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2023 REGULAR FISCAL YEAR-END REPORT

BANCOLOMBIA S.A.

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CARRERA 48 # 26-85, MEDELLÍN, COLOMBIA

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*The issuer's outstanding securities can be found in the Our Shareholders section.

The issuer's legal representative certifies that the provided information covers all material aspects of the company.

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Contents

2023 Report Development‌5

Our Purpose‌5

I. ABOUT GRUPO BANCOLOMBIA‌6

About Us‌6

Our Strategy‌7

Our Shareholders‌8

Boards of Directors‌9

Steering Committee‌10

Recognitions‌10

Communication with Our Stakeholders‌11

II. MAINTAINING FINANCIAL STABILITY THROUGH RESPONSIBLE GROWTH‌11

Economic Context and Outlook‌11

Impact of Economic and Monetary Policies on Bancolombia's Results‌16

Trends, Events, or Uncertainties that Could Materially Impact the Issuer's Operations, Financial Position, or Changes to its Financial Situation‌19

Grupo Bancolombia Consolidated Results‌19

Bancolombia, a Commercial Bank‌23

Material Changes related to the Issuer's Liquidity and Solvency Position‌26

Equities Performance‌36

Fixed Income Performance‌38

Capital Investments and Divestments‌40

Profit Distribution Project‌40

Our Commitment to Investors‌42

Milestones, Initiatives, and Achievements‌43

Eco-Efficiency‌50

Reputation‌62

Tax Policy‌63

Our Corporate Governance Issues‌64

Our Shareholders‌64

Our Board of Directors‌69

Our Senior Management‌76

Statutory Audit Office‌78

Operations with Related Parties – Economic Group Report‌78

Economic Group Report‌79

Regulatory Reports‌81

Internal Control System Report‌83

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Risk management‌95

Credit Risk‌97

Market Risk‌103

Liquidity Risk‌111

Operating Risk‌114

Other Relevant Risks‌118

Capital Management‌128

Environmental and Social Risk Analysis‌128

III. WELL-BEING FOR ALL‌130

Strengthening the Production Network‌132

SMEs as a Driving Force of the Economy‌133

The Allies of Agriculture‌134

Sustainable Financing (GRI FS8)‌135

Sustainable Cities and Communities‌138

Access to Decent Housing‌138

Sustainable Construction (Sustainable Business Management GRI FS8)‌139

Road Infrastructure‌139

La Cuenta del Mar (Sea Account)‌140

Energy‌140

Government and Education‌141

Sustainable Mobility‌142

Circular Economy‌143

Financial Implications and Other Risks and Opportunities of Climate Change GRI 201-2‌144

Climate Change Financing and Actions in 2023‌144

Financial Inclusion‌146

A Decade of Bancolombia A La Mano‌146

Nequi‌147

Inclusion with a Gender Perspective‌148

We Promote Access to Credit‌148

Education and Financial Well-Being‌148

Fundación Bancolombia‌153

We Promote Conscious Leadership‌158

ESG Trends (Environmental, Social and Governance)‌159

IV. ACHIEVING CUSTOMER LOYALTY AND PREFERENCE‌160

We Work to Accompany People in all their Day-to-day Needs‌160

Digital Solutions‌162

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Models that Enable New Ways of Providing Financial Services‌163

Commitment to Cybersecurity‌165

Customer Experience‌167

We Are Where Our Customers Need Us‌168

V. BUILDING CULTURE AND TALENT TO FOSTER COMPETITIVENESS‌169

Development for the Personal and Professional Growth of Our Employees‌170

Making Things Happen Through Connection‌172

Enjoyment and Harmony as a Fundamental Part of Life‌173

BMovers Community to Boost Well-being‌174

Dialogue to Build From What Unites Us‌174

Diversity, Equity, and Inclusion‌175

Human Rights "Promote, Respect, and Remedy"‌176

Employee Relationship‌177

Glossary of Terms‌207

III. DISCLOSURE OF INFORMATION ON SOCIAL AND ENVIRONMENTAL ISSUES, INCLUDING THOSE RELATED TO CLIMATE CHANGE‌209

Full Task Force For Climate Related Financial Disclosures (TCFD) Report‌209

SASB Disclosure‌222

IV. INFORMATION REPORTED IN OTHER JURISDICTIONS‌238

Competitive Report‌238

Trends Information‌243

General Discussion of Changes in Results for 2023 versus 2022‌245

Selected Statistical Information‌262

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2023 Report Development

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In this report, we cover the key topics of our management in 2023. We report on the main achievements aligned with the strategy and the goals to be met.

In the final segment, we present the Global Reporting Initiative (GRI) content index, the economic, environmental, and social indicators that contribute to the compilation of a sustainability report. We also present the Sustainability Accounting Standards Board (SASB) indicator index to estimate structured reporting of these indicators in this first year.

This document has been prepared per the Core option of the GRI Standards. We will continue to use this methodology to deliver a management report increasingly tailored to different stakeholders and to continue learning in the process. This report was verified by a third party who reviewed its content adaptation to the Global Reporting Initiative's Sustainability Reporting Standard (GRI Standard).

Likewise, we demonstrate our commitment to sustainability by showcasing our efforts in voluntarily managing the 10 Global Compact Principles, our contribution to the fulfillment of the Sustainable Development Goals (SDGs), the commitments of the Paris Agreement, and participation in frameworks such as the Dow Jones Sustainability Index (DJSI), Equator Principles, United Nations Environmental Program - Financial Initiative (UNEP FI), Carbon Disclosure Project (CDP), Principles for Responsible Investment (PRI), Principles for Responsible Banking, Partnership for Carbon Accounting Financials (PCAF), Net Zero Banking Alliance (NZBA), Task Force on Climate-Related Financial Disclosure (TCFD), the Global Investors for Sustainable Development (GISD) Alliance, and the Glasgow Financial Alliance for NetZero (GFANZ), among others.

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Our Purpose

We promote sustainable development to achieve the well-being of ALL.

We have selected three strategic approaches that align with the United Nations SDGs. We believe they will help us achieve our purpose and measure our outcomes.

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About Us

Grupo Bancolombia aims to promote sustainable development for the well-being of all.

This technology roadmap serves as a guide for over 30,000 employees within our organization. Our purpose is to positively influence the economy, society, and environment in all our endeavors. We uphold a culture of ethics and integrity to achieve this goal.

For nearly 150 years, we have evolved and grown continuously. This has led us to become what we are today: a group present in Colombia, Panama, Guatemala, and El Salvador. In these countries, we work daily to strengthen the productive network, develop sustainable cities and communities, and promote financial inclusion.

This is made possible thanks to a broad range of financial and non-financial solutions and the largest physical and digital network that provides services to over 30 million individuals and companies. They rely on us in an easy, timely, reliable, and close way, and we always strive to ensure financial well-being.

With our banking activity (accounts, deposits, transactional services, consumer, commercial, and housing credits, microcredits, and our A la Mano and Nequi platforms), leasing, renting, stock brokerage, trust, investment banking, and capital market solutions, we meet the needs of households and businesses. We also promote initiatives that foster growth, competitiveness, and quality of life in the countries where we operate.

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In Colombia, we serve individuals and companies with our solutions through brands like Bancolombia, Plink, Wompi, Nequi, Sufi, and Renting. We also operate in Panama as Banistmo, Guatemala as BAM, and El Salvador as Banco Agrícola.

We understand that financial services are just one aspect of people's and businesses' needs. That is why we are expanding our capabilities in collaboration with other players to become a platform that provides comprehensive solutions and ensure that our products and services are integrated into third-party platforms.

Our shares have been listed on the Colombian capital market since 1981 and on the New York Stock Exchange (NYSE) since 1995. This ensures continuous access to both local and international capital markets, as well as ongoing enhancement of our corporate governance practices.

According to the Company Monitor on Corporate Reputation (MERCO), our company has been acknowledged as having the best reputation, corporate governance, and ability to attract and retain talent in the country for several years.

Our commitment extends beyond our borders. We are aligned with the United Nations Sustainable Development Goals and collaborate with global stakeholders to find solutions to the environmental and social challenges facing the world.

In short, this is the path we have chosen to grow beyond profitability. We aim for our impact on the economy to result in a better quality of life in our societies. Similarly, our long-term vision is to build a future of well-being for ALL.

Our Strategy

At Grupo Bancolombia, we promote sustainable development to achieve the well-being of ALL. Every day, we evolve to address the economic, environmental, and social challenges we face by aligning ourselves with a global agenda framed by the 17 Sustainable Development Goals of the UN.

Our 149 years of solidity and experience enable us to be the financial ally of over 30 million customers, including individuals, independent workers, small and medium-sized enterprises (SMEs), companies, and corporations. We offer them a wide range of products and services through which we materialize our purpose of creating well-being. Beyond financial alternatives, we proactively provide comprehensive solutions to our customers' everyday needs.

This evolution is part of our action plan to address the challenges of an ever-changing environment. Our purpose guides our strategic priorities. This vision of success seeks to ensure our sustainability as an organization while positively impacting the well-being of society.

Our strategic objectives stem from the premises that we develop below:

Achieving the Well-Being of All

We provide services that generate well-being and development in the communities where we operate. We want to be the ally that enables them to seize opportunities and better manage their resources in their day-to-day lives. To achieve this, we strengthen the competitiveness of companies (the country's productive network). We promote financial inclusion so that more individuals and companies can integrate and contribute to economic development. Additionally, we offer solutions that contribute to the construction of more

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sustainable cities and communities. In this way, we contribute to making the planet increasingly cleaner.

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Achieving Customer Loyalty and Preference

We are a customer-focused organization. We stand out by providing reliable, approachable, timely, and user-friendly experiences for our customers. We want to earn their loyalty by being their top choice for recommendation ahead of other competitors. To achieve this, we prioritize enhancing service delivery by increasing speed and minimizing obstacles. We also advocate for adopting digital solutions to streamline their processes and enhance efficiency. We endeavor to offer a range of improved options for managing their finances, providing solutions that meet their everyday needs.

Maintaining Financial Stability through Responsible Growth

We manage risk prudently by ensuring stability (credit risk + liquidity), anticipating moderate economic growth, and maintaining good performance in our portfolio deterioration. We leverage our growth by enabling pre-approvals, instant responses, and personalized offers from our financial and non-financial portfolio tailored to our customers' needs. We prioritize our efficiency by proactively managing the organization's expenses and focusing on becoming increasingly productive.

Building Culture and Talent to Foster Competitiveness

We have a team of over 34,000 employees across the four countries. Every day, they rise to work within a strong culture driven by dynamism, ethics, and integrity. Our employees focus on customers and sustainable growth. They always strive to achieve extraordinary performance. Our talent is one of our core assets. Accordingly, we ensure their well-being and professional development. We aim to recruit and retain top talent in the market. We instill the principles that define our distinctive culture within our staff. Furthermore, we continuously enhance inclusivity, equity, simply, approachability, and empathy toward our customers' diverse realities and expectations.

Our Shareholders

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*Private Funding

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Bancolombia has a Level III ADR listed on the New York Stock Exchange. Each ADR is equivalent to four preferred shares.

*2,652 shareholders have common and preferred shares.

Board of Directors

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Steering Committee

Recognitions

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Communication with our Stakeholders

We implement communication and engagement strategies with our different stakeholders to identify how we are generating shared value through the most relevant economic, social, and environmental actions. To learn more, click here and go to the Communication with our Stakeholders section.

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Economic Context and Outlook

Main Trends in the Region (LAC)

In 2023, Latin America's major economies faced a combination of challenges and opportunities that shaped their performance. Economic uncertainty, political changes, and external factors influenced the region's growth, estimated at 2.3% (compared to 4.1% in 2022) according to the International Monetary Fund (IMF). It occurred amidst a widespread backdrop of slowdown, persistent inflation, and restrictive financial conditions.

The global economic landscape was a key factor. The region relies heavily on international trade. Fluctuations in global demand and commodity prices hit export-driven economies.

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While some countries benefited from increased demand for commodities, others faced challenges due to market volatility.

Trade agreements also played a key role. The region engaged in negotiations to strengthen existing trade partnerships and explore new opportunities. This action was aimed at improving market access, reducing trade barriers, and fostering economic cooperation. In this regard, it is worth highlighting the favorable performance of economies such as Brazil (estimated GDP growth of 3.1% for 2023), Mexico (3.2%), and Panama (4%). These economies have capitalized on opportunities (near-shoring, friend-shoring) amidst global fragmentation to attract investment and energize various productive sectors.

Inflation captured the world's attention. Some countries experienced persistent inflationary pressures driven by high commodity prices and wages. This affected consumers' purchasing power and weakened demand. While in certain nations the deflationary process accelerated during the second half of 2023, even allowing their central banks to start cutting interest rates (Brazil, Chile, Peru, and Colombia towards the end of the year), the inflationary challenge is still ahead. Likewise, its drag has impacted growth.

Finally, political dynamics played a crucial role in shaping economic policies. Several countries in the region experienced elections or political transitions in 2023. These led to adjustments in economic strategies. The level of political stability influenced investor trust, the ability to implement revitalization policies, and consequently, economic growth. This trend is observable in countries such as Argentina (-2.5% expected contraction in 2023), Chile (-0.5%), Peru (1.1%), and Ecuador (1.4%).

While some countries grappled with uncertainties, others demonstrated resilience and adaptability. This was achieved by leveraging innovation and sustainable practices to attain positive economic outcomes. The region's performance underscored the importance of comprehensive policies addressing various economic, social, and environmental aspects to foster long-term growth and stability.

Colombia

A look at recent economic history reflects the progress made in the normalization of growth in the post-pandemic era. This is accompanied by a persistent behavior of inflation. Indeed, the Colombian economy contracted as a result of the pandemic in 2020 (-7.3%). It then rebounded in 2021 with a historic expansion (11%). The slowdown in 2023 leaves the economy with low growth (0.6%). However, it is still amidst high inflation (9.6%) and high interest rates.

Given the restrictive financial conditions, it was expected that 2023 would be a year of slowdown and normalization for the Colombian economy. Even so, the slow decline in inflation, driven by high prices of regulated goods, will entail a cautious monetary policy stance amid the downturn in the economic cycle. Returning to inflation levels within the tolerance range of the Bank of the Republic (2%-4%) and the targeted potential growth (3%-3.5%) will take more time and prudence. Nevertheless, the economy is heading in that direction.

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As a result, the most affected sectors were those most sensitive to the challenging combination of high prices and rates, such as construction (-6%), manufacturing (-3.7%), and commerce (-2.1%), in real terms. Construction activity represents the backbone of investment in the country. However, this sector faces a landscape where major national infrastructure projects are not on the horizon, given the short-term focus of public spending on social programs. Similarly, the sharp decline in home sales would continue to exert downward pressure on the sector's activity.

The lingering effects of the economic slowdown and persistent inflation have also begun to exert pressure on the labor market. National unemployment increased to 9.9% in October and could return to double digits in the coming months. This is despite the public sector's push, which has been instrumental in increasing the number of employed individuals in 2023.

Finally, the economic slowdown will also put pressure on public finances, especially given the government's stance on increasing expenditure. This will mainly be directed towards strengthening social policies, particularly cash transfer programs and subsidies.

El Salvador

In the first half of 2023, El Salvador’s economy was driven by public consumption, public and private investment, and the dynamism of the public administration and construction sectors. According to the Central Reserve Bank of El Salvador, increased security in the country has benefited tourism and investment decisions. This has also driven tourism and commerce construction alongside public projects in road infrastructure, sports venues, and private investments in residential sectors. In this scenario, El Salvador's GDP recorded a solid progress in the second quarter of the year (3%). This came after the modest figure of 0.8% in the first quarter of 2023.

Regarding prices, El Salvador reached its inflation peak in June 2022 with a record of 7.8% annually. Since then, it has decelerated to close 2023 at an annual rate of 1.2%. This result is attributed to the reduced dynamics of food prices but faces upward risks in the coming months due to the intensity of the El Niño phenomenon and rising fuel prices. We anticipate that El Salvador's inflation will reach 1.9% by the end of 2024.

A significant driver of the economy, particularly household consumption, is remittances. They account for about 24% of GDP, making El Salvador the third most dependent country in Latin America on them. They even contribute more income than exports. In 2023, the total remittances received exceeded USD 8,181 million (+4.6% annually).

Guatemala

During the first two quarters of 2023, the GDP expanded by 3.7% and 3.8%, respectively. Similar to El Salvador, the resilience of the labor market in the U.S. has allowed Guatemala to benefit from the strength in remittance inflows as they represent around 16% of GDP and drive household spending. In the latter half of the year, activity was impacted by political uncertainty and recent social unrest. As a result, it grew by 3.5% in the full year of 2023.

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In February, inflation peaked at 9.9% annually. Since reaching that peak, it has rapidly declined. By June, it returned to the target range (3%-5%). However, upward pressure from fuel prices and protests resulting from social unrest were evident during September and October. Consequently, the Bank of Guatemala has taken actions, resulting in nine increases that brought the interest rate to 5%. This level has remained stable since April 2023.

Panama

Panama's economic activity expanded by 9.3% in the first quarter of the year and 8.2% in the second. These results highlight the strength of production driven by the good performance of commerce and construction. We expect growth to be around 6.9% in 2023 and to decelerate to levels close to its potential in 2024 (around 4%). The construction sector will be the driving force due to public works projects such as the Panama City Metro, a bridge over the Panama Canal, and the construction of a gas power plant. However, the impact of the El Niño phenomenon is one of the main risks to the activity as it could restrict Canal operations.

At the same time, Panama's inflation situation has been somewhat less challenging as it peaked in June 2023 at a rate of 5.2% annually. Nevertheless, it underwent a rapid process of disinflation as a result of the government's freezing of fuel and food prices.

At the same time, various spending pressures and low tax collection would hinder the consolidation of public finances. Under this context, different rating agencies have recently downgraded the country's sovereign rating and the outlook has been revised due to weak tax collection, high dependence on Canal revenues, increased public spending, and the then likely cessation of mine operations.

2024 Economic Outlook

The outlook for 2024 is framed amidst anticipated risks, albeit with lagged effects, and a backdrop of high uncertainty. The global economy is expected to enter a soft landing phase in which inflation decreases without implying a significant slowdown in the economy. Indeed, in its latest edition of the World Economic Outlook (WEO), the IMF forecasts that Latin America will grow by 2.3% in 2024. This reflects its stagnation compared to the previous year.

In 2024, the spotlight will be on the shift in the monetary policy stance of developed economies. This process will unfold cautiously due to the resilience of economic activity and the labor market. Uncertainty about the effects of "higher rates for longer" is also expected to persist.

Furthermore, the gradual process of disinflation would persist, leading to gradual cuts in the policy rate. However, managing the risks of upward price pressures will remain crucial. The prolonged conflicts (Ukraine-Russia, Israel-Hamas) could intermittently drive up international oil prices. Meanwhile, the effects of the El Niño phenomenon will be felt in international trade, agricultural production, and the rise in food and energy prices.

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Colombia

There are good reasons to believe that the economy may be nearing the end of the most challenging part of the cycle. It's also plausible to anticipate that in 2024, a slow recovery process may begin as inflation subsides and rate cuts persist. However, underlying factors such as investment lag and credit contraction suggest that there will be limitations to returning to potential economic growth levels in the medium term. Consequently, our GDP growth estimate for 2024 is 0.9%.

We anticipate that the most significant macro environments will continue to set the tone. Secondary activities (manufacturing and construction) and trade would continue to deteriorate due to lower private consumption and weak economic growth. Likewise, the primary sector (agriculture and mining) would face challenges from El Niño and regulatory uncertainty (such as in the mining, health, and public services sectors). Meanwhile, service-related activities and those tied to public spending would remain dynamic.

At the same time, the process of moderation in prices will continue. We anticipate that inflation would close around 5.9% by the end of 2024. In the medium term, we believe it will reach the upper limit of the issuer's tolerance range (2%-4%) by mid-2026. This means that the path for the Colombian economy to reach the 3% inflation target will be challenging and prolonged.

Given this context, we expect the rate-cut cycle that commenced in December 2023 with an initial 25 basis points reduction to potentially pick up pace throughout 2024, as inflation continues its path towards the target. Having this in mind, we anticipate that 2024 could end with a monetary policy rate close to 9%.

El Salvador

It is expected that in the coming months, a period of slowdown will begin as the construction boom moderates, household consumption weakens due to tight global financial conditions, persistent high inflation, declining remittance inflows, slower growth among trading partners, and the increasing impact of the El Niño phenomenon. Given this backdrop, we anticipate that the economy will experience moderate growth in 2024 (1.9%) as the delayed effects of the strong monetary tightening cycle become evident and the US economy slows down. Going forward, the economy would recover and grow in the medium term around potential (2.2%).

Guatemala

Regarding Guatemala, we anticipate a slight slowdown in GDP growth in 2024 due to weakening private consumption. This slowdown is because remittances, mostly from the U.S., would decrease as a result of tightening labor market conditions in that country. Therefore, Guatemala's economic growth is projected to be 3.3% in 2024, also supported by stability in the price trend (inflation expected within the range set by the Bank of Guatemala of 3-5%). The primary evident risk is political instability and governance due to the current political and social situation. Now, we expect the elected government to implement measures to increase tax revenues and combat corruption.

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Panama

Panama's growth outlook remains positive for 2024. It will be bolstered by economic diversification and increased public investment related to the implementation of different public infrastructure projects. While Panama's economy could be significantly impacted by a strong El Niño phenomenon and its implications, particularly on the operation of the Panama Canal, it is estimated to grow by 4% in 2024.

The economy faces a significant downside risk due to the suspension of operations at the Cobre Panama mine. Coupled with the deterioration of the fiscal deficit and debt, it would hinder the country's fiscal consolidation. This could jeopardize its investment grade status and further complicate the management of external and fiscal deficits. Specifically, the fiscal deficit, economic slowdown, and electoral spending pressures would prevent the government from achieving the balance goal for the next year. Furthermore, low tax collection would also be a short-term challenge and another hurdle against achieving the fiscal target.

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Source: Grupo Bancolombia, FocusEconomics. *Focus Economics Forecasts.

Impact of Economic and Monetary Policies on Bancolombia's Results

Bancolombia's operational results are affected by macroeconomic factors, primarily in Colombia but also in the other countries where the Group operates. The key variables include GDP growth, interest rates, inflation, and exchange rates, mainly the USD to COP exchange rate. The trends of these variables for Colombia in 2023 are summarized below.

Economic Activity

Colombia's real GDP growth in 2023 was 0.6% annually. Thus, 2023 was a period of marked weakening of Colombia's economic dynamics, following a period of high GDP growth in

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2022 (of 7.3% per annum). This sharp drop in GDP growth has been part of a cycle in which Banco de la República significantly increased the policy interest rate to address inflationary pressures. Consequently, high-interest rates began to strain household and corporate budgets. It led to a decrease in both consumption and investment capacity. Similarly, public investment budget execution was also low.

The growth of the key components of GDP in 2023, at constant prices, was as follows: fixed investment decreased 8.9%, total consumption grew 1.1%, imports decreased 14.7%, and exports increased 3.1%.

The sectors that experienced the most dynamic growth in the first three quarters of 2023 (compared to the same period in 7.9) were arts, entertainment, and recreational activities along with other service-related activities (demonstrated an annual growth of 7.0%), financial and insurance activities (3.9%), and the macro environment encompassing public administration, defense, health, and education (4.0%).

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Monetary Policy Interest Rate

As of December 31, 2023, the reference interest rate set by the Bank of the Republic stood at 13.00%. This followed a 125 basis points increase during the first half of the year and a 25 basis points reduction in December. Thus, the year concluded with a signal indicating the beginning of the phase of interest rate cuts in monetary policy.

Despite the initial rate cut, the stance of monetary policy remains highly contractionary. The Central Bank has considerable leeway to continue with the interest rate-cutting process while maintaining the contractionary stance of the policy. This will allow inflation to continue approaching its target throughout 2024.

Inflation

The annual consumer inflation (measured by CPI) stood at 9.28% at the end of 2023. It is significantly lower than the 13.12% recorded in 2022. In 2023, inflation was driven up by transportation (with a 15.42% annual increase), restaurant and hotel services (a 13.22% increase), and alcoholic beverages and tobacco (an 11.95% increase). Conversely, prices for information and communication services (with an annual increase of 0.12%), food and non-alcoholic beverages (a 5.00% increase), and clothing and footwear (a 5.23% increase) experienced the least growth.

In the latter part of 2023, annual inflation consistently exhibited a slow downward trend. This pattern is anticipated to persist throughout 2024 and underscores the likelihood of the policy interest rate continuing to decrease, albeit at an equally slow pace.

Exchange Type

The Colombian peso appreciated by 20.54% against the US dollar during 2023. The USD to COP exchange rate closed the year at COP 3,822.05. This contrasts with the 20.82% depreciation experienced by the pair in 2022, which resulted in a year-end closing of COP 4,810.20. Therefore, 2023 marked a year of recovery for the Colombian peso following the setbacks experienced in 2022. Several indicators of institutional strength, along with positive

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economic outcomes such as a reduction in the checking account deficit and the beginning of the inflation normalization process, would be the primary factors driving the currency's strengthening.

Outlooks

The future dynamics of the Colombian economy, the financial sector at large, and Bancolombia in particular are expected to be influenced by the following factors:

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Trends, Events, or Uncertainties that Could Materially Impact the Issuer's Operations, Financial Position, or Changes to its Financial Situation

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2023 faced a macroeconomic environment marked by rising interest rates and increasing inflation. Despite these challenges, Grupo Bancolombia maintained its margin due to its portfolio composition and the prudent management of funding resources, focusing on market liquidity.

During the same period, high inflation affected the cost of credit by hampering Colombians' ability to meet their financial obligations. This situation led to an increase in provisioning expenses, ultimately impacting the Group's profitability. Similarly, high levels of inflation also impacted operating expenses and put downward pressure on profits.

In 2024, we expect a more restrictive monetary policy as long as inflation keeps decreasing. This might prompt higher lending across various channels, contingent upon a risk appetite that depends on people's borrowing capacity in a year where unemployment rates could face pressure.

The interest rate cuts are expected to lead to a decrease in the net interest margin. Combined with operating expenses largely influenced by inflation, which is still expected to remain outside the target range set by the Bank of the Republic, this could create additional pressure on the financial results.

Grupo Bancolombia Consolidated Results

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* This indicator is calculated using the equity balance of the portfolio.

At Grupo Bancolombia, we firmly believe that sustainable success stems from responsible, committed management focused on the well-being of all.

Our total assets closed at COP 342,928,809 million at the end of 2023, marking a decrease of COP 9,885,924 million (-2.8%) compared to the previous year. This decline was mainly attributable to the total net portfolio, which decreased by COP 16,715,555 million, partially offset by an increase of COP 6,829,631 million in other assets.

Considering that the exchange rate shifted from COP 4,810 at the end of 2022 to COP 3,822 at the end of 2023, the foreign currency balances on the Financial Position Statement were affected by a 20.5% appreciation of the peso against the dollar. This appreciation resulted in a decrease of COP 20,050,974 million in the gross loan portfolio, affecting the commercial portfolio by COP 11,950,164 million, the consumer portfolio by COP 4,174,125 million, and the housing segment by COP 3,774,178 million.

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Deposits also decreased by COP 20,874,006 million. Specifically, time deposits fell by COP 10,222,525 million, while savings and checking accounts decreased by COP 6,700,798 million and COP 3,950,683 million, respectively. Other sources of financing were also reduced by this effect, such as bonds by COP 2,731,686 million and financial obligations by COP 2,368,378 million.

Without the peso appreciation, the gross portfolio grew by COP 4,078,882 million (1.5%). The commercial portfolio increased by COP 2,281,521 million (1.3%), primarily driven by the corporate segment. Likewise, the housing portfolio had an increase of COP 2,653,214 million (7.1%). This was the modality with the most dynamic growth. Also, the consumption pattern decreased by COP 825,005 million (1.4%).

Provisions for portfolio balance and financial leasing increased by COP 743,463 million and closed the year at COP 16,223,103 million. This increase was due to the deterioration of customers in the individual portfolio who were over 90 days in arrears and significant defaults from customers in the construction sector. Meanwhile, the portfolio’s capital coverage over 90 days closed at 183.5%. This underscores the strength we have in dealing with potential future deteriorations.

Throughout the year, other assets experienced an increase of COP 6,829,631 million (6.9%). This growth was primarily driven by increases in cash and cash equivalents by COP 8,154,318 million, trading derivatives by COP 1,291,033 million, and net investment properties by COP 715,853 million. All of this is offset by decreases in commercial credit by COP 1,949,495 and in net investments by COP 2,183,975 million (8.1%), primarily affected by exchange rate variations.

2023 ended with total liabilities for Grupo Bancolombia of COP 303,879,080 million. It represents an annual decrease of COP 8,938,102 million (2.9%).

Excluding the impact of exchange rate fluctuations, customer deposits increased by COP 16,692,013 million (6.8%) to reach a year-end total of COP 247,941,180 million. This result reflects the confidence of our customers in our organization's management of resources. Those with the greatest variation were time deposits, which increased by COP 21,770,974 million (25%). They accounted for 41% of total deposits, offset by a decrease in savings and checking accounts, by COP 3,163,254 million (2.7%) and COP 1,915,706 million (4.7%), respectively.

Bonds ended 2023 with a balance of COP 14,663,576 million, showing a decrease unaffected by the depreciation of the dollar against the peso by COP 2,180,726 million (11.1%). This aligns with the maturities occurring during the year, which were covered with internal resources. This reflects an appropriate management of the organization's liquidity. Furthermore, loans with institutions without this exchange rate effect had maturities that left a decrease of COP 1,675,875 million (8.5%).

Despite generating profits during 2023, the equity attributable to shareholders decreased by COP 999,391 million (2.6%). It ended the year at COP 38,089,512 million due to the restatement of the financial statements of foreign subsidiaries in our consolidated financial statements by COP 3,787,835 million and dividends declared in March 2023 amounting to COP 3,401,020 million. The equity's share of the balance sheet structure ended 2023 with a participation of 11.11% compared to 11.08% in 2022, allowing for a marginal reduction in asset leverage.

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Solvency levels remained above the regulatory requirements, ending with a basic solvency ratio of 11.42%. This figure increased by 105 bps compared to the 10.37% reported in 2022. The increase is mainly attributed to the impact of Risk-Weighted Assets (RWA), earnings for the fiscal year, and the appreciation of the peso against the dollar.

We closed 2023 with a net profit attributable to shareholders of COP 6,116,936 million. This figure recorded an annual decrease of COP 666,554 million (9.8%). It can be explained as follows.

The net interest income grew by COP 2,023,387 million (11.0%). This is mainly attributed to the portfolio income, which increased by COP 10,457,294 million. It is a result of the increase in the monetary policy rate of the Bank of the Republic of Colombia and the Banking Benchmark (IBR). The financial expense increased by COP 8,225,825 million (97.4%). This rise aligns with the execution of the asset and liability management strategy. We observed an increase in the cost of funds associated with high deposit rates, product of the economic cycle. Net commissions grew by COP 203,238 million (5.4%), primarily driven by the net revenues generated from the customers' transactions when using our payment methods.

The portfolio provision and net leasing expense increased by COP 3,740,126 million (96.8%). This increase is attributed to higher allocations for impairment in the portfolio of natural persons. The situation mainly arose in BAM and Bancolombia’s unsecured consumer products, housing at Banistmo, and the portfolio of SMEs and Independent Businesses at Bancolombia.

Operating expenses increased by COP 2,054,542 million (18.9%). Within these, labor costs rose by COP 932,578 million primarily due to salary increases and actuarial calculations, which were significantly impacted by the behavior of TES discount rates. General expenses increased by COP 1,121,964 million. The most notable factors were local tax expenses (due to changes brought about by the tax reform in the industry and commerce tax), expenses associated with asset impairment, maintenance and repairs related to the Renting business, and fees for projects aimed at business evolution and transformation. In addition to a 16.9% increase in operating income before provisions, the above led to a deterioration in financial efficiency of 75 basis points, closing at 45.33%.

The income tax provision closed the year at COP 1,932,555 million. This represented a contribution to the national revenue for the country's development.

Consequently, we achieved a return on assets indicator of 1.78% and a return on equity attributable to shareholders of 16.14%. There was a deterioration compared to the figures recorded at the end of 2022 by 37 bps and 366 bps, respectively.

Bancolombia, a Commercial Bank

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Amidst 2023, marked by high inflation in the Colombian economy and a contractionary monetary policy rate, Bancolombia experienced a 3.46% growth in assets. This represents COP 8,414,794 million more compared to the end of 2022.

This variation was mainly leveraged by the gross portfolio, which grew by 1.92% during the year (COP 3,448,890 million). Additionally, the balance of cash and cash equivalents stood at COP 24,348,860 million at year-end, given the Bank's liquidity conditions.

The performance of portfolio balances was largely represented by the commercial segment, which grew by 4.01% (COP 3,685,879 million). Consumer loans decreased 4.94% (COP 2,021,414 million), due to a lower demand for credit. The housing portfolio grew 10.86% (COP 2,139,181 million). The financial services and natural resources sectors were the main drivers of this growth, especially in the commercial mode.

Investments in subsidiaries, associates, and joint ventures decreased by 16.56%, equivalent to COP 4,970,915 million. This outcome is attributed to investments in foreign subsidiaries and the currency revaluation effect caused by the exchange rate fluctuation, which shifted from COP 4,810 at the end of 2022 to COP 3,822 at the end of 2023.

The growth of COP 1,623,768 million in the portfolio provision balance indicates increased credit risk. This reflects a deterioration in portfolio quality with an increase in the non-performing loan ratio, which reached 4.95%.

The company ended the year 2023 with a total liability balance of COP 214,508,670 million, which is COP 10,074,906 million higher than the 2022 year-end figure. This behavior was primarily driven by time deposits, which grew by COP 16,599,660 million, reflecting higher profitability rates. The performance of virtual investment was notable, closing at COP 10,100,000 million in 2023. This represented an increase of COP 9,700,000 million compared to the previous year.

On the contrary, demand accounts experienced a downward trend: savings accounts decreased by COP -1,939,013 million and checking accounts by COP -2,132,066 million. This indicates a shift in funding structure. CDs gained 745 basis points of total deposit share, while savings and checking accounts lost share. This implies an increase in the cost of liabilities. The decrease in bonds is due to a restatement effect, along with bond maturities in pesos totaling around COP 612,522 million and a bond buyback operation of senior bonds maturing in 2025 for approximately USD 468 million conducted in August 2023.

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In equity, Bancolombia decreased COP 1,660,112 million. This is primarily due to the exchange rate difference from investments in affiliates and subsidiaries due to the decrease in the Representative Market Exchange Rate (TRM) and lower net profit in the period.

In line with the increasing trend of the gross portfolio, the net interest income grew by 8.97%, equivalent to COP 1,273,799 million. This increase was primarily due to the revenue generation from the commercial portfolio. This favorable trend was offset by the deterioration of the portfolio. It led to an increase in provisions expense of COP 3,759,401 million. Consequently, interest income and valuation of financial instruments after provisions showed an annual decrease of COP 2,485,602 million.

Income from equity method amounted to COP 2,040,133 million. It represented an increase of COP 73,335 million compared to the balance in 2022. This was due to higher profits from subsidiary investments.

Net income before provisions grew by 19.44% compared to a 19.64% increase in operational expenses. This represents a 6 basis points deterioration in the efficiency indicator, which stood at 37.91%. Thus, pre-tax profit amounted to COP 7,662,543 million. It reflects a decrease of COP -1,428,017 million compared to the previous year.

As a result, Bancolombia ultimately closed 2023 with a net profit of COP 5,979,730 million. This amount represents an annual decrease of 13.75%, equivalent to COP 953,235 million. This leads to a decrease in the profitability of equity, which decreased by -389 basis points, standing at 15.77%.

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Material Changes related to the Issuer's Liquidity and Solvency Position

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Liquid Assets

One of the Bank’s main guidelines is to maintain a strong liquidity position. Therefore, the Asset and Liability Management (ALM) Committee has established a minimum level of liquid assets based on the financing needs of the parent company and each subsidiary. The objective is to ensure, as far as possible, that there will always be sufficient liquidity to meet its liabilities as they mature. This is both in normal conditions and stress scenarios without incurring significant losses or risking damage to the Bank's reputation.

As mentioned earlier, the Bank aims to maintain the optimal level of liquid assets to ensure not only smooth operation under normal conditions but also to operate under stress scenarios in the markets. In 2023, the Bank maintained a solid liquidity position with high levels of liquidity during the second half of the year.

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The following table shows the distribution of liquid assets in the last two years:

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Cash and liquid assets are those assets readily accepted as collateral by central banks in Colombia and other jurisdictions for monetary expansion or contraction operations. Liquid assets are adjusted by a reduction. They include cash, repos held for trading, and investments held for trading in stocks listed on the Colombian Stock Exchange, units of investment funds, or other debt trading instruments.

*High-quality liquid assets: Cash and shares that are eligible for reportable or repo operations, in addition to those liquid assets that the Central Bank receives for its monetary expansion and contraction operations described in Paragraph 3.1.1 of the Foreign Regulatory Circular DODM-142 of Bank of the Republic.

**Other marketable securities: Securities issued by financial and corporate entities.

As of December 31, 2023, liquid assets grew by COP 2,621,000 million primarily due to the increase in high-quality liquid securities. This change stems from increased deposits and excess liquidity managed through the treasury portfolio with purchases of liquid securities.

The Bank measures liquid assets on a daily basis and compares the result with a target set by the Risk Committee. Under this rule, daily liquid assets must be equal to or greater than the target. In case the limit is not reached, there is a period of five days to increase liquidity levels.

Cash is important to ensure branch and ATM operations. The Bank's expansion throughout Colombia requires significant levels of cash, and cash levels are monitored on a daily basis to minimize opportunity costs. In addition, cash is considered in the mandatory bank reserve established by the Central Bank.

Marketable securities comprising liquid assets are reviewed by the ALM Committee considering the Bank's liquidity objective. Although available-for-sale and held-to-maturity debt securities cannot be sold, they can be pledged as collateral in repurchase agreements. Some of them are mandatory investments that can be sent to the Central Bank as collateral.

The Financial Superintendence of Colombia (SFC) requires financial institutions to have liquid assets greater than the contractual one-month accumulated liquidity gap. This contractual gap reflects the maturity of current asset and liability positions and does not reflect projections of future operations. The maturity of the loan portfolio for this purpose is affected by the historical default indicator and the maturity of deposits is modeled in accordance with regulation.

The Bank's management believes that the current level of liquidity is adequate and seeks to maintain its strong deposit base and access to alternative sources of funding, such as loans from domestic and international development and commercial banks, repurchase agreements, bond issuances, overnight funds, and Central Bank funds, considering market conditions, interest rates and the desired maturity profile of liabilities.

Financing Structure

As of December 31, 2023, the Bank's liabilities reached COP 303,879,000 million, a 2.86% decrease compared to December 31, 2022. Liabilities in COP increased by 10.46%, while liabilities in USD decreased by 20.64%. This change is mainly due to the increase in time deposits in COP, offset by a decrease in savings and checking accounts in COP, financial obligations, and debt securities in USD. However, while USD liabilities decreased by 20.64%, this reduction was affected by the appreciation of the USD to COP exchange rate (20.54% in 2023).

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In 2023, the Bank's deposits amounted to COP 247,941,000 million at the year-end, a decrease of COP 3,051,000 million, or 1.22%, compared to 2022. Deposits in COP increased by 9.18%, primarily due to the rise in time deposits. In contrast, deposits in USD decreased by 17.25% due to the reduction in savings accounts and the effect of exchange rate fluctuations. The ratio between deposits and total assets was 72.3%. This represented an increase of 116 basis points compared to 2022.

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The following table shows checking accounts, savings accounts, and time deposits as a percentage of the Bank's total liabilities for 2023 and 2022:

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The Bank's main sources of funding are deposits. They are mainly composed of checking accounts, time deposits, and savings accounts. During 2023, term deposits played a key role in the balance sheet financial structure. High inflation led the Bank of the Republic to maintain a contractionary monetary policy. Consequently, there was lower demand for liquidity and credit, prompting investors to rebalance their portfolios towards higher-yield investments. As a result, the cost of funds was negatively affected due to high interest rates. Additionally, the increase in time deposits was offset by the reduction in demand deposits.

Deposits as a percentage of the Bank's total liabilities in 2023 were 81.6%. This percentage increased compared to the 80.1% of total liabilities at the end of the 2022 fiscal year.

The ratio between net portfolio and deposits (including loans from other institutions) was 90.19% at the end of 2023. This figure decreased from 94.00% compared to 2022. This change is mainly explained by the decrease in net loans and advances to customers. These decreased from COP 254,444,000 million in 2022 to COP 237,728,000 in 2023. The reduction was less compared to the variation in deposits (the reduction was COP 7,095,000 million, reaching a total of COP 263,589,000 million in 2023).

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The Bank also finances its operations with loans from financial institutions. However, the primary source of funding during 2023 was time deposits as interest rates remained high and liquidity demand was lower. Moreover, time deposits and loans with financial institutions are indexed to different market rates and indices such as the IBR (an overnight reference interest rate of the Colombian money market liquidity reflecting the price at which banks are willing to lend or borrow funds in the financial market), DTF, IPC1, LIBOR, and SOFR.

Furthermore, compliance with the CFEN in 2023, increased inflation, high-interest rates, and local and international political uncertainty generated additional pressures on the cost of short and long-term financing operations.

Outstanding Debt Instruments

In 2023, Bancolombia issued USD 50.5 million in bonds, while Bancolombia Panamá, Bancolombia Puerto Rico, and Banistmo issued bonds amounting to USD 41.9 million, USD 69.6 million, and USD 122.2 million, respectively. However, a prepayment of USD 468 million in senior bonds was executed during 2023. Consequently, the carrying amount of the issued obligations decreased by COP 4,912,000 million.

As of December 31, 2023, the total aggregate principal amount outstanding of bonds issued by the Bank was COP 14,663 million.

The following table shows the maturity profile of the Bank's debt securities in issue:

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The following table outlines the components of the Bank's liabilities for fiscal years 2023 and 2022:

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(1) Includes borrowings from commercial banks and other non-financial entities.

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Consolidated Cash Flow Statement

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The following table displays the net cash provided by operating activities, net cash used in investing activities, and net cash used in financing activities for the years ended December 31, 2023, 2022, and 2021:

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Operational Activities

In 2023, operating activities generated a positive net cash flow due to the increase of COP 17,025,000 million in customer deposits, compared to an increase of COP 23,214,000 million in 2022, and COP 34,702,000 million in interest received, compared to COP 23,603,000 million in 2022.

The increase in loans and advances to customers and financial institutions was COP 10,554,000 million, compared to COP 37,593,000 million and COP 24,057,000 million in 2022 and 2021, respectively.  Interest payments resulted in a cash outflow of COP 15,978,000 million in 2023, COP 7,508,000 million in 2022, and COP 4,410,000 million in 2021. The net change in the value of investment securities recognized at fair value through profit or loss was negative at COP 1,988,000 million in 2023. This compares to 2022 when the net change was COP 6,321,000 million.

Investment Activities

In 2023, the Bank purchased debt securities at amortized cost for COP 3,629,000 million, COP 4,915,000 million in 2022, and COP 3,722,000 million in 2021. The maturity of debt securities at amortized cost contributed COP 4,738,000 million in 2023, COP 4,260,000 million in 2022, and COP 2,984,000 million in 2021.

Investment activities related to debt instruments at fair value through OCI provided net cash of COP 1,415,000 million during 2023 and COP 235,000 million during 2022. Investment activities associated with equity securities and interests in associates utilized net cash of COP 106,000 million during 2023, whereas in 2022 it used COP 56,000 million. Investment activities related to purchases and sales of property, equipment, and investment properties utilized net cash of COP 2,226,000 million, compared to COP 3,117,000 million used during 2022 and COP 1,632,000 million in 2021.

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Financing Activities

The proceeds from loans to other financial institutions contributed COP 9,855,000 million in 2023, COP 14,374,000 million in 2022, and COP 4,182,000 million in 2021. The issuance of outstanding debt securities provided COP 1,781,000 million in 2023, COP 2,138 million in 2022, and COP 1,387,000 million in 2021.

The repayment of loans used COP 9,921,000 million in 2023, compared to COP 5,874,000 million used in 2022 and COP 8,447,000 million used in 2021. Similarly, debt securities payments in issuance utilized COP 3,928,000 million during 2023, COP 6,699,000 million during 2022, and COP 1,871,000 million during 2021.

Cash was also used to pay dividends of COP 3,298,000 million to shareholders. In 2022 and 2021, this amount was COP 2,310,000 million and COP 467,000 million, respectively.

The decrease in repurchase agreements and other similar secured loans provided cash of COP 304,000 million, compared to the COP 579,000 million used in 2022 and COP 1,457,000 million in 2021.

Capital Solvency

The Bank and its subsidiaries comply with the capital solvency requirements in their respective operating countries.

The equity attributable to Bancolombia's owners amounted to COP 38,090,000 million as of December 31, 2023, which is 2.56% lower than the COP 39,089,000 million recorded as of December 31, 2022. This decrease is mainly explained by the appreciation of the Colombian peso against the US dollar and the lower net income generated during the period.

The Bank’s consolidated capital solvency ratio was 13.40% as of December 31, 2023, higher than the 12.79% in 2022.

The Bank's capital solvency ratio exceeded the requirements of the Colombian government and the Superintendence of Finance by 440 basis points above the minimum 9% required by the Colombian regulator. The core capital ratio (Tier 1) was 11.42 % and the tangible capital ratio, which is equal to the ratio of the difference between net equity and goodwill and intangible assets over tangible assets, was 8.66 % at the end of 2023. For a complete description of the Bank's capital adequacy requirements, see Item 4. "Information about the Company - B. Business Overview - B.8 - Supervision and Regulation".

The following table provides information on the Bank's consolidated capital solvency as of December 31, 2023, and 2022:

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(1)Technical capital is the sum of core and additional capital.

(2)Capital solvency is calculated by dividing technical capital by risk-weighted assets.

Seasonality in Deposits

Historically, the bank has experienced a certain seasonality in its demand deposits. It has had low levels of liquidity during the first months of the year and high levels of liquidity at the end of the year. This behavior is mainly explained by the increase in liquidity due to the monetary expansion operations carried out by the Bank of the Republic and the National Government injecting liquidity to the market in response to the greater dynamics in the economic activity and the high transaction rate.

In 2023, inflation remained above the target range, prompting the Central Bank to maintain high interest rates. This resulted in reduced liquidity preference, credit operations, and an increase in investments in time deposits. While demand deposits decreased over the year, the last quarter witnessed significant growth in savings and checking accounts.

However, we believe that the seasonality in deposits does not have a significant impact on the operation of the business, as the excess/shortage of liquidity is managed through the treasury portfolio.

Equities Performance

Throughout 2023, the performance of Bancolombia's common and preferred shares closely mirrored the movement of the COLCAP index.

Bancolombia's common stock concluded 2023 with a yearly variation of -22%. It experienced devaluation throughout the year, hitting a low of COP 27,200 on September 06, 2023, and reaching a peak of COP 44,000 on January 11, 2023. All of this aligns with the positive trend observed at the end of 2022.

The preferred stock had an annual variation of -11%, reflecting a trend similar to the market (COLCAP -7% annually). It reached its peak at COP 35,490 on January 31, 2023. Subsequently, the price declined to a minimum of COP 25,100 with some recovery in the last quarter to close 2023 at approximately COP 29,920.

Bancolombia Common and Preferred Price Evolution vs. COLCAP

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At the end of 2023, the price of Bancolombia's ADR increased 8% compared to the end of 2022. This is largely attributed to the Colombian peso's stronger performance against the US dollar, experiencing an appreciation of 21% annually. During 2023, the ADR reached a peak of USD 31.00 and a low of USD 22.26. A noticeable upward trend was observed since the last quarter of the year.

Bancolombia ADR vs. Representative Market Rate (TRM) Price Evolution

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Bancolombia, TRM, and COLCAP Price Variation

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General Local Market Information

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Trading volume in Bancolombia's common and preferred shares peaked in February. The trading activity during the first quarter of 2023 was the highest. However, there was a decline in common shares, while preferred shares maintained volumes close to COP 250,000 million. There was a resurgence in trading activity observed in September and December. On average, the monthly trading volume for Bancolombia's common shares in 2023 was COP 119,000 million. The volume of preferred shares was 2.3 times higher than that observed in common shares.

Monthly Volume of Bancolombia's Common and Preferred Shares

Fixed Income Performance

In 2023, there was a debt management event for Bancolombia in the international market. In July, we conducted a repurchase operation for the ordinary bonds maturing on January 29, 2025. The face value was USD 950 million with a 3% coupon rate. The purpose of this transaction was to prepare for the maturity of this bond and capitalize on the available market opportunity by conducting this operation. The total amount collected was USD 467,966

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million, which corresponds to 49.26% of the bond's face value. This amount exceeded the initial offering of USD 370 million by 1.26 times.

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Tiers of Grupo Bancolombia Bonds in USD

(December 29, 2023)

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Analyzing the average variations in credit spreads of Grupo Bancolombia bonds during 2023, we observe that Banistmo 2027 bonds experienced a 44 basis points (bps) increase in their credit spread. Additionally, Bancolombia 2029 and 2025 bonds saw a slight rise of 4 and 2 bps, respectively. Meanwhile, the 2027 bond experienced a decrease of 15 basis points in its credit spread.

Bancolombia Bond Credit Spreads

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General Local Primary Market Information

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Capital Investments and Divestments

As Bancolombia Group, we invested in 2023 COP 699,953 million, including investments in digital evolution and technology assets (COP 520,219 million) and the development of channels and fixed assets (COP 179,735 million).

For 2024, we anticipate investing approximately COP 772,956 million, representing a 10.4% annual variation. Investment remains relatively stable. This is partly due to last year's expectations when we anticipated a stabilization in fixed asset investment. Nevertheless, we continue with a high investment focus on technology and digital development, cybersecurity enhancement, and cloud migration. We also anticipate investing in channels and tools to diversify the digital offering. Additionally, we plan to invest in data analytics, reinforce machines to support processing in non-productive environments, and evolve the ERP system.

Profit Distribution Project

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BANCOLOMBIA S.A. ANNOUNCES PROFIT DISTRIBUTION PLAN

The Board of Directors of Bancolombia S.A. presents for the consideration of the upcoming Ordinary General Shareholders' Meeting in March a profit distribution project that considers the following aspects:

(i)Bancolombia will continue to maintain an adequate capital structure and an optimal level of solvency to meet the expected growth of the business, maintaining prudential standards above regulatory levels.

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(ii)Business projections in 2024 are based on moderate asset growth, stability in overall business performance, and a return on equity substantially above projected inflation for Colombia.

Based on the foregoing, the Board of Directors will submit to the consideration of the shareholders the profit distribution project described below:

(i)The payment of an annual dividend of COP 3,536 per share, payable in 4 quarterly installments of COP 884 per share and quarter, on the following dates: April 01, July 02, October 01, 2024, and January 02, 2025. Dividends for consideration by the Meeting will be recognized for both outstanding common and preferred shares.

(ii)The constitution of an occasional reserve for the patrimonial strengthening and future growth of the entity for COP 2.61 trillion.

(iii)An occasional reserve available to the Board of Directors for donations to social benefit projects for COP 33,000 million.

The following is the proposed profit distribution that the Board of Directors will present for approval at the Meeting:

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Figures expressed in Colombian pesos (COP)

The ex-dividend period will be between the first business day of dividends payment of the corresponding shares and the preceding 4 business days as follows:

(*) The ex-dividend period dates will be subject to adjustments as determined by the Colombian Stock Exchange.

Our Commitment to Investors

As an issuer in the capital markets, we are committed to upholding the highest standards of financial disclosure and engaging with our shareholders. Our objective is to foster a close relationship that allows us to effectively communicate the impact of our strategy.

Our specialized channels for maintaining contact with the markets include the Bancolombia Shareholder Service Center and the Investor Relations Department. This is how we address the needs of our shareholders and keep them informed about the business outlook and developments.

Throughout 2023, we participated in 15 international in-person events and virtual capital market panels. We interacted with several institutional funds investing in Bancolombia. Thanks to virtual platforms, we also increased the number of meetings with investors, investment analysts, and risk rating agencies. They closely follow Bancolombia and its subsidiaries' performance, perceiving our company as an appealing investment option.

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Four earnings conferences are held to keep our investor community informed. We report on progress in implementing our strategy, business results, and prospects. We participated in various forums as presenters. We addressed concerns and communicated key messages, such as the organization's digital transformation and sustainability efforts.

In 2023, Bancolombia consolidated its status as an IR Recognition issuer. This recognition is granted by the Colombian Stock Exchange (bvc) to companies that adhere to the best practices in information disclosure and investor relations.

Milestones, Initiatives, and Achievements

The financial sector is one of the main drivers of our countries' economies. This is achieved through the support we provide to natural persons, companies across all sectors of the economy, and the public sector. We aim to implement initiatives that foster growth, competitiveness, and well-being for all.

Committed to this role, Bancolombia aims to strike a balance between the necessary growth to provide robust support to our customers and create value for all our stakeholders, and the prudent management of our operations. This encompasses leveraging income, managing portfolios, controlling expenses, and enhancing efficiency.

We provide responsible lending

*Figures as of December 31

*Preliminary data as of December 31

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In 2023, we faced significant challenges in growing our portfolio. This was attributed to factors such as high interest rates and reduced purchasing power for families driven by inflation.

In that scenario, we maintained our strategy of pursuing healthy origination for individuals and independents using analytical models. Through this approach, we disbursed COP 7,800,000 million to over 664,000 financially sound customers. Similarly, we extended assistance to over 48,000 individuals through instruments like order of payments.

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Portfolio containment and recovery was also a challenge. We promote initiatives with customers in good standing, with early delinquencies or with deteriorated balances. We improve reachability, payment incentives, and digital collections.

In terms of corporate business, 2023 was a challenging year, with several factors anticipating a more complex and volatile market landscape. However, we continue to accompany our customers in their needs.

Regarding the commercial portfolio (which represents 63.8% of the total), over 70% of the placements were new credits for over 2,000 companies. They now see us as their ally and reference for their short and long-term needs. This comes alongside effective risk management, with a stable non-performing loan ratio throughout the second half.

In Guatemala, we have also strengthened our value proposition across various segments to continue supporting our customers in their needs while fostering healthy growth. This includes an increase in placements and retention across various credit modalities, as well as a 53% rise in Bancaseguros placements.

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Capital Management and Efficiency

We made progress in optimizing the Grupo Bancolombia’s capital structure. To achieve this, we designed a capital utilization methodology that prioritizes equity. It has enabled us to increase dividend payouts and maintain a solvency ratio above 10.5%, thereby contributing to profitability and meeting regulatory and business requirements.

Amidst the current environment, we achieved effective liquidity management. We optimized the Net Interest Margin performance and interest rate risk through our asset and liability management.

From Treasury, we achieved outstanding revenue performance: in 2023, we reached 32.5% of the annual revenue budget and achieved net earnings excluding CD of COP 785,300 million. With customers across various segments, we highlight a 47% increase in hedging revenues (COP 155,000 million). Additionally, we have created avenues for market updates and risk management strategy discussions.

In the Capital Markets arena, we secured approval and negotiated the first working capital credit with Deutsche Bank. This marks the first of its kind for a financial institution worldwide. We also successfully completed a buyback operation for a portion of the senior bonds maturing in January 2025, with a face value of USD 950 million. The transaction was closed at USD 468 million (1.26 times the original offer amount). The transaction leveraged the subsidiaries' dividend availability and a favorable market window, resulting in savings of USD 17 million on the repurchase price and USD 14 million in interest expenses.

Regarding efficiency initiatives, we highlight several efforts. One of them is the corporate EFITÓN. Its purpose is to drive the implementation of initiatives that improve efficiency and productivity, which in 2023 generated efficiency savings of COP 832,181 million.

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At the same time, efficiencies, increased speed, precision, and future vision were achieved by leveraging analytics and digital evolution in financial practice. With the models developed using cross-analytical capabilities, annual efficiencies of COP 29,406 million were generated in contract optimization, cash storage management, analysis of customer financial behavior, and disclosure of information to shareholders and external parties.

In line with this, we evolved the service model of the finance function to better align with the business, anticipate solutions, and align strategy with financial objectives. This model has enhanced capacity to address challenges and support the business in its initiatives from inception, guiding strategic alternatives for the future.

Furthermore, we optimized processes in financial closing and quarterly result generation. This enables us to analyze and disclose information promptly (within the first 9 days of the following month).

Meanwhile, we continued to implement automation. With over 1,614 digital enablers and automation services in 426 processes across the organization, we achieved efficiencies totaling COP 9,826 million and reduced operational risk by over COP 38,817 million. Thanks to this evolution, we generated economic benefits equivalent to COP 128,472 million by avoiding expenses through the effective use of technology.

All of these efforts have been accompanied by a redefinition of the financial role. This has been facilitated by evolving the vision of success within the function, modernizing the operating model, and implementing a knowledge management strategy and talent mindset in finance.

Venture Capital Investment

Since 2018, Bancolombia Ventures, the Corporate Venture Capital (CVC) arm of the Grupo Bancolombia, has been in operation. It aims to invest in startups with high growth potential aligned with the bank's business strategy.

Since then, it has completed 46 transactions involving 32 companies. Notable transactions include alternative loans with investments such as Agricapital and Blup (a smart inventory financing solution), venture capital funds like Veronorte and Anthemis, and Consumer/Wealthtech companies, including Trii, Quipu, and N1CO.

Bancolombia Ventures also manages the impact investment fund of the Fundación Bancolombia. Through this fund, 12 transactions have been completed involving 9 companies, such as SunColombia, Páramo Snacks, and Urbania. It has made an impact on individuals in rural Colombia, reaching 32 out of the country's 33 departments.

In 2023, 20 investments totaling USD 17.8 million were made in startups. This brings the committed capital and impact portfolio to USD 49.2 million. 

We also launched our Startup Management Office to strengthen the relationship between Bancolombia and key startups supporting the organization's focus strategies. This promotes experimentation to reduce uncertainty and enhance decision-making in structuring alliances and investments, maximizing outcomes for both parties.  

We mapped out relationships with over 110 startups over the past four years. Through these partnerships, we have leveraged strategic capabilities including customer insights, customer experience, financial inclusion, banking aggregation, risk models, and access to non-

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customers. We have also supported 13 startups in connecting with the bank, taking a comprehensive approach to strengthen their financial capabilities and address areas of weakness.  

Miami Operation

Bancolombia Capital Miami began its operations in the United States in August 2022 and has since consolidated its operation.   The entity currently manages USD 450 million across its two broker-dealer and investment adviser businesses.  Through them, customers can access products traded in public markets and funds with various investment strategies in stocks and bonds across many sectors and countries in both public and private markets.

This year, we secured the first Multilateral Organization (Professional Investor) to invest funds in two of our Collective Investment Funds for Liquidity through a local custodian (Trust Entity). This opened doors to foreign professional investors interested in efficiently managing their liquidity and investment opportunities for medium and long-term goals.

Sustainable Funding

At Grupo Bancolombia, we have been consolidating a sustainable finance strategy to offer individuals and businesses solutions for harmonious relationships with the environment and the community.

Therefore, we aim to promote company projects that enable a transition to a low-carbon economy and contribute to closing social gaps and/or access to health or drinking water through the issuance of green, social, sustainable, and sustainability-linked bonds. We have also taken the message to the stock market that investments can generate social and environmental value.

Additionally, we continue to achieve milestones in accessing financing from international banks with a sustainability-linked loan worth USD 100 million received during 2023. Combined with two similar operations in 2022, this brings our total to USD 350 million in such credits. The resources are used for working capital and trade. They include commitments to financing goals for sustainable initiatives, women in leadership positions, and reducing carbon emissions.

To date, we have issued 6 bond issues for a total amount of COP 2,700,000 million and we have supported financed renewable energy, sustainable construction, women entrepreneur empowerment, social infrastructure, circular economy, and access to affordable housing initiatives. We are also committed to increase access to financing for unbanked and underserved low-income people and to achieve a reduction in financed CO₂ emissions.

These bond issuances were conducted in Colombia and Panama. They had both domestic and international buyers, including the International Finance Corporation (IFC), the Inter-American Development Bank (IDB), and investors from the primary market. In accordance with the established Green, Social, Sustainable & Sustainability-Linked Bond Principles by the ICMA, we hereby provide the status of the 6 issuances as of December 31, 2023.

First Issuance: 2016 Bancolombia Green Bond

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From the first issuance in 2016, 60% of the financed projects consist of small hydroelectric plants operating at the water's edge without dams, with capacities less than 20MW, and solar power plants. The other 40% are sustainable construction projects. This bond matured in December 2023.

Second Issuance: 2018 Bancolombia Green Bond

On July 18, 2018, we conducted a second green bond issuance totaling COP 300,000 million in 2 series: Series 1 amounted to COP 153,306 million, maturing in July 2021, and Series 2 amounted to COP 146,694 million, maturing in July 2023. 23% of the projects financed with this issuance correspond to sustainable construction projects. The remaining 77% are renewable energy projects. 100% of the resources have been allocated and disbursed.

Data from the second issuance - Series 2, as of July 18, 2023:

Third Issuance: 2019 Bancolombia Sustainable Bond

On July 19, 2019, we conducted the first issuance sustainable bond issuance for COP 657,000 million. This was fully acquired by the IDB and marked the third issuance with sustainable characteristics. 98% of the funds are allocated to green projects focused on sustainable construction, cleaner production, and energy efficiency. The remaining 2% corresponds to social projects focused on public housing. 100% of the resources have been allocated and disbursed.

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Sustainable Development Goals to which we contribute with this issuance: SDG 11: Sustainable cities and communities, SDG 9: Industry, innovation, and infrastructure, SDG 7: Affordable and clean energy, SDG 6: Clean water and sanitation, SDG 4: Quality education and SDG 3: Good health and well-being.

Fourth Issuance: Bancolombia Sustainable Bond

On September 16, 2021, we executed the second sustainable bond issuance for COP 600,000 million in the Colombian primary market. 78% of the resources correspond to green projects focused on renewable energy, sustainable construction, and circular economy. The remaining 22% corresponds to social projects focused on affordable housing, social infrastructure, and women's empowerment. 100% of the resources have been allocated and disbursed.

Sustainable Development Goals to which we contribute with this issuance: SDG 1: No poverty, SDG 3: Good health and well-being, SDG 5: Gender equality, SDG 7: Affordable and clean energy, SDG 8: Decent work and economic growth, SDG 9: Industry, innovation, and infrastructure, SDG 10: Reduced inequalities, SDG 11: Sustainable cities and communities; SDG 12: Responsible consumption and production and SDG 13: Climate action.

Fifth Issuance: Bond Tied to Sustainable Performance

In October 2022, we were the first financial institution in Latin America to issue a sustainability-linked bond for COP 640,000 million with a 5-year term, acquired by the IDB, IDB Invest, and the Latin American Green Bond Fund (LAGreen). Under this operation, the conditions are linked to achieving two objectives by 2025 aligned with our purpose: 1) To increase financing for unbanked or underserved individuals with low incomes and 2) To reduce CO2-intensive emissions financed (tons of CO₂e per COP million) per portfolio. The results achieved by the end of 2023 and their assurance are directly disclosed  on our website.

Additionally, this issuance has a specific framework aligned with the 2020 Sustainability-linked Bonds Principles (SLBP) of the ICMA (International Capital Market Association), certified by Sustainalytics as an independent third party, and the local regulations applicable to these instruments.

First Issuance: Banistmo Gender Social Bond  

In August 2019, Banistmo, our subsidiary in Panama, issued the first gender-focused social bond in Latin America for USD 50 million. It was structured and underwritten by IDB Invest and aligned with its female economic empowerment strategy and its commitments to the Gender Parity Initiative, the Seal of Equality, and UN Women's Empowerment Principles.

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100% of the resources are to enable access to financing for SMEs led by women and commercial loans to women-owned small businesses, focused on the trade, services, and agribusiness sectors.

In August 2021, 100% of the resources were allocated and disbursed, benefiting 311 SMEs led by women.

Sustainable Development Goals to which we contribute with this issuance: SDG 5: Gender equality, SDG 8: Decent work and economic growth and SDG 9: Industry, innovation, and infrastructure.

This bond continued in force during 2023.

Loans Tied to Sustainable Performance

Below are the results as of the end of 2023 for the indicators we committed to through the sustainability-linked loans totaling USD 350 million from international banks:

Responsible Investment  

At Grupo Bancolombia, we are committed to implementing best practices in responsible investing. We recognize that Environmental, Social, and Corporate Governance (ESG) criteria are essential for fulfilling our fiduciary duty.

Since our 2014 adherence to the Principles for Responsible Investment (PRI), supported by the United Nations, we have challenged ourselves to incorporate these criteria as a fundamental and integral element in all our investment processes. On this journey, and with the experience and knowledge acquired, we have deepened the integration of sustainability in our products and service offerings, our recommendations to the market, and our own position. In 2023, we reached the following milestones:

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Eco-Efficiency

This chapter includes the eco-efficiency management implemented in 2023 and describes the results obtained in Grupo Bancolombia's operations in Colombia, Panama, El Salvador, and Guatemala. It also includes information on our Renting and Transportempo business.

In our direct operation we use natural resources such as energy, water, paper, among others, which requires a conscious management to reduce our impact and a commitment to define a strategy to reduce consumption consistent with our corporate purpose. For this purpose, we carry out permanent monitoring aligned with reduction goals.

From 2010 to 2020, we surpassed our targets. To reinforce our commitment, we set higher goals by establishing a new baseline in 2019. In 2023, expenditures generally increased as the bank resumed normal operations. Compared to 2019, we are still on a downward trend in terms of meeting our 2030 targets.

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Environmental Management System

Describes the framework, structures, principles and guidelines for planning, organizing, executing, monitoring, controlling and ensuring the continuous improvement of our environmental performance. This is achieved through the prevention, control, and minimization of the environmental impacts of the operation in all the territories where we operate and by complying with the current environmental regulations that apply to us.  

We continue to focus our efforts on identifying opportunities for improvement and strengths of our actions. This allows us to continually improve the indicators of our mission axes in eco-efficiency, Environmental and Social Risk Analysis (ESRA), sustainable business, and climate change strategy.

Compliance with Current Environmental Laws and Regulations as a Framework for Bancolombia's Actions

In 2023, compliance with regulations and the commitments we have made in sustainability protocols and adhesions have remained among our priorities. We kept our environmental and social legal matrix periodically updated and managed, making the respective mandatory annual reports in the corresponding platforms.

GRI 301 Materials

At Grupo Bancolombia, we have undertaken several actions to redesign our processes and digitize and reduce paper consumption.

GRI 301-1

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Non-renewable materials used:

Not applicable: Given the bank's activities, non-renewable materials are not used in the provision of services.

Renewable materials used: We only quantify paper usage within this category.

In 2023, our paper consumption totaled 822 tons. This represents an improvement in consumption compared to 2022, with a reduction of 9.3%. Compared to 2019, there was a reduction in consumption of 283 tons, representing a 26% decrease.

GRI 302 Energy Management

Through our Energy Model, we achieved a 0.06% reduction in energy consumption compared to 2022. Compared to 2019, we achieved an 18% reduction. This amounts to a reduction of 69,798,179.8 MJh.

GRI 302-1, GRI 302-3, GRI 302-4

Renewable resource

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Non-renewable resource

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Total energy and energy intensity (Renewable + Non-Renewable)

Each year, we aim to reduce energy consumption. The following table illustrates the changes since the baseline year. We calculate energy intensity based on the number of employees and suppliers remaining on the premises.

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Achievement of the Energy Consumption Target

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Remarks:

Energy Efficiency

Based on constant monitoring of energy consumption in branches and buildings, we continued with the implementation and research of energy efficiency strategies to identify and intervene in deviations that could alter the achievement of our goals. Thus, we have

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strengthened our strategies at the corporate level, integrating the actions we implement in each of the countries where we operate.

Renewable Energy

We remain committed to using 100% renewable energy in our operations by 2030. In 2023, 81% of our energy consumption was renewable, aligning with our climate commitments in each country:

Self-generated non-conventional renewable energy: we continue to explore implementation projects based on the analysis of our infrastructure.

GRI 305 Emissions

Climate change is a growing challenge. Therefore, Bancolombia is committed to defining concrete actions to actively contribute to mitigation and compensation from our direct operations and move towards a low-carbon economy.

In 2020, we redefined our science-based target for Scopes 1 and 2, aligned with a 1.5°C scenario. We also committed to reduce our direct emissions by 73% by 2024 compared to 2019 emissions, and to achieve carbon neutrality in the countries where we operate by 2030. The definition of this target was based on the science-based methodology (SBTi - Science Base Targets Initiative).

Currently, we implement energy efficiency strategies and utilize renewable energy in 100% of our facilities. This includes the installation of photovoltaic systems in Colombia and El Salvador, as well as the purchase of 100% renewable energy certificates (REC) in Colombia and Panama, and 22% in Guatemala.  We have also planted over 170,000 trees with the Fundación Natura, estimated to capture 2,727 tons of CO₂e.

We calculate our carbon footprint using the GHG Protocol methodology.

GRI 305-1, GRI 305-2

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Direct emissions stem from our consumption of fossil fuels in emergency power generation plants at our branches, company vehicle usage in Guatemala and El Salvador, and indirect emissions associated with purchased electricity for our operations. The calculation includes CO₂ as a greenhouse gas because other gases do not contribute significantly when calculating.

In 2023, our market-based Scope 1 + 2 emissions decreased by 38% compared to 2022. We emitted 3,619 tons of CO₂e per year and achieved an 81% reduction compared to 2019.

During 2023, we updated fuel emission factors for fuels and electricity across countries.

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Market-Based emissions correspond to the purchase of renewable energy, which accounts for 100% in Colombia and Panama, and 22% in Guatemala.

Biogenic emissions: For Colombia, where B2 and B10 biodiesel is used, the corresponding percentage is calculated as biogenic emissions.

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GRI 305-3

Emissions associated with our paper consumption, business air travel, and logistic processes at our branches and buildings in Colombia. We will discuss our financed issues in detail in a later chapter. The calculation includes CO2 as a greenhouse gas because other gases do not contribute significantly when calculating.

In 2023, our Scope 3 emissions increased by 3% compared to 2022, totaling 1,688 tons of CO₂e per year. This rise is primarily due to increased corporate-level travel. Compared to 2019, a 46% reduction was achieved.

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