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Filed Pursuant to Rule 424(b)(5)
File Number 333-168077

 

PROSPECTUS SUPPLEMENT
(To Prospectus dated July 13, 2010)

This Prospectus Supplement amends and restates the Prospectus Supplement filed on February 2, 2012 to revise "Preliminary Prospectus Supplement" on the cover page to "Prospectus Supplement".

 

Bancolombia S.A.

4,447,002 American Depositary Shares Representing 17,788,008 Preferred Shares

 

 

We are offering 4,447,002 American depositary shares (“ADS”), each representing four of our preferred shares. The ADSs are being offered in the United States and elsewhere outside of Colombia by the underwriters named in this prospectus supplement.

The ADSs trade on the New York Stock Exchange (“NYSE”) under the symbol “CIB”. The preferred shares trade on the Bolsa de Valores de Colombia (the “Colombian Stock Exchange”) under the symbol “PFBCOLOM.” On January 31, 2012, the last reported sale price of the ADSs on the NYSE was US$62.01 per ADS and the last reported sale price of the preferred shares on the Colombian Stock Exchange was Ps 27,960 per preferred share.

Investment in the ADSs involves risks. See “Risk Factors” beginning on page S-12 of this prospectus supplement to read about certain risk factors you should consider before investing in the ADSs.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement and accompanying prospectus. Any representation to the contrary is a criminal offense.

The ADSs may not be offered or sold, directly or indirectly, in Colombia or to any resident of Colombia, except as permitted by applicable Colombian law.

THE REVIEW OF THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS CONSIDERED ESSENTIAL IN ORDER TO ALLOW AN ADEQUATE EVALUATION OF THE INVESTMENT BY POTENTIAL INVESTORS. THE PREFERRED SHARES HAVE BEEN REGISTERED IN THE REGISTRO NACIONAL DE VALORES Y EMISORES (THE COLOMBIAN NATIONAL REGISTRY OF SECURITIES AND ISSUERS). NEITHER THE REGISTRATION NOR THE APPROVAL OF THE PUBLIC OFFER ISSUED BY THE SUPERINTENDENCIA FINANCIERA DE COLOMBIA (THE COLOMBIAN SUPERINTENDENCY OF FINANCE) SHOULD BE UNDERSTOOD AS A RATING OR ASSUMPTION OF LIABILITY BY THE COLOMBIAN SUPERINTENDENCY OF FINANCE WITH RESPECT TO THE ISSUER, PRICE, QUALITY OR TRADEABILITY OF THE SECURITIES OR OF THE ISSUANCE, OR OF OUR SOLVENCY. THE REGISTRATION OF THE PREFERRED SHARES ON THE COLOMBIAN STOCK EXCHANGE SHOULD NOT BE UNDERSTOOD AS A RATING OR ASSUMPTION OF LIABILITY BY THE COLOMBIAN STOCK EXCHANGE WITH RESPECT TO THE ISSUER, PRICE, QUALITY OR TRADEABILITY OF THE SECURITIES OR OF THE ISSUANCE, OR OF OUR SOLVENCY.

 

		Per ADS				Total
Public offering price		$	60.00000			$	266,820,120
Underwriting discount(1)		$	1.52922			$	6,800,444
Proceeds to us (before expenses)		$	58.47078			$	260,019,676

 

(1)	In addition, upon completion of this offering, we will pay a special structuring fee of US$1,099,150 to the underwriters and have agreed to reimburse the underwriters for their reasonable fees and expenses in connection with the offering. See “Underwriting.”

The underwriters may also purchase up to an additional 667,049 ADSs from us at the public offering price, less the underwriting discounts and commissions payable by us within 30 days of the date of this prospectus supplement. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be US$7,620,931 and the total proceeds, before expenses, to us will be US$299,222,152.

We expect to deliver the ADSs on or as soon as practicable after February 6, 2012.

 

 

 

UBS Investment Bank		BofA Merrill Lynch		J.P. Morgan
Global Coordinator and Joint Bookrunner		Joint Bookrunner		Joint Bookrunner

 

 

The date of this prospectus supplement is January 31, 2012.

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PROSPECTUS SUPPLEMENT

 

		Page
About This Prospectus Supplement			i
Available Information			ii
Incorporation of Certain Information by Reference			iii
Exchange Rates			iv
Forward-Looking Statements			v
Enforcement of Civil Liabilities Against Foreign Persons			vi
Summary			S-1
The Offering			S-6
Summary Financial Data			S-8
Risk Factors			S-12
Use of Proceeds			S-23
Ratios of Earnings to Fixed Charges and Preferred Share Dividends			S-24
Capitalization			S-25
Price Range of the ADSs and Preferred Shares			S-26
Dividend Policy			S-28
Selected Statistical Information			S-30
Colombian Banking Regulations			S-36
Certain Foreign Investment Considerations			S-46
Tax Considerations			S-48
Underwriting			S-56
Expenses			S-66
Validity of the Securities			S-67
Experts			S-68
Unaudited Condensed Consolidated Interim Financial Statements			S-69
PROSPECTUS
		Page
About this Prospectus			1
Available Information			1
Incorporation of Certain Information by Reference			2
Forward-Looking Statements			3
Bancolombia			4
Use of Proceeds			5
Ratio of Earnings to Fixed Charges and Preferred Share Dividends			6
Capitalization			7
Selected Financial Data			8
Selected Statistical Information			10
The Securities			14
Legal Ownership			14
Description of Debt Securities			17

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Description of the Preferred Shares			18
Description of the American Depositary Receipts			23
Description of the Rights to Subscribe Preferred Shares			32
Plan of Distribution			32
Validity of the Securities			34
Experts			34
Enforcement of Civil Liabilities Against Foreign Persons			34

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ABOUT THIS PROSPECTUS SUPPLEMENT

This document is divided in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering. The second part is the accompanying prospectus, which describes more general information, some of which may not apply to this offering.

You should rely only on the information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus and in any free writing prospectus filed with the U.S. Securities and Exchange Commission (the “SEC”). This prospectus supplement contains the terms of this offering. This prospectus supplement, or the information incorporated by reference in the accompanying prospectus, may add, update or change information in the accompanying prospectus. If information in this prospectus supplement, or the information incorporated by reference in the accompanying prospectus, is inconsistent with the accompanying prospectus, this prospectus supplement, or the information incorporated by reference in the accompanying prospectus, will apply and will supersede that information in the accompanying prospectus.

In this prospectus supplement and the accompanying prospectus, unless the context otherwise requires, references to “Bancolombia,” the “Bank,” “we,” “us” or “our” mean Bancolombia S.A. and its consolidated subsidiaries taken as a whole. In addition, all references in this prospectus supplement and the accompanying prospectus to “pesos”, “Ps” and “COP” are to the currency of Colombia and references to “U.S. dollars” and “US$” are to the currency of the United States of America. Also, as used herein, the term “billion” means one thousand million, or 1,000,000,000, and the term “trillion” means one million million, or, 1,000,000,000,000.

No dealer, salesperson or other individual has been authorized to give any information or to make any representations other than those contained or incorporated by reference in this prospectus supplement or the accompanying prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by Bancolombia, the underwriters or any other person. Neither the delivery of this prospectus supplement and the accompanying prospectus nor any sale made hereunder or thereunder shall under any circumstances create an implication that there has been no change in the affairs of Bancolombia since the date hereof or thereof or that the information contained herein or therein is correct as of any time subsequent to its date. Our business, financial condition, results of operation and/or prospects may have changed since those dates.

Bancolombia accepts responsibility for the information contained in this prospectus supplement and the accompanying prospectus. The distribution of this prospectus supplement and the accompanying prospectus and the offer or sale of the ADSs in some jurisdictions may be restricted by law. Persons into whose possession this prospectus supplement and the accompanying prospectus come are required by us and the underwriters to inform themselves about and to observe any applicable restrictions. This prospectus supplement and the accompanying prospectus do not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation.

 

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AVAILABLE INFORMATION

This prospectus supplement and the accompanying prospectus are part of a registration statement on Form F-3 filed by us with the SEC under the U.S. Securities Act of 1933, as amended (the “Securities Act”). We are also subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), applicable to a foreign private issuer and, accordingly, file or furnish reports, including annual reports on Form 20-F, reports on Form 6-K, and other information with the SEC. You may read and copy any documents filed by us at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the SEC are also available to the public through the SEC’s Internet site at http://www.sec.gov and through the NYSE located at 20 Broad Street, New York, New York 10005.

 

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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The SEC’s rules allow us to “incorporate by reference” information into this prospectus supplement. This means that we can disclose important information to you by referring you to another document that has also been filed with the SEC. Any information referred to in this way is considered part of this prospectus supplement from the date we file the document incorporated by reference with the SEC. Any reports filed by us with the SEC after the date of this prospectus supplement and before the date that the offering of the securities by means of this prospectus supplement is completed or terminated will be incorporated by reference into this prospectus supplement and will automatically update and, where applicable, supersede any information contained in this prospectus supplement or incorporated by reference in this prospectus supplement (other than, in each case, documents or information deemed to have been furnished and not filed in accordance with SEC rules).

We incorporate by reference into this prospectus supplement the following documents or information filed by us with the SEC:

 

(1)

our Annual Report on Form 20-F for the fiscal year ended December 31, 2010, filed on April 28, 2011 (the “Annual Report”); and

 

(2)

our reports on Form 6-K, dated and filed on May 3, 2011, November 3, 2011 (3Q11 Earnings Results Press Release), December 27, 2011 (Unaudited Condensed Consolidated Financial Statements with related Notes for the period ended June 30, 2011) and January 13, 2012 (Amendment to 6-K filed on December 27, 2011).

The preceding list supersedes and replaces the documents listed in the accompanying prospectus under the heading “Incorporation of Certain Information by Reference.”

We will provide without charge to each person, including any beneficial owner, to whom this prospectus supplement is delivered, upon his or her written or oral request, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus supplement.

You may request a copy of these filings by writing or telephoning us at our principal executive offices at the following address:

Bancolombia S.A.

Carrera 48 # 26-85, Avenida Los Industriales

Medellín, Colombia

Attention: General Secretary

Telephone Number: (574) 404-1837

 

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EXCHANGE RATES

This prospectus supplement converts certain peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. The Federal Reserve Bank of New York does not report a rate for pesos. Unless otherwise indicated, such peso amounts have been converted at the rate of COP 1,913.98 per US$1.00, which corresponds to the tasa representativa del mercado (“representative market rate”) calculated on December 31, 2010. The representative market rate is computed and certified by the Superintendencia Financiera de Colombia, the Colombian Superintendency of Finance (the “SFC”), on a daily basis and represents the weighted average of the buy/sell foreign exchange rates negotiated on the previous day by certain financial institutions authorized to engage in foreign exchange transactions (including us). 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. You should not construe these convenience conversions as a representation that the peso amounts correspond to, or have been or could be converted into, U.S. dollars at the representative market rate or any other rate.

On September 30, 2011, the representative market rate was COP 1,929.01 per US$1.00, as published on October 1, 2011. On January 31, 2012, the representative market rate was COP 1,805.98 per US$1.00, as published on February 1, 2012.

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 U.S. Dollars per Peso

 

Month		Low				High				Period End
January 2012			1,801.88				1,942.70				1,805.98
December 2011			1,920.16				1,949.56				1,942.70
November 2011			1,871.49				1,967.18				1,948.51
October 2011			1,862.84				1,972.76				1,871.49
September 2011			1,778.51				1,929.01				1,929.01
August 2011			1,765.53				1,811.68				1,780.26

 

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/U.S.$1.00 representative market rate

 

Year		Period End				Average
2011			1,942.70				1,852.83
2010			1,913.98				1,901.67
2009			2,044.23				2,179.64
2008			2,243.59				1,993.80
2007			2,014.76				2,069.21

 

Source: SFC

 

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FORWARD-LOOKING STATEMENTS

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

Information regarding important factors that could cause our actual results to differ, perhaps materially, from those in our forward-looking statements appear in a number of places in this prospectus supplement and the documents incorporated in this prospectus supplement by reference and include, but are not limited to:

 

•

changes in general economic, business, political, social, fiscal or other conditions in Colombia, or in any of the other countries where we operate;

 

•

changes in capital markets or in markets in general that may affect policies or attitudes towards lending;

 

•

unanticipated increases in our financing and other costs, or our inability to obtain additional debt or equity financing on attractive terms;

 

•

inflation, changes in foreign exchange rates and/or interest rates;

 

•

sovereign risks;

 

•

liquidity risks;

 

•

increases in defaults by our borrowers and other loan delinquencies;

 

•

lack of acceptance of new products or services by our targeted customers;

 

•

competition in the banking, financial services, credit card services, insurance, asset management, remittances, business and other industries in which we operate;

 

•

adverse determination of legal or regulatory disputes or proceedings;

 

•

changes in official regulations and the Colombian government’s banking policy as well as other changes in laws, regulations or policies in the jurisdictions in which we do business;

 

•

regulatory issues relating to acquisitions;

 

•

changes in business strategy; and

 

•

other factors identified or discussed under “Risk Factors” in this prospectus supplement and elsewhere in the Annual Report, which is incorporated in this prospectus supplement by reference.

Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or revise any forward-looking statements after the date on which they are made in light of new information, future events and other factors.

 

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ENFORCEMENT OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS

We are a Colombian company, a majority of our directors and management and certain of the experts named in this prospectus supplement are residents of Colombia, and a substantial portion of their respective assets are located in Colombia.

We have been advised by Brigard & Urrutia S.A., that the Colombian Supreme Court determines whether to enforce a U.S. judgment predicated on the U.S. securities laws through a procedural system known under Colombian law as exequatur. The Colombian Supreme Court will enforce a foreign judgment, without reconsideration of the merits, only if the judgment satisfies the requirements of Articles 693 and 694 of Colombia’s Código de Procedimiento Civil (Code of Civil Procedure), which provide that the foreign judgment will only be enforced if:

 

•

a treaty exists between Colombia and the country where the judgment was granted or there is reciprocity in the recognition of foreign judgments between the courts of the relevant jurisdiction and the courts of Colombia;

 

•

the foreign judgment does not relate to “in rem rights” vested in assets that were located in Colombia at the time the suit was filed and does not contravene or conflict with Colombian laws relating to public order other than those governing judicial procedures;

 

•

the foreign judgment, in accordance with the laws of the country where it was rendered, is final and is not subject to appeal and a duly certified and authenticated copy of the judgment has been presented to a competent court in Colombia;

 

•

the foreign judgment does not refer to any matter upon which Colombian courts have exclusive jurisdiction;

 

•

no proceeding is pending in Colombia with respect to the same cause of action, and no final judgment has been awarded in any proceeding in Colombia on the same subject matter and between the same parties; and

 

•

in the proceeding commenced in the foreign court that issued the judgment, the defendant was served in accordance with the law of such jurisdiction and in a manner reasonably designated to give the defendant an opportunity to defend against the action.

The Colombian Supreme Court has generally accepted that reciprocity exists when it has been proven that either a U.S. court has enforced a Colombian judgment or that a U.S. court would enforce a foreign judgment, including a judgment issued by a Colombian court. In accordance with previous rulings of the Colombian Supreme Court, reciprocity may also be granted by a treaty or by law. Such enforceability decisions are considered by Colombian Supreme Court on a case-by-case basis.

The United States and Colombia do not have a bilateral treaty providing for automatic reciprocal recognition and enforcement of judgments in civil and commercial matters. However, Colombia is party to international treaties such as the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), the 1975 Inter-American Convention on International Commercial Arbitration, and the 1965 Washington Convention for the Settlement of Disputes between States and Nationals of Other States.

In the case of foreign arbitral awards that under Colombian law meet the requirements necessary to be considered as rendered in an “international” arbitration proceeding, the Colombian Supreme Court in a ruling dated July 27, 2011, stated that the only applicable requirements for the enforcement of such arbitral awards in Colombia are those set forth in the New York Convention.

In accordance with the Colombian Supreme Court’s ruling, the enforcement order (exequatur) should be decided without reconsideration of the merits of the foreign award unless such award would result in the violation of international public policy. Furthermore, in accordance with the New York Convention and the

 

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Colombian Supreme Court’s ruling, recognition and enforcement of the award may only be denied if the party against which the award is being enforced proves the existence of an event listed in the New York Convention as a cause for denying recognition of a foreign award. If the Colombian Supreme Court grants the enforcement order (exequatur), the procedure for enforcement will be decided by the Colombian courts in accordance with the Code of Civil Procedure by means of collection proceedings.

 

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RISK FACTORS

Investing in our preferred shares and ADSs involves risks. Before you invest in the ADSs, you should consider carefully the information set forth in this section and all the other information provided to you or incorporated by reference in this prospectus supplement as the same may be updated from time to time by our future filings under the Exchange Act. In addition, new risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance or business operations.

RISKS RELATING TO COLOMBIA AND OTHER COUNTRIES WHERE THE BANK OPERATES

Changes in economic and political conditions in Colombia and El Salvador 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, social and political conditions prevailing in Colombia, El Salvador 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 (but not limited to) currency depreciation, inflation, interest rates, taxation, banking laws and regulations and other political or economic developments in or affecting Colombia, El Salvador or the other jurisdictions where the Bank operates may affect the overall business environment and may in turn impact our financial condition and results of operations.

In particular, the governments of Colombia and El Salvador have historically exercised substantial influence on each other’s economies, and their policies are likely to continue to have an important effect on Colombian and Salvadorian entities (including the Bank), market conditions, prices and rates of return on securities of local issuers (including the Bank’s securities). The uncertainties characteristic of a change in government, including potential changes in laws, public policies and regulations, could cause instability and volatility in Colombia and its markets.

Future developments in the government policies of Colombia and El Salvador could impair the Bank’s business or financial condition or the market value of its securities, including the preferred shares and ADSs.

The economies of the countries where 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 their ability to service their public debt.

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

Deterioration in the economic and political situation of neighboring countries could affect national stability or the Colombian economy by disrupting Colombia’s diplomatic or commercial relationships with these countries. Political tensions between Colombia and Venezuela in recent years have produced lower trade levels that have adversely impacted economic activity. Although relations with Venezuela have improved significantly since President Juan Manuel Santos Calderon took office in August 2010, the possibility of any further resurgence in tensions between the two countries may cause political and economic uncertainty, instability, market volatility, lower confidence levels and higher risk aversion by investors and market participants that may negatively affect economic activity in Colombia and El Salvador.

 

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A contagion effect, in which an entire region or class of investments is disfavored by international investors, could negatively affect Colombia and El Salvador or other economies where the Bank operates (i.e., Panama, Cayman Islands, Peru and Puerto Rico), 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 or other countries where 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 could be implemented that could require 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.

Further, the Colombian Government has announced that it is working on a draft bill of law to reform the Colombian tax code, which would be submitted to the Colombian Congress for its approval some time during 2012. As of January 10, 2012, a draft of the tax bill has not been disclosed to the public. Therefore, it is difficult to predict if changes would substantially affect results of operation and financial conditions.

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

Colombia has experienced several 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 has implemented various security measures and has strengthened its military and police forces by creating specialized units. 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 affected adversely by rapidly changing economic and social conditions in Colombia, and by the Colombian government’s response to such conditions.

RISKS RELATING TO THE BANK’S BUSINESS AND THE BANKING INDUSTRY

Instability of banking laws and regulations in Colombia and in other jurisdictions where the Bank operates could adversely affect the Bank’s consolidated results.

Changes in banking laws and regulations, or the manner in which they are interpreted or enforced, in Colombia and in other jurisdictions where the Bank operates, may have a material effect on our business and operations. Moreover, banking and financial services laws and regulations are subject to continuing review and changes, and any such changes in the future may have an adverse impact on the Bank’s financial position and operations, including making and collecting loans and other extensions of credit.

Although the Bank complies with capital requirements, there can be no assurance that future regulations will not change or require the Bank or the Bank’s subsidiaries to seek additional capital. Moreover, the various regulators in the world have not reached consensus as to the appropriate level of capitalization for financial services institutions. Regulators in the jurisdictions where the Bank operates may change the current regulatory capital requirements to which the Bank is subject and thereby necessitate equity increases that could dilute existing stockholders, lead to required asset sales or adversely impact the return on stockholder’s equity and/or the market price of the Bank’s common and preferred shares.

 

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Banking regulations, accounting standards and corporate disclosure applicable to the Bank and its subsidiaries differ from those 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 financial statements in accordance with Colombian GAAP, which differs in significant respects from U.S. GAAP and International Financial Reporting Standards. 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, deferred income taxes and the accounting treatment for business combinations. Moreover, under Colombian 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.

The Colombian government is currently undertaking a review of regulations relating to accounting, audit, and information disclosure with the intention of seeking convergence with international standards. Nevertheless, current regulations continue to differ in certain material respects from those in other countries. In addition, there may be less publicly available information about the Bank than is regularly published by or about U.S. issuers or issuers in other countries.

The Bank is subject to regulatory inspections, examinations, inquiries or audits in Colombia and in other countries where it operates, and any sanctions, fines and other penalties resulting from such inspections 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 and the other jurisdictions in which the Bank operates. These regulatory authorities have broad powers to adopt regulations and 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 extended by financial institutions. In the event of non-compliance with applicable regulations, the Bank could be subject to fines, sanctions or the revocation of licenses or permits necessary to operate its business. In Colombia, for instance, in the event the Bank encounters significant financial problems or becomes insolvent or is in danger of becoming insolvent, banking authorities have the power to take over the Bank’s management and operations. Any sanctions, fines and other penalties resulting from non-compliance with regulations in Colombia and in the other jurisdictions where the Bank operates could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation.

An increase in constitutional collective actions (acciones populares), class actions (acciones de grupo) and other similar legal actions involving claims for significant monetary awards against financial institutions may affect the Bank’s business and results of operations.

Under the Colombian Constitution, individuals may initiate constitutional collective 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 the outcome of such actions 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 constitutional or class actions against the Bank.

 

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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 position. In the past, there have been disputes in Colombia among merchants, payment services and banks regarding interchange fees.

Although such disputes have been resolved, the Superintendency of Commerce and Industry may initiate new investigations relating to the interchange fees. This possibility may lead 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 government power and authority to establish and define criteria and formulas applicable to the calculation of banking fees and charges and the authority to define maximum limits to banking fees and charges. On December 20, 2011 the Government used the authority granted by law 1430 of 2010 and established in Decree 4809 of 2011 caps to fees banks can charge on withdrawals done from ATMs outside their own networks. Further limits or regulations regarding banking fees, and uncertainties with respect thereto could have a negative effect on our results of operations and financial condition.

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 risks 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 tools, 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, including loan portfolios that the Bank may acquire through auctions or otherwise, 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 or other jurisdictions where the Bank operates, or events affecting specific industries. Any of these developments could have a negative effect on the quality of the Bank’s loan portfolio, causing the Bank to increase provisions for loan losses and resulting in reduced profits or in losses.

The Bank is subject to credit risks 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

 

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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 credit risk or bankruptcy 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.

Bancolombia is a leader in the Colombian mortgage loan market. Colombia’s mortgage loan market is highly regulated and has been affected by various macroeconomic factors. Although during the past years interest rates have decreased, 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 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 September 30, 2011, the aggregate outstanding principal amount of the Bank’s 25 largest borrowing relationships, on a consolidated basis, represented approximately 13.57% of the loan portfolio, and no single relationship represented more than 1.28% of the portfolio. Also, 100% of those loans were corporate loans and 100% of these relationships were classified “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. For more information, see Item 4. “Information on the Company — E. Selected Statistical Information — E.3. Loan Portfolio — Borrowing Relationships” in the Annual Report.

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 includes primarily real estate, assets pledged in financial leasing transactions and other assets that are located primarily in Colombia and El Salvador, the value of which may significantly fluctuate or decline due to factors beyond the Bank’s control. Such factors include 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.

We are directly and indirectly affected by changes in market conditions. Market risk, or the risk that values of assets and liabilities or revenues will be adversely affected by variation in market conditions, 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 is subject to fluctuations in interest rates, which may materially and adversely affect its results of operations and financial condition.

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 prices of these securities. Increases in interest rates may reduce gains or the market value of the Bank’s debt securities.

 

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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, which reduces the weighted average maturity of the Bank’s interest-earning assets and adversely affects its operating results. Prepayment risk also has a significant adverse impact on the Bank’s earnings from credit card and collateralized mortgage obligations, since prepayments could shorten the weighted average life of these portfolios, in turn resulting in a mismatch in funding or in reinvestment at lower yields. In addition, as the Bank implements strategies to reduce future interest rate exposure, it may incur costs related to fluctuations in interest rates which, in turn, may impact its results.

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 and any significant reduction in its trading income could adversely affect the Bank’s results of operations and financial position. 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 September 30, 2011, the Bank’s total debt securities represented 12.6% of its total assets, and 37.61% 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 where the Bank operates as compared to other more developed countries, and the court systems in such jurisdictions have limited experience in dealing with issues related to derivative transactions. As a result, there is increased operating and structural risk 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.

 

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The Bank is subject to operational risks.

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 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’s currently adopted procedures may not be effective in controlling each of the operational risks faced by the Bank.

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, and the quality of its service, as well as 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, to be lost or to be delivered to the Bank’s clients with delays or errors, which could reduce demand for the Bank’s services and products and could materially and adversely affect 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 its 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 that will result in significant changes in the following areas: treasury, credit cards, consumer management, products and distribution channels, financial management and accounting and human resources. 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 where the Bank operates could impair its ability to conduct business effectively, and could impact the Bank’s results of operations.

The Bank is exposed to the risk of natural disasters, such as earthquakes, floods, volcanic eruptions, tornadoes, tropical storms, 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

 

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number of the Bank’s local employees and managers were unavailable in the event of a disaster, its ability to effectively conduct business could be severely compromised. 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. Future acquisitions, investments and alliances may not produce anticipated synergies or perform in accordance with the Bank’s expectations and 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 together with certain long-term certificates of deposit represented a share of 67.2% of total liabilities as of September 30, 2011 compared to 72.4% and 76.9% at the end of 2010 and 2009, 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 where 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 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 only been adopted recently and may not completely eliminate instances where it may be used by other parties to engage in money laundering and other illegal or improper activities. To the extent the Bank may fail to fully comply with applicable laws and regulations, the relevant government agencies to which it reports have the power and authority to impose fines and other penalties on the Bank. 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.

 

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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. A downgrade in our credit ratings would increase our cost of raising funds in the capital markets or of borrowing funds. Certain Colombian institutional investors are only permitted to purchase debt securities that are rated “AAA” by Colombian credit rating agencies, due to regulatory or internal policies. Purchase of our securities by these investors could be prohibited if we suffer a decline in our local credit rating. Our ability to renew maturing debt could be restricted and 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. Our ability to successfully compete depends on various factors, including our financial stability as reflected by our credit ratings.

A new insolvency law in Colombia may limit our monetary collection and right enforcement ability.

Law 1380 of 2010, which provided insolvency protection for individuals and merchants, was declared unconstitutional on September 19, 2011 by the Colombian Constitutional Court because of procedural errors in the legislation process. A new law on the same terms as Law 1380 of 2010 was presented on September 20, 2011 to fill the void left after the constitutional court’s decision. If the new law is passed, increased debtor protections could make it more difficult for us to enforce debt and other monetary obligations, which could have an adverse impact on our results of operations and financial condition.

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

The Banco de la República (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 mandatory deposit requirement is currently in effect, a mandatory deposit requirement was set at 40% in 2008 after the Colombian peso appreciated against foreign currencies. Although we cannot predict or control future actions by the Central Bank in respect of such deposit requirements, which may involve the establishment of a different mandatory deposit percentage. The use of such measures by the Central Bank may be a disincentive for the Bank and our clients to obtain loans denominated in a foreign currency.

RISKS RELATING TO THE PREFERRED SHARES AND THE AMERICAN DEPOSITARY SHARES (“ADSs”)

Preemptive rights may not be available to holders of 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 ADSs) 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 ADSs 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. 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 ADSs to exercise those rights and any other factors deemed appropriate at the time, and will then make a decision as to whether to file a registration statement. Accordingly, the Bank might decide not to file a registration statement in some cases.

To the extent holders of ADSs are unable to exercise these rights because a registration statement has not been filed and no exemption from the registration requirement under the Securities Act is available, the Depositary may attempt to sell the holders’ preemptive rights and distribute the net proceeds from that sale, if

 

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any, to such holders. The Depositary, after consulting with the Bank, will have discretion as to the procedure for making preemptive rights available to the holders of ADSs, disposing of such rights and making any proceeds available to such holders. If by the terms of any rights offering or for any other reason the Depositary is unable or chooses not to make those rights available to any holder of ADSs, and if it is unable or for any reason chooses not to sell those rights, the Depositary may allow the rights to lapse. Whenever the rights are sold or lapse, the equity interests of the holders of ADSs 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 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 preferred shares and ADSs representing those 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 ADSs) have no voting rights in respect of preferred shares, other than the right to one vote per preferred share, in the following events:

 

•

in the event that changes in the Bank’s by-laws may impair the conditions or rights assigned to such shares and when the conversion of such shares into common shares is to be approved;

 

•

when voting on the anticipated dissolution, merger or transformation of the corporation or change of its corporate purpose;

 

•

when the preferred dividend has not been fully paid during two consecutive annual terms. In this event, holders of such shares shall retain their voting rights until the corresponding accrued dividends have been fully paid to them;

 

•

when the general shareholders’ meeting orders the payment of dividends with issued shares of the Bank;

 

•

if at the end of a fiscal period, the Bank’s profits are not enough to pay the minimum dividend and the Superintendency of Finance, by its own decision or upon petition of holders of at least ten percent (10%) of preferred shares, determines that benefits were concealed or shareholders were misled with regard to benefits received from the Bank by the Bank’s directors or officers, decreasing the profits to be distributed, the Superintendency of Finance may resolve that holders of preferred shares should participate with speaking and voting rights at the general shareholders’ meeting, in the terms established by law; and

 

•

when the registry of shares at the Colombian Stock Exchange or at the RNVE is suspended or canceled. In this event, voting rights shall be maintained until the irregularities that resulted in such cancellation or suspension are resolved.

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

Holders of the Bank’s ADSs may encounter difficulties in the exercise of some of their rights with respect to the shares underlying ADSs. 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 ADS holders and instead distribute the net proceeds to the ADS holders. Also, under some circumstances, ADS holders may not be able to vote by giving instructions to the Depositary in those limited instances in which the preferred shares represented by the ADSs have the power to vote.

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

 

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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 ADS 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 ADSs.

American Depositary Shares do not have the same tax benefits as other equity investments in Colombia.

Although ADSs represent Bancolombia’s preferred shares, they are held through a custodian in Colombia that is subject to a specific tax regulatory regime. For Colombian tax purposes, the sale of ADSs by foreign companies, Colombian individuals who are not residents in Colombia, or foreign non-resident individuals who have not started their fifth year of continuous residence in Colombia does not generate Colombian source income and is not subject to income tax in Colombia. Accordingly, the tax benefits applicable in Colombia to equity investments, in particular, those relating to dividends and profits from sale, are not applicable to ADSs. For more information see “Tax Considerations”, below.

 

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USE OF PROCEEDS

We will receive net proceeds from the sale of the new ADSs in this offering, of approximately US$256,955,510 million, or approximately US$296,157,986 if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions, the special structuring fee and estimated offering expenses. We intend to use the aggregate net proceeds for general corporate purposes.

 

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RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

Our ratios of earnings to fixed charges and preferred share dividends and other appropriations for the five years ended December 31, 2010, the six months ended June 30, 2010 and June 30, 2011, and the nine months ended September 30, 2010 and September 30, 2011, using financial information calculated in accordance with Colombian GAAP and adjusted to reflect U.S. GAAP, were:

 

		Year Ended December 31,																				June 30,								September 30,
		2006				2007				2008				2009				2010				2010				2011				2010				2011
Ratios in accordance with Colombian GAAP(1)
Excluding interest on deposits			2.35				2.55				2.55				2.67				3.52				4.56				3.88				4.67				3.67
Including interest on deposits			1.60				1.60				1.55				1.56				2.01				2.13				2.14				2.19				2.06
Ratios in accordance with U.S. GAAP(1)
Excluding interest on deposits			2.88				2.81				1.85				2.27				2.61				3.02				1.90				N/A				N/A
Including interest on deposits			1.82				1.68				1.31				1.45				1.80				1.89				1.44				N/A				N/A

 

(1)	For purposes of computing the consolidated ratio of earnings to fixed charges, earnings consist of income before minority interest and income taxes. Fixed charges consist of total interest expense.

 

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CAPITALIZATION

The following table sets forth our consolidated Technical Capital (as defined in “Colombian Banking Regulations—Capital Adequacy Requirements”) and long-term senior indebtedness as of September 30, 2011, and as adjusted to give effect to the receipt of US$893,744,430 in gross proceeds from the sale of preferred shares, including preferred shares in the form of ADSs pursuant to this offering and the preemptive rights offering in Colombia, calculated as described in footnote (2) below, offered herein as if such issuances had occurred on September 30, 2011.

 

		As of September 30, 2011(1)
(In Millions of COP and Thousands of US$, Except Percentages)		Actual								As Adjusted for This Offering(2)
Long-term senior indebtedness			COP 2,584,657			US$	1,339,888				COP 2,584,657			US$	1,339,888
Subscribed capital			393,914				204,205				425,914				220,794
Legal reserve and other reserves			6,270,114				3,250,431				7,962,156				4,127,586
Unappropriated retained earnings			64,743				33,563				64,743				33,563
Net Income			294,189				152,508				294,189				152,508
Less:
Long-term investments			(149,543	)			(77,523	)			(149,543	)			(77,523	)
Non-monetary inflation adjustment			(55,703	)			(28,876	)			(55,703	)			(28,876	)
Primary capital (Tier I)			6,817,714				3,534,308				8,541,756				4,428,052
Provisions for loans			47,876				24,819				47,876				24,819
Subordinated bonds			2,426,419				1,257,857				2,426,419				1,257,857
Others			210,442				109,093				210,442				109,093
Computed secondary capital (Tier II)			2,684,737				1,391,769				2,684,737				1,391,769
Technical capital			9,502,451				4,926,077				11,226,493				5,891,821
Risk-weighted assets, including market risk			73,237,366				37,966,297				73,237,366				37,966,297
Technical capital to risk-weighted assets(3)(4)			12.97	%			12.97	%			15.33	%			15.33	%

 

(1)

Amounts stated in U.S. dollars have been converted, solely for the convenience of the reader, at the rate of COP 1,929.01 per US$1.00, which is the representative market rate calculated on September 30, 2011, the last business day of the quarter, as reported by the SFC. Such conversions should not be construed as representations that the peso amounts represent, or have been or could be converted into, United States dollars at that or any other rate.

(2)

This column gives effect to the subscription of an aggregate amount of 63,999,997 of the Bank’s preferred shares consisting of (i) 43,543,793 preferred shares pursuant to our preemptive rights offering in Colombia and (ii) 5,114,051 ADSs in this offering. For purposes of this adjustment, we assume that the gross proceeds from this offering, before deduction of the underwriting discounts and commissions, the special structuring fee and estimated offering expenses payable by us, will be US$893,744,430, if the underwriters exercise their option to purchase additional ADSs in full. Further, for purposes of this adjustment, we converted the COP 1,132,139 million in gross proceeds from the preemptive rights offering in Colombia at the exchange rate mentioned in footnote(1) above.

(3)

Capital adequacy requirements for Colombian financial institutions (as set forth in Decree 2555 of 2010, as amended) are based on the standards of the Basel Committee and differ from banking regulations in the United States. See “Risk Factors” and “Colombian Banking Regulations” for further information.

(4)	Colombian regulations require that a credit institution’s Technical Capital be at least 9% of that institution’s total risk-weighted assets.

 

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PRICE RANGE OF THE ADSs AND PREFERRED SHARES

In the United States, our preferred shares trade in the form of ADSs. Each ADS represents four preferred shares. The ADSs commenced trading on the NYSE in July 1995. As of January 31, 2012, the ADSs represented approximately 57% of our preferred shares and 20% of our current outstanding shares. Our preferred shares began trading on the Colombian Stock Exchange in 1995.

The tables below set forth, for the periods indicated, the reported high and low closing sale prices and share trading volume for the ADSs on the NYSE and for the preferred shares on the Colombian Stock Exchange, for the periods indicated.

 

		Colombian Stock Exchange								New York Stock Exchange
		Ps Per Preferred Share								US$ per ADS								Trading Volume (Number of ADSs)
		High				Low				High				Low
Year Ending
December 31, 2011			31,100				25,160				69.87				53.56				83,520,522
December 31, 2010			31,820				20,400				69.44				40.10				92,823,574
December 31, 2009			24,200				10,440				48.00				15.90				110,933,010
December 31, 2008			18,960				9,300				44.00				15.00				135,165,148
December 31, 2007			19,360				13,200				39.00				24.00				132,406,300

 

Source: NYSENet (Composite Index) and Colombian Stock Exchange.

 

		Colombia Stock Exchange												New York Stock Exchange
		Ps Per Preferred Shares								Trading Volume (Number of Shares)				US$ per ADS								Trading Volume (Number of ADSs)
		High				Low								High				Low
		(in nominal pesos)
2011
First quarter			29,600				25,700				40,901,113				63.53				53.56				26,407,950
Second quarter			29,980				27,780				25,006,440				67.01				61.83				17,070,939
Third quarter			29,880				26,000				30,674,067				67.35				55.70				21,196,499
Fourth quarter			29,800				26,520				27,263,359				64.35				54.66				18,824,920
2010
First quarter			23,540				20,400				30,022,171				48.30				40.10				20,026,846
Second quarter			24,300				21,680				24,614,457				51.96				42.53				19,949,298
Third quarter			30,280				23,740				31,640,593				67.56				49.85				30,367,572
Fourth quarter			31,820				28,400				25,356,000				69.44				59.31				22,479,858
2009
First quarter			13,160				10,440				64,657,870				24.33				15.90				33,167,974
Second quarter			16,500				12,160				64,560,996				32.19				18.96				31,275,488
Third quarter			20,700				14,980				55,568,395				43.29				28.23				23,001,042
Fourth quarter			24,200				19,240				38,539,785				48.00				38.17				23,488,506

 

Source: NYSENet (Composite Index) and Colombian Stock Exchange.

 

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		Colombia Stock Exchange								New York Stock Exchange
		Ps Per Preferred Share								US$ per ADS								Trading Volume (Number of ADSs)
		High				Low				High				Low
Month
January 2012			28,800				26,100				62.18				56.87				9,801,008
December 2011			28,800				26,100				62.18				56.87				9,801,008
November 2011			29,480				26,520				62.80				54.14				5,465,253
October 2011			30,000				26,500				64.50				53.64				7,297,520
September 2011			29,880				26,500				66.91				55.50				8,562,785
August 2011			29,580				26,000				67.27				56.45				7,149,338

 

Source: NYSENet (Composite Index) and Colombian Stock Exchange.

 

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DIVIDEND POLICY

The declaration, amount and payment of dividends by Bancolombia is based on the Bank’s unconsolidated earnings. Once the shareholders present at the relevant general shareholders’ meeting have approved the financial statements, then they can determine the allocation of distributable profits, if any, of the preceding year. This is done by a resolution adopted by the vote of the holders of a majority of the common shares at the annual general shareholders’ meeting pursuant to the recommendation of the board of directors and the president of the Bank.

Under the Colombian Commerce Code, after payment of income taxes and appropriation of legal and other reserves, and after setting off losses from prior fiscal years, the Bank must distribute to its shareholders at least 50% of its annual net income, or 70% of its annual net income if the total amount of reserves exceeds 100% of its outstanding capital. Such dividend distribution must be made to all shareholders, in cash or in issued stock of Bancolombia, as may be determined by the shareholders, and paid within a year from the date of the ordinary annual shareholders’ meeting in which the dividend was declared.

Pursuant to Colombia’s Law 222 of 1995, the minimum dividend per share requirement of 50% or 70% of net income, as the case may be, may be waived by an affirmative vote of the holders of 78% of the shares present at the shareholders’ meeting.

Under Colombian law and the Bank’s by-laws, the annual net profits of the Bank must be applied as follows:

 

•

first, an amount equal to 10% of the Bank’s net profits to a legal reserve until such reserve is equal to at least 50% of the Bank’s subscribed capital;

 

•

second, to the payment of the minimum dividend on the preferred shares; and

 

•

third, allocation of the balance of the net proceeds as may be determined in the ordinary annual shareholders’ meeting by the vote of the holders of a majority of the common shares entitled to vote, upon the recommendation of the board of directors and the president, and may, subject to further reserves required by the Bank’s by-laws, be distributed as a dividend.

In accordance with the Bank’s by-laws, the general shareholders’ meeting may also allocate a portion of the profits to welfare, education or civic services, or to support economic organizations of the Bank’s employees.

The following table sets forth the annual cash dividends paid on each common share and each preferred share during the periods indicated:

 

Dividends declared with respect to net income earned in:		Cash dividends per share(1)(2)				Cash dividends per share(1)(3)
		(Ps)				(U.S. dollars)
2010			669				0.357
2009			637				0.331
2008			624				0.245
2007			568				0.310
2006			532				0.243

 

(1)	Includes common shares and preferred shares.

(2)	Cash dividends for 2010, 2009, 2008, 2007 and 2006 were paid in quarterly installments.

(3)	Amounts have been translated from pesos at the representative market rate in effect at the end of the month in which the dividends were declared (February or March, as applicable).

 

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Common Shares

Under Colombian law, the dividends payable to the holders of common shares cannot exceed the dividends payable to holders of preferred shares. All common shares that are fully paid-in and outstanding at the time a dividend or other distribution is declared are entitled to share equally in that dividend or other distribution. Common shares that are only partially paid-in participate in a dividend or distribution in the same proportion as such common shares have been paid-in at the time of the dividend or distribution.

Preferred Shares

Holders of preferred shares are entitled to receive dividends based on the profits of the preceding fiscal year, after deducting losses affecting the capital and once the amount that shall be legally set apart for the legal reserve has been deducted, but before creating or accruing for any other reserve, of a minimum preferred dividend equal to one percent (1%) yearly of the subscription price of the preferred share, provided this dividend is higher than the dividend assigned to common shares,;if this is not the case, the dividend shall be increased to an amount that is equal to the per share dividend on the common shares.

Payment of the preferred dividend shall be made at the time and in the manner established by the general shareholders’ meeting and in the priority indicated by Colombian law.

In the event that the holders of preferred shares have not received the minimum dividend for a period in excess of two consecutive fiscal years, they will acquire voting rights until the corresponding accrued dividends have been fully paid to them. See “Description of the Preferred Shares—Voting Rights” in the accompanying prospectus.

General Aspects Involving Dividends

The dividend periods may be different from the periods covered by the general balance sheet. The general shareholders’ meeting will determine such dividend periods, the effective date, the system and the place for payment of dividends.

Dividends declared on the common shares and the preferred shares will be payable to the record holders of those shares, as they appear on the Bank’s stock registry, on the appropriate record dates as determined by the general shareholders’ meeting.

Any stock dividend payable by the Bank will be paid in common shares to the holders of common shares and in preferred shares to the holders of preferred shares. Nonetheless, a general shareholders’ meeting may authorize the payment in common shares to all shareholders. Any stock dividend payable in common shares requires the approval of 80% or more of the shares present at a shareholders’ meeting, which will include 80% or more of the outstanding preferred shares. In the event that none of the holders of preferred shares is present at such meeting, a stock dividend may only be paid to the holders of common shares that approve such a payment.

For information regarding dividend distribution to holders of ADSs, see “Description of American Depositary Receipts—Dividends, Other Distributions and Rights” in the accompanying prospectus.

 

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SELECTED STATISTICAL INFORMATION

The following information is included for analytical purposes and should be read in conjunction with the Bank’s consolidated financial statements as well as Item 5. “Operating and Financial Review and Prospects” in the Annual Report. This information has been prepared based on the Bank’s financial records, which are prepared in accordance with Colombian GAAP and do not reflect adjustments necessary to state the information in accordance with U.S. GAAP. See Note 31 to the Bank’s consolidated financial statements as of December 31, 2010 included in the Annual Report for a summary of the significant differences between Colombian GAAP and U.S. GAAP.

Average balance sheet

The following tables show for the years ended December 31, 2010, 2009 and 2008 and the nine-month periods ended September 30, 2010 and 2011, 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.

 

(COP Million, Except Percentages)		Average Balance Sheet and Income From Interest-Earning Assets for the Fiscal Years Ended December 31,
		2010												2009												2008
		Average Balance				Interest Earned				Average Nominal Interest Rate				Average Balance				Interest Earned				Average Nominal Interest Rate				Average Balance				Interest Earned				Average Nominal Interest Rate
ASSETS
Interest-earning assets
Overnight funds
Peso-denominated			907,453				32,472				3.6	%			823,303				60,561				7.4	%			428,144				67,339				15.7	%
U.S. Dollar-denominated			478,224				9,526				2.0	%			1,155,871				15,612				1.4	%			649,167				38,869				6.0	%
Total			1,385,677				41,998				3.0	%			1,979,174				76,173				3.8	%			1,077,311				106,208				9.9	%
Investment securities
Peso-denominated			6,381,602				430,911				6.8	%			5,461,175				647,324				11.9	%			4,387,502				406,802				9.3	%
U.S. Dollar-denominated			2,159,867				11,502				0.5	%			2,210,185				81,234				3.7	%			1,705,124				24,787				1.5	%
Total			8,541,469				442,413				5.2	%			7,671,360				728,558				9.5	%			6,092,626				431,589				7.1	%
Loans and Financial Leases(1)
Peso-denominated			32,808,038				3,763,049				11.5	%			31,577,872				4,713,033				14.9	%			28,491,159				4,923,704				17.3	%
U.S. Dollar-denominated			10,361,466				701,225				6.8	%			11,457,889				909,934				7.9	%			10,922,602				852,242				7.8	%
Total			43,169,504				4,464,274				10.3	%			43,035,761				5,622,967				13.1	%			39,413,761				5,775,946				14.7	%
Total interest-earning assets
Peso-denominated			40,097,093				4,226,432				10.5	%			37,862,350				5,420,918				14.3	%			33,306,805				5,397,845				16.2	%
U.S. Dollar-denominated			12,999,557				722,253				5.6	%			14,823,945				1,006,780				6.8	%			13,276,893				915,898				6.9	%
Total			53,096,650				4,948,685				9.3	%			52,686,295				6,427,698				12.2	%			46,583,698				6,313,743				13.6	%
Total non-interest-earning assets
Peso-denominated			6,957,834												7,440,325												6,277,291
U.S. Dollar-denominated			3,300,597												2,502,976												2,260,525
Total			10,258,431												9,943,301												8,537,816
Total interest and non-interest-earning assets
Peso-denominated			47,054,927				4,226,432								45,302,675				5,420,918								39,584,096				5,397,845
U.S. Dollar-denominated			16,300,154				722,253								17,326,921				1,006,780								15,537,418				915,898
Total Assets (COP)			63,355,081				4,948,685								62,629,596				6,427,698								55,121,514				6,313,743

 

(1)	Includes performing loans only.

 

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(COP Million, Except Percentages)		Average Balance Sheet and Income from Interest-Earning Assets for the Nine-Month Periods Ended September 30,
		2011												2010
		Average Balance				Interest Earned				Average Nominal Interest Rate				Average Balance				Interest Earned				Average Nominal Interest Rate
ASSETS
Interest-earning assets:
Overnight funds
Peso-denominated			247,762				7,502				4.0	%			1,058,805				28,538				3.6	%
U.S. Dollar-denominated			391,534				4,743				1.6	%			516,212				6,766				1.7	%
Total			639,296				12,245				2.6	%			1,575,017				35,304				3.0	%
Investment securities
Peso-denominated			7,290,704				518,676				9.5	%			6,315,390				335,526				7.1	%
U.S. Dollar-denominated			2,072,044				(13,395	)			(0.9	%)			2,220,123				10,107				0.6	%
Total			9,362,748				505,281				7.2	%			8,535,513				345,633				5.4	%
Loans and Financial Leases(1)
Peso-denominated			37,839,045				3,199,608				11.3	%			32,153,311				2,806,918				11.6	%
U.S. Dollar-denominated			13,482,953				581,311				5.7	%			9,960,586				519,784				7.0	%
Total			51,321,998				3,780,919				9.8	%			42,113,897				3,326,702				10.5	%
Total interest-earning assets
Peso-denominated			45,377,511				3,725,786				10.9	%			39,527,506				3,170,982				10.7	%
U.S. Dollar-denominated			15,946,531				572,659				4.8	%			12,696,921				536,657				5.6	%
Total			61,324,042				4,298,445				9.3	%			52,224,427				3,707,639				9.5	%
Total non-interest-earning assets
Peso-denominated			11,015,277												7,237,391
U.S. Dollar-denominated			882,317												2,879,502
Total			11,897,594												10,116,893
Total interest and non-interest-earning assets
Peso-denominated			56,392,788				3,725,786								46,764,897				3,170,982
U.S. Dollar-denominated			16,828,848				572,659								15,576,423				536,657
Total Assets (COP)			73,221,636				4,298,445								62,341,320				3,707,639

 

(1)	Includes performing loans only.

 

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(COP Million, Except Percentages)		Average Balance Sheet and Interest Paid on Interest-Bearing Liabilities for the Fiscal Years Ended December 31,
		2010												2009												2008
		Average Balance				Interest Paid				Yield/ Rate(1)				Average Balance				Interest Paid				Yield/ Rate(1)				Average Balance				Interest Paid				Yield/ Rate(1)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits
Peso-denominated			852,041				24,357				2.9	%			625,108				19,729				3.2	%			468,000				16,012				3.4	%
U.S. Dollar-denominated			1,679,362				14,501				0.9	%			1,729,212				23,482				1.4	%			1,733,507				23,245				1.3	%
Total			2,531,403				38,858				1.5	%			2,354,320				43,211				1.8	%			2,201,507				39,257				1.8	%
Savings deposits
Peso-denominated			14,046,068				307,106				2.2	%			11,919,042				431,126				3.6	%			10,952,894				555,628				5.1	%
U.S. Dollar-denominated			2,122,407				14,556				0.7	%			2,154,381				19,739				0.9	%			1,880,546				34,090				1.8	%
Total			16,168,475				321,662				2.0	%			14,073,423				450,865				3.2	%			12,833,440				589,718				4.6	%
Time deposits
Peso-denominated			11,117,836				537,145				4.8	%			13,080,400				1,099,678				8.4	%			10,276,935				1,015,373				9.9	%
U.S. Dollar-denominated			5,835,906				156,601				2.7	%			7,402,123				276,889				3.7	%			5,989,037				241,369				4.0	%
Total			16,953,742				693,746				4.1	%			20,482,523				1,376,567				6.7	%			16,265,972				1,256,742				7.7	%
Overnight funds
Peso-denominated			1,457,443				38,867				2.7	%			1,213,463				74,492				6.1	%			1,301,213				123,638				9.5	%
U.S. Dollar-denominated			119,075				1,584				1.3	%			493,706				19,607				4.0	%			1,013,888				42,491				4.2	%
Total			1,576,518				40,451				2.6	%			1,707,169				94,099				5.5	%			2,315,101				166,129				7.2	%
Borrowings from development and other domestic banks(2)
Peso-denominated			2,521,533				133,673				5.3	%			2,889,261				244,644				8.5	%			3,036,553				332,747				11.0	%
U.S. Dollar-denominated			127,093				5,359				4.2	%			437,439				8,198				1.9	%			600,817				12,153				2.0	%
Total			2,648,626				139,032				5.2	%			3,326,700				252,842				7.6	%			3,637,370				344,900				9.5	%
Interbank borrowings(2)(3)
Peso-denominated			—				—				—				—				—				—
U.S. Dollar-denominated			1,449,197				19,537				1.3	%			1,270,413				47,650				3.8	%			1,578,252				74,792				4.7	%
Total			1,449,197				19,537				1.3	%			1,270,413				47,650				3.8	%			1,578,252				74,792				4.7	%
Long-term debt
Peso-denominated			2,759,345				209,542				7.6	%			2,413,103				256,721				10.6	%			1,640,560				191,533				11.7	%
U.S. Dollar-denominated			1,952,604				108,753				5.6	%			1,636,497				103,461				6.3	%			1,493,208				90,270				6.0	%
Total			4,711,949				318,295				6.8	%			4,049,600				360,182				8.9	%			3,133,768				281,803				9.0	%
Total interest-bearing liabilities
Peso-denominated			32,754,266				1,250,690				3.8	%			32,140,377				2,126,390				6.6	%			27,676,155				2,234,931				8.1	%
U.S. Dollar-denominated			13,285,644				320,891				2.4	%			15,123,771				499,026				3.3	%			14,289,255				518,410				3.6	%
Total			46,039,910				1,571,581				3.4	%			47,264,148				2,625,416				5.6	%			41,965,410				2,753,341				6.6	%
Total interest and non-interest-bearing liabilities and stockholders’ equity
Peso-denominated			47,981,394				1,250,690								45,380,776				2,126,390								39,524,490				2,234,931
U.S. Dollar-denominated			15,373,687				320,891								17,248,820				499,026								15,597,024				518,410
Total Liabilities and Stockholders’ Equity (COP)			63,355,081				1,571,581								62,629,596				2,625,416								55,121,514				2,753,341

 

(1)	See “Item 4. Information on the Company — E. Selected Statistical Information — E.1 Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential” in the Annual Report.

(2)	Includes both short-term and long-term borrowings.

(3)	Includes borrowings from banks located outside Colombia.

 

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(COP Million, Except Percentages)		Average Balance Sheet and Interest Paid on Interest-Bearing  Liabilities for the Nine-Month Periods Ended September 30,
		2011																2010
		Average Balance				Interest Paid				Yield / Rate(1)				Average Balance				Interest Paid				Yield / Rate(1)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits
Peso-denominated			1,105,027				19,731				2.4	%			802,471				16,470				2.7	%
U.S. Dollar-denominated			1,658,671				8,947				0.7	%			1,678,195				11,059				0.9	%
Total			2,763,698				28,678				1.4	%			2,480,666				27,529				1.5	%
Savings deposits
Peso-denominated			17,191,404				321,001				2.5	%			13,665,190				225,130				2.2	%
U.S. Dollar-denominated			2,360,308				10,264				0.6	%			2,091,969				11,016				0.7	%
Total			19,551,712				331,265				2.3	%			15,757,159				236,146				2.0	%
Time deposits
Peso-denominated			10,783,724				385,154				4.8	%			11,396,961				417,257				4.9	%
U.S. Dollar-denominated			5,746,897				106,030				2.5	%			5,882,343				116,569				2.6	%
Total			16,530,621				491,184				4.0	%			17,279,304				533,826				4.1	%
Overnight funds
Peso-denominated			1,963,903				55,728				3.8	%			1,369,645				25,881				2.5	%
U.S. Dollar-denominated			167,196				1,850				1.5	%			73,704				869				1.6	%
Total			2,131,099				57,578				3.6	%			1,443,349				26,750				2.5	%
Borrowings from development and other domestic banks(2)
Peso-denominated			2,646,218				107,694				5.4	%			2,549,831				103,059				5.4	%
U.S. Dollar-denominated			58,855				6,526				14.8	%			139,149				4,383				4.2	%
Total			2,705,073				114,220				5.6	%			2,688,980				107,442				5.3	%
Interbank borrowings(2)(3)
Peso-denominated			—				—								—				—
U.S. Dollar-denominated			2,701,411				23,940				1.2	%			1,234,641				13,614				1.5	%
Total			2,701,411				23,940				1.2	%			1,234,641				13,614				1.5	%
Long-term debt
Peso-denominated			3,570,805				201,198				7.5	%			2,705,683				158,810				7.8	%
U.S. Dollar-denominated			3,846,325				167,091				5.8	%			1,771,326				75,243				5.7	%
Total			7,417,130				368,289				6.6	%			4,477,009				234,053				7.0	%
Total interest-bearing liabilities
Peso-denominated			37,261,081				1,090,506				3.9	%			32,489,781				946,607				3.9	%
U.S. Dollar-denominated			16,539,663				324,648				2.6	%			12,871,327				232,753				2.4	%
Total			53,800,744				1,415,154				3.5	%			45,361,108				1,179,360				3.5	%
Total interest and non-interest bearing liabilities and stockholders ‘equity
Peso-denominated			56,374,716				1,090,506								47,424,380				946,607
U.S. Dollar-denominated			16,846,920				324,648								14,916,940				232,753
Total Liabilities and Stockholders’ Equity (COP)			73,221,636				1,415,154								62,341,320				1,179,360

 

(1)	See “Item 4. Information on the Company – E. Selected Statistical Information – E.1 Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential” in the Annual Report.

(2)	Includes both short-term and long-term borrowings.

(3)	Includes borrowings from banks located outside Colombia.

Changes in net interest income and expenses — volume and rate analysis

The following table allocates, by currency of denomination, 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, 2010 compared to the fiscal year ended December 31, 2009; the fiscal year ended December 31,

 

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2009 compared to the fiscal year ended December 31, 2008, and for the nine-month period ended September 30, 2011 compared to the nine-month period ended September 30, 2010. 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.

 

		2009-2010 Increase (Decrease) due to Changes in:												2008-2009 Increase (Decrease) due to Changes in:												Nine-Month Periods Ended September 30, 2011 - September 30, 2010 Increase (Decrease) Due to Changes in:
(COP million)		Volume				Rate				Net Change				Volume				Rate				Net Change				Volume				Rate				Net Change
Interest-earning assets:
Overnight funds
Peso-denominated			3,011				(31,100	)			(28,089	)			29,067				(35,845	)			(6,778	)			(32,743	)			4,695				(28,048	)
U.S. Dollar-denominated			(13,498	)			7,412				(6,086	)			6,844				(30,101	)			(23,257	)			(2,014	)			(684	)			(2,698	)
Total			(10,487	)			(23,688	)			(34,175	)			35,911				(65,946	)			(30,035	)			(34,757	)			4,011				(30,746	)
Investment securities
Peso-denominated			62,151				(278,564	)			(216,413	)			127,265				113,257				240,522				92,515				151,685				244,200
U.S. Dollar-denominated			(268	)			(69,464	)			(69,732	)			18,563				37,884				56,447				1,276				(32,612	)			(31,336	)
Total			61,883				(348,028	)			(286,145	)			145,828				151,141				296,969				93,791				119,073				212,864
Loans and financial leases
Peso-denominated			141,099				(1,091,083	)			(949,984	)			460,695				(671,366	)			(210,671	)			641,035				(117,449	)			523,586
U.S. Dollar-denominated			(74,202	)			(134,507	)			(208,709	)			42,510				15,182				57,692				202,487				(120,451	)			82,036
Total			66,897				(1,225,590	)			(1,158,693	)			503,205				(656,184	)			(152,979	)			843,522				(237,900	)			605,622
Total interest-earning assets
Peso-denominated			206,261				(1,400,747	)			(1,194,486	)			617,027				(593,954	)			23,073				700,807				38,931				739,738
U.S. Dollar-denominated			(87,968	)			(196,559	)			(284,527	)			67,917				22,965				90,882				201,749				(153,747	)			48,002
Total			118,293				(1,597,306	)			(1,479,013	)			684,944				(570,989	)			113,955				902,556				(114,816	)			787,740
Interest-bearing liabilities:
Checking deposits
Peso-denominated			6,487				(1,859	)			4,628				4,958				(1,241	)			3,717				7,203				(2,855	)			4,348
U.S. Dollar-denominated			(430	)			(8,551	)			(8,981	)			(58	)			295				237				(140	)			(2,676	)			(2,816	)
Total			6,057				(10,410	)			(4,353	)			4,900				(946	)			3,954				7,063				(5,531	)			1,532
Savings deposits
Peso-denominated			46,506				(170,526	)			(124,020	)			34,947				(159,449	)			(124,502	)			87,789				40,039				127,828
U.S. Dollar-denominated			(219	)			(4,964	)			(5,183	)			2,509				(16,860	)			(14,351	)			1,556				(2,559	)			(1,003	)
Total			46,287				(175,490	)			(129,203	)			37,456				(176,309	)			(138,853	)			89,345				37,480				126,825
Time deposits
Peso-denominated			(94,819	)			(467,714	)			(562,533	)			235,689				(151,384	)			84,305				(29,203	)			(13,601	)			(42,804	)
U.S. Dollar-denominated			(42,028	)			(78,260	)			(120,288	)			52,859				(17,339	)			35,520				(3,332	)			(10,720	)			(14,052	)
Total			(136,847	)			(545,974	)			(682,821	)			288,548				(168,723	)			119,825				(32,535	)			(24,321	)			(56,856	)
Overnight funds
Peso-denominated			6,506				(42,131	)			(35,625	)			(5,387	)			(43,759	)			(49,146	)			22,484				17,312				39,796
U.S. Dollar-denominated			(4,984	)			(13,039	)			(18,023	)			(20,658	)			(2,226	)			(22,884	)			1,379				(71	)			1,308
Total			1,522				(55,170	)			(53,648	)			(26,045	)			(45,985	)			(72,030	)			23,863				17,241				41,104
Borrowings from development and other domestic banks
Peso-denominated			(19,494	)			(91,477	)			(110,971	)			(12,472	)			(75,631	)			(88,103	)			5,230				950				6,180
U.S. Dollar-denominated			(13,086	)			10,247				(2,839	)			(3,062	)			(893	)			(3,955	)			(11,871	)			14,728				2,857
Total			(32,580	)			(81,230	)			(113,810	)			(15,534	)			(76,524	)			(92,058	)			(6,641	)			15,678				9,037
Interbank borrowings
Peso-denominated			—				—				—				—				—				—				—
U.S. Dollar-denominated			2,410				(30,523	)			(28,113	)			(11,546	)			(15,596	)			(27,142	)			17,331				(3,563	)			13,768
Total			2,410				(30,523	)			(28,113	)			(11,546	)			(15,596	)			(27,142	)			17,331				(3,563	)			13,768
Long-term debt
Peso-denominated			26,293				(73,472	)			(47,179	)			82,188				(17,000	)			65,187				64,994				(8,477	)			56,517
U.S. Dollar-denominated			17,606				(12,314	)			5,292				9,059				4,132				13,191				120,189				2,275				122,464
Total			43,899				(85,786	)			(41,887	)			91,247				(12,868	)			78,378				185,183				(6,202	)			178,981
Total interest-bearing liabilities
Peso-denominated			(28,521	)			(847,179	)			(875,700	)			339,923				(448,464	)			(108,542	)			158,497				33,368				191,865
U.S. Dollar-denominated			(40,731	)			(137,404	)			(178,135	)			29,103				(48,487	)			(19,384	)			125,112				(2,586	)			122,526
Total (COP)			(69,252	)			(984,583	)			(1,053,835	)			369,026				(496,951	)			(127,926	)			283,609				30,782				314,391

 

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Interest-earning assets — net interest margin and spread

The following table presents the levels of average interest-earning assets and net interest income of the Bank and illustrates the comparative net interest margin and interest spread obtained for the fiscal years ended December 31, 2010, 2009 and 2008 and the nine-month periods ended September 30, 2010 and 2011, respectively.

 

(COP Million, Except Percentages)		Interest-Earning Assets-Yield for the Fiscal Year Ended December 31,												Interest-Earning Assets-Yield For the Nine-Month Periods ended September 30,
		2010				2009				2008				2011				2010
Total average interest-earning assets
Peso-denominated			40,097,093				37,862,350				33,306,805				45,377,511				39,527,506
U.S. Dollar-denominated			12,999,557				14,823,945				13,276,893				15,946,531				12,696,921
Total			53,096,650				52,686,295				46,583,698				61,324,042				52,224,427
Net interest earned(1)
Peso-denominated			2,975,742				3,294,528				3,162,914				2,635,280				2,224,375
U.S. Dollar-denominated			401,362				507,754				397,488				248,011				303,904
Total			3,377,104				3,802,282				3,560,402				2,883,291				2,528,279
Average yield on interest-earning assets
Peso-denominated			10.5	%			14.3	%			16.2	%			10.9	%			10.7	%
U.S. Dollar-denominated			5.6	%			6.8	%			6.9	%			4.8	%			5.6	%
Total			9.3	%			12.2	%			13.6	%			9.3	%			9.5	%
Net interest margin(2)
Peso-denominated			7.4	%			8.7	%			9.5	%			5.8	%			5.6	%
U.S. Dollar-denominated			3.1	%			3.4	%			3.0	%			1.6	%			2.4	%
Total			6.4	%			7.2	%			7.6	%			4.7	%			4.8	%
Interest spread(3)
Peso-denominated			6.7	%			7.7	%			8.1	%			7.0	%			6.8	%
U.S. Dollar-denominated			3.1	%			3.5	%			3.3	%			2.2	%			3.2	%
Total			5.9	%			6.6	%			7.0	%			5.8	%			6.0	%

 

(1)	Net interest earned is interest income less interest paid and includes interest earned on investments.

(2)	Net interest margin is net interest income divided by total average interest-earning assets.

(3)	Interest spread is the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.

 

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COLOMBIAN BANKING REGULATIONS

Colombian Banking Regulators

Pursuant to Colombia’s Constitution, the Colombian national legislature 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) (the “SRO”).

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.

Superintendency of Finance

The SFC is the authority responsible for supervising and regulating financial institutions, including commercial banks such as the Bank, finance corporations, finance companies, financial services companies and insurance companies. 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 SRO (Autorregulador del Mercado de Valores – AMV) is a private entity responsible for the regulation of entities participating in the Colombian capital markets. The SRO 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 SRO and are subject to its regulations.

 

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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, Law 964 of 2005 and Law 1328 of 2009 as well as in External Resolution 8 of 2000 (exchange control regulation statute) 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 comercial) 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 operations; finance corporations place funds into circulation by means of active credit operations or investments, with the purpose of promoting the creation or