Good day, ladies and gentlemen, and welcome to Bancolombia’s Second Quarter 2014 Earnings Conference Call. My name is Hilden. I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions) Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses and credit losses. All forward-looking statements, whether made in this conference call and future filings and press releases or verbally, address matters that involve risk and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general, economic and business conditions, changes in currency exchange rates and interest rates, introduction of the competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with SEC. With us today is Mr. Jaime Velasquez, Chief of Strategy and Financial Officer; Mr. José Humberto Acosta, Chief Financial Officer; Mr. Juan Carlos Mora, Chief Operating Officer; Rodrigo Prieto, Chief Risk Officer and Alejandro Mejia, Investor Relations Manager. I would now like to turn the presentation over to Mr. Acosta, Chief Financial Officer of Bancolombia. Please proceed sir. José Humberto Acosta Martin: Thank you very much. Good morning, and welcome to our second quarter 2014 results conference call. It is a pleasure to be with you, who follow so closely our operations and results. Let us start with a brief description of the main topics that impacted our business in this period. You can follow the slide presentation available at our Investor Relations website. First of all, I want to open this conference…

Thank you, José Humberto. Good morning to everybody. For those of you following the slide presentation, please go to Slide #3. After growing 4.7% in 2013, the Columbian GDP expanded to 6.4% during the first quarter of 2014, compared with the same quarter of the previous year. This figure was above the market expectation and our own forecast. This good result was driven mainly by construction, on both, residential and infrastructure projects. The Central Bank revised upwards its GDP growth projection for 2014 to 5%. We share that view as the second half of this year should be more dynamic, because the level of spending of the government pick-ups, as well as the households demands more goods. Unemployment rate continue dropping and ended May at 8.8%, down from 9.4% one year ago. This is good news, because of the high correlation between low unemployment and credit quality. Inflation for the 12 months ended in June 2014 was 2.8% and has been increasing towards 3%, which is the point target set by the Colombian Central Bank. These trends in inflation, plus stronger economic activity, let the Central Bank to increase the repo rate in the last four meetings ending in July at 4.25%. Although the hiking processes started earlier than expected, we see this action with good eyes, and could allow us to originate loans at the higher yield and eventually expand our NIM. Our expectation is that the repo rate will end 2014 at 4.5%. Regarding the FX, the Colombian peso experienced an appreciation of 4.5% during the second quarter of 2014, and 2.5% over the last year. This appreciation trend occurred in part because of capital inflows, resulting from a higher weight of Colombian sovereign papers in the JPMorgan Global Bond Indexes. In the micro front, we see that…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Carlos Macedo from Goldman Sachs. Carlos Macedo – Goldman Sachs: Good morning gentlemen. Congratulations on the strong operating results. I had one question and what wasn’t really operational, and hurt a little bit your top line which was investment, the margin on investments. Here, looking at the slide that you very graciously provided, number – if you could just get to Slide #9, you can see that for a very long time there was at least some consistency on the net investment margin, and then starting 2013, it was very volatile because of the volatility on the underlying securities. You mentioned that with the higher rates, we should expect this to improve a little bit going forward. What would be a typical run rate for this now that you have reduced your securities portfolio, and that you’re taking a little bit more conservative stance? What should we expect, assumingly it’s not going to be the 4% in the past, but is it going to be closer to 0%, 1%, 2% or where should we – at what level should we think about this going forward? José Humberto Acosta Martin: Yes, thank you. We expect regarding the interest rates are coming in the country for the next coming quarters, probably a NIM of security portfolio between 0% to 1.5%, 2%. We are not expecting a huge net interest margin in the securities portfolio. The third and fourth quarter could be around 1%. Obviously, we will see impacted mostly on the loan portfolio, because the appreciation of our assets, because we are asset sensitive. So, we are expecting an increase of the NIM of the loan portfolio maybe an extra 20 bps during the second quarter…

The next question comes from Frederic Mariz from UBS. Frederic de Mariz – UBS: Hi, good morning everyone. Thank you for the opportunity. A couple of questions on my side. A follow-up first on the loan growth. In the quarter, excluding Banistmo, you had a growth of 8.6%. I understand that the FX impact that you mentioned in your presentation, but you also mentioned again plus 10% to 15%. So apologies to insist, but where should we see the acceleration in the second half of this year. Is it mostly corporate? Does it related to the infrastructure stream in Columbia? Just getting a bit of color on this one. And then my second question is on the NPLs. We saw a very small increase in the NPLs for consumer and also for corporate. Just want to get a bit of color. I know it’s a small – it’s a low ratio and one of the strong ones in LatAm, but just wanted to get a bit of color on the trends, if there is any segment that you’re particularly concerned with? Thank you. José Humberto Acosta Martin: Yes. As you said, Frederic, thank you. Loan growth, we are expecting obviously in the second half of the year, which is mostly focused on corporate. We expect again, and we reaffirm the fact that we expect to close this year 13% of loan growth. And in terms of NPLs, we don’t expect that a specific deterioration, maybe in consumer loans, and that’s the result why we tight our credit standards, but we don’t foresee at least for the next two or three quarters any specific deterioration in any specific segment. And again, the second half of the year usually the loan growth is explained mainly by corporates in state of consumer loans. Frederic de Mariz – UBS: That’s great. Thank you. José Humberto Acosta Martin: I appreciate it, Frederic.

The next question comes from Tito Labarta from Deutsche Bank. Tito Labarta – Deutsche Bank: Hi, good morning. Thanks for the call. A question, just trying to understand your, kind of, long-term outlook for profitability. I know you gave some guidance for this year of 13.5% to 14%. But if you think little bit longer term, you’ve mentioned in the past getting back to 17% ROE. So I’m just troubling to see how to get to those numbers given your loan growth guidance around 10% to 15% seems a little low, given the economy in Columbia is doing really well and asset qualities under control, with particularly not growing much on the consumer side, maybe difficult to see some margin expansion, even though you do benefit from higher rates because you’re asset sensitive. So just want to – should we expect this 14% ROE in the longer term, or if you do expect it to get back to 17% which you mentioned in the past, how do you think you can get there? Is it going to come from stronger loan growth, more margin expansion which seems difficult to be not growing much in the consumer? So just want to get a better sense of your long-term outlook for profitability? Thank you. José Humberto Acosta Martin: Thank you, Tito. Yes, our guidance for medium term in terms of return on equities to go back to the level of 16%. And the main drivers to get that level for the next two or three years will be; first, try to maintain the cost under control and to get our efficiency level at around 15%. That will be the key element to go back to the level of 16%. Second, the Banistmo operation will begin to give us more level of profits…

The next question comes from Saúl Martínez from JP Morgan. Saúl Martínez – JP Morgan: Hi guys. I have one question, and it’s regarding your ROE guidance of 13.5% to 14%. Correct me if I am wrong, but that implies earnings of roughly COP 2 trillion in 2014. And given that in the first half, you’re a little bit below a COP 1 trillion, you really have to be doing about COP 500 trillion per quarter. I am struggling with how to get there to be frank, given your guidance for expenses, which implies a very big sequential acceleration in cost growth, 13% to 15%. I understand the full-year looks fine. I understand the accounting changes and the move to IFRS creates greater seasonality, but just mathematically that implies high single-digit Q-on-Q growth in third quarter and fourth quarter. Your fees, you mentioned are flat to slightly up. And your NIMs are not really moving up much according to your guidance. So can you help me understand how you’re going to be doing – how your earnings are going to improve meaningfully off from the 2Q base given the very fast sequential acceleration in cost growth that you see, how do you get to COP 2 trillion of earnings? How do you get to COP 500 billon-plus in the third and fourth quarter to get to your guidance? José Humberto Acosta Martin: Good morning, Saúl, and thank you. Yes, let's begin to talk about fees. Again fees, we really believe that we are right now able to get 12%, 13% in increase of fees, because we really are seeing an increasing of volume of transactions. As a result of that, you see debit cards and credit cards and bancassurance growing up. That will help us a lot in the second…

The next question comes from Jose Barria from Bank of America. Jose Barria – Bank of America Merrill Lynch: Thank you, José Humberto and team. Just want to go back to asset quality and look at the new PDL formation that you saw in the quarter, which was very good at COP 173 billion. It’s much lower than the first quarter. There seems to be some seasonality in the second quarter. When I look at 2013, there was also a big move down. I just would like to understand is this level of new NPL formation is actually something that we could expect going forward, or if the second quarter was particularly low for – because of some seasonal factor? And then on the back of that, what is your forecast for NPL ratio for this year and next, if you have it? Thank you.

We had during the second quarter, recoveries of the bad loans that we had during the last year. And we have a trend during the last three or four months that in the consumer portfolio that has maintained the level of our quality. So we expect during the next semester, we are going to have the same trend. We don’t know if the recoveries come, because those were specific in some credits, but the trend in consumer portfolio in its quality, we expect the same that we had. José Humberto Acosta Martin: Remember then, to understand right now we’re happy with past due loans in the balance sheet in Bancolombia, in Panama 90-days considering not past dues. So we have to do a next driver [ph] in terms of provisions that implies that we will have some kind of volatility in terms of provisions for the first 90 days on consolidated basis under Columbian GAAP. So that’s the main issues that the team of risk is doing right now in Panama, trying to reduce that volatility of past dues between zero to 90 days. Jose Barria – Bank of America Merrill Lynch: I see. So I guess going back to the question, the level of new PDLs that you see here in the quarter, which was COP 173 billion. Is that a normal run rate that you should expect for the second half of the year, or you’re not sure because of the recoveries?

I think that, we are not sure about the recoveries, but we think that we expect that in Banistmo we are going to have better recoveries in the range that José just said to you. So we expect – I don’t know if the recoveries of the bad loans that we had before, but we are sure that we are going to have better recoveries in the range between 30 and 90 days. Jose Barria – Bank of America Merrill Lynch: Okay, I see. And then I guess, finally the NPL ratio forecast that you’re working in your budget, what is it for this year? José Humberto Acosta Martin: 3%. At around 3% on the coverage, and around 150% Group. Jose Barria – Bank of America Merrill Lynch: Got it. Thank you. José Humberto Acosta Martin: Thank you, Jose.

The next question comes from José Restrepo from Serfinco. José Restrepo – Serfinco: Good morning, and congratulations on the results. I have one question regarding guidance here, which is the loan growth you are expecting in the coming year and in 2015, and if you can give us like the long-term ROE expectation that you have? José Humberto Acosta Martin: Thank you, José. As I mentioned previous – in the previous question, for long-term, our return on equity expectation is to go back to the level of 16%, again based on considerations that to improve the efficiency level. And loan growth, really it’s a factor of the growth of the economy. And you know the financial institutions, we are growing 2x, 2.5x the GDP growth. So we are expecting for next year almost the same level that we are expecting for this year, which is 10% to 15% annual basis. José Restrepo – Serfinco: Okay. Thank you. José Humberto Acosta Martin: Thank you, José.

The next question comes from Thiago Batista from Itaú. Thiago Batista – Banco Itaú BBA International: Yes, hi guys. I have just one question basically about the infrastructure projects. Could you comment on how much those projects can impact the bank’s operations in terms of loan growth and also on the bank’s margins? José Humberto Acosta Martin: Thank you, Thiago. Yes, we’ve talked about it in the previous quarter conference call. Obviously the infrastructure projects, we will materialize those projects in our books maybe at the end of next year in 2015 or fully at the beginning of 2016, because that kind of projects will take time. Obviously, our position as a bank is number one in Columbia. We will be ready to participate in those projects, but again, we are still not have clear the tenors, we still not have clear how we will design the lending structure with the government, with the constructors. So again you don’t see these reaction in our books at least this year, or at least the second half of next year. Thiago Batista – Banco Itaú BBA International: Okay, thank you. José Humberto Acosta Martin: The point is infrastructure was not a key relevant item in our loan portfolio at least the next 12 months. Thiago Batista – Banco Itaú BBA International: So the guidance of 10% to 15% is not incorporating any big impact of those projects? José Humberto Acosta Martin: No. Or in the corporate loans, some of it, maybe we are seeing couple of projects and we are analyzing, but that would not be a trend because this kind of projects you know, very well that they will begin to ask for lending only after six or 12 months of being assigned to a different constructor.

We have a delay, if we compare with expectations that we had for this year and the coming years, but we expect some growth in restructure portfolio at the second half of the next year, but we are going to have a little bit in the first half. I think that’s the answer for the question. Thiago Batista – Banco Itaú BBA International: Okay, thank you. José Humberto Acosta Martin: Thank you, Thiago.

The next question comes from Marcelo Telles from Credit Suisse. Marcelo Telles – Credit Suisse: Hi, good morning, everyone. Thanks for the opportunity. Congrats on the good results. Most of my questions have been answered, but I have just two follow-up questions. Can you just remind me what your expectation for cost of risk is for the year, and where you think you could maintain going forward? And the second question is regarding your NII growth expectations for the second half. If you – there is a very strong growth embedded there, so I believe that the driver from what you talked about will probably be also like a higher margin on the securities portfolio. But my question here is also if you look at your available-for-sale portfolio, there seem to be a sale of the securities, and since you had realized some losses in the P&L right from this available-for-sale. So I was wondering, if that would also help your NII in the second half of the year, because probably now you’re going to be able to reinvest at a higher rate. I know you’re shortened the duration, but you think there is any positive impact arising from that sale, because you’re going to be able to invest at a high interest rate versus what it was originally recorded? José Humberto Acosta Martin: Thank you, Marcelo. Cost of risk, we are expecting to maintain under control, and the cost of risk at the end of this year will be 1.5%, maintaining almost the same level as we had the previous years that was 1.6%. In terms of NII, again the NII performance of the second half will be mainly originated because of the loan portfolio. We are not expecting from the securities portfolio, because as you probably remember, the…

The next question comes from Boris Molina from Santander. Boris Molina – Santander Investment Securities: Yes, thank you. Good morning. We have just one remainder. What is your budget for integration expenses at Banistmo for this and next year, and how much did you spend in the second quarter? I remember there wasn’t much of an impact in the first quarter. So I just wanted to get an idea of how much was the impact this quarter, and what do you expect of the full-year this year and next year? José Humberto Acosta Martin: Regarding Banistmo operation we are contemplated – I would say the other way around. We are contemplated that the profits for the operation in Banistmo this year could be around $80 million. And that includes the integration of parent that we will expand, there in Panama. So remember that we have a contract during 18 months to implement some of our systems. So this line of expenses that will be reflected also as a major value of pieces of software. So that would be OpEx. So we don’t expect at least more than $15 million to $20 million in expenses regarding the projects of IT in Panama. Boris Molina – Santander Investment Securities: And if this figure is expected to come down significantly next year, or this should be a similar number? José Humberto Acosta Martin: It could be a similar number, because the integration process will take one year and a half. So we do expect these two years to have same level of CapEx. Boris Molina – Santander Investment Securities: Okay. Wonderful, thank you.

The next question comes from Cristian Hernández from Ultrabursatiles. Cristian Hernández – Ultrabursatiles: Hi guys, congratulations on your results. I was wondering – I’ve got two questions. First question is related to the cost of funding. How much do you guys expect it could go down eventually in the mid-term according to your strategy? And the second question is related to the efficiency ratio. What you guys expect would be the efficiency ratio at the end of the year, and how low it could get by the next year? Thanks. José Humberto Acosta Martin: Okay. Thank you, Cristian. Cost of funding, I would say that we took the advantage in the last 12 months and you saw a huge reduction of almost 70 bps in the funding cost. For the next coming two years, we don’t expect to reduce more of the funding cost. The other way around, we feel pressure to increase the funding cost, because the interest rate is going up, but the counterparty will be the asset side that will help us to offset that increase of the funding cost. So again, cost of funding, the better in terms of reduction happen in the last 18 months. In terms of efficiency, we will try to get to a level of 53% at the end of this year, and we are trying to realize it in 2016, we get to the level of 50% of efficiency ratio in the next coming two, three years. And the best way to understand that is if you check the number comparing expenses versus growth of assets, right now we are below 4%, which reflects that we have been able to grow faster the assets than expenses. Cristian Hernández – Ultrabursatiles: Low as you can get, right? José Humberto Acosta Martin: Right. Cristian Hernández – Ultrabursatiles: Okay, thank you.

The next question comes from Alonso Aramburú from BTG Pactual. Alonso Aramburú – BTG Pactual: Yes, hi. Good morning. Just a follow-up on your investment portfolio. Just wondering if you feel like you have more space to reduce the investment portfolio as a percentage of your asset mix in coming quarters similarly to what you did this quarter? And also on your investment margin. You mentioned comments regarding some of the measures that you took at the end of last year. I believe that includes some hedging on the portfolio. It used to be the case when you had a quarter with normal rates or most of your [ph] rates you had like 1% or 2% interest on spreads, but it seems like these days it’s close to flat. So my question is, is that what we should expect going forward if we have a quarter in which rates don’t move that much, your spreads should be close to zero? José Humberto Acosta Martin: Thank you, Alonso. Regarding the size of the security portfolio, we don’t expect to reduce that level of security portfolio, because one of the pillars of this bank is liquidity. So we want to maintain the level that we are having right now. So we want to reduce more – the reduction we did where mostly to reallocate to the lending business, which was a very good strategy, because that was reflected in the net interest income. Regarding the NII for the securities portfolio. Again, we do prefer to not count with value of rates in Columbia, and again we believe that the NII or the NIM from security portfolio, we’ll be looking at 0% to 1%. We are not expecting more than that. Alonso Aramburú – BTG Pactual: Okay, thank you. José Humberto Acosta Martin: And going to your first question. That would be the size of the security portfolio that we want to have, mostly because of the liquidity. Alonso Aramburú – BTG Pactual: Great, thank you. José Humberto Acosta Martin: Thank you, Alonso.

The next question comes from María Alejandra [ph] from Asesores en Valores. María Alejandra [ph] – Asesores en Valores: Well, good morning and thank you for the presentation. I would appreciate if you could please provide some color on target loans to assets, if you would expect to maintain the 69% reach for the second quarter, or if you expect to keep increasing maybe? José Humberto Acosta Martin: Thank you, Alejandra [ph]. We want to maintain this – the 69% is [indiscernible] sign of the asset side. So we don’t want to increase. We will maintain the 69%, 70% of loan portfolio. And we will maintain 9% or 10% in security portfolio. We won't change that mix. Again, we have to have liquidity, and because the 69% is comfortable [ph]. And the growth that we are expecting which is 10% to 15% we can certainly meet. María Alejandra [ph] – Asesores en Valores: Okay. Thank you very much.

The next question comes from Philip Finch from UBS. Philip Finch – UBS: Thank you very much for the presentation just now. Couple of questions. One is a follow-up really. You were talking about cost growth and NII growth of 9% in the second half. Can you just repeat what is your targeted efficiency ratio, or cost income ratio by the end of this year, and whether you have any, sort of, targets for next year? And my second question is to do with your effective tax rate which fell down 70 basis points. Any reason why it’s a bit lower this quarter? And going forward, what should a sustainable level that we should be working on? Thank you. José Humberto Acosta Martin: Thank you, Philip. Regarding cost of growth – regarding efficiency ratio, again we are expecting to grow this year at a level of 53%. Remember that two years ago, we were at a level of 59%. So we are doing our job regarding efficiency ratio. And the guidance for the next three years, again, is go to the level of 50%. Cost growth is – and we tried to explain that. This year we are registering the real expenses that we are doing in the bank, because of the IFRS. In the past, we made our calculation for the projected expenses every month. So that’s a reason why the first quarter you saw a very low level of expenses, because generally you have only two weeks of costs of expenses of different stakeholders that work with us. So the second half will be important, and the increase of cost for the whole year will be 15%. The first half only is 7%. And regarding the taxation, we are expecting our taxation rate of 28% during the whole 2014. Philip Finch – UBS: Okay, that’s very clear. José, can I just go back. So with the adoption – the early adoption of IFRS this year, surely next year the quarterly performance in terms of costs should be a lot more smoother. Is that an assumption we can make? José Humberto Acosta Martin: Absolutely. That is correct, Philip. Philip Finch – UBS: Great. Thank you, José.

With this, we have reached to the conclusion of our Q&A portion. I would like to turn the meeting over to Mr. Acosta for any final remarks. José Humberto Acosta Martin: Okay. Thank you for participated in our conference call and for your questions. Hope to see you in the next conference call that will take place in November. Thank you very much.