Banombia S.A.(CIB) - 2021 Q4 - Annual Report

Certain Defined Terms This section defines key terms used throughout the report for clarity and consistent understanding - The section defines key terms used throughout the annual report, including financial instruments, subsidiaries, and regulatory bodies, to ensure clarity and consistent understanding[8][9][12] Cautionary Note Regarding Forward-Looking Statements This section warns that the report contains forward-looking statements subject to inherent uncertainties and risks - This section warns that the Annual Report contains forward-looking statements that are not based on historical facts and are subject to inherent uncertainties and risks outside the Bank's control, which could cause actual results to differ materially[17][18] - Key risk factors include changes in economic, business, political, social, fiscal conditions in operating countries, capital market fluctuations, increased financing costs, inflation, foreign exchange/interest rate changes, sovereign risks, liquidity risks, increased loan delinquencies, competition, and adverse legal/regulatory determinations[18] Presentation of Certain Financial and Other Information This section outlines the accounting principles, currencies, and rounding conventions used in the report Accounting Principles The Bank's audited consolidated financial statements are prepared in accordance with IFRS as issued by the IASB - Consolidated Financial Statements are prepared in accordance with IFRS as issued by the IASB and related interpretations by the IFRS Interpretations Committee (IFRS IC)[21] - Data in Item 4 B7 Competition is prepared in accordance with local generally accepted accounting practices of each subsidiary, not IFRS[21] Currencies The Consolidated Financial Statements are presented in Colombian pesos (COP), with some U.S dollar translations - Consolidated Financial Statements are presented in Colombian pesos (COP), the functional currency for Bancolombia S.A[23] - Certain peso amounts are translated into U.S dollars at specified rates solely for the convenience of the reader[23] Rounding Comparability of Data Monetary amounts and percentages in the report may be subject to rounding adjustments - Figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them due to rounding adjustments[25] - Figures expressed as percentages in the text may not total 100% or, when aggregated, may not be the arithmetic aggregation of the percentages that precede them[25] Part I This part covers key information, company details, and a review of operating and financial performance Item 1 Identity of Directors, Senior Management and Advisers This section states that information regarding the identity of directors and management is not applicable - This item is not applicable[28] Item 2 Offer Statistics and Expected Timetable This section indicates that information regarding offer statistics and timetable is not applicable - This item is not applicable[29] Item 3 Key Information This section provides key information for investors, including a comprehensive list of risk factors A. Selected Financial Data This section is reserved and does not contain any selected financial data - This section is reserved[30] B. Capitalization and Indebtedness This section states that information regarding capitalization and indebtedness is not applicable - This item is not applicable[30] C. Reasons for the Offer and Use of Proceeds This section indicates that information on the reasons for the offer and use of proceeds is not applicable - This item is not applicable[31] D. Risk Factors This section outlines potential risks that could adversely affect Bancolombia's business and operations - Changes in economic and political conditions in Colombia, Panama, El Salvador, and Guatemala may adversely affect the Bank's financial condition and results of operations[32][42] - The Bank's financial results may be negatively affected by changes to accounting standards, assumptions supporting goodwill valuation, and macroeconomic challenges related to the COVID-19 pandemic[35][50][51] - The Bank is subject to credit risk, concentration risks in its loan portfolio, and risks related to quantitative models, non-traditional banking businesses, and collateral value sufficiency[35][60][62] - Operational risks include reliance on data systems, cybersecurity threats, and failures in information technology infrastructure[35][70][71] - The Bank is exposed to ESG risks (climate change, social inequality, corporate misconduct) that could affect its financial condition and operations[37][73][74] - Risks related to the Bank's preferred shares and ADSs include preemptive rights limitations, exchange rate fluctuations, limited voting rights, and potential difficulties in exercising dividend and voting rights[41][85][87][88][89] Item 4 Information on the Company This section provides comprehensive information about Bancolombia's history, business, and structure A. History and Development of the Company This section outlines Bancolombia's history, significant acquisitions, and recent strategic developments - Bancolombia was incorporated in Colombia in 1945 and has been listed on the NYSE since 1995 under the symbol 'CIB'[93] - Recent developments include authorization for Valores Bancolombia to make a capital investment in the U.S for broker-dealer and investment adviser licenses, expected to begin operations in H1 2022[94] - Bancolombia announced the acquisition of 100% of Vlipco S.A.S. for COP 10,521 million, a technology services provider for its Wompi payment gateway[96] - The Board authorized the incorporation of Nequi's business as a separate legal entity (financing company) in 2022 to operate as a 100% digital credit institution[96] Capital Expenditures (2019-2021) and 2022 Estimate | Category | 2021 (COP millions) | 2020 (COP millions) | 2019 (COP millions) | 2022 Estimate (COP millions) | | :--- | :--- | :--- | :--- | :--- | | Fixed Assets | 110.4 | N/A | N/A | 92.4 | | Strategic Projects | 83.4 | N/A | N/A | 123.1 | | Total | 190.1 | N/A | N/A | 210.1 | B. Business Overview This section details Bancolombia's operations as a full-service financial institution across multiple countries B.1 General Bancolombia is a full-service financial institution serving nearly 25 million customers across multiple countries - Bancolombia is a full-service financial institution with nearly 25 million customers, operating across Colombia, El Salvador, Guatemala, Panama, and offshore banking subsidiaries[105] - Nequi, a 100% digital bank, serves over 10 million users in Colombia and 134 thousand in Panama, and is planned for legal separation from Bancolombia in 2022 to enhance its development[107] - New products introduced in 2021 include Inversí (digital investment), ETF Listing in Colombian Global Market, Tu360Negocios (business network), Tu360Compras (digital non-financial solutions), Rent insurance, Protected Withdrawal Insurance in ATMs, and an alliance with Gemini for cryptocurrency operations (pilot test)[109] - Sustainability Linked Loans were launched in April 2021, offering interest rates dependent on clients' ESG rating achievements[109] B.2 Operations This section refers to Note 3 of the Consolidated Financial Statements for a detailed description of markets - For a description of principal markets and income breakdown, refer to Note 3 to the Consolidated Financial Statements[113] B.3 Seasonality of Deposits The Bank experiences seasonality in demand deposits, with higher balances at year-end - Demand deposits show seasonality, with higher average balances at year-end and lower balances in the first months, primarily due to increased liquidity from the Central Bank and Colombian National Treasury[114] - Seasonality of demand deposits does not significantly impact the business, as excess/shortage of liquidity is managed through the treasury portfolio[114] B.4 Raw Materials The Bank is not dependent on sources or availability of raw materials for its operations - The Bank is not dependent on sources or availability of raw materials[114] B.5 Distribution Network Bancolombia utilizes a diverse distribution network with a strong digital presence - Bancolombia's distribution network includes branches, sales/customer representatives, mobile branches (PAMs), ATMs, online/computer banking, telephone banking, and mobile phone banking services[115] - Transactions performed through electronic channels represented over 94.52% of all transactions in 2021[115] Distribution Channels as of December 31, 2021 | Channel | Count | | :--- | :--- | | Branch Network | 1,015 | | Banking Correspondents | 28,676 | | Puntos de Atención Móviles | 529 | | Kiosks | 397 | | ATMs | 6,094 | B.6 Patents, Licenses and Contracts The Bank relies on contracts with third-party providers for essential services - The Bank is not dependent on patents or licenses[123] - The Bank relies on third-party contracts for key services like online banking platforms, data processing, payment services, and technological infrastructure (including cloud services)[123] B.7 Competition Bancolombia maintains a leading market position despite increasing competition and new market entrants - The Colombian financial system includes 28 commercial banks, 5 financial corporations, and 10 financing companies as of December 31, 2021, with new digital banks emerging[126] - Loan growth at Colombian credit institutions was 10.3% in 2021, with commercial loans growing 7.83%, consumer loans 12.76%, and mortgage loans 14.25%[127] - Banco Agrícola leads the Salvadorian financial system, ranking first in total assets, loans, deposits, stockholders' equity, and profits in 2021[134][137] - Banistmo is the second-largest bank in Panama with a 10.5% market share by loans in 2021[142][144] - BAM is the fourth-largest bank in Guatemala by net loans and fifth by total assets, deposits, and stockholders' equity in 2021[146][147] Bancolombia's Market Share in Colombia (Unconsolidated) as of December 31, 2021 | Product Category | Market Share (%) | | :--- | :--- | | Total Net Loans | 26.4 | | Checking Accounts | 30.3 | | Time Deposits | 18.9 | | Saving Accounts | 28.3 | B.8 Supervision and Regulation Bancolombia operates under a comprehensive regulatory framework in Colombia and other jurisdictions - Colombian financial system regulators include the Central Bank, Ministry of Finance, Superintendency of Finance (SFC), Self-Regulatory Organization (AMV), and Superintendency of Industry and Commerce (SIC)[151] - Capital adequacy requirements for Colombian financial institutions are based on Basel III standards, with a minimum Capital Adequacy Ratio of 9% and a minimum basic solvency ratio (Tier 1) of 4.5%[154][156] - Legal lending limits restrict loans to a single borrower to 10% of a bank's technical capital, or 25% with certain guarantees[162] - The Bank and its subsidiaries are subject to international regulations like the U.S Foreign Account Tax Compliance Act (FATCA) and the OECD's Common Reporting Standard (CRS) for automatic exchange of information[178] - El Salvador enacted the Bitcoin Law on June 8, 2021, regulating Bitcoin as legal tender alongside the U.S dollar, with immediate conversion to USD for Banco Agrícola's operations to avoid virtual currency exposure[194][196][211] B.9 Cybersecurity Framework Bancolombia has implemented a robust cybersecurity framework guided by international standards - Bancolombia's cybersecurity framework is designed under international standards from NIST and ISO/IEC-27032, employing a three-line-of-defense model[205] - Senior management and the Board of Directors are actively involved in cybersecurity risk management, with a dedicated committee and a Board member trained in cybersecurity[206][207] - In 2021, Bancolombia invested USD 31.1 million in preventive, detective, and corrective cybersecurity efforts[207] - The Bank reported no cybersecurity or information security incidents that materially affected its business or customers in 2021[208] B.10 COVID-19 Considerations Bancolombia implemented extensive measures to mitigate the impacts of the COVID-19 pandemic - The Bank applied the Debtor Support Program (DPS) in Colombia, covering over 1.1 million loans until August 31, 2021, and continued offering credit relief alternatives to affected customers[210] - Bancolombia supported suppliers by reducing payment terms to 30 days or less, benefiting 10,833 suppliers by the end of 2021[210] - In 2021, the Bank distributed solidarity income subsidies to 880,539 people and formal employment support program (PAEF) subsidies to 44,625 beneficiary companies[212] - Banistmo in Panama offered massive credit relief programs, including payment deferrals, frozen past-due balances, and exemption from credit bureau reporting[212] B.11 ESG Bancolombia is deeply committed to ESG criteria, integrating sustainability into its business model - Bancolombia was recognized as the fifth most sustainable bank by the Dow Jones Sustainability Index in November 2021[213] - The Bank is a founding member of the Net Zero Banking Alliance, committing to transition all operational and attributable GHG emissions to align with net-zero pathways by mid-century[219] - Bancolombia aims to finance the transition to a low carbon economy with COP 40 trillion by 2030[219] - The Bank targets a 73% reduction in Scope 1 and 2 emissions by 2024 compared to 2019 levels, aligned with SBTi methodologies[221] - Financial inclusion initiatives, such as Bancolombia a la Mano (5.9 million users) and Nequi (over 10 million users), provide free digital financial services to diverse populations[223] - The Bank promotes gender equality through financial solutions for women, including microcredit, sustainable gender lines, and agro-focused credit lines[223] C. Organizational Structure This section presents Bancolombia's organizational structure and a detailed list of its subsidiaries - The organizational chart summarizes Bancolombia's structure and its subsidiaries involved in financial or capital market activities[224][226] - Key subsidiaries include Fiduciaria Bancolombia S.A (Trust, Colombia, 98.81% owned), Banca de Inversión Bancolombia S.A (Investment banking, Colombia, 100% owned), Valores Bancolombia S.A (Securities brokerage, Colombia, 100% owned), Banistmo S.A (Banking, Panama, 100% owned), Banco Agromercantil de Guatemala S.A (Banking, Guatemala, 99.66% owned), and Banco Agrícola S.A (Banking, El Salvador, 97.36% owned)[227][228] D. Premises and Equipment This section details Bancolombia's physical assets, including its headquarters and other properties - Bancolombia's headquarters are located in Medellín, Colombia, with other properties mainly in Colombia, totaling approximately 464,647 square meters[230] - The Bank invested COP 259,243 million in 2021 for administrative office refurbishments in Bogotá and is adapting new headquarters in Medellín with an approximate investment of COP 158,374 million, expected to finish by August 2022[230] - The total net book value of the Bank's premises and equipment for own use was COP 2,563,392 million as of December 31, 2021[230] E. Selected Statistical Information This section provides selected statistical financial information for Bancolombia prepared under IFRS E.1 Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential This section presents average balances, interest rates, and an analysis of net interest income changes - Net interest income decreased by COP 910,265 million from 2020 to 2021, primarily due to a larger decrease from rate changes (COP 1,986,088 million decrease) than the increase from volume changes (COP 1,075,823 million increase)[244] Average Yield on Interest-Earning Assets and Average Rate on Interest-Bearing Liabilities | Category | 2021 Average Yield / Rate (%) | 2020 Average Yield / Rate (%) | 2019 Average Yield / Rate (%) | | :--- | :--- | :--- | :--- | | Total interest-earning assets | 6.86 | 7.60 | 9.01 | | Total interest-bearing liabilities | 1.9 | 2.7 | 3.3 | Net Interest Margin and Interest Spread | Metric | 2021 (%) | 2020 (%) | 2019 (%) | | :--- | :--- | :--- | :--- | | Net interest margin | 5.01 | 5.00 | 5.81 | | Interest spread | 4.93 | 4.93 | 5.70 | E.2 Investment Portfolio This section summarizes the maturities and yields of Bancolombia's debt instruments portfolio Debt Instruments Portfolio Yields by Issuer and Currency (as of Dec 31, 2021) | Issuer / Currency | Total Yield (%) | | :--- | :--- | | Corporate bonds (Foreign) | 4.86 | | Colombian Government (FC) | 2.56 | | Foreign Governments (FC) | 1.76 | | Other financial entities (FC) | 1.84 | | Colombian Government (Peso) | 2.49 | | Other Government entities (Peso) | 0.30 | | Other financial entities (Peso) | 5.32 | | Total Yield | 2.28 | E.3 Loan Portfolio This section details the maturity and interest rate sensitivity of Bancolombia's loan portfolio Loan Portfolio Maturity (as of Dec 31, 2021, in millions of COP) | Category | In one year or less | After one year through five years | After five years through 15 years | After 15 years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial | 34,695,533 | 46,230,960 | 32,314,993 | 1,670,357 | 114,911,843 | | Consumer | 1,066,641 | 28,018,402 | 15,283,421 | 3,994,576 | 48,363,040 | | Mortgage | 70,037 | 1,027,396 | 7,950,061 | 21,599,293 | 30,646,787 | | Financial Leases | 1,727,484 | 7,121,356 | 13,160,512 | 3,110,276 | 25,119,628 | | Small Business Loan | 183,156 | 644,545 | 205,482 | 249,002 | 1,282,185 | | Total loans | 37,742,851 | 83,042,659 | 68,914,469 | 30,623,504 | 220,323,483 | Allowance for Credit Losses to Total Loans | Year | Allowance for credit losses to total loans (%) | | :--- | :--- | | 2021 | 7.20 | | 2020 | 8.68 | E.4 Summary of Loan Loss Experience This section provides the ratio of charge-offs to average outstanding loans for 2021 and 2020 - The increase in charge-offs in 2021 was driven by the retail segment, reflecting changes in relief strategies adopted in 2020 that were rolled back[254] Ratio of Charge-offs to Average Outstanding Loans | Category | 2021 (%) | 2020 (%) | | :--- | :--- | :--- | | Total | 2.46 | 1.33 | | Commercial | 0.63 | 0.50 | | Consumer | 8.20 | 4.52 | | Mortgage | 0.39 | 0.34 | | Financial Leases | 2.25 | 0.17 | | Small Business Loan | 6.37 | 5.56 | E.5 Deposits This section provides information on Bancolombia's uninsured deposits and time deposit maturity profile - Uninsured deposits amounted to COP 162,763,204 million in 2021, up from COP 140,351,981 million in 2020[255] Time Deposits Maturity Profile (as of Dec 31, 2021, in millions of COP) | Maturity | Peso-Denominated | Foreign Exchange-Denominated | Total | | :--- | :--- | :--- | :--- | | Up to 3 months | 6,949,420 | 10,386,442 | 17,335,862 | | From 3 to 6 months | 1,730,367 | 6,161,576 | 7,891,943 | | From 6 to 12 months | 2,004,982 | 9,371,255 | 11,376,237 | | More than 12 months | 7,559,312 | 9,182,924 | 16,742,236 | | Total | 18,244,081 | 35,102,197 | 53,346,278 | F. Unresolved Staff Comments This section states that there are no unresolved staff comments related to the report - There are no unresolved staff comments[256] Item 5 Operating and Financial Review and Prospects This section provides a detailed analysis of Bancolombia's operating results and financial prospects A. Operating Results Bancolombia's operating results in 2021 showed a significant recovery driven by improved macroeconomics Impact of Economic and Monetary Policies on Bancolombia's Results Colombia's economy experienced a strong recovery in 2021, though with rising inflation and peso depreciation - Colombia's real GDP growth was 10.6% in 2021, a significant recovery from a 7% contraction in 2020[257] - The Colombian Central Bank's benchmark interest rate stood at 3% as of December 31, 2021, following a 125-bp increase over the year[258] - 2021 year-end inflation was 5.62%, noticeably higher than 1.61% in 2020, driven by food, non-alcoholic beverages, non-durable goods, electricity, and fuels[258] - The Colombian peso depreciated 15.98% against the USD in 2021, closing at COP 3,981.16 per USD[258] General Discussion of the Changes in Results for 2021 Versus 2020 Bancolombia experienced a strong financial recovery in 2021, with significant growth in net income - Net interest and valuation income was COP 11,784 billion in 2021, up 8.85% from COP 10,826 billion in 2020, primarily due to a 25.78% decrease in interest expenses[261] - The weighted average nominal interest rate on loans and financial leases decreased to 7.5% in 2021 from 8.3% in 2020[261] - Interest on investment securities increased by 119.01% in 2021 to COP 471 billion, driven by positive performance of the derivative portfolio and increased demand for hedging instruments[262] Key Financial Performance Indicators (2021 vs 2020) | Metric | 2021 (COP billions) | 2020 (COP billions) | Change (%) | | :--- | :--- | :--- | :--- | | Net income attributable to equity holders | 4,087 | 276 | 1,380.76 | | Average return on stockholders' equity (%) | 14.03 | 1.02 | 1,275.49 | | Net interest and valuation income margin (%) | 5.09 | 4.91 | 3.67 | | Credit impairment charges | 2,421 | 7,527 | (67.84) | | Loans and advances to customers growth (%) | 15.11 | N/A | N/A | | Capital adequacy (%) | 15.49 | 14.74 | 5.09 | Fees and Commissions, Net Net fees and commissions income increased in 2021, driven by higher transaction volumes - The largest contributions to fee income growth came from credit and debit card fees (21.14% increase), banking services (17.05% increase), and payment and collections (23.21% increase)[269] - Growth was primarily driven by operations in Colombia due to increased client numbers and transaction volumes, particularly from commercial establishments through digital and electronic payments[269] Net Fees and Commissions Income (2021 vs 2020) | Category | 2021 (COP millions) | 2020 (COP millions) | Growth (%) | | :--- | :--- | :--- | :--- | | Total revenue from contracts with customers | 5,293,804 | 4,598,413 | 15.12 | | Total fees and commissions expenses | (1,860,683) | (1,561,585) | 19.15 | | Total fees and commissions income, net | 3,433,121 | 3,036,828 | 13.05 | Other Operating Income Total other operating income increased in 2021, fueled by higher revenues from operating leases - Total other operating income was COP 2,022 billion in 2021, a 9.63% increase from COP 1,845 billion in 2020[272] - Revenues from operating leases increased by 31.62% to COP 937 billion in 2021, due to higher asset volumes under leasing and increased activity[272] - Gains on sale of assets were COP 227 billion, a 244.97% increase compared to 2020[272] Operating Expenses Total operating expenses increased in 2021, driven by employee bonuses and technology investments - The increase in salaries and employee benefits was primarily due to the reactivation of bonuses in 2021, which were suspended in 2020[273] - Other administrative and general expenses increased due to investments in digital transformation and technology costs[275] - The cost to income ratio for Bancolombia increased to 52.16% in 2021 from 50.51% in 2020[275] Operating Expenses (2021 vs 2020) | Component | 2021 (COP millions) | 2020 (COP millions) | Growth (%) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | 3,782,596 | 3,044,730 | 24.23 | | Other administrative and general expenses | 3,521,920 | 3,140,789 | 12.13 | | Impairment, depreciation and amortization | 920,558 | 837,790 | 9.88 | | Total operating expenses | 9,163,253 | 7,995,145 | 14.61 | Provision Charges and Credit Quality Credit impairment charges significantly decreased in 2021, driven by economic recovery - Total credit impairment charges, net, decreased by 67.84% to COP 2,421 billion (1.2% of average loans) in 2021, from COP 7,527 billion (3.9% of average loans) in 2020[276] - The decrease in provision charges was due to a better macroeconomic forecast, less provisions for significantly impaired clients, and improvements in the expected loss model[276] - Net loan charge-offs increased by 93.68% to COP 5,036 billion in 2021, driven by the retail segment[276] - The past-due loan ratio (loans overdue > 30 days) decreased to 4.55% as of December 31, 2021, from 5.47% in 2020[276] Income Tax Expenses Bancolombia recorded a significant income tax expense in 2021, a shift from a recovery in 2020 - Income tax expense for 2021 totaled COP 1,776 billion, compared to an income tax recovery of COP 6.5 billion in 2020[277] - The effective tax rate for 2021 was 29.68%[277] - Tax benefits in Colombia included investments in real productive fixed assets, exempt income from low-income mortgage portfolios, and untaxed dividends[277] Results by Segment This section analyzes the financial performance of Bancolombia's nine operating segments for 2021 Banking Colombia Banking Colombia's profit before taxes surged in 2021, recovering from a loss in 2020 - Profit before taxes increased by 1042.66% to COP 3,712 billion in 2021 from a loss of COP 394 billion in 2020[281] - Total interest and valuation decreased by 3.74% to COP 11,498 billion, mainly due to lower yields on commercial and consumer loans[281] - Total credit impairment charges, net, decreased by 63.69% to COP 2,122 billion, driven by better loan portfolio performance and improved macroeconomic variables[281] - Total fees and commissions, net, increased by 17.12% to COP 2,316 billion, primarily from credit/debit cards, banking services, and digital payments[281] - Total operating expenses increased by 13.15% to COP 6,080 billion, largely due to the reactivation of variable compensation (bonuses)[281] Banking El Salvador through Banco Agrícola S.A. Banking El Salvador's profit before taxes increased significantly in 2021 - Profit before taxes increased by 97.61% to COP 583 billion in 2021[283] - Total interest and valuation decreased by 2.64% to COP 1,194 billion, but this was offset by an 18.13% reduction in interest expenses[283] - Total credit impairment charges, net, decreased by 101.16% to COP (4) billion, indicating a provisions reversal due to better asset quality and improved risk models[285] - Total fees and commissions, net, increased by 13.13% to COP 243 billion, despite a 55.70% growth in expenses related to network access and brand usage fees[285] Banking Panama Banking Panama transitioned from a loss in 2020 to a profit in 2021 - Profit before taxes increased by 196.70%, moving from a loss of COP 261 billion in 2020 to a profit of COP 252 billion in 2021[286] - Total interest and valuation slightly decreased by 1.16% in COP terms, and by 3.1% in USD, due to a reduction in the commercial loan portfolio[287] - Total credit impairment charges, net, decreased by 64.40% to COP 323 billion, driven by lower provision charges and reversals due to better asset quality[287] - Total operating expenses increased by 12.82% in USD terms, mainly due to the reactivation of the employee bonus plan[287] Banking Guatemala Banking Guatemala's profit before taxes improved significantly from a loss in 2020 to a profit in 2021 - Profit before taxes improved to COP 417 billion in 2021 from a loss of COP 25 billion in 2020[288] - Total interest and valuation increased by 6.99% in COP terms and 5.4% in USD, driven by better loan book performance, especially in the consumer portfolio[290] - Total credit impairment charges, net, decreased by 112.05% to COP (36) billion, reflecting lower provision charges and a provision reversal due to improved asset quality[290] - Total fees and commissions, net, decreased by 19.53% to COP 110 billion, mainly due to lower credit and debit card fees[290] Trust The Trust segment's profit before taxes decreased in 2021 - Profit before taxes for the Trust segment decreased by 13.34% to COP 222 billion in 2021[291] - Total credit impairment charges, net, increased by 261.81% to COP (4,595) million[291] - Total operating expenses increased by 24.75% to COP 131 billion, primarily due to an increase in bonuses[293] Investment Banking The Investment Banking segment's profit before taxes increased in 2021 - Profit before taxes for the Investment Banking segment increased by 46.72% to COP 48 billion in 2021[293] - Total fees and commissions, net, increased by 112.60% to COP 79 billion, driven by higher fees in Structured Financing and M&A[293] - Total operating expenses increased by 47.06% to COP 35 billion, mainly due to the reactivation of the bonus plan[294] Brokerage The Brokerage segment's profit before taxes decreased in 2021 - Profit before taxes for the Brokerage segment decreased by 34.25% to COP 60 billion in 2021[296] - Total interest and valuation decreased by 73.90% to COP 12 billion, mainly due to losses on derivatives related to securities futures and index futures[296] - Total fees and commissions, net, increased by 3.78% to COP 113 billion, driven by higher trust income from managed investment funds[296] - Total operating expenses increased by 33.55% to COP 121 billion, mainly due to the reactivation of the bonus plan[296] International Banking The International Banking segment's profit before taxes increased in 2021 - Profit before taxes for the International banking segment increased to COP 125 billion in 2021 from COP 87 billion in 2020[299] - Interest expenses decreased by COP 102 billion in 2021, offsetting lower income from loans and derivatives[299] - Total credit impairment charges, net, decreased by 126.72% to COP (15) billion, mainly due to lower provision charges and reversals[300] - Total fees and commissions, net, increased by 10.11% to COP 27 billion, driven by higher fees from banking services and acceptances/guarantees[300] All Other Segments The 'All Other' segments' profit before taxes significantly increased in 2021 - Profit before taxes for All Other segments increased by 185.75% to COP 573 billion in 2021 from COP 200 billion in 2020[301] - Other operating income increased to COP 1,239 billion in 2021, driven by growth in operating leases and higher real estate valuations[301] - Dividends and net income on equity investments increased from COP 54 billion to COP 197 billion in 2021, due to higher valuations and cash flows from the Viva Malls real estate portfolio[301] B. Liquidity and Capital Resources Bancolombia maintained a solid liquidity position and funding structure in 2021 B.1 Liquidity and Funding Bancolombia maintained a solid liquidity position in 2021, with significant growth in deposits - Liquid assets showed a significant growth of COP 6,441 billion in 2021, reaching COP 44,198,889 million, driven by increased cash and high-quality liquid securities[304] - Deposits reached COP 210,390 billion at year-end 2021, an increase of 16.35% (COP 29,570 billion) from 2020[307] - Deposits as a percentage of the Bank's total liabilities increased to 82.2% in 2021 from 79.4% in 2020[308] - The ratio of net loans to deposits (including borrowings from commercial banks) was 93.38% at the end of 2021, up from 91.03% in 2020[308][309] - As of December 31, 2021, Bancolombia had USD 1,278 million of liabilities linked to LIBOR, representing 1.99% of total liabilities[309] - The total outstanding aggregate principal amount of bonds issued by the Bank was COP 21,093 billion as of December 31, 2021[309] B.2 Financial Instruments and Treasury Activities Bancolombia's treasury division manages sales and trading activities across its subsidiaries - The Bank's treasury division is responsible for sales and trading activities across Bancolombia, Banistmo, Banco Agrícola, Bancolombia Panamá, Bancolombia Puerto Rico, and BAM[323] - The Bank monitors treasury activities through policies for liquidity, market, legal, credit, and operational risks, with market and liquidity risks controlled by VaR limits set by the Board of Directors[323] - The principal foreign currency exposure is the U.S dollar, managed by the Treasury Division and monitored using positions, VaR, and daily results[323] B.3 Commitment for Capital Expenditures This section refers to Item 4A for details on capital expenditure commitments - For information on capital expenditures, refer to Item 4.A, 'History and Development of the Company – Capital Acquisitions and Divestitures'[325] C. Research and Development, Patents and Licenses, Etc. This section states that information regarding R&D, patents, and licenses is not applicable - This item is not applicable[327] D. Trend Information Bancolombia experienced positive trends in 2021, with strong loan growth and improved margins - Gross loans and financial leases increased by 15.11% in 2021, driven by economic recovery across all operating geographies[327] - The annualized net interest and valuation income margin was 5.09% for 2021, up from 4.91% in 2020, supported by the beginning of rate hike cycles and dynamic lending[329] - The cost of credit was 1.18% of average loans in 2021, a significant decline from 3.85% in 2020, attributed to macroeconomic improvement and model fine-tuning[329] - The Group's net interest margin is expected to expand in 2022 due to current contractionary macroeconomic policy in the Colombian financial system[329] E. Critical Accounting Policies and Estimates This section refers to Note 2E of the Consolidated Financial Statements for details on critical accounting policies - For details on critical accounting policies and estimates, refer to Note 2.E. to the Consolidated Financial Statements, 'Significant Accounting Policies, Use of estimates and judgments'[330] Item 6 Directors, Senior Management and Employees This section provides detailed information on Bancolombia's directors, management, and employees A. Directors and Senior Management This section provides biographical information for Bancolombia's directors and senior management - The Board of Directors consists of seven members, including Gonzalo Alberto Pérez Rojas (CEO of Grupo de Inversiones Suramericana), Juan David Escobar Franco (CEO of Seguros Sura Colombia), Luis Fernando Restrepo Echavarría (CEO of Crystal S.A.S), Andrés Felipe Mejía Cardona, Sylvia Escovar Gómez, Arturo Condo Tamayo (President of Universidad EARTH), and Silvina Vatnick (cofounder and director of Global Outcomes LLC)[330][331][332][333] - Five of the seven directors (Luis Fernando Restrepo Echavarría, Andrés Felipe Mejía Cardona, Sylvia Escovar Gómez, Arturo Condo Tamayo, and Silvina Vatnick) are independent directors[342] - Senior management includes Juan Carlos Mora Uribe (CEO), Mauricio Rosillo Rojas (Corporate Vice President), Maria Cristina Arrastia Uribe (Vice President of Business), Jaime Alberto Villegas Gutierrez (Vice President of Corporate Services), Rodrigo Prieto Uribe (Vice President of Risk Management), José Mauricio Rodriguez (Vice President of Internal Audit), Cipriano López Gonzalez (Innovation Vice President), Jose Humberto Acosta (Financial Vice President/CFO), and Claudia Echavarria Uribe (Chief Legal Officer/General Counsel)[334][335][336][337] B. Compensation of Directors and Officers This section details the compensation structure for Bancolombia's directors and senior management - Directors receive approximately COP 10 million per month for Board service and COP 10 million for each committee session, with 70% paid in cash and 30% in stock (vested after two years)[338] - The aggregate remuneration paid to all directors, alternate directors, and senior management during 2021 was COP 70.82 billion[338] - The Bank has an incentive compensation plan for employees, awarding annual or semi-annual bonuses in cash and stock (vested after three years), based on return on equity and achievement of goals[341] - As of December 31, 2021, the provision for senior management retirement bonuses was COP 33.35 billion[338] C. Board Practices Bancolombia's Board of Directors oversees the Bank's governance through several committees - The Board of Directors consists of seven members, with five independent directors, ensuring a majority of independent members[342] - The Audit Committee, comprised of three independent members (Arturo Condo Tamayo, Andrés Felipe Mejia Cardona, Silvina Vatnick), oversees financial statements, internal controls, and external auditors[344][346] - The Designation, Compensation and Development Committee recommends policies for hiring, remuneration, and development of management and key personnel[340][341][348] - The Good Governance Committee assists in overseeing corporate governance compliance and leads the evaluation process for the Board of Directors[349] - The Risk Committee supports the approval and control of risk management policies, guidelines, and strategies, including cybersecurity and sustainability risks[351] D. Employees This section provides employee statistics and details the Bank's welfare initiatives - Approximately 28.9% of Bancolombia S.A's directly hired employees are part of the Sintrabancol labor union[352] - The Bank implements strategies focused on employee health (medical evaluations, mental health programs), labor employment security (risk monitoring, road safety, emergency plans), and welfare (family activities, talent recognition, financial learning, gender equality)[352][354][355][356][357][358][359][361] Number of Employees (2019-2021) | Year | Total number of employees employed by Bancolombia Group | | :--- | :--- | | 2021 | 31,245 | | 2020 | 30,633 | | 2019 | 31,075 | E. Share Ownership This section discloses the share ownership of directors and senior management in Bancolombia - Gonzalo Alberto Pérez Rojas, Juan David Escobar Franco (directors), and Rodrigo Prieto Uribe (senior management) owned common shares as of December 31, 2021[363] - None of the directors or senior management owned preferred shares[363] - No individual or aggregate shareholdings of directors and senior management exceeded 1% of Bancolombia's outstanding common shares, preferred shares, or a combination of both[363] Item 7 Major Stockholders and Related Party Transactions This section identifies major stockholders and details related party transactions A. Major Stockholders This section identifies Bancolombia's major stockholders as of March 31, 2022 - As of March 31, 2022, there were 509,704,584 common shares and 452,122,416 preferred shares outstanding[366] - The ADR program's ownership percentage decreased from 13.96% in March 2021 to 12.45% by March 2022[366] Major Stockholders (as of March 31, 2022) | Name | Common Shares | Preferred Shares | % Ownership of Common Shares | % Ownership of Preferred Shares | % Ownership of Total Shares | | :--- | :--- | :--- | :--- | :--- | :--- | | Grupo de Inversiones Suramericana S.A | 235,012,336 | — | 46.11 | — | 24.43 | | ADR Program | — | 119,762,300 | — | 26.49 | 12.45 | B. Related Party Transactions Bancolombia engages in transactions with related parties in the ordinary course of business - All transactions with directors, officers, and senior executives are subject to limitations and conditions for preventing and resolving conflicts of interest[367] - Loans to related parties are made in the ordinary course of business, on substantially the same terms (interest rates, collateral) as comparable transactions with other persons[367] Loans Outstanding to Related Parties (as of Feb 28, 2022, in millions of COP) | Entity | Amount outstanding | | :--- | :--- | | Grupo de Inversiones Suramericana S.A | 506,967 | | Servicios Generales Suramericana S.A.S | 332,576 | | Reintegra S.A.S | 31,999 | C. Interest of Experts and Counsel This section states that information regarding the interest of experts and counsel is not applicable - This item is not applicable[368] Item 8 Financial Information This section provides references to financial statements, legal proceedings, and dividend policy A. Consolidated Financial Statements and Other Financial Information This section directs readers to financial statements and outlines legal proceedings and dividend policy A.1 Consolidated Financial Statements This section refers to pages F-1 through F-214 for the complete consolidated financial statements - Consolidated Financial Statements are referenced on pages F-1 through F-214[369] A.2 Legal Proceedings Bancolombia is involved in normal collection, restructuring, and other legal proceedings - The Bank is involved in normal collection and restructuring proceedings, and other legal proceedings[369] - For further information on legal proceedings, refer to Note 21 ('Provisions and Contingent Liabilities') and Note 32 ('Subsequent Events') of the Consolidated Financial Statements[369] A.3 Dividend Policy Bancolombia's dividend policy aims to maintain optimal capital while prioritizing shareholder returns - The dividend policy seeks to maintain an optimal core equity Tier 1 capital (11-12%) and prioritize capital return to shareholders[371] - Colombian Commercial Code requires distribution of at least 50% of annual net income (or 70% if total reserves exceed outstanding capital) to stockholders[369] Annual Cash Dividends Paid Per Share (2017-2021) | Year | Cash dividends per share (COP) | Cash dividends per share (U.S dollars) | | :--- | :--- | :--- | | 2021 | 3,120 | 0.831 | | 2020 | 260 | 0.071 | | 2019 | 1,638 | 0.404 | | 2018 | 1,092 | 0.344 | | 2017 | 1,020 | 0.367 | B. Significant Changes This section states that there have been no significant changes since the date of the annual financial statements - There have been no significant changes since the date of the annual Consolidated Financial Statements[372] Item 9 The Offer and Listing This section details Bancolombia's securities listings and the characteristics of the Colombian market A. Offer and Listing Details Bancolombia's ADRs are listed on the NYSE and its preferred shares on the Colombian Securities Exchange - Bancolombia's ADRs (each representing four preferred shares) have been listed on the NYSE under the symbol 'CIB' since 1995[372] - Bancolombia's preferred shares are also listed on the Colombian Securities Exchange[372] - The Bank has filed various registration statements with the SEC for ADSs and debt instruments, including an automatic shelf registration statement on Form F-3 in April 2019[373][374] B. Plan of Distribution This section states that information regarding the plan of distribution is not applicable - This item is not applicable[374] C. Markets The Colombian Securities Exchange is the primary non-U.S trading market for Bancolombia's shares - The Colombian Securities Exchange is the principal non-U.S trading market for preferred shares and the sole market for common shares[374] - The Colombian Securities Exchange is relatively small and illiquid compared to major financial centers[374] Colombian Securities Exchange Market Capitalization (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Bancolombia's preferred shares market cap | COP 14,468 billion | | Bancolombia's total market cap | COP 32,155 billion | | Bancolombia's total market cap (USD) | USD 8.07 billion | | Aggregate equity market cap | COP 370,319 billion | | Aggregate equity market cap (USD) | USD 93,018 billion | | Number of listed companies | 78 | D. Selling Stockholders This section states that information regarding selling stockholders is not applicable - This item is not applicable[374] E. Dilution This section states that information regarding dilution is not applicable - This item is not applicable[374] F. Expenses of the Issue This section states that information regarding the expenses of the issue is not applicable - This item is not applicable[374] Item 10 Additional Information This section provides additional information about Bancolombia's corporate governance and regulations A. Share Capital This section states that information regarding share capital is not applicable - This item is not applicable[376] B. Memorandum and Articles of Association This section details Bancolombia's corporate governance framework, including share rights and restrictions - Bancolombia's corporate purpose encompasses all banking operations, business, acts, and services, with authorization to participate in other companies' capital stock[377] - The Board of Directors consists of seven directors elected for a two-year term, with at least 25% required to be independent under Colombian law, and Bancolombia's Corporate Governance Code requires 5 of 7 directors to meet additional independence standards[378][379][146] - As of December 31, 2021, Bancolombia had 509,704,584 common shares and 452,122,416 preferred shares outstanding[383] - Holders of common shares have one vote per share, while preferred shareholders have limited voting rights, primarily in specific circumstances like non-payment of dividends for two consecutive years or amendments impairing preferred share rights[384][387] - Colombian law mandates distribution of at least 50% of annual net profits as dividends (70% if reserves exceed capital), with preferred shareholders receiving a non-cumulative minimum preferred dividend of 1% yearly of the subscription price[388][390] - Preemptive rights allow existing shareholders to purchase new shares to maintain their ownership percentage, but these rights can be suspended by a 70% vote of represented shares[393] C. Material Contracts This section states that Bancolombia has not entered into any material contracts outside the ordinary course of business - Bancolombia has not entered into any material contracts, other than those in the ordinary course of business, in the two years preceding this Annual Report[398] D. Exchange Controls This section describes Colombia's foreign exchange regime, governed by the Central Bank - Colombia's foreign exchange regime, outlined in Law 9 of 1991 and regulated by the Central Bank, covers imports/exports, foreign indebtedness, and foreign currency guarantees[399] - Foreign investors receive the same treatment as Colombian citizens regarding ownership and voting rights of ADSs and preferred shares[399] E. Taxation This section provides an overview of Colombian and United States federal income tax considerations - ADRs are subject to a specific tax regulatory regime in Colombia, differing from other equity investments regarding dividends and profits from sale[400] - Dividends subject to Corporate Income Tax (CIT) are taxed at 10%; those not subject to CIT are taxed at 25% upon distribution plus a 10% dividend tax[400] - For U.S federal income tax purposes, U.S holders of ADSs are generally treated as owners of the underlying preferred shares, with dividends subject to U.S federal income taxation[408][409] - The Bank believes preferred shares and ADSs should not currently be treated as stock of a Passive Foreign Investment Company (PFIC), but this is a factual determination subject to annual change[413] - FATCA imposes a 30% withholding tax on certain payments to non-U.S financial institutions that fail to comply with information reporting requirements[415] F. Dividends and Paying Agents This section states that information regarding dividends and paying agents is not applicable - This item is not applicable[417] G. Statement by Experts This section states that information regarding statements by experts is not applicable - This item is not applicable[417] H. Documents on Display This section informs that Bancolombia files reports and other information with the SEC - Bancolombia files reports and other information with the SEC, accessible on www.sec.gov[417](index=417&type=chunk) I. Subsidiary Information This section states that information regarding subsidiary information is not applicable - This item is not applicable[417] Item 11 Quantitative and Qualitative Disclosures About Market Risk This section provides disclosures about Bancolombia's exposure to various market risks Introduction Bancolombia is exposed to market risks from its lending, trading, and investment activities - Bancolombia faces market risk from lending, trading, and investments, including interest rates, foreign exchange rates, equity prices, and sovereign risk[418] - The Integrated Risk Management Strategy aims to identify, measure, coordinate, monitor, report, and propose policies for market and liquidity risks[418] - The Market Risks Management Office is responsible for identifying, measuring, monitoring, and controlling market risk, analyzing stress scenarios, and reporting to senior management and the board[419] Trading Instruments Market Risk Measurement Bancolombia measures market risk for its Treasury Book using a Value at Risk (VaR) methodology - The Bank measures Treasury Book market risk (including OTC derivatives) and Banking Book currency risk using a VaR methodology established by the SFC's 'Chapter XXI of the Basic Accounting Circular'[421] - VaR calculations consider interest rate risks (local currency, foreign currency, UVR), currency risk, stock price risk, and fund risk[422] - The total market risk VaR increased by 0.7% from COP 811 billion in 2020 to COP 817 billion in 2021, mainly due to an increase in fund risk[427] Consolidated VaR for Trading Instruments (as of Dec 31, in millions of COP) | Risk Category | 2021 | 2020 | | :--- | :--- | :--- | | Interest Rate Risk | 403,556 | 402,882 | | Currency Risk | 88,477 | 95,926 | | Equity Risk | 99,895 | 98,131 | | Fund Risk | 225,373 | 214,308 | | Total VaR | 817,302 | 811,247 | Non-Trading Instruments Market Risk Measurement For non-trading instruments, Bancolombia primarily focuses on interest rate risk - The Banking Book's main risk exposure is interest rate risk, managed by analyzing mismatches between interest-earning assets and interest-bearing liabilities[431] - A sensitivity analysis estimates the impact on net interest income from a 100 basis points (bps) positive parallel shift in interest rates[431] - A positive net sensitivity indicates that a rise in interest rates will positively affect the Bank's net interest income[433] Net Interest Income Sensitivity to 100 bps Interest Rate Shift (as of Dec 31, 2021) | Currency | Net interest income sensitivity (millions) | | :--- | :--- | | Local (COP) | 440,095 | | Foreign (USD) | 22 | Structural Equity Risk Exposure (Banking Book) Bancolombia's investment banking affiliate holds structural equity investments - Bancolombia's structural equity investments are primarily in industrial and financial sectors[434] - The market value of these investments increased by 23% in 2021, from COP 40 billion to COP 50 billion, mainly due to the increase in the market value of investments in Enka Shares[434] Structural Equity Investments Sensitivity (as of Dec 31, in millions of COP) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Market Value | 49,925 | 40,502 | | Delta (%) | 14.7 | 14.7 | | Sensitivity | 7,339 | 5,954 | Item 12 Description of Securities Other Than Equity Securities This section provides details on fees and charges applicable to holders of Bancolombia's ADRs D. American Depositary Shares This section outlines the fees and charges applicable to holders of Bancolombia's ADRs [D.3. Fees and Charges Applicable to Holders of American Depositary