panama.

A contagion effect, in which an entire region or class of investment is disfavored by international investors, could negatively affect Colombia, El Salvador and Panama or other economies in which the Bank operates, as well as the 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, El Salvador, Panama or other countries in which the Bank operates, could adversely affect the Bank’s consolidated results.

Uncertainty relating to tax legislation poses a constant risk to the Bank. Changes in legislation, regulation and jurisprudence can affect tax burdens by increasing tax rates and fees, creating new taxes, limiting stated expenses and deductions, and eliminating incentives and non-taxed income. Notably, the Colombian and Salvadorian governments have significant fiscal deficits that may result in future tax increases. Additional tax regulations, like the tax reform measures discussed under “Item 10. Additional Information – E. Taxation”, could be implemented requiring the Bank to make additional tax payments, negatively affecting its results of operations and cash flow. In addition, national or local taxing authorities may not interpret tax regulations in the same way that the Bank does. Differing interpretations could result in future tax litigation and associated costs.

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, 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. Given that a portion of the Bank’s assets and liabilities are denominated in, or indexed to, foreign currencies, especially the U.S. dollar, sharp movements in exchange rates may negatively impact the Bank’s results. In addition, exchange rate fluctuations may adversely impact the value of dividends paid to holders of the Bank’s ADSs as well as the market price and liquidity of ADSs.

Colombia has experienced several periods of violence and instability, and such instability 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. In response, the Colombian government recently has started the process of negotiating a peace treaty with the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia or “FARC”). Despite these efforts, drug-related crime and guerilla activity continue to exist in Colombia. These activities, their possible escalation and the violence associated with them may have a negative impact on the Colombian economy or on the Bank in the future. The Bank’s business or financial condition and the market value of the Bank’s securities and any dividends distributed by it, could be adversely affected by rapidly changing economic and social conditions in Colombia and by the Colombian government’s response to such conditions.

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

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.

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

In August 2013 the regulation relating to capital adequacy requirements (Decree 1771 of 2012) was implemented and Bancolombia currently complies with applicable capital requirements. However, there can be no assurance that future regulation will not change or require Bancolombia or its Subsidiaries to seek additional capital.

Moreover, regulators in other jurisdictions have not reached consensus as to the appropriate level of capitalization for financial services institutions. Regulators in the jurisdictions in which Bancolombia operates may alter the current regulatory capital requirements to which Bancolombia is subject and thereby require equity increases that could dilute existing stockholders, lead to required asset sales or adversely impact the return on stockholders’ equity and/or the market price of the Bank’s common and preferred shares.

Furthermore, in 2014 Congress enacted Law 1735 of 2014, known as the financial inclusion law. This law creates a new category of financial entities named Specialized Entities in Electronic Deposits and Payments (Sociedades Especializadas en Depósitos y Pagos Electrónicos or “SEDPES”). These new entities are authorized to receive deposits through electronic systems, but disbursements are not allowed. SEDPES could be competitors to banks, particulary in the market of products offered for financial inclusion purposes (i.e. savings accounts with simplified procedures), and, therefore, the Bank’s results in this segment may be adversely affected.

Banking regulations, accounting standards and corporate disclosure applicable to the Bank and its subsidiaries differ from those applicable in the United States and other countries.

While many of the policies underlying Colombian banking regulations are similar to those underlying regulations applicable to banks in other countries, including those in the United States, Colombian regulations can differ in a number of material respects. For example, capital adequacy requirements for banks under Colombian regulations differ from those under U.S. regulations and may differ from those in effect in other countries. The Bank prepares its annual audited Consolidated Financial Statements in accordance with Colombian banking GAAP, which differs in certain significant respects from U.S. GAAP and International Financial Reporting Standards (“IFRS”). Thus, Colombian financial statements and reported earnings may differ from those of companies in other countries in these and other respects. Some of the differences affecting earnings and stockholders’ equity include, but are not limited to the accounting treatment for restructuring, loan origination fees and costs, equity tax, securitization, fair value adjustment in debt securities, deferred income taxes and the accounting treatment for business combinations. Moreover, under Colombian banking GAAP, allowances for non-performing loans are computed by establishing each non-performing loan’s individual inherent risk using criteria established by the SFC that differ from those used under U.S. GAAP. See “Item 4. Information on the Company – E. Selected Statistical Information – E.4. Summary of Loan Loss Experience – Allowance for Loan Losses”.

The Bank is subject to regulatory inspections, examinations, inquiries or audits in Colombia and in other countries in which it operates, and any sanctions, fines and other penalties resulting from such inspections and 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, El Salvador, Panama and the other jurisdictions in which the Bank operates. These regulatory 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 of credit that can be applied by banks. 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. In addition, the supervisory authorities of Colombia and El Salvador have reached an agreement for consolidated supervision which allows them to perform transnational inspection processes. Any sanctions, fines and other penalties resulting from non-compliance with regulations in Colombia, El Salvador, 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), class actions (acciones de grupo) and other legal actions involving claims for significant monetary awards against financial institutions 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 substantial increase in the aggregate 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 the future, regulations in the jurisdictions where the Bank operates could impose limitations regarding interest rates or fees charged by the Bank. Any such limitations could materially and adversely affect the Bank’s results of operations and financial situation.

In the past, there have been disputes in Colombia among commercial businesses, payment service providers and banks regarding credit card interbank exchange fees (tarifa interbancaria de intercambio). Although such disputes have been resolved, the Superintendency of Industry and Commerce has the authority to initiate new investigations relating to such fees. Any new investigations may lead to requirements that the Bank agrees to additional decreases, which in turn could impact the Bank’s financial results.

Furthermore, pursuant to article 62 of Law 1430 of 2010, Congress granted the Colombian government power and authority to establish and define criteria and formulas applicable to the calculation of banking fees and charges define maximum limits to banking fees and charges. On December 20, 2011, the government used the authority granted by Law 1430 of 2010 and enacted Decree 4809 of 2011 in which it set forth caps to the bank fees that may be charged on ATM withdrawals outside of each bank’s respective networks.

Additionally, in past years, there have been regulatory initiatives regarding banking fees. Although the latest initiative was not approved by Congress, there could be future initiatives pursuing similar restrictions on banking fees. If a law regarding banking fees is enacted, the Bank could see its ability to charge for certain services or types of transactions to its clients, which could have an impact on its results.

In addition, Law 1555 of 2012 prohibits prepayment penalties for loans worth less than 880 SMMLV, other than in mortgage loans, in which prepayment is allowed with no penalties without regard to the amount of the loan.

Further limits or regulations regarding banking fees, could have a negative effect on our results of operations and financial condition.

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

Decree 2193 of 2013 designates 44 jurisdictions as tax havens for Colombian tax purposes. It also temoporarily excluded 7 countries (including Panama, where Bancolombia has an important client base) while the Colombian government negotiates tax information exchange agreements with each of them. As a result of the tax haven regulation, the Bank’s clients who are residents in such jurisdictions would be subject to (i) higher withholding tax rates including a higher withholding rates over financial yields derived from investments in the Colombian securities market), (ii) the transfer pricing regime and its reporting duties, (iii) enhanced ability on the part of Colombian authorities to qualify a conduct as abusive under tax regulations, (iv) non-deductibility of payments made to residents or entities located in tax havens, unless the requiered tax amount has been withheld and (v) other additional information disclosure requirements, which could be a negative impact on Bancolombia’s business and financial results.

Pursuant to such decree, in order to avoid being labeled as a tax haven, a jurisdiction has to enter into a tax information exchange agreement with the Colombian goverment. On October 21, 2014 Colombia and Panama signed a memorandum of understanding which establishes that both countries will negotiate a treaty for the avoidance of double taxation, so that Panama is not classified as a tax haven. This treaty is expected to include provisions regarding the exchange of information between Colombian and Panamanian tax authorities. The deadline for execution of the treaty is September 30, 2015, but as of the date there is no known consequence for not executing such treaty within the deadline.

The Bank and most of its Subsidiaries are subject to the U.S. Foreign Account Tax Compliance Act of 2010.

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”). Given the size and the scope of the Bank´s international operations, we intend to take all necessary steps to comply with FATCA (including entering into agreements with the U.S. tax authorities and transmitting the reports). However, if the Bank cannot enter into such agreements or satisfy the requirements thereunder, certain payments to Bancolombia or its Subsidiaries may be subject to withholding under FATCA. The possibility of such withholding and the need for accountholders and investors to provide certain information may adversely affect our results of operations and financial condition. In addition, entering into agreements with the IRS, compliance with the terms of such agreements and with FATCA, any regulations or other guidance promulgated thereunder or any legislation promulgated under an intergovernmental agreement (“IGA”) may increase our compliance costs. We are currently in the process of implementing FATCA compliance on a group wide level and preparing our systems for the first report. Legislation and regulations implementing FATCA and the related inter-governemental agreements in the countries in which the Bank operates and the IGAs remain under development and the reporting dates vary depending on the jurisdiction. As a result, the future impact of this law and the accuracy of the first reports of the Bank and its Subsidiaries is still uncertain.

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, including loans, financial leases, lending commitments and derivatives.

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 on 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 rating to a client, which may result in the Bank’s exposure to higher credit risk than 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 its 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.

In addition, 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 and El Salvador), or events affecting specific industries. Any of 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.

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 of third parties, 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.

The Bank is a leader in the mortgage loan markets in which it operates. Colombia’s mortgage loan market is highly regulated and has historically been affected by various macroeconomic factors, as have the mortgage loan markets of Panama and El Salvador. Although interest rates have decreased, during recent years, periods of sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased defaults in outstanding loans and deterioration in the quality of assets.

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, 2014, the aggregate outstanding principal amount of the Bank’s 25 largest credit exposures, on a consolidated basis, represented approximately 13.63% of the loan portfolio, of the Bank and no single exposure represented more than 3% of the loan book. In addition, 100% of those loans were corporate loans and 100% of these relationships were classified as “A”. However, problems with one or more of the Bank’s largest borrowers could materially and adversely affect its results of operations and financial position, see “Item 4. Information on the Company – E. Selected Statistical Information – E.3. Loan Portfolio – Borrowing Relationships”.

The value of the collateral or guarantees 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 and Panama, the value of which may significantly fluctuate or decline due to factors beyond the Bank’s control. Such factors include market factors, environmental risks, natural disasters, macroeconomic factors and political events affecting the local economy. 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. In addition, the Bank may face difficulties in enforcing its rights as a secured creditor. In particular, timing delays and procedural problems in enforcing against collateral and local protectionism may make foreclosures on collateral and enforcement of judgments difficult, and may result in losses that could materially and adversely affect the Bank’s results of operations and financial position.

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, changes in the implied volatility of interest rates and foreign 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 securities 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 these securities. Increases in interest rates may reduce the market value of the Bank’s debt securities, 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 our earnings from our 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.

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

The Bank’s trading income is highly volatile. The Bank derives a portion of its profits from its proprietary trading activities. The Bank’s trading income is dependent on numerous factors beyond its control, such as the general market environment, overall market trading activity, interest rate levels, fluctuations in exchange rates 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 risk, and the Bank’s results could be adversely affected by decreases in the value of its sovereign debt securities.

The Bank’s debt securities portfolio is primarily composed of sovereign debt securities, including securities issued or guaranteed by the Colombian Government. Therefore, the Bank’s results are exposed to credit, market, and liquidity risk associated with sovereign debt. As of December 31, 2014, the Bank’s total debt securities represented 7.86% of its total assets, and 55.96% of these securities were issued or backed 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 securities portfolio and consequently the Bank’s results of operations and financial position.

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

The Bank enters into derivative transactions for hedging purposes and on behalf of its customers. The Bank is subject to market and operational risks 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.

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. 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.

The Bank is subject to cyber security risk.

The bank is subject to cyber security risk, which includes the unauthorized access to privileged information, technological assaults on the infrastructure of the Bank with the aim of stealing information, committing fraud or interfering with regular service, and the interruption of the Bank’s services to some of its clients or users due to the exploitation and materialization of these vulnerabilities. Cyber security risks for financial institutions have significantly increased because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties.

All of the Bank’s main businesses are highly dependent on the ability to timely collect and process a large amount of information, at a time when transaction processes have become significantly more complex and their volume has increased dramatically. The Bank’s business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of service providers, and others with whom we interact.

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. 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 problems with information, including data related to customer 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 could materially and adversely affect the Bank’s results of operations and reputation.

The controls that the Bank has implemented in order to anticipate, identify, and offset these threats, have been effective thus far in maintaining cyber security risk at a low level. These controls include the existence of perimeter defenses, security backups, special 24/7 teams and continuous security tests (as ethical hacking between others), However, we can give no assurance that the low level of risk experienced thus far will continue in the future, and any failure by the Bank to detect or present cyber security risk in a timely manner, could result in a negative impact on the Bank’s results of operations and financial position.

Any failure to effectively improve or upgrade the Bank’s information technology infrastructure and management information systems in a timely manner could adversely affect the Bank’s competitiveness, financial condition and results of operations.

The Bank’s ability to remain competitive will depend in part on its ability to upgrade the Bank’s information technology infrastructure on a timely and cost-effective basis. The information available to and received by the Bank’s management through its existing information systems may not be timely and sufficient to manage risks or to plan for and respond to changes in market conditions and other developments in its operations. The Bank is currently undertaking a project to update its information technology platform (“IT platform”) that will result in significant changes in its treasury and credit card operations. Any failure to effectively improve or upgrade the Bank’s information technology infrastructure and information management systems in a timely manner could materially and adversely affect the Bank’s competitiveness, financial condition and results of operations.

The occurrence of natural 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 disasters such as earthquakes, volcanic eruptions, tornadoes, tropical storms, floods, wind and hurricanes in the regions where it operates. In the event of a natural disaster, unanticipated problems with the Bank’s disaster recovery systems 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 local 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 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.

Acquisitions and strategic partnerships 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 partnerships 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.

The Bank’s concentration in and reliance on short-term deposits may increase its funding costs.

The Bank’s principal source of funds is short-term deposits, which on a consolidated basis represented 72.2% of total liabilities at the end of 2014 compared to 72.9% and 74.1% at the end of 2013 and 2012, respectively. Because the Bank relies primarily on short-term deposits for its funding, in the event of a sudden or unexpected shortage of funds in the banking systems and money markets in which the Bank operates, the Bank may not be able to maintain its current level of funding without incurring higher costs or selling assets at prices below their prevailing market value.

The Bank’s policies and procedures may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could damage the Bank’s reputation and expose the Bank to fines and other liabilities.

The Bank is required to comply with applicable anti-money laundering, anti-terrorism laws and other 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 regulatory authorities. While the Bank has adopted policies and procedures aimed at detecting and preventing the use of its banking network for money laundering activities and by terrorists and terrorist-related organizations and individuals generally, such policies and procedures have in some cases been adopted only recently and may not completely eliminate the risk that the Bank may be used by other parties to engage in money laundering and other illegal or improper activities. If the Bank fails to fully comply with applicable laws and regulations, it may face fines and other penalties, including restrictions on its ability to conducts business. In addition, the Bank’s business and reputation could suffer if customers use the Bank for money laundering or illegal or improper purposes.

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

The Bank operates in a highly competitive environment and increased competitive conditions are to be expected in the jurisdictions where the Bank operates. Intensified merger activity in the financial services industry produces 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. 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 and the Bank’s ability to offer adequate services and strengthen its customer base through cross-selling. 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 our credit ratings would increase our cost of borrowing funds and make our ability to raise new funds, attract deposits or renew maturing debt more difficult.

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

The Central Bank may impose requirements on our (and other Colombian residents’) ability to obtain loans in foreign currency.

The Central Bank may impose certain mandatory deposit requirements in connection with foreign currency denominated loans obtained by Colombian residents, including the Bank, although no such mandatory deposit requirement is currently in effect. We cannot predict or control future actions by the Central Bank in respect of deposit requirements, which may involve the establishment of a mandatory deposit percentage, and the use of such measures by the Central Bank may raise our cost of raising funds and reduce our financial flexibility.

Risks Relating to the Preferred Shares and the American Depositary Shares (“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 the Bank is not obligated to, it intends to consider at the time of any rights offering the costs and potential liabilities associated with any 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 timebefore 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. For example, in connection with its recent rights offering in January 2012, the Bank did not file such 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 may 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. Holders of the Bank’s ADRs and preferred shares are not entitled to vote for the election of directors or to influence the Bank’s management policies. 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 – Description of Share Rights, Preferences and Restrictions – Voting Rights – Preferred Shares”.

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 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 Stock Exchange, which is relatively small and illiquid compared to stock 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 Stock Exchange. A liquid trading market for the Bank’s securities might not develop on the Colombian Stock 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 Stock Exchange in the amount and at the price and time such holder desires, and could increase the volatility of the price of the ADRs.

ADRs do not have the same tax benefits as other equity investments in Colombia.

Although ADRs represent Bancolombia’s preferred shares, they are held through a fund of foreign capital in Colombia which is subject to a specific tax regulatory regime. Accordingly, the tax benefits 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. For more information see “Item 10. Additional Information. –E. Taxation –Colombian Taxation”.

ITEM 4.

INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

Bancolombia is Colombia’s leading financial institution, with a presence in other jurisdictions such as Panama, El Salvador, Puerto Rico, Guatemala, the Cayman Islands, and Peru, 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 comercial por acciones, de la especie anónima) domiciled in Medellín, Colombia and operates under Colombian laws and regulations, mainly the Colombian Commercial Code, the Financial Statute 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 and Corfinsura merged with and into Bancolombia, with Bancolombia as the surviving entity. Through this merger, Bancolombia gained important competitive advantages, as Conavi and Corfinsura were two of the top financial institutions in the Colombian market at the time. Conavi, a mortgage bank in Colombia and one of the strongest in retail operations, significantly increased the Bank’s participation and know-how in these specific markets. On the other hand, Corfinsura, then the largest financial corporation in Colombia and highly regarded for its expertise in handling large and mid-sized corporate credit and financial services, its investment bank and its modern and diversified treasury department, 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 and consumer activities and brokerage. Through its first international acquisition, Bancolombia gained a leadership position in the Salvadorian market.

In October 2013, Bancolombia Panama paid approximately USD 217 million to acquire a 40% interest in Grupo Agromercantil Holding S.A., the parent company of Banco Agromercantil de Guatemala, and certain other companies dedicated to securities brokerage, insurance, and other financial businesses. Additionally, in the same month, Bancolombia acquired a 100% percent interest in the ordinary voting shares, and 1,325,780 preferred shares of Banistmo, a Panamanian banking entity and its subsidiaries involved in the securities brokerage, trust, consumer finance, leasing, and insurance businesses. Bancolombia paid a purchase price of USD 2,234 million. Since 1995, Bancolombia has maintained a listing on the NYSE, where its ADSs are traded under the symbol “CIB”, and on the Colombian Stock Exchange, where its preferred shares are traded under the symbol “PFBCOLOM”. Since 1981 Bancolombia’s common shares have been traded on the Colombian Stock 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, 2014, Bancolombia had, on a consolidated basis:

COP 148,725 billion in total assets;

COP 102,803 billion in total net loans and financial leases;

COP 95,337 billion in total deposits; and

COP 16,817 billion in stockholders’ equity.

Bancolombia’s consolidated net income for the year ended December 31, 2014 was COP 1,879 billion, representing a return on average equity of 12.50% and a return on average assets of 1.40%.

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

RECENT DEVELOPMENTS

Preferred shares public offering

On March 12, 2014, the Bank completed an offering of 110 million preferred shares offered to the public in Colombia at a subscription price of COP 24,200 per preferred share. The net proceeds amounted to approximately COP 2,626 billion.

Senior notes redemption

On September 10, 2014, the Bank completed the redemption process of its USD 520 million senior notes due 2016, pursuant to its option to redeem in full in accordance with the indenture under which the senior notes were issued.

Subordinated notes offering

On September 24, 2014, the Bank issued a total aggregate amount of COP 988,252 million of subordinated notes in a public offering made exclusively in Colombia, of which COP 373,752 million were subordinated notes due 2024, COP 360,000 million were subordinated notes due 2029, and COP 254,500 million were subordinated notes due 2034.

Assignment to, and assumption by, the Bank of all the assets, liabilities and commercial agreements of Factoring Bancolombia

On October 15, 2014, Factoring Bancolombia completed the transfer of all of its assets, liabilities and commercial agreements to Bancolombia S.A., its parent company.

Pursuant to the transaction, Factoring Bancolombia assigned to Bancolombia assets and contracts with an aggregate value of COP 855,831 million, and Bancolombia assumed liabilities of Factoring Bancolombia with an aggregate value of COP 768,791 million. The difference between the value of the assets and contracts assigned and the value of the liabilities assumed, in a total amount of COP 87,040 million, was paid by Bancolombia to Factoring Bancolombia in cash. Also pursuant to the transaction, Factoring Bancolombia assigned to Bancolombia the “Factoring Bancolombia” trademark, which has thereafter been used to identify a division of Bancolombia.

Disposal of Seguros Banistmo

On February 23, 2015, Banistmo entered into an agreement with Suramericana S.A., whereby Banistmo agreed to sell, and Suramericana S.A. agreed to buy 100% of the outstanding capital of Seguros Banistmo, an insurance company incorporated under the laws of Panama.

Completion of the sale is subject to certain conditions, including, among others, receipt of the required regulatory approvals of the Insurance and Reinsurance Superintendency of Panama (Superintendencia de Seguros y Reaseguros de Panamá) and the Consumer Protection and Competition Defense Authority of Panama (Autoridad de Protección al Consumidor y Defensa de la Competencia de Panamá (ACODECO)).

The purchase price will be determined at the closing and will be calculated on the basis of Seguros Banistmo’s equity.

Strengthening of the organizational structure

On April 24, 2015 Bancolombia announced the following changes in its organizational structure:

The Corporate Innovation and Digital Transformation Vice-Presidency was created. Its objective is to project innovation and digital banking at its clients’ service. Juan Carlos Mora Uribe, who acted as Vice President of Corporate Services, will be in charge of this Vice-Presidency.

The Corporate Services Vice-Presidency will consolidate under the same management team the corporate procedures, technology services and human resources. Augusto Restrepo Gómez, who acted as Vice President of Human Resources, will be in charge of this Vice-Presidency. The Human Resources Vice-Presidency will be integrated into the Corporate Service Vice-Presidency.

PUBLIC TAKEOVER OFFERS

In 2014, 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 EXPENDITURES AND DIVESTITURES

During 2014, total capital expenditures amounted to COP 86 billion. Such investments were mainly focused on an IT related projects (COP 15 billion), the expansion of the Bank’s branch and ATM network (COP 8 billion), the purchase of fixed assets (COP 20 billion), and other miscellaneous projects (COP 43 billion).

In 2014, Bancolombia funded its capital expenditures with its own resources and plans to continue to fund those currently in progress in the same manner.

During 2013, total capital expenditures amounted to COP 80 billion. Such investments were mainly focused on an IT Platform renewal project (COP 665 million), the expansion of the Bank’s branch and ATM network (COP 198 million), the purchase of hardware for the expansion, updating and replacing current IT equipment (COP 9 billion), and other investments, such as an anti-fraud system and fixed assets (COP 70 billion).

In October 2013, Bancolombia completed the acquisition of HSBC Panama’s operation and paid USD 2,234 million.

During 2012, total capital expenditures excluding interest in other companies amounted to COP 154 billion. Such investments were mainly focused on an IT Platform renewal project (COP 97 billion), the expansion of the Bank’s branch and ATM network (COP 12 billion), the purchase of hardware for the expansion, updating and replacing current IT equipment (COP 25 billion), and other investments, such as an anti-fraud system and fixed assets (COP 20 billion).

During 2015, the Bank expects to invest approximately COP 329 billion as follows: COP 18 billion in connection with the expansion of the Bank’s branch and ATM network, COP 35 billion in connection with the purchase hardware for the expansion, updating and replacement of the current IT equipment, COP 78 billion in connection with other fixed assets and COP 198 billion in connection with strategic projects, including a new datacenter for the bank’s operation in El Salvador. These figures represent only an estimate and may change according to the continuing assessment of the Bank’s project portfolio. No assurance can be given, however, that all such capital expenditures will be made and, if made, that such expenditures will be in the amounts currently expected.

The following table summarizes the Bank’s capital expenditures and divestitures in interests in other companies for the years ending December 31, 2014, 2013 and 2012:

	As of December 31,
Capital Expenditures (COP million)	2014		2013		2012		Total
Grupo Agromercantil Holding S.A. ⁽¹⁾	COP	79,339	COP	411,110	COP	-	COP	490,449
Inversiones Inmobiliarias Arauco Alameda S.A.		15,082		10,755		27,645		53,482
Titularizadora Colombiana S.A		11,902		-		-		11,902
Banistmo S.A. y Filiales		-		4,204,801		-		4,204,801
Sura Asset Management España S.L.		-		-		266,772		266,772
Uff Móvil S.A.S.		-		5,100		21,000		26,100
Avefarma S.A.S.		-		-		20,423		20,423
Panamerican Farmaceutical Holding INC		-		-		6,846		6,846
Glassfarma Tech S.A.S.		-		-		4,360		4,360
Construcciones El Cóndor S.A.		-		-		3,469		3,469
Grupo Odinsa S.A.		-		-		562		562
Others		-		16		861		877
Total Expenditures	COP	106,323	COP	4,631,782	COP	351,938	COP	5,090,043

⁽¹⁾

The amount of USD 40 million has been converted at the rate of COP 1,983.48 per USD 1.00, which is the Representative Market Rate calculated on January 23, 2014, as reported by the SFC.

Capital Divestitures (COP million)	2014		2013		2012		Total
SANEAL S.A.⁽¹⁾	COP	992	COP	-	COP	-	COP	992
Prosicol S.A.S. " Into liquidation"		-		565		-		565
Erecos S.A. y Materiales Industriales S.A.		-		2,650		-		2,650
Asesuisa S.A.⁽²⁾		-		-		173,285		173,285
Todo Uno Services Inc.⁽²⁾		-		-		3,161		3,161
Todo Uno Colombia S.A.⁽²⁾		-		-		228		228
Total Divestitures	COP	992	COP	3,215	COP	176,674	COP	180,881

⁽¹⁾

Refund of the investment

⁽²⁾

Investments sold

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 more than 9 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, Panama’s second bank by market share and off-shore banking subsidiaries in Panama, Cayman and Puerto Rico, as well as subsidiaries in Peru.

Bancolombia and its subsidiaries offer the following products and services:

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. The Bank also offers its clients and users the service of tax collection in all its branches, and through electronic channels.

Ahorro a la Mano: This is a mobile phone based savings account specially designed to attend low income clients and unbanked people.

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 construction firms 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, primarily through Leasing Bancolombia and its subsidiaries, 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.

eTrading: Is an internet-based trading platform, available for retail and institutional clients, which allows them to buy/sell securities in the Colombian Stock Exchange.

The Bank also performs inter-bank lending, repurchase agreements (repos), foreign exchange transactions, as well as sovereign and corporate securities sales and trading. Bancolombia is an active player in the “Market-makers” scheme for trading Colombian sovereign debt (TES bonds).

The Bank offers its clients direct access to local and international capital markets through a full range of Brokerage and Investment Advisory Services that cover equities and fixed income securities, proprietary and third party asset management products, such as Mutual Funds, Private Equity Funds, and Privately Managed Investment Accounts for institutional, corporate and private bank clients.

Cash Management: The Bank provides support to its clients through efficient cash management, offering a portfolio of standard products that allows clients to make payments and collections through different channels. Our payables and receivables services provide solutions to process and reconcile transactions accurately, efficiently and in a timely manner. We also offer a comprehensive reporting solution, providing the data that is required by customers’ internal processes. In addition, the Bank designs and creates custom-made products in order to address our clients’ specific payment and collection needs, including a variety of real time web services, straight through processing (STP) and messaging through Swift Net solutions.

Foreign Currency: The Bank offers its clients specialized solutions to satisfy their investment, financing and payment needs with regard to foreign currency transactions. The Bank also provides trade finance solutions with products such as Letters of Credit, Standby Letters of Credit and Bills Collection.

Bancassurance and Insurance: The Bank distributes diverse insurance products (life, and homeowner’s insurance) written by Compañía Suramericana de Seguros, one of the main insurance companies in Colombia. In addition, Bancolombia offers unemployment insurance written by Sure General Cardif Colombia S.A. In El Salvador, Banco Agricola offers a comprehensive portfolio of insurance products from Asesuisa (auto insurance, personal accident and health insurance, fire and associated perils insurance, cargo insurance, among others) and Asesuisa Vida (life insurance).

Investment Banking: The Bank, through its subsidiary Banca de Inversión, offers a wide variety of value-added services, including areas related to project finance, capital markets, capital investments, M&A, restructurings and corporate lending across all economic sectors.

Trust and Fiduciary Services: The Bank, through its subsidiary Fiduciaria Bancolombia offers a broad and diversified portfolio of services for companies and individuals, meeting their needs with tailored services.

NEW PRODUCTS OR SERVICES

Bancolombia continues its efforts to diversify and improve its product portfolio. Below is a brief description of the new products and services introduced in 2014:

Corporate Collections (in house): This service consists of installing on the premises of the Bank’s customers a cash-collection unit which will have the capability of receiving different transactions such as payments and/or deposits from their suppliers. The information generated by these transactions will be registered into the client’s or the cash handling company portal.

MAIN LINES OF BUSINESS

The Bank manages its business through ten main operating segments: Banking Colombia, Banking Panama, Banking El Salvador, Leasing, Trust, Investment Banking, Brokerage, Insurance, Off Shore, and All other.

For a description and discussion of these segments, please see “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Results by Segment”.

B.2.

OPERATIONS

See Note 31 – section (y) to the Consolidated Financial Statements as of December 31, 2014 included in this Annual Report for a description of the principal markets in which the company competes, including a breakdown of total revenues by category of activity and geographic market for each of the last three financial years.

B.3.

SEASONALITY OF DEPOSITS

Historically, the Bank has experienced some seasonality in its demand deposits, with higher average balances at the end of the year and lower average balances in the first quarter of the year. This behavior is explained primarily by the increased liquidity provided by the Central Bank and the Colombian National Treasury at year end, as economic activity tends to be higher during this period resulting in a greater number of transactions. However, we do not consider the seasonality of demand deposits to have a significant impact on our business.

B.4.

RAW MATERIALS

The Bank on a consolidated basis is not dependent on sources or availability of raw materials.

B.5.

DISTRIBUTION NETWORK

Bancolombia provides its products and services through a traditional branch network, sales and customer representatives as well as through mobile branches (or “Puntos de Atención Móviles”), banking correspondents, an ATM network, online and computer banking, telephone banking, mobile phone banking services, and PACs, among others. In addition, as of December 31, 2014, Bancolombia had a sales force of approximately 12,949 employees and transactions performed through electronic channels represented more than 92.7% of all transactions in 2014.

The following are the distribution channels offered by Bancolombia as of December 31, 2014.

Branch Network

As of December 31, 2014, Bancolombia’s consolidated branch network consisted of 1,072 offices which included 829 from Bancolombia S.A., 100 from Banco Agrícola, 52 from Banistmo and 91 from other subsidiaries.

Company*	Number of branches 2014		Number of branches 2013		Number of branches 2012
Bancolombia S.A.		829		850		822
Bancolombia Panamá		1		1		1
Bancolombia Miami (agency)⁽¹⁾		-		-		1
Bancolombia Panama (branch)		1		1		1
Leasing Bancolombia		21		21		20
Renting Colombia S.A.		19		17		17
Valores Bancolombia		11		11		5
Valores Bancolombia Panama S.A.		1		1		1
Banca de Inversión		2		2		2
Fiduciaria Bancolombia		7		7		4
Tuya S.A, Compañía de Financiamiento		4		6		5
Bancolombia Puerto Rico International Inc.		1		1		1
Factoring Bancolombia		0		1		1
Arrendamiento Operativo CIB S.A.C. ⁽²⁾		1		1		1
Fondo Inversión Arrend.Operativo Renting Perú I		1		1		1
Inversiones CFNS S.A.S.		2		2		2
Banco Agrícola		100		100		103
Arrendadora Financiera S.A.		1		1		1
Credibac S.A. de C.V		-		-		-
Valores Banagricola, S.A. de C.V.⁽³⁾		1		1		1
Uff Móvil S.A.S.		1		1		1
Capital Investments SAFI S.A.		1		1		1
Transportempo S.A.S		1		1		1
Leasing Perú S.A.		1		1		1
FiduPerú S.A. Sociedad Fiduciaria (previously Fiduciaria GBC S.A.)		1		1		1
Banistmo		52		51		-
Financomer S.A.		8		8		-
Seguros Banistmo S.A.		4		4		-
Total		1,072		1,093		995

*For some subsidiaries, the central office is considered a branch. Representative offices are included

⁽¹⁾

The Bancolombia Miami agency closed its operations on August 30, 2013.

⁽²⁾

Renting Perú S.A.C. changed its legal name to Arrendamiento Operativo CIB S.A.C. The offices operated for the Localiza franchise in Peru, are included in the total number of branches reported for Arrendamiento Operativo CIB S.A.C.

⁽³⁾

Bursabac S.A. de C.V changed its legal name to Valores Banagricola, S.A. de C.V.

⁽⁴⁾

AFP Crecer S.A. was sold on November 21, 2011, and is no longer part of the Bancolombia group.

Banking Correspondents

A banking correspondent is a platform which allows non-financial institutions, such as stores open to the public, to provide financial services and transactions in towns where banks and financial institutions have limited or no presence. As of December 31, 2014, Bancolombia has a total of 4,202 banking correspondents, including 4,098 in Colombia and 104 in El Salvador.

Mobile Branches (Puntos de Atención Móviles, “PAM”)

PAMs consist of commercial advisors who visit small towns periodically to offer Bancolombia’s products and services. As of December 31, 2014, there were a total of 598 PAMs.

Kiosks

Kiosks, used in El Salvador, are located inside the Bank’s branches, malls, and other public places and are used to provide the Bank’s clients the possibility of conducting a variety of self-service transactions. As of December 31, 2014, there were a total of 206 kiosks.

Automatic Teller Machines (“ATM”)

Bancolombia has a total of 4,554 ATMs, including 3,700 in Colombia, 549 in El Salvador and 305 in Panama.

Online/Computer Banking

We offer multiple online and computer-based banking alternatives designed to fit the specific needs of our different client segments. Through a variety of platforms (computer and Internet-based solutions) our clients can review their account balances and monitor transactions in their deposit accounts, loans, and credit cards, make virtual term investments, access funds from pre-approved loans, make payroll and supplier payments, make purchases and bill payments, buy and sell securities listed on the Colombian Stock Exchange, learn about products and services and complete other transactions in real time.

Telephone Banking

We provide customized and convenient advisory services to customers of all segments through automatic interactive voice response (IVR) operations and a 24/7 contact center.

Punto de Atención Cercano (“PAC”) or Electronic Funds Transfer at Point of Sale (“EFTPOS”)

Through our own network of 7,807 PACs our customers may carry out a variety of transactions including transfer of funds, bill payments, and changes to debit and credit card PINs.

Mobile Phone Banking Service

Our clients can conduct a variety of transactions using their cell phones, including fund transfers between Bancolombia accounts, account balance inquiries, purchase of prepaid cell phone air time and payment of bills and invoices.

B.6.

PATENTS, LICENSES AND CONTRACTS

The Bank is not dependent on patents or licenses, nor is it substantially dependent on any industrial, commercial or financial contracts (including contracts with customers or suppliers).

However, the contracts with service providers described below have significant relevance to the Bank’s business:

As a result of the disposition of Todo1 Services, Inc. in August, 2012, the online banking platform of the Bank is no longer provided by an affiliate, and is currently provided by Todo1 Services Inc., now a third party with whom the Bank has entered into a service-level agreement. As of December 31, 2014, Todo 1 Services, Inc. is the sole service provider for the Bank’s online banking platform.

The Bank’s call center and telephone banking services are provided by Allus Global BPO Center, a company specialized in providing business process outsourcing, or BPO solutions.

The Bank’s check processing and settlement service is provided by IQ Outsourcing S.A., a Colombian company specialized in processing checks issued by customers of the Colombian financial institutions, through the Central Bank.

As a result of the acquisition of Banistmo by the Bank, Banistmo, as customer, entered into a transitional services agreement with HSBC Servicios S.A. de C.V., for the provision of certain key technological services necessary to day-to-day operation of Banistmo and its subsidiaries for an estimated period of 18 months after closing of the transaction, which is expected to end during the second half of 2015, after which all services will be provided in-house or through third party service providers.

If we were required to replace any of Todo1 Services Inc., Allus Global BPO Center or IQ Outsourcing S.A. as service providers of the Bank, or if any of those service providers or HSBC Servicios S.A. de C.V. were not to fulfill their respective contractual obligations, our business could suffer, and we might be required to incur additional costs to find replacement providers.

B.7.

COMPETITION

Description of the Colombian Financial System

Overview

In recent years, the Colombian banking system has been undergoing a period of consolidation, given the series of mergers and acquisitions that have taken place within the sector. More specifically, several mergers and acquisitions took place in 2007, mainly due to the global economic situation. Colombian banks made several investments allowing some entities to become big players in the Latin American market; this is the case of HSBC, which acquired Banistmo; and Bancolombia, which completed the acquisition of Banagrícola in El Salvador (For more information on the acquisition of Banagrícola, see “Item 4. Information on the Company – 4.A. History and Development of the Company”). In 2008 the Royal Bank of Scotland (RBS) acquired the Colombian arm of ABN Amro Bank; in 2010, Banco de Bogotá acquired BAC-Credomatic, which operates in several countries in Central America; and, in October 2011, Canadian Scotiabank purchased a stake in Colpatria . In 2012, the most relevant event regarding the presence of foreign banks in Colombia was the acquisition of Banco Santander Colombia S.A. in July 2012 by Corpbanca (Chile). Also, Davivienda acquired the subsidiaries of HSBC in Costa Rica, Honduras and El Salvador.

During 2013, Bancolombia continued its internationalization process with the acquisition of the banking and insurance operations of HSBC in Panama for USD 2,234 million. In addition, Bancolombia Panama, acquired 40% of the common shares of Agromercantil Group Holding S.A. for USD 217 million. In 2013 Grupo Aval acquired 100% of the Reformador Financial Group, from Guatemala (the transaction was valued at USD 411 million) and acquired BBVA Panama for USD 490 million. In addition, in 2013 some competitors started operations in Colombia. Itau BBA entered the market with an investment bank, BNP Paribas with a trust company, Credicorp with the acquisition of Correval (a local brokerage firm), Brazilian broker-dealer BTG Pactual acquired Bolsa y Renta, Banco Santander returned to the Colombian arena with an investment bank and the Chilean Larrain Vial started operations with a brokerage firm. During 2014 the entry of new entities continued as the financing company Hipotecaria, which specializes in mortgage loans, that began operations in March 2014. In June, 2014, Corpbanca completed the acquisition of Helm Bank, keeping the brand of Corpbanca; additionally. Also in 2014 the bank GNB Sudameris acquired 99.9% of the outstanding capital of HSBC Colombia, in October 2014 acquired GNB Colombia, and now operates as a strong competitor under the brand GNB Colombia.

As of December 31, 2014, according to the SFC, the main participants in the Colombian financial system were the Central Bank, 22 commercial banks (12 domestic private banks, 9 foreign banks, and 1 domestic state-owned bank), 5 financial corporations and 21 financing companies (6 leasing companies and 15 traditional financing companies). In addition, trust companies, cooperatives, insurance companies, insurance brokerage firms, bonded warehouse, special state-owned institutions, pension and severance pay funds also participate in the Colombian financial system.

Financial System Evolution in 2014

During 2014, the Colombian economy showed a greater dynamism. The unemployment rate was among the lowest in the last five years, and the inflation rate was 3.66% within the target range of the Central Bank. In 2014 GDP growth was 4.6%. Credit expansion throughout 2014 was higher than in 2013. The financial system’s loan growth for 2014 was 15.50% according to SFC, compared to 13.53% and 14.87% for 2013 and 2012, respectively. After a year of expansionary monetary policy, the intervention rate increased 125 basis points during 2014, ending the year in 4.5%. The growth of commercial loans was 16.28% in 2014, compared to 11.91% in the previous year. The rising confidence drove up consumer loans, which grew by 13.78% in 2014, higher than the 12.07% in 2013. Mortgage and small business loans continued to perform well, with increases of 18.41% and 9.07%, respectively, for 2014.

The financial system’s level of past-due loans as a percentage of the total loan portfolio increased from 2.82% in December 2013 to 2.94% in December 2014. In addition, the coverage, measured by the ratio of allowances for loans losses (principal) to PDLs (overdue 30 days), declined to at 151.52%, at the end of 2014, from 161.22% at the end of 2013.

During 2014, the share of lending in the financial system’s structure increased. Loans increased from 62.8% of total assets at the end of 2013 to 64.4% at the end of 2014. The securities portfolio, as a percentage of total assets, decreased from 19.7% at the end of 2013 to 18.1% at the end of 2014.

As of December 31, 2014, the Colombian financial system recorded COP 479 trillion in total assets, representing a 12.59% increase as compared to the same period in 2013. The Colombian financial system’s total composition of assets shows banks with a market share of 92.38%, followed by financing companies with 5.56% and financial corporations with 2.06%.

The capital adequacy ratio (Tier 1 + Tier 2) for credit institutions was 15.60% in December 2014 (including banks, financial corporations and financing companies), which is well above the minimum legal requirement of 9%. As Decree 1771 of 2012 and the external circular 20 of 2013 of the SFC became effective, a new capital regime for credit institutions, was established in order to increase capital requirements for equity of financial institutions to the discussion of the new rules as applied to Bancolombia.

Bancolombia and its Competitors

The following table shows the key profitability, capital adequacy ratios and loan portfolio quality indicators for Bancolombia and its main competitors, as published by the SFC. It is important to note that, in the case of mortgages, loans used in the calculation shown below incorporate the past-due installments, instead of the complete mortgage balance, whenever a mortgage is overdue by less than 120 days.

	*ROE⁽¹⁾*						*ROA⁽²⁾*						Past-due loans/ Total loans						Allowances/ Past-due loans						Capital Adequacy
	Dic-14			Dic-13			Dic-14			Dic-13			Dic-14			Dic-13			Dic-14			Dic-13			Dic-14			Dic-13
Bancolombia⁽³⁾ (unconsolidated)		8.14	%		11.81	%		1.33	%		1.63	%		2.51	%		2.31	%		185.46	%		202.02	%		17.89	%		13.36	%
Banco de Bogota		10.77	%		12.28	%		2.25	%		2.47	%		2.36	%		2.20	%		132.71	%		152.93	%		19.13	%		18.50	%

	*ROE⁽¹⁾*						*ROA⁽²⁾*						Past-due loans/ Total loans						Allowances/ Past-due loans						Capital Adequacy
	Dic-14			Dic-13			Dic-14			Dic-13			Dic-14			Dic-13			Dic-14			Dic-13			Dic-14			Dic-13
Davivienda		14.43	%		12.17	%		1.83	%		1.56	%		2.74	%		2.87	%		160.39	%		161.51	%		12.96	%		12.62	%
BBVA		13.90	%		16.23	%		1.17	%		1.51	%		2.06	%		1.89	%		168.57	%		179.72	%		10.57	%		11.37	%
Banco de Occidente		29.56	%		11.99	%		3.94	%		1.65	%		2.79	%		2.26	%		143.51	%		171.33	%		12.32	%		13.33	%
Banco Popular		14.56	%		16.61	%		2.24	%		2.40	%		2.07	%		2.05	%		165.39	%		179.03	%		12.21	%		11.40	%
Citibank		14.76	%		9.12	%		2.26	%		1.63	%		2.98	%		3.81	%		160.80	%		144.19	%		13.50	%		14.64	%

Source: SFC.

⁽¹⁾

ROE is return on average stockholders’ equity.

⁽²⁾

ROA is return on average assets.

⁽³⁾

All figures are on an unconsolidated basis.

In 2014, Bancolombia ranked first in Colombia and El Salvador in terms of amount of assets, deposits, stockholders’ equity and second in net income.

The following tables illustrate the market share of Bancolombia on an unconsolidated basis and its main competitors with respect to various key products, based on figures published by the SFC for the years ended December 31, 2014, 2013 and 2012:

Total Net Loans
Market Share

Total Net Loans – Market Share %	2014			2013			2012

Bancolombia		23.04	%		22.65	%		23.05	%
Banco de Bogotá		13.86	%		13.76	%		13.71	%
Davivienda		13.50	%		12.98	%		12.39	%
BBVA		10.29	%		9.95	%		9.23	%
Banco de Occidente		6.91	%		7.45	%		7.33	%
Banco Popular		4.32	%		4.61	%		5.10	%
Citibank		2.12	%		2.20	%		2.45	%

Source: Ratios are calculated by Bancolombia based on figures published by the SFC.

Checking Accounts
Market Share

Checking Accounts – Market Share %	2014			2013			2012

Bancolombia		23.72	%		25.16	%		24.00	%
Banco de Bogotá		19.82	%		18.79	%		19.50	%
Banco de Occidente		11.51	%		11.94	%		11.39	%
BBVA		9.89	%		10.03	%		9.14	%
Davivienda		10.23	%		9.76	%		8.96	%
Banco Popular		2.68	%		3.31	%		3.84	%
Citibank		3.91	%		3.13	%		3.15	%

Source: Ratios are calculated by Bancolombia based on figures published by the SFC.

Time Deposits
Market Share

Time Deposits – Market Share %	2014			2013			2012

Bancolombia		14.59	%		17.93	%		18.22	%
Banco de Bogotá		17.01	%		14.61	%		14.36	%
Davivienda		12.58	%		12.35	%		10.00	%
BBVA		12.11	%		10.27	%		9.66	%
Citibank		1.88	%		2.00	%		2.67	%
Banco Popular		2.16	%		1.56	%		2.87	%
Banco de Occidente		5.94	%		5.09	%		5.18	%

Source: Ratios are calculated by Bancolombia based on figures from the SFC.

Saving Accounts
Market Share

Saving Accounts – Market Share %	2014			2013			2012

Bancolombia		23.09	%		22.95	%		22.92	%
Banco de Bogotá		11.67	%		14.09	%		14.39	%
Davivienda		12.54	%		11.35	%		12.23	%
BBVA		11.86	%		11.96	%		12.61	%
Banco Popular		5.29	%		6.48	%		5.37	%
Banco de Occidente		6.67	%		6.41	%		5.75	%
Citibank		2.87	%		2.49	%		2.18	%

Source: Ratios are calculated by Bancolombia based on figures from the SFC.

Description of the Salvadorian Financial System

As of December 31, 2014, the Salvadoran financial system consisted of 13 institutions (10 commercial banks, 2 state-owned banks and 1 foreign bank).

The total assets (excluding contingencies such as guarantees and letters of credit) of the Salvadorian financial system amounted to USD 13.9 billion in 2014, increasing 3.2% as compared to the previous year. As of December 31, 2014, gross loans represented 71.7% of the total assets in the Salvadorian financial system, while investments represented 4.7% and cash and due from banks represented 21.6%.

Banco Agrícola and its Competitors

In 2014, Banco Agrícola continued to lead the Salvadorian financial system and ranked first in terms of assets, loans, deposits, stockholders equity and profits. The following table illustrates the market share for the main institutions of the Salvadorian financial system for the year end December 31, 2014:

	MARKET SHARE
	Assets			Stockholders` Equity			Loans			Deposits			Profits
Banco Agrícola		28.6	%		30.3	%		28.7	%		28.1	%		47.8	%
Citibank		11.3	%		14.6	%		10.5	%		12.6	%		3.6	%
Davivienda		15.0	%		15.5	%		15.4	%		13.5	%		12.9	%
Scotiabank		14.0	%		14.3	%		15.1	%		13.3	%		8.3	%
BAC		12.3	%		10.2	%		11.9	%		12.5	%		13.1	%
Others		18.7	%		15.1	%		18.3	%		19.9	%		14.3	%

Source: ABANSA (Asociación Bancaria Salvadoreña).

The following tables illustrate the market share of Banco Agrícola and its main competitors, based on figures published by the Salvadorian Banking Association (ABANSA) as of year-end 2014, 2013 and 2012:

Total Loans
Market Share

Total Loans - Market Share%	2014			2013			2012
Banco Agrícola		28.7	%		29.3	%		30.1	%
Citibank		10.5	%		11.7	%		13.1	%
Davivienda		15.4	%		15.3	%		14.4	%
Scotiabank		15.1	%		15.9	%		16.6	%
BAC		11.9	%		11.2	%		10.4	%
Others		18.3	%		16.7	%		15.4	%

Source: Ratios are calculated by Banco Agrícola based on figures published by the Salvadorian Banking Association.

Checking Accounts
Market Share

Checking Accounts - Market Share%	2014			2013			2012
Banco Agrícola		23.1	%		25.7	%		23.9	%
Citibank		21.7	%		21.0	%		23.5	%
Davivienda		11.0	%		11.4	%		11.5	%
Scotiabank		7.4	%		8.6	%		9.1	%
BAC		18.0	%		16.9	%		16.2	%
Others		18.8	%		16.3	%		15.8	%

Source: Ratios are calculated by Banco Agrícola based on figures published by the Salvadorian Banking Association.

Time Deposits
Market Share

Time Deposits - Market Share%	2014			2013			2012
Banco Agrícola		24.0	%		24.0	%		24.2	%
Citibank		5.8	%		6.9	%		8.2	%
Davivienda		14.6	%		15.4	%		15.1	%
Scotiabank		17.1	%		16.4	%		17.6	%
BAC		11.1	%		12.0	%		12.0	%
Others		27.4	%		25.3	%		23.0	%

Source: Ratios are calculated by Banco Agrícola based on figures published by the Salvadorian Banking Association.

Saving Accounts
Market Share

Saving Account - Market Share%	2014			2013			2012
Banco Agrícola		38.5	%		38.9	%		38.7	%
Citibank		12.8	%		14.9	%		15.7	%
Davivienda		14.4	%		14.9	%		15.1	%
Scotiabank		14.1	%		14.3	%		15.1	%
BAC		9.0	%		6.0	%		5.9	%
Others		11.1	%		11.1	%		9.5	%

Source: Ratios are calculated by Banco Agrícola based on figures published by the Salvadorian Banking Association.

B.8.

SUPERVISION AND REGULATION

Colombian Banking Regulators

Pursuant to Colombia’s Constitution, Congress has the power to prescribe the general legal framework within which the Government may regulate the financial system. The agencies vested with the authority to regulate the financial system are the board of directors of the Central Bank, the Ministry of Finance, the SFC, the Superintendency of Industry and Commerce (the “SIC”) and the Self-Regulatory Organization (Autoregulador del Mercado de Valores or “AMV”).

Central Bank

The Central Bank exercises the customary functions of a central bank, including price stabilization, monetary policy, regulation of currency circulation, regulation of credit, exchange rate monitoring and management of international reserves. Its board of directors is the regulatory authority for monetary, currency exchange and credit policies, and is responsible for the direction of the Central Bank’s duties. The Central Bank also acts as lender of last resort to financial institutions.

Ministry of Finance and Public Credit

One of the functions of the Ministry of Finance is to regulate all aspects of finance and insurance activities.

As part of its duties, the Ministry of Finance issues decrees relating to financial matters that may affect banking operations in Colombia. In particular, the Ministry of Finance is responsible for regulations relating to capital adequacy, risk limitations, authorized operations, disclosure of information and accounting of financial institutions on a high level, which matters are then regulated in detail by the SFC.

Superintendency of Finance

The SFC is the authority responsible for supervising and regulating financial institutions, including commercial banks such as the Bank, finance corporations, financing companies, financial services companies and insurance companies. Regulation issued by the SFC must comply with decrees issued by the Ministry of Finance. The SFC has broad discretionary powers to supervise financial institutions, including the authority to impose fines on financial institutions and their directors and officers for violations of applicable regulations. The SFC can also conduct on-site inspections of Colombian financial institutions.

The SFC is also responsible for monitoring and regulating the market for publicly traded securities in Colombia and for monitoring and supervising securities market participants, including the Colombian Stock Exchange, brokers, dealers, mutual funds and issuers.

Financial institutions must obtain the prior authorization of the SFC before commencing operations.

Violations of the financial system rules and regulations are subject to administrative and, in some cases, criminal sanctions.

Other Colombian regulators

Self- Regulatory Organization

The AMV is a private entity responsible for the regulation of entities participating in the Colombian capital markets. The AMV may issue mandatory instructions to its members and supervise its members’ compliance and impose sanctions for violations.

All capital market intermediaries, including the Bank, must become members of the AMV and are subject to its regulations.

Superintendency of Industry and Commerce

The SIC is the authority responsible for supervising and regulating competition in several industrial sectors, including financial institutions. The SIC is authorized to initiate administrative proceedings and impose sanctions on banks, including the Bank, whenever the financial entity behaves in a manner considered to be anti-competitive.

Regulatory Framework for Colombian Banking Institutions

The basic regulatory framework of the Colombian financial sector is set forth in Decree 663 of 1993, modified among others, by Law 510 of 1999, Law 546 of 1999, Law 795 of 2003 and Law 1328 of 2009, as well as Law 964 of 2005 (securities market law) and in External Resolution 8 of 2000 (foreign exchange regulations), and Resolution 4 (as hereinafter defined) issued by the board of directors of the Central Bank. Decree 663 of 1993 defines the structure of the Colombian financial system and defines several forms of business entities, including: (i) credit institutions (establecimientos de crédito) (which are further categorized into banks, finance corporations (corporaciones financieras), financing companies (compañias de financiamiento) and finance cooperatives (cooperativas financieras)); (ii) financial services entities (sociedades de servicios financieros); (iii) capitalization corporations (sociedades de capitalización); (iv) insurance companies (entidades aseguradoras); and (v) insurance intermediaries (intermediarios de seguros). Furthermore, Decree 663 of 1993 provides that no financial, banking or credit institution may operate in Colombia without the prior approval of the SFC. Additionally, Decree 2555 of 2010 compiled regulations that were dispersed in separate decrees, including regulations regarding capital adequacy and lending activities.

The main role of banks, finance corporations and financing companies is to receive deposits. Banks place funds back into circulation by means of loans or any active credit operation; finance corporations place funds into circulation by means of active credit operations or investments, with the purpose of promoting the creation or expansion of enterprises; and financing companies place funds back into circulation by means of active credit operations, with the purpose of fostering the sale of goods and services, including the development of leasing operations.

Law 510 of 1999 and Law 795 of 2003 substantially amended the powers of the SFC to control, regulate and supervise financial institutions. Law 510 of 1999 also streamlined the procedures for the Fondo de Garantías de Instituciones Financieras (“Fogafin”), the agency that insures deposits in financial institutions and provides credit and support to troubled financial institutions. The main purpose of Law 510 of 1999 was to improve the solvency standards and stability of Colombia’s financial institutions by providing rules for their incorporation and regulating permitted investments of credit institutions, insurance companies and investment companies.

Law 546 of 1999 was enacted to regulate the system of long-term home loans. Law 795 of 2003 was enacted to broaden the scope of permitted activities for financial institutions, to update regulations with some of the then-latest principles of the Basel Committee and to increase the minimum capital requirements in order to incorporate a financial institution (for more information, see “Minimum Capital Requirements” below). Law 795 of 2003 also provided authority to the SFC to take preventive measures, consisting mainly of preventive interventions with respect to financial institutions whose capital falls below certain thresholds. For example, in order to avoid a temporary take-over by the SFC, such financial institutions must submit to the SFC a restructuring program to restore their financial condition.

Law 1328 of 2009 provides a set of rights and responsibilities for customers of the financial system and a set of obligations for financial institutions in order to minimize disputes. This law also gives foreign banks more flexibility to operate in Colombia. Prior to Law 1328 of 2009, foreign banks were able to operate in Colombia by establishing a Colombian subsidiary authorized by the SFC. Following the enactment of Law 1328 of 2009, as of June 15, 2013, foreign banks are permitted to operate through their “branches” and are not required to incorporate a Colombian subsidiary. Law 1328 of 2009 also broadened the scope of permitted business activities by regulated entities. Following its adoption, credit institutions were allowed to operate leasing businesses and banks were allowed to extend loans to third parties so that borrowers could acquire control of other companies. On September 6, 2011, the SFC issued regulations pursuant to which the SFC is empowered to regulate certain banking practices considered as abusive and established rules requiring disclosure of information to customers in order to allow them to choose the best options in the market, according to their own needs.

On December 20, 2011 the Colombian government issued Decree 4809 which: (i) defined the laws and principles that must be observed in the determination, diffusion and publicity of rates and prices of products and financial services, (ii) established the maximum rate charged for the withdrawal of funds from ATM’s of other financial institutions, (iii) requires financial institutions using standard form contracts that provide for rate increases to give at least 45 days’ prior notice of the increase and a right to reject the increase and terminate the contractual relationship with the financial institution, (iv) prohibits charges for unsuccessful transactions carried out through ATMs when there is no fault attributable to the client, and (v) established that transactions made via the Internet cannot be more expensive than those made via other available channels.

The SFC has authority to implement applicable regulations and, accordingly, issues, from time to time administrative resolutions and circulars. By means of External Circular 029 of 2014, the SFC compiled the rules and regulations applicable to financial institutions and other entities under its supervision. Likewise, by means of External Circular 100 of 1995 (the “Basic Accounting Circular”), it compiled all regulations applicable to the accounting rules and regulations.

The exchange control statute defines the different activities that banks, including the Bank, may perform as currency exchange intermediaries, including lending in foreign currency and investment in foreign securities.

Violations of any of the above statutes and their relevant regulations are subject to administrative sanctions and, in some cases, criminal sanctions.

Key interest rates

Colombian commercial banks, finance corporations and consumer financing companies are required to provide the Central Bank, on a weekly basis, with data regarding the total volume (in pesos) of certificates of deposit issued during the prior week and the average interest rates paid for certificates of deposit with maturities of 90 days. Based on such reports, the Central Bank computes the Tasa de Captaciones de Corporaciones Financieras (“TCC”) and the Depósitos a Término Fijo (“DTF”) rates, which are published at the beginning of the following week, for use in calculating interest rates payable by financial institutions. The TCC is the weighted average interest rate paid by finance corporations for deposits with maturities of 90 days. The DTF is the weighted average interest rate paid by finance corporations, commercial banks and consumer financing companies for certificates of deposit with maturities of 90 days. For the week of April 27, 2015, the DTF was 4.60% and the TCC was 3.29%.

Article 884 of the Colombian Commercial Code provides for a limit on the amount of interest that may be charged in commercial transactions. The limit is 1.5 times the current banking interest rate, or Interés Bancario Corriente, calculated as the average of the interest ordinarily charged by banks within a set period of time. The current banking interest rate for small business loans and for all other loans is certified by the SFC. As of December 31, 2014, the banking interest rate for small business loans was 34.81% and for all other loans was 19.17%.

Capital adequacy requirements

Capital adequacy requirements for Colombian financial institutions (as set forth in Decree 2555 of 2010, as amended) are based on applicable Basel Committee standards. On August 23, 2012 the Ministry of Finance issued a new regulation (Decree 1771 of 2012) amending the capital adequacy requirements set forth in Decree 2555. Some of the highlights of this new regulation are as follows:

The technical capital is calculated as the sum of Ordinary Basic Capital (common equity Tier I), Additional Basic Capital (additional Tier I), and Additional Capital (Tier II capital).

New criteria for debt and equity instruments to be considered ordinary basic capital, additional basic capital, and additional capital were established. Additionally, the SFC must review whether a given instrument adequately complies with these criteria in order for an instrument to be considered Tier I or Tier II capital, upon request of the issuer. Debt and equity instruments that have not been classified by the SFC as basic or additional capital are not be considered Tier I or Tier II capital for purposes of capital adequacy requirements.

The total solvency ratio remains at a minimum of 9% of the financial institution’s total risk-weighted assets; however, each entity must comply with a minimum basic solvency ratio of 4.5%, which is defined as the ordinary basic capital after deductions divided by the financial institution’s total risk-weighted assets.

In 2014, the Ministry of Finance issued Decree 1648 of 2014 which establishes criteria for hybrid instruments to be considered additional basic capital (Additional Tier I).

As of December 31, 2014, the Bank’s technical capital ratio was 13.29%, exceeding the requirements of the Colombian government and the SFC by 429 basis points. As of December 31, 2013, the Bank’s technical capital ratio was 10.61%.

For more information, see “Item 5. Operating and Financial Review and Prospects - B1 Liquidity and Funding. Capital Adequacy”

The minimum capital requirement for banks on an unconsolidated basis is established in Article 80 of Decree 633 of 1993, as amended. The minimum capital requirement for 2014 is COP 77,016 million. Failure to meet such requirement can result in the Taking of Possession (toma de posesión) (“taking possession”) of the Bank by the SFC (see “Colombian Banking Regulations — Bankruptcy Considerations”).

Capital Investment Limit

For entities incorporated in Colombia, all investments in subsidiaries and other authorized capital investments, other than those made in order to abide by legal requirements, may not exceed 100% of the total aggregate capital, equity reserves and the equity re-adjustment account of the respective bank, financial corporation or commercial finance company excluding unadjusted fixed assets and including deductions for accumulated losses.

Mandatory Investments

Central Bank regulations require financial institutions, including the Bank, to hold minimum mandatory investments in debt securities issued by Fondo para el Financiamiento del Sector Agropecuario (“Finagro”), a Colombian public financial institution that finances production and rural activities to support the agricultural sector. The amount of these mandatory investments is calculated by applying a fixed percentage (ranging from 4% to 7%, depending on the type of liability) to the quarterly average of the end of day balances of certain liabilities, primarily, deposits and short-term debt. The investment balance is computed at the end of each quarter. Any required adjustment (due to a change in the quarterly average between periods) results in the purchase of additional securities or may result in the optional redemption at par of securities in excess of the requirement. The purchase of additional securities takes place during the month following the date as of which the computation was performed.

Foreign Currency Position Requirements

According to External Resolution 4 of 2007 issued by the board of directors of the Central Bank as amended (“Resolution 4”), a financial institution’s foreign currency position (posición propia en moneda extranjera) is the difference between such institution’s foreign currency-denominated assets and liabilities (including any off-balance sheet items), made or contingent, including those that may be converted into Colombian legal currency.

Resolution 4 provides that the average of a bank’s foreign currency position for three business days cannot exceed the equivalent in pesos of 20% of the bank’s Technical Capital. Currency exchange intermediaries such as the Bank are permitted to hold a three business days’ average negative foreign currency position not exceeding the equivalent in foreign currency of 5% of its Technical Capital (with penalties being payable after the first business day).

Resolution 4 also defines the foreign currency position in cash (posición propia de contado en moneda extranjera) as the difference between all foreign currency-denominated assets and liabilities. A bank’s three business days average foreign currency position in cash cannot exceed 50% of the bank’s Technical Capital. In accordance with Resolution 4, the three-day average must be calculated on a daily basis and the foreign currency position in cash cannot be negative.

Finally, Resolution 4 requires banks to comply with a gross position of leverage (posición bruta de apalancamiento) as it relates to its foreign currency position. Gross position of leverage is defined as (i) the value of term contracts denominated in foreign currency, plus (ii) the value of transactions denominated in foreign currency to be settled within two days in cash, plus (iii) the value of the exchange rate risk exposure associated with exchange rate options and derivatives. Resolution 4 sets a limit on the gross position of leverage, which cannot exceed 550% of the Technical Capital.

Reserve Requirements

Commercial banks are required by the board of directors of the Central Bank to satisfy reserve requirements with respect to deposits and other cash demands. Such reserves are held by the Central Bank in the form of cash deposits. According to Resolution 11 of 2008 issued by the board of directors of the Central Bank, as amended, the reserve requirements for Colombian banks are measured bi-weekly and the amounts depend on the class of deposits.

Credit institutions must maintain reserves of 11% over the following deposits and cash demands:

Private demand deposits;

Government demand deposits;

Other deposits and liabilities; and

Savings deposits.

In addition, credit institutions must maintain reserves of 4.5% for term deposits with maturities fewer than 540 days and 0% for term deposits with maturities equal to or more than 540 days.

Credit institutions may maintain these reserves in their accounts at the Central Bank.

Foreign Currency Loans

Residents of Colombia may obtain foreign currency loans from foreign residents, and from Colombian currency exchange intermediaries or by placing debt securities abroad. Foreign currency loans must be either disbursed through a foreign exchange intermediary or deposited in special purpose offshore accounts.

According to regulations issued by the Central Bank, every Colombian resident and institution borrowing funds in foreign currency is generally required to post with the Central Bank non-interest bearing deposits for a specified term, although the size of the required deposit is currently zero.

Notwithstanding the foregoing, such deposits would not be required in certain cases established in article 26 of External Resolution 8 of 2000, including in the case of foreign currency loans aimed at financing Colombian investments abroad or for short-term exportation loans, provided that such loan is disbursed against the funds of Banco de Comercio Exterior - Bancoldex. Moreover, article 59-1(c) of External Resolution 8 of 2000 sets forth a number of restrictions and limitations as to the use of proceeds in the case of foreign currency loans obtained by Colombian currency exchange intermediaries (including the Bank) and also provides that deposits would not be required in the event such restrictions and limitations are observed. Such foreign currency loans may be used, among others, for lending activities in a foreign currency with a tenor equal to, or shorter than, the tenor of the foreign financing.

Finally, pursuant to Law 9 of 1991, the board of directors of the Central Bank is entitled to impose conditions and limitations on the incurrence of foreign currency indebtedness, as an exchange control policy, in order to avoid pressure in the currency exchange market.

Non-Performing Loan Allowance

The SFC maintains rules on non-performing loan allowances for financial institutions.

Lending Activities

Decree 2555 of 2010, as amended, sets forth the maximum amounts that a financial institution may lend to a single borrower (including for this purpose all related fees, expenses and charges). These maximum amounts may not exceed 10% of a bank’s Technical Capital. However, there are several circumstances under which the limit may be raised. In general, the limit is raised to 25% when amounts lent above 5% of Technical Capital are secured by guarantees that comply with the financial guidelines provided in Decree 2555 of 2010, as amended. Also, a bank may not make loans to any shareholder that holds directly more than 10% of its capital stock for one year after such shareholder reaches the 10% threshold. In no event may a loan to a shareholder holding directly or indirectly 20% or more of the Bank’s capital stock exceed 20% of the Bank’s Technical Capital. In addition, no loan to a single financial institution may exceed 30% of the Bank’s Technical Capital, with the exception of loans funded by Colombian development banks which are not subject to such limit.

Decree 2555 of 2010 also sets a maximum limit of 30% of the Bank’s technical capital for single party risk, the calculation of which includes loans, leasing operations and equity and debt investments.

The Central Bank also has the authority to establish maximum limits on the interest rates that commercial banks and other financial institutions may charge on loans. However, interest rates must also be consistent with market terms with a maximum limit certified by the SFC.

Ownership and Management Restrictions

The Bank is organized as a stock company (sociedad anónima). Its corporate existence is subject to the rules applicable to commercial companies, principally the Colombian Commercial Code. The Colombian Commercial Code requires stock companies (such as the Bank) to have at least five shareholders at all times and provides that no single shareholder may own 95% or more of the Bank’s subscribed capital stock. Article 262 of the Colombian Commerce Code prohibits the Bank’s subsidiaries from acquiring stock of the Bank.

Pursuant to Decree 663 of 1993, as amended, any transaction resulting in an individual or entity holding 10% or more of any class of the capital stock of any Colombian financial institution, including, in the case of the Bank, transactions resulting in holding ADRs representing 10% or more of the outstanding stock of the Bank, is subject to the prior authorization of the SFC. For that purpose, the SFC must evaluate the proposed transaction based on the criteria and guidelines specified in Decree 663 of 1993. Transactions entered into without the prior approval of the SFC are null and void and cannot be recorded in the institution’s stock ledger. These restrictions apply equally to Colombian and foreign investors.

Bankruptcy Considerations

Pursuant to Colombian banking law, the SFC has the power to intervene in the operations of a bank in order to prevent it from, or to control and reduce the effects of, a bank failure. Additionally, the SFC also conducts periodic visits to financial institutions and can impose capital or solvency obligations on financial institutions without taking control of the financial institution.

The SFC may intervene in a bank’s business, (i) prior to the liquidation of the bank, in order to prevent the bank from entering into a state where the SFC would need to take possession by taking one of the following recovery measures (institutos de salvamento): (a) submitting the bank to a special supervision regime; (b) issuing a mandatory order to recapitalize the bank; (c) placing the bank under the management of another authorized financial institution, acting as trustee; (d) ordering the transfer of all or part of the assets, liabilities and contracts, as well as certain on-going concerns (establecimientos de comercio) of the bank to another financial institution; (e) ordering the bank to merge with one or more financial institutions that consent to the merger, whether by creating a new institution or by having another institution absorb the bank; (f) ordering the adoption of a recovery plan by the bank, including adequate measures to reestablish its financial situation, pursuant to guidelines approved by the government; (g) ordering the exclusion of certain assets and liabilities by requiring the transfer of such assets and liabilities to another institution designated by the SFC; and (h) ordering the progressive unwinding (desmonte progresivo) of the operations of the bank; or (ii) at any time, by taking possession of the bank to either administer the bank or order its liquidation, depending on how critical the situation is found to be by the SFC.

The following grounds for a taking of possession are considered to be “automatic” in the sense that, if the SFC discovers their existence, the SFC must step in and take over the financial institution: (i) if the financial institution’s Technical Capital falls below 40% of the legal minimum, or (ii) upon the expiration of the term of any then-current recovery plans or the non-fulfillment of the goals set forth in such plans.

Additionally, and subject to the approval of the Ministry of Finance and the opinion of its advisory council (Consejo Asesor del Superintendente), the SFC may, at its discretion, initiate intervention procedures against a bank under the following circumstances: (i) suspension of payments; (ii) failure to pay deposits; (iii) refusal to submit its files, accounts and supporting documentation for inspection by the SFC; (iv) refusal to be interrogated under oath regarding its business; (v) repeated failure to comply with orders and instructions from the SFC; (vi) repeated violations of applicable laws and regulations or of the bank’s by-laws; (vii) unauthorized or fraudulent management of the bank’s business; (viii) reduction of the bank’s net worth below 50% of its subscribed capital; (ix) existence of serious inconsistencies in the information provided to the SFC that, at its discretion, impedes to accurately understand of the situation of the bank; (x) failure to comply with the minimum capital requirements set forth in Decree 663 of 1993; (xi) failure to comply with the recovery plans that were adopted by the bank; (xii) failure to comply with the order of exclusion of certain assets and liabilities to another institution designated by the SFC; and (xiii) failure to comply with the order of progressive unwinding (desmonte progresivo) of the operations of the bank.

Within two months from the date in which the SFC takes possession of a bank, the SFC must decide whether the entity should be liquidated, whether it is possible to place the entity in a position to continue doing business in the ordinary course, or whether other measures may be adopted. The decision is to be made with the purpose of permitting depositors, creditors and investors to obtain the full or partial payment of their credits.

The decision is subject to the prior opinion of Fogafin, which is the Government agency that insures deposits made in Colombian financial institutions. The two-month term may be extended with the prior consent of Fogafin.

Upon the taking possession of a bank, depending on the financial situation of the bank and the reasons that gave rise to such measure, the SFC may (but is not required to) order the bank to suspend payments to its creditors. The SFC has the power to determine that such suspension will affect all of the obligations of the bank, or only certain types of obligations or even obligations up to or in excess of a specified amount.

As a result of the taking possession, the SFC must appoint as special agent the person or entity designated by Fogafin to administer the affairs of the bank while such process lasts and until it is decided whether to liquidate the bank.

As part of its duties following the taking of possession by the SFC, Fogafin must provide the SFC with the plan to be followed by the special agent in order to meet the goals set for the fulfillment of the measures that may have been adopted. If the underlying problems that gave rise to the taking possession of the bank are not resolved within a term not to exceed two years, the SFC must order the liquidation of the bank.

During the taking of possession (which period ends when the liquidation process begins), Colombian banking laws prevent any creditor of the bank from: (i) initiating any procedure for the collection of any amount owed by the bank; (ii) enforcing any judicial decision rendered against the bank to secure payment of any of its obligations; (iii) constituting a lien or attachment over any of the assets of the bank to secure payment of any of its obligations; or (iv) making any payment, advance or compensation or assuming any obligation on behalf of the bank, with the funds or assets that may belong to it and are held by third parties, except for payments that are made by way of set-off between regulated entities of the Colombian financial and insurance systems.

In the event that the bank is liquidated, the SFC must, among other measures, provide that all term obligations owed by the bank are due and payable as of the date when the order to liquidate becomes effective.

During the liquidation process bank deposits and other types of saving instruments will be excluded from the liquidation process and, claims of creditors will rank as follows: (i) the first class of claims includes the court expenses incurred in the interest of all creditors, wages and other obligations related with employment contracts and tax authorities’ credits regarding national and local taxes; (ii) the second class of claims comprises the claims secured by a security interest on movable assets; (iii) the third class of claims includes the claims secured by real estate collateral, such as mortgages; (iv) the fourth class of claims contains some other claims of the tax authorities against the debtor that are not included in the first class of claims and claims of suppliers of raw materials and input to the debtor and (v) finally, the fifth class of claims includes all other credits without any priority or privilege, provided, however, that among credits of the fifth class, subordinated debt will be ranked junior to the external liabilities (pasivos externos) and senior only to capital stock. Each category of creditors will collect in the order indicated above, whereby distributions in one category will be subject to the full satisfaction of claims in the prior category.

Colombian banks and other financial institutions are not subject to the laws and regulations that generally govern the insolvency, restructuring and liquidation of industrial and commercial companies.

Deposit insurance—Troubled Financial Institutions

In response to the crisis faced by the Colombian financial system during the early 1980s, in 1985 the government created Fogafin. Subject to specific limitations, Fogafin is authorized to provide equity (whether or not reducing the par value of the recipient’s shares) and/or secured credits to troubled financial institutions, and to insure deposits of commercial banks and certain other financial institutions.

To protect the customers of commercial banks and certain financial institutions, Resolution 1 of 2012 of the board of directors of Fogafin, as amended, requires mandatory deposit insurance. Under this Resolution 1, banks must pay an annual premium of 0.3% of total funds received on saving accounts, checking accounts, certificates of deposit and other deposits, which is paid in four quarterly installments. If a bank is liquidated, the deposit insurance will cover the funds deposited by an individual or corporation with such bank up to a maximum of COP 20 million regardless of the number of accounts held.

Anti-Money Laundering Provisions

The regulatory framework to prevent and control money laundering is contained in, among others, Decree 663 of 1993 and External Circular 029 of 2014 issued by the SFC, as well as Law 599 of 2000, and the Colombian Criminal Code, as amended.

Colombian laws adopt the latest guidelines related to anti-money laundering and other terrorist activities established by the Financial Action Task Force on Money Laundering (“FATF”). Colombia, as a member of the GAFI-SUD (a FATF-style regional body), follows all of FATF’s 40 recommendations and eight special recommendations. External Circular 029 of 2014 issued by the SFC requires the implementation by financial institutions of a system of controls for money laundering and terrorism financing. These rules emphasize “know your customer” policies and knowledge of customers and markets. They also establish processes and parameters to identify and monitor a financial institution’s customers. According to these regulations, financial institutions must cooperate with the appropriate authorities to prevent and control money laundering and terrorism. Finally, the Colombian Criminal Code introduced criminal rules and regulations to prevent, control, detect, eliminate and adjudicate all matters related to financing terrorism and money laundering. The criminal rules and regulations cover the omission of reports on cash transactions, mobilization or storage of cash, and the lack of controls.

Risk management systems

Commercial banks, including the Bank, must have risk administration systems to meet the SFC minimum standards for compliance and to avoid and mitigate the following risks: (i) credit; (ii) liquidity; (iii) market; (iv) operational; and (v) money laundering and terrorism.

Commercial banks, such as the Bank, generally have several risk measurement methods, including the risk weighted assets measurement which is calculated according to weight percentages assigned to different types of assets, which may be 0%, 20%, 50% and 100%. There are some exceptions in which the weight percentage is higher and is calculated based on the associated risk perception of the evaluated asset. Provisions, which are calculated on a monthly basis, are another risk measurement method. For commercial and consumer loans, the SFC issues a provision reference model, according to which the probability of default depends of an assigned rating (AA, A, BB, B, CC and default). For mortgage loans and small business loans, provisions are calculated based on ratings (A, B, C, D and E) assigned depending on the time elapsed since the client’s default.

With respect to market risks, commercial banks must follow the provisions of the Basic Accounting Circular, which defines criteria and procedures for measuring a bank’s exposure to interest rate risk, foreign exchange risk, and market risk. Under such regulations, banks must submit to the SFC information on the net present value, duration, and interest rate of its assets, liabilities, and derivative positions. Since January 2002, Colombian banks have been required to calculate, for each position on the balance sheet, a volatility rate and a parametric value at risk (“VaR”), which is calculated based on net present value, modified duration and a risk factor computed in terms of a basis points change. Each risk factor is calculated and provided by the SFC.

With respect to liquidity risks, each financial entity is required to have liquid assets greater than the contractual liquidity accumulative one-month-gap. This contractual gap includes the maturity of assets and liabilities of the current positions and does not include projections of future transactions. The loan portfolio is affected by the historical default indicator and the maturity of deposits is modeled according to the regulation. All of Bancolombia’s Colombian banking subsidiaries met this regulatory limit throughout the year.

With respect to operational risk, commercial banks must qualify, according to principles provided by the Basic Accounting Circular, each of their business lines (such as corporate finance, purchases and sales of securities, commercial banking, assets management, etc.) in order to record the risk events that may occur and cause fraud, technology problems, legal and reputational problems and problems associated with labor relations at the bank.

Regulatory Framework for Subsidiaries Non Participants in the Financial Sector

All of Bancolombia’s Colombian subsidiaries that are not part of the finance sector are governed by the laws and regulations embodied in the Colombian Civil Code and the Colombian Commercial Code as well as any regulations issued by the Colombian Superintendency of Industry and Commerce and the Superintendency of Corporations or any other type of special regulations that may be applicable to the commercial and industrial activities carried out by said subsidiaries.

International regulations applicable to Bancolombia and its subsidiaries

FATCA

FATCA, which is U.S. federal tax legislation enacted in 2010, imposes a 30% withholding tax on ‘withholdable payments’ made to non-U.S. financial institutions that do not participate in the FATCA program or that fail (or, in some case, that have affiliates in which they hold an interest of more than 50% and which are also non-U.S. financial institutions that fail) to provide certain information regarding their U.S. accountholders and/or certain U.S. investors (such U.S. accountholders and U.S. investors, “U.S. accountholders”) IRS. The FATCA also requires participating FFIs to withhold on “passthru payments” (which include both “withholdable payments” and certain non-U.S.-source payments) made to account holders who do not provide information to the FFIs to determine their U.S. accountholder’s status – “recalcitrant accountholders” - and to FFIs that do not sign an FFI Agreement with the IRS (such FFIs, “nonparticipating FFIs”). “Withholdable payments” generally include, among other items, payments of U.S.-source interest and dividends and the gross proceeds from the sale or other disposition of property that may produce U.S.-source interest and dividends. This withholding will take effect on a “phased” schedule, in which started in July 2014 with respect to certain payments, however, withholding on non-U.S. source payments by non-U.S. financial institutions to start no earlier than 2017.

Some countries have entered into, and other countries are expected to enter into, IGAs with the United States to facilitate the type of information reporting required under FATCA. These agreements are expected to reduce that risk for financial institutions and investors in countries that have entered into IGAs. Among the countries where Bancolombia operates, the Cayman Islands has signed an IGA Model 1, and jurisdictions like Colombia, Panama and Peru have each reached an agreement in substance with the IRS as of June 30, 2014, and consented to be treated as having an IGA in effect. Other than the aforementioned countries, we do not expect the government agencies of other jurisdictions in which the Bank or its subsidiaries operate to sign IGAs during 2015. We are currently in the process of implementing FATCA compliance on a group wide level and preparing our systems for FATCA reporting.

Financial Regulation of El Salvador

On January 26, 2011, the legislature of El Salvador approved Decree 592 entitled “Supervision and Regulation of the Financial System” (Ley de Supervisión y RegulacióndelSistemaFinanciero) (“Decree 592”) in order to fortify the State’s organization, adapting all supervision and regulatory institutions to the economic reality of the financial system. Pursuant to Decree 592, the Superintendency of Pensions and the Superintendency of Securities were merged into the Superintendency of the Financial System, consolidating the technical experience and management that the regulatory institutions had accumulated over the years in every segment of the financial system, in coordination with the macroeconomic and financial experience of the Central Reserve Bank of El Salvador (Banco Central de Reserva de El Salvador), to bring stability, efficiency and development to the financial system.

Decree 592 states that the Superintendency of the Financial System and the Central Reserve Bank of El Salvador are obligated to supervise all members of the financial system and to approve the necessary regulation for the Law’s adequate application of Decree 592.

Decree 592´s main objective is to maintain stability in the Salvadorian financial system, to guarantee efficiency, transparency, security and solidity within the system, and to bring all its members in compliance with this law, and other applicable laws and regulations, all in accordance with best international practices.

The Superintendency of the Financial System is responsible for the surpervision of the individual and consolidated activities of all the members in the system, as well as, the people, operations and entities that applicable law requires it to regulate. Article 3 of the Decree 592 establishes all the powers and duties of the Superintendency, some of which are: (i) to fulfill and enforce the laws, regulations and other legal provisions applicable to the entities subject to its supervision and issue all the necessary instructions for compliance of the laws applicable to the system; (ii) to authorize the establishment, function, operation, intervention, suspension, modification, revocation of authorizations and closure of all members of the system, in accordance with laws and regulations. In the event of closure, the Superintendency will coordinate with the entities involved the actions established by the law; (iii) risk prevention through the monitoring and management of the members within the system with view toward the prudential management of liquidity and capital adequacy; (iv) facilitation of an efficient, transparent and organized financial system; (v) to require that all supervised entities and institutions be managed in accordance with the best international practices of risk management and corporate governance; and (vi) all other legal requirements.

Banking Law of El Salvador

The legislature of the Republic of El Salvador established the banking law through Decree 697 of 1999, which regulates the financial intermediation and other operations performed by banks in El Salvador.

The banks are required to establish a reserve requirement, set by the Superintendency of the Financial System in accordance to the deposits and obligations of such bank.

According to the Salvadorian Superintendency of Financial System’s regulations, the reserve requirements⁽¹⁾for Salvadorian banks as of December 31, 2014 are:

	Ordinary Reserve Requirements %
Checking Accounts		25.0	%
Saving Accounts		20.0	%
Time Deposits		20.0	%
Borrowings from foreign banks		5.0	%
*Long-term debt⁽²⁾*		15.0% - 20.0	%

⁽¹⁾

An extraordinary reserve requirement of 3.0% over the total amount of deposits applicable to banks is in place as of December 31, 2013. Additionally, in June, 2013 Central Bank of Reserve of El Salvador approved a second extraordinary reserve requirement of 2% on all liabilities with ordinary reserve, which shall be valid for a period of a year (said period might be extended by the regulator).

⁽²⁾

15% for long-term debt with maturity above one year and 20% for long-term debt with maturity less than one year.

Monetary Integration Law of El Salvador

Since November 2000, El Salvador has used the U.S. dollar as its legal currency. The transition from the colón (former currency) to the U.S. dollar was enacted by the Monetary Integration Law. This law established a fixed exchange rate of 8.75 Colones per USD 1.00. The colón continues to have unrestricted legal circulation, but the Central Reserve Bank has been replacing it with the U.S. dollar at each time colón bills and coins are used in transactions.

Since the implementation of the Monetary Integration Law, all financial operations, such as bank deposits, loans, pensions, issuance of securities and any others made through the financial system, as well as the accounting records, must be expressed in U.S. dollars. The operations or transactions of the financial system made or agreed in Colones before the effective date of the Monetary Integration Law are expressed in U.S. dollars at the exchange rate established in such law.

Tax on Financial Transactions Law

In July, 2014, the Legislature of El Salvador enacted the "Tax on Financial Transactions Law" with an impact on the financial sector. This law became effective on September 1^, 2014.

As from the effective date of the law financial entities (including Banco Agricola) act as withholding agents for the tax on financial transactions and the tax for the liquidity control, each of which are calculated at the time the customer conducts its financial transactions through the different service channels. The tax on financial transactions is 0.25%, or USD 2.50 per thousand, on taxable transactions exceeding one thousand U.S. Dollars. The tax for the liquidity control is 0.25%, or USD 2.50 per thousand on cash transactions of deposit, withdrawals and payments in excess of an aggregate amount of USD 5,000.

The transactions subject to the tax on financial transactions to depositors (customers) are:

Payments for goods and services by check or debit card over USD 1,000.

Payments by wire transfers in excess of USD 1,000.

Transfers to third parties, in any form or medium, with an amount over USD 1,000.

Transactions between financial entities, based on any statement of its customers.

Transactions subject to withholding regarding liquidity control for depositors (customers) are deposits, payments and cash withdrawals with a monthly aggregate amount in excess of USD 5,000.

Investment Funds Law

The Investment Funds Law aims to encourage economic activity by providing small investors with access to capital markets, diversification of their investments and channeling savings into productive sectors, in order to generate higher economic growth.

This Law sets forth the regulatory framework for the supervision of investment funds, their share of participation, companies that administer such funds and their operations; as well as other participants to which it refers. Additionally, it regulates the marketing of participation shares in foreign investment funds.

This Law also provides for the creation of Investment Fund Managers, who will have the purpose of managing investment funds. These will be responsible for performing all acts, contracts and operations necessary for the administration and operation of investment funds.

Financial Regulation of Panama

Since the 1970s, Panama has been a major international banking center. There are approximately 80 domestic and foreign banks in Panama. The absence of currency controls, the use of the U.S. dollar as legal tender, a territorial system of income tax, and a stable and adequate banking legislation and regulation are among the country-specific factors that have contributed to this development. The Superintendency of Banks of the Republic of Panama (Superitendencia de Bancos de Panama) is the banking supervisor in Panama.

The banking business in Panama, defined as the fundraising of resources from the public or financial institutions, through the acceptance of money deposits or other means, and the use of such resources on the bank´s own account and risk, to provide credits and loans, make investments or carry any other authorized operations, is regulated by the Law Decree No.9 of 1998, subsequently amended by Law- Decree No.2 of 2008. In accordance with the Law Decree as amended, the Superintendency of Banks of the Republic of Panama has the power to issue Agreements and Resolutions to develop the banking regime. The principal aspects of the banking business covered by these Law- Decree, Agreements and Resolutions are the licensing of banks, corporate governance, banking supervision (consolidated and individual or sub consolidated), capital requirements, capital adequacy, liquidity requirements, risk management (credit, market, liquidity, country, asset and liability, operational, information technology, electronic banking), external audit, on-site inspections, reporting, compliance, change of control, mergers and acquisitions, confidentiality, money laundering, voluntary wind up, administrative and operational control, reorganization, bankruptcy, penalties, customers protection and dispute resolution.

In order to implement Basel III capital standards, the Superintendency of Banks of the Republic of Panama, issued, on January, 2015, an Agreement on Capital Adequacy, which sets forth the new composition of a banking institution capital base, as well as the new capital adequacy ratio, including tier 1 core capital ratio and tier 1 capital ratio, all consistent with Basel III standards. The Agreement will become effective on January 2016, and the new standards will be applicable, progressively, from that date until they are fully applicable in January 2019.

The Superintendency of Banks of the Republic of Panama is also in charge or the supervision and oversight of the trust business in Panama. In Panama, trusts are regulated by Law 1 of 1984 and the Executive Decree 16 of 1984, which together set forth aspects such as minimum requirements of trust agreements, characteristics of trusts, rights and responsibilities of grantors, trustees and beneficiaries, licensing of trustees, inspection and reporting of trustees, confidentiality and penalties.

On the other hand, the activities related to the securities market in Panama, such as the registration of securities and funds, the authorization for the public offering of securities, securities investment advisory, securities brokerage, the opening and management of investment and custody accounts, fund administration, the administration of securities trading systems, clearing and settling of securities, are subject to the supervision, control and oversight of the Superintendency of the Securities Market of the Republic of Panama. The activities related to the securities market are primarily regulated by Law Decree No.1 of 1999, subsequently amended by several laws, and most recently amended by Law No.67 of 2011, Law No.12 of 2012 and law No.56 of 2012, which established important changes in order to strengthen the regulatory frame of the Panamanian securities market and increase investors’ confidence, for its further development. Amongst the most important changes introduced by these recent amendments are the following:

The establishment of a coordination and cooperation system between the financial supervisors in order to promote and facilitate the harmonization within the regulation of financial activities, reducing risks of asymmetries between regulations, therefore preventing arbitrages. This system also enables a more comprehensive supervision of financial conglomerates operating in multiple areas of the financial industry.

The establishment of the Superintendency of the Securities Market, as the supervising entity replacing the previous National Securities Commission. As opposed to the National Securities Commission, which operated through a single governing instance integrated by three commissioners, the Superintendency of the Securities Market operates through two levels of governance, a board of directors with administrative powers, and a superintendent with executive powers.

The authority given to the Superintendency to carry the consolidated supervision, as home supervisor, of intermediaries having agencies abroad, and to enter into cooperation agreements with foreign supervisors to facilitate the consolidated supervision;

The regulation of foreign exchange as an activity reserved to the securities as the regulation of certain actors of the securities market not contemplated in previous brokers, as well regulations, such as securities price suppliers, risk rating agencies and Administrative Service Suppliers of the securities market.

The principal aspects of the securities business covered by the Law – Decree as amended, and the agreements and resolutions issued by the Superintendency of the Securities Market of the Republic of Panama are (i) licensing requirements of securities brokers, investment advisors, fund administrators and self-regulated organizations, (ii) register requirements of risk rating agencies, securities price suppliers, securities, public offerings, funds and administrative service suppliers of the securities market, (iii) authorization for requesting voting powers regarding registered securities, (iv) notification requirements of public offerings for the acquisition of registered shares, (v) options, futures contracts and derivatives, (vi) custody, clearing and settlement of securities, (vii) penalization procedures and penalties, (viii) voluntary wind up, reorganization and bankruptcy of securities brokers, self-regulated organizations, funds, and fund administrators, (ix) reporting of issuers of registered securities, securities brokers, investment advisors, funds, fund administrators, self-regulated organization and other registered entities, (x) on-site inspection of securities brokers, investment advisors, self-regulated organizations, funds, fund administrators, administrative service suppliers of the securities market, securities price suppliers and rating agencies, (xi) capital requirements, liquidity requirements, risk assessment, confidentiality, conflict of interest, suitability, compliance and money laundering of securities brokers, (xii) communication of events of importance by issuers of registered securities.

The insurance activities are subject to the control, supervision, oversight and regulation of the Superintendency of Insurance and Reinsurance of the Republic of Panama. The insurance and reinsurance activities are governed by Law No.12 of 2012, and the agreements and resolutions issued by the Superintendency in accordance with such law, which cover the following principal aspects: licensing requirements for insurance companies, distributions channels, insurance companies tax regime, voluntary wind up, administrative and operational control, reorganization and bankruptcy of insurance companies, minimum requisites of insurance agreements, licensing of insurance brokers, risk management, internal control, technical reserves, authorized investments, reporting and on-site inspection of insurance companies, rights and responsibilities of insurance companies, insurance brokers and customers, customer protection, dispute resolution and penalties.

ORGANIZATIONAL STRUCTURE

The following are the subsidiaries of Bancolombia:

The following is a list of subsidiaries of Bancolombia S.A. as of December 31, 2014:

SUBSIDIARIES

Entity	Jurisdiction of Incorporation	Business	Shareholding directly and indirectly

Leasing Bancolombia	Colombia	Leasing		100.00	%
Fiduciaria Bancolombia	Colombia	Trust		98.81	%
Banca de Inversión	Colombia	Investment banking		100.00	%
Valores Bancolombia	Colombia	Securities brokerage		100.00	%
Tuya S.A. Compañía de Financiamiento	Colombia	Financial services		99.99	%
Factoring Bancolombia (wound up in 2014) ⁽¹⁾	Colombia	Financial services		0.00	%
Patrimonio Autónomo Cartera LBC	Colombia	Loan management		100.00	%
Renting Colombia S.A.	Colombia	Operating leasing		100.00	%
Transportempo S.A.S.	Colombia	Transportation		100.00	%
Valores Simesa S.A.	Colombia	Investments		68.57	%
Inversiones CFNS S.A.S.	Colombia	Investments		99.94	%
CFNS Infraestructura S.A.S. (in liquidation)	Colombia	Investments		99.94	%
BIBA Inmobiliaria S.A.S. (formerly Inmobiliaria Bancol S.A.)	Colombia	Real estate broker		100.00	%
Vivayco S.A.S. (in liquidation)	Colombia	Portfolio Purchase		74.95	%
Uff Móvil S.A.S.	Colombia	Mobile network operator		75.05	%
FCP Fondo Colombia Inmobiliario S.A.	Colombia	Real estate broker		50.28	%
Bancolombia Panama	Panama	Banking		100.00	%
Valores Bancolombia Panama S.A.	Panama	Securities brokerage		100.00	%
Suvalor Panama Fondo de Inversión S.A.	Panama	Holding		100.00	%
Suvalor Renta Variable Colombia S.A.	Panama	Collective investment fund		100.00	%
Suvalor Renta Fija Internacional Corto Plazo S.A.	Panama	Collective investment fund		100.00	%
Suvalor Renta Fija Internacional Largo Plazo S.A.	Panama	Collective investment fund		100.00	%
Sistema de Inversiones y Negocios S.A. Sinesa	Panama	Investments		100.00	%
Banagrícola	Panama	Investments		99.16	%
Banistmo	Panama	Banking		98.12	%
Banistmo Investment Corporation S.A.	Panama	Trust		98.12	%
Financiera Flash S.A.	Panama	Financial services		98.12	%
Grupo Financomer S.A.	Panama	Financial services		98.12	%
Leasing Banistmo S.A.	Panama	Leasing		98.12	%
Seguros Banistmo S.A.	Panama	Insurance company		98.12	%
Securities Banistmo S.A.	Panama	Purchase and sale of securities		98.12	%
Banistmo Capital Markets Group Inc	Panama	Purchase and sale of securities		98.12	%
Anavi Investment Corporation S.A.	Panama	Real estate broker		98.12	%
Williamsburg International Corp.	Panama	Real estate broker		98.12	%
Van Dyke Overseas Corp.	Panama	Real estate broker		98.12	%
Desarrollo de Oriente S.A.	Panama	Real estate broker		98.12	%
Bien Raíces Armuelles S.A.	Panama	Real estate broker		98.12	%
Steens Enterpresies S.A.	Panama	Portfolio holder		98.12	%
Ordway Holdings S.A.	Panama	Real estate broker		98.12	%
Inversiones Castan S.A. (wound up in 2014) ⁽¹⁾	Panama	Real estate broker		0.00	%
Financomer S.A.	Panama	Financial services		98.12	%
Banistmo Asset Management Inc	Panama	Purchase and sale of securities		98.12	%
M.R. C Investment Corp.	Panama	Real estate broker		98.12	%
Inmobiliaria Bickford S.A.	Panama	Real estate broker		98.12	%
Banco Agrícola	El Salvador	Banking		97.35	%
Arrendadora Financiera S.A. Arfinsa	El Salvador	Leasing		97.36	%
Credibac S.A. de C.V.	El Salvador	Credit card services		97.36	%
Valores Banagricola S.A. de C.V.	El Salvador	Securities brokerage		98.89	%
Inversiones Financieras Banco Agrícola S.A. IFBA	El Salvador	Investments		98.89	%
Arrendamiento Operativo CIB S.A.C.	Peru	Operating leasing		100.00	%

Entity	Jurisdiction of Incorporation	Business	Shareholding directly and indirectly
Capital Investments SAFI S.A.	Peru	Trust		100.00	%
Fondo de Inversión en Arrendamiento Operativo Renting Perú	Peru	Car Rental		100.00	%
Leasing Perú S.A.	Peru	Leasing		100.00	%
FiduPerú S.A. Sociedad Fiduciaria	Peru	Trust		98.81	%
Bancolombia Puerto Rico Internacional, Inc.	Puerto Rico	Banking		100.00	%
Suleasing International USA, Inc.	USA	Leasing		100.00	%
Bancolombia Caymán S.A.	Cayman Islands	Banking		100.00	%
Banagrícola Guatemala S.A.	Guatemala	Outsourcing		99.16	%
Bagrícola Costa Rica S.A.	Costa Rica	Outsourcing		99.16	%

⁽¹⁾

See Item 18. Note 1 “Organization and Background” to the Financial Statments.

PREMISES AND EQUIPMENT

As of December 31, 2014, the Bank owned COP 5,900 billion in premises and equipment (including assets that are part of our operating leasing business). COP 2,457 billion correspond to land and buildings, of which approximately 57.52% are used for administrative offices and branches in 74 municipalities in Colombia, 25 municipalities in El Salvador and 4 municipalities in Panama. Likewise, COP 357 billion correspond to computer equipment, of which 16.05% relate to the central computer and servers of the Bank and the rest relate to personal computers, ATMs, telecommunications equipment and other equipment.

In addition to its own branches, the Bank occupies 714 rented offices.

The Bank does not have any liens on its property.

SELECTED STATISTICAL INFORMATION

The following information is included for analytical purposes and should be read in conjunction with the Consolidated Financial Statements as well as Item 5, “Operating and Financial Review and Prospects.” This information has been prepared based on the Bank’s financial records, which are prepared in accordance with Colombian banking GAAP and do not reflect adjustments necessary to state the information in accordance with U.S. GAAP. See Note 31 to the Financial Statements for a summary of the significant differences between Colombian banking GAAP and U.S. GAAP.

The consolidated selected statistical information for the years ended December 31, 2013, 2012, 2011 and 2010 includes the selected statistical information of Bancolombia and its Subsidiaries, without reflecting any pro-forma calculation of the effect of the acquisition of Banistmo, while consolidated selected statistical information for the year ended December 31, 2014 corresponds to the Bank and its Subsidiaries, including all additional Subsidiaries acquired as a result of the Banistmo acquisition.

E.1.

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

Average balances have been calculated as follows: for each month, the actual month-end balances were established. The average balance for each period is the average of such month-end balances. For purposes of the presentation in the following tables, non-performing loans have been treated as non-interest-earning assets.

In addition, the interest rate subtotals are based on the weighted average of domestic and foreign assets and liabilities.

Average balance sheet

The following tables show for the years ended December 31, 2014, 2013 and 2012, respectively: (i) average balances for all of the Bank’s assets and liabilities; (ii) interest earned and interest paid amounts; and (iii) average nominal interest rates/yield for the Bank’s interest-earning assets and interest-bearing liabilities.

	Average Balance Sheet and Income from Interest-Earning Assets for the Fiscal Year Ended December 31,
	2014							2013							2012
	Average Balance		Interest Earned		Average Yield / Rate			Average Balance		Interest Earned		Average Yield / Rate			Average Balance		Interest Earned		Average Yield / Rate
	(in millions of COP, except percentages)

ASSETS
Interest-earning assets
Funds sold and securities purchased under agreements to resell
Domestic-activities		750,677		43,927		5.9	%		794,441		18,910		2.4	%		314,406		20,341		6.5	%
Foreign-activities		1,986,953		11,534		0.6	%		1,978,847		7,990		0.4	%		837,221		3,837		0.5	%
Total		2,737,630		55,461		2.0	%		2,773,288		26,900		1.0	%		1,151,627		24,178		2.1	%
Investment securities⁽¹⁾
Domestic-activities		8,670,580		430,186		5.0	%		9,272,294		328,640		3.5	%		7,393,673		752,081		10.2	%
Foreign-activities		2,893,596		74,972		2.6	%		3,195,398		160,888		5.0	%		2,480,742		7,432		0.3	%
Total		11,564,176		505,158		4.4	%		12,467,692		489,528		3.9	%		9,874,415		759,513		7.7	%
Loans and Financial Leases⁽²⁾
Domestic-activities		63,572,355		7,064,637		11.1	%		56,672,928		6,558,299		11.6	%		47,397,959		6,029,349		12.7	%
Foreign-activities		29,936,003		1,720,352		5.7	%		19,524,770		1,055,957		5.4	%		14,982,937		848,843		5.7	%
Total		93,508,358		8,784,989		9.4	%		76,197,698		7,614,256		10.0	%		62,380,896		6,878,192		11.0	%
Total interest-earning assets
Domestic-activities		72,993,612		7,538,750		10.3	%		66,739,663		6,905,849		10.3	%		55,106,038		6,801,771		12.3	%
Foreign-activities		34,816,552		1,806,858		5.2	%		24,699,015		1,224,835		5.0	%		18,300,900		860,112		4.7	%
Total		107,810,164		9,345,608		8.7	%		91,438,678		8,130,684		8.9	%		73,406,938		7,661,883		10.4	%

Total non-interest-earning assets
Domestic-activities		13,575,926							13,350,698							14,789,995
Foreign-activities		12,334,910							5,988,108							459,680
Total		25,910,836							19,338,806							15,249,675

Total interest and non-interest-earnings assets
Domestic-activities		86,569,538		7,538,750					80,090,361		6,905,849					69,896,033		6,801,771
Foreign-activities⁽³⁾		47,151,462		1,806,858					30,687,123		1,224,835					18,760,580		860,112
Total Assets (COP)		133,721,000		9,345,608					110,777,484		8,130,684					88,656,613		7,661,883

⁽¹⁾

Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material.

⁽²⁾

Includes performing loans only.

⁽³⁾

The percentage of total average assets attributable to foreign activities was 35.3%, 27.7% and 21.2%, respectively, for the fiscal years ended December 31, 2014, 2013 and 2012.

	Average Balance Sheet and Interest Paid on Interest-Bearing Liabilities for the Fiscal Year Ended December 31,
	2014							2013							2012
	Average Balance		Interest Paid		Average Yield / Rate⁽¹⁾			Average Balance		Interest Paid		Average Yield / Rate⁽¹⁾			Average Balance		Interest Paid		Average Yield / Rate⁽¹⁾
	(in millions of COP, except percentages)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits
Domestic-activities		1,616,494		19,929		1.2	%		1,348,965		19,282		1.4	%		815,018		14,854		1.8	%
Foreign-activities		1,890,807		9,888		0.5	%		1,606,145		10,121		0.6	%		1,552,101		10,077		0.6	%
Total		3,507,301		29,817		0.9	%		2,955,110		29,403		1.0	%		2,367,119		24,931		1.1	%
Savings deposits
Domestic-activities		27,765,021		442,206		1.6	%		25,963,044		622,093		2.4	%		20,523,024		645,429		3.1	%
Foreign-activities		6,923,048		45,950		0.7	%		3,670,815		20,523		0.6	%		2,516,804		13,926		0.6	%
Total		34,688,069		488,156		1.4	%		29,633,859		642,616		2.2	%		23,039,828		659,355		2.9	%
Time deposits
Domestic-activities		21,104,588		1,065,774		5.0	%		20,622,641		1,114,775		5.4	%		15,434,855		948,569		6.1	%
Foreign-activities		13,071,400		363,294		2.8	%		8,354,777		215,664		2.6	%		6,254,808		168,866		2.7	%
Total		34,175,988		1,429,068		4.2	%		28,977,418		1,330,439		4.6	%		21,689,663		1,117,435		5.2	%
Funds purchased and securities sold under agreements to repurchase
Domestic-activities		1,799,733		126,354		7.0	%		1,407,385		58,559		4.2	%		1,783,698		95,984		5.4	%
Foreign-activities		306,987		1,169		0.4	%		70,009		2,545		3.6	%		85,580		1,636		1.9	%
Total		2,106,720		127,523		6.1	%		1,477,394		61,104		4.1	%		1,869,278		97,620		5.2	%
Borrowings from development and other domestic banks⁽²⁾
Domestic-activities		4,365,164		236,731		5.4	%		3,722,785		221,097		5.9	%		3,114,989		216,746		7.0	%
Foreign-activities		62,314		2,087		3.3	%		56,472		2,096		3.7	%		62,503		3,350		5.4	%
Total		4,427,478		238,818		5.4	%		3,779,257		223,193		5.9	%		3,177,492		220,096		6.9	%
Interbank borrowings^{(2) (3)}
Domestic-activities		-		-					-		-					-		-
Foreign-activities		7,482,450		139,633		1.9	%		4,764,809		77,995		1.6	%		2,488,285		50,209		2.0	%
Total		7,482,450		139,633		1.9	%		4,764,809		77,995		1.6	%		2,488,285		50,209		2.0	%
Long-term debt
Domestic-activities		4,852,573		353,473		7.3	%		4,876,452		338,078		6.9	%		5,113,227		405,946		7.9	%
Foreign-activities		7,654,587		434,299		5.7	%		7,493,170		419,298		5.6	%		5,674,347		319,268		5.6	%
Total		12,507,160		787,772		6.3	%		12,369,622		757,376		6.1	%		10,787,574		725,214		6.7	%
Total interest-bearing liabilities
Domestic-activities		61,503,573		2,244,467		3.6	%		57,941,272		2,373,884		4.1	%		46,784,811		2,327,528		5.0	%
Foreign-activites		37,391,593		996,320		2.7	%		26,016,197		748,242		2.9	%		18,634,428		567,332		3.0	%
Total		98,895,166		3,240,787		3.3	%		83,957,469		3,122,126		3.7	%		65,419,239		2,894,860		4.4	%
Total interest and non-interest bearing liabilities and stockholders’ equity
Domestic-activities		85,973,148		2,244,467					79,325,965		2,373,884					69,753,379		2,327,528
Foreign-activities⁽⁴⁾		47,747,852		996,320					31,451,519		748,242					18,903,234		567,332
Total Liabilities and Stockholders’ Equity (COP)		133,721,000		3,240,787					110,777,484		3,122,126					88,656,613		2,894,860

⁽¹⁾

See “Item 4. Information on the Company – E. Selected Statistical Information – E.1 Distribution of Assets, Liablilities and Stockholders’ Equity; Interest Rates and Interest Differential”.

⁽²⁾

Includes both short-term and long-term borrowings.

⁽³⁾

Includes borrowings from banks located outside Colombia.

⁽⁴⁾

The percentage of total average liabilities attributable to foreign activities was 38.5%, 29.9% and 22.9%, respectively, for the fiscal years ended December 31, 2014, 2013 and 2012.

CHANGES IN NET INTEREST INCOME AND EXPENSES—VOLUME AND RATE ANALYSIS

The following table allocates, for domestic and foreign activities, changes in the Bank’s net interest income to changes in average volume, changes in nominal rates and the net variance caused by changes in both average volume and nominal rate for the fiscal year ended December 31, 2014 compared to the fiscal year ended December 31, 2013; and the fiscal year ended December 31, 2013 compared to the fiscal year ended December 31, 2012. Volume and rate variances have been calculated based on movements in average balances over the period and changes in nominal interest rates on average interest-earning assets and average interest-bearing liabilities. Net changes attributable to changes in both volume and interest rate have been allocated to the change due to changes in volume.

	2013-2014 Increase (Decrease) Due To Changes in:									2012-2013 Increase (Decrease) Due To Changes in:
	Volume			Rate			Net Change			Volume			Rate			Net Change
	(COP million)
Interest-earning assets:
Funds sold and securities purchased under agreements to resell
Domestic-activities		(2,561	)		27,578			25,017			11,426			(12,857	)		(1,431	)
Foreign-activities		47			3,497			3,544			4,610			(457	)		4,153
Total		(2,514	)		31,075			28,561			16,036			(13,314	)		2,722
Investment securities⁽¹⁾
Domestic-activities		(29,854	)		131,400			101,546			66,584			(490,025	)		(423,441	)
Foreign-activities		(7,820	)		(78,096	)		(85,916	)		35,983			117,473			153,456
Total		(37,674	)		53,304			15,630			102,567			(372,552	)		(269,985	)
Loans and financial leases
Domestic-activities		766,716			(260,378	)		506,338			1,073,317			(544,367	)		528,950
Foreign-activities		598,309			66,086			664,395			245,636			(38,522	)		207,114
Total		1,365,025			(194,292	)		1,170,733			1,318,953			(582,889	)		736,064
Total interest-earning assets
Domestic-activities		734,301			(101,400	)		632,901			1,151,327			(1,047,249	)		104,078
Foreign-activities		590,536			(8,513	)		582,023			286,229			78,494			364,723
Total		1,324,837			(109,913	)		1,214,924			1,437,556			(968,755	)		468,801

Interest-bearing liabilities:
Checking deposits
Domestic-activities		3,298			(2,651	)		647			7,632			(3,204	)		4,428
Foreign-activities		1,489			(1,722	)		(233	)		341			(297	)		44
Total		4,787			(4,373	)		414			7,973			(3,501	)		4,472
Savings deposits
Domestic-activities		28,700			(208,587	)		(179,887	)		130,347			(153,683	)		(23,336	)
Foreign-activities		21,586			3,841			25,427			6,452			145			6,597
Total		50,286			(204,746	)		(154,460	)		136,799			(153,538	)		(16,739	)
Time deposits
Domestic-activities		24,338			(73,339	)		(49,001	)		280,430			(114,224	)		166,206
Foreign-activities		131,089			16,541			147,630			54,207			(7,409	)		46,798
Total		155,427			(56,798	)		98,629			334,637			(121,633	)		213,004
Funds purchased and securities sold under agreements to repurchase
Domestic-activities		27,546			40,249			67,795			(15,658	)		(21,767	)		(37,425	)
Foreign-activities		902			(2,278	)		(1,376	)		(566