In December, the Federal Reserve raised interest rates for the fourth time in 2018 responding to strong US growth, low unemployment and core inflation readings above 2%.
Higher interest rates brought about weaker financial market conditions with 10 year US treasuries over 3% and LIBOR reaching its highest level in the last 10 years; equity markets started showing signs of stress.
Today we know that the Fed is taking deep developments into account with a more dovish outlook on the potential for future rate increases and a slowdown in the unwinding of its $4 trillion balance sheet.
Positive investment and portfolio fund flows ratcheted up growth expectations to close to 3%, growth rates Brazil hasn't seen in more than four years.
Although still subpar, growth rates of 2% or slightly higher are now possible for Latin America.
Recent developments such as the cancellation of the new airport project, uncertainty over the fate of energy reform threatening to curtail bank fees and potential government intervention in the writing of its independent entity, or a stark departure of what investors have come to expect from Mexico over the last 20 years.
Our Tier 1 capital ratio remains strong, our book value remains solid above $25 per share, and that is why our Board of Directors approved to maintain a $0.358 per share dividend.
First, let me highlight on page 4 the banks return to profitability, recording a fourth-quarter 2018 profit of $20.7 million or $0.52 per share in the improvement of quarter on quarter top line revenue by 13%, mainly on account of increased loan average portfolio balances and higher fees as well as the normalization of credit provisioning.
For the year 2018, profits of $11.1 million reflect impairment losses on financial instruments and nonfinancial assets for a total of $68 million.
Net interest income for the fourth quarter of 2018 increase by 2% quarter on quarter to $28 million, mainly driven by 4% increase in average loan balances in the absence of NPL's interest reversal, partly affected by higher low yielding liquid assets.
Although average deposits declined by 12% quarter on quarter, this trend was reverted by the end of the year resulting in a 7% quarter on quarter increase.
Consequently, liquid balances represented 22% of total assets at December 31, 2018.
Our estimation is that this temporary excess liquidity had a negative impact of approximately 17 basis points in net interest margin for the quarter.
Hence, the 13 basis points quarter on quarter declined in net interest margin to 1.61% is mostly attributable to these effects.
As a result of this overall decline and an average lending spreads throughout the year 2018, net interest income of $110 million represented a year on year decrease of 8%, and annual net interest margin of 1.71% declined by 14 basis points.
During the quarter, the bank originated $3.1 billion in loans, exceeding maturities by $54 million.
Loan disbursements for the year 2018 total $14.3 billion as we continue to perform well on our short-term origination capacity and we are also able to deploy longer tenor transactions with our traditional client base of top-quality financial institutions, exporting corporations, and multilatina.
As a result, our loan portfolio increased by 1% on ¼ on quarter basis and by 5% year on year to $5.8 billion as of December 31, 2018.
Now moving on to page 7, fees and commissions were relatively stable year on year at $17.2 million for 2018.
Fee income from letters of credit and contingencies performed well with quarter on quarter increase of 25% to $3.5 million.
On an annual basis, fees from this line of business increased by 12% to $12.3 million.
Quarterly fees from syndication, the other main component of degeneration for the bank, increased to $1.9 million in the fourth quarter and totaled $4.9 million for the year 2018, a 26% decrease from the previous year denoting that transaction based on even nature of this business.
The bank has positioned itself as a relevant player in originating syndicated transactions across the region and was able to close seven transactions during 2018 for a total of $847 million.
Overall exposure to financial institutions, sovereign and quasi-sovereign, represented 67% of the total commercial portfolio at year-end 2018 from 45% in 2015, denoting a continued improvement in portfolio quality over the last four years.
Financial institutions alone, the bank's traditional client base accounted for predominant 52% of total exposure in 2018.
Integrated oil and gas sector exposure accounted for 10% of the total portfolio as of December 31, 2018 and is mainly concentrated in quasi-sovereign entities which constitutes long-standing business relationships of the bank.
The remaining overall exposure is well diversified among several industry sectors, none of which exceeded 5% of total exposure as of December 31, 2018.
In terms of country exposure, Brazil represented 19% conmetric with the size and prospect of its economy and its relevance in international trade flows.
86% of Brazil's exposure is with banks, sovereign, and quasi-sovereign.
The average remaining tenor of the country's portfolio is approximately 14 ½ months with 67% maturing in 2019.
We are closely monitoring our exposures in Mexico, which constitutes 40% of total exposure, Argentina with 10%, and Costa Rica with 6%; countries in which the bank has identified very good business opportunities cognizant of relative and certainly that should start to unveil throughout 2019 such as possible adverse economic policies and outcomes of the newly established government in the case of Mexico and presidential elections in Argentina, which are critical to the continuity of recently implemented economic reform and adherence to the IMF accord.
Total commercial portfolio continued to be mostly short-term with an average remaining tenor of close to 11 months and with 74% maturing in 2019.
Trade-related loans represented 59% of the short-term bank portfolio at year-end.
On to page 10, we present the evolution of NPL and allowances for credit losses.
During the fourth quarter of 2018, the bank was able to reduce its NPL levels by $54 million as a result of the sale of an NPL and the restructuring of another.
Of the $54 million reduction during the quarter, the bank collected sales proceeds of $12 million, wrote up principal balances for $33 million against individually allocated credit allowances and recognized the new financial instrument at fair value for $9 million after restructuring terms.
NPL's then total $65 million in represented 1.12% of the loan portfolio at December 31, 2018, with ample reserve coverage of 1.6 times.
96% of banks NPL constitutes a single $62 million loan in the sugar sector in Brazil which significantly deteriorated during the third quarter of 2018 and was then classified as NPL.
This loan, individually provisioned at 75%, accounted for most of the increase in the allocated reserve for loan losses categorized as stage III under accounting standard IFRS-9.
At December 31, 2018, stage II exposure totaled $389 million of which $58 million corresponded to seven individual credits on the watchlist category which are performing but in runoff mode.
On page 11, quarterly operating expenses of $12.4 million showed ¼ on quarter seasonally high level.
Annual expenses totaling $48.9 million for 2018, increased by 4% year on year, mainly on nonrecurring expenses related to personnel restructuring and compensation of infrastructure platform.
Run rate base of annual operating expenses are estimated at approximately $46 million for 2018.
Efficiency ratio of 38% for the year 2018 reflects these nonrecurring expenses as well as lower topline revenues alluded to this board.
Now on page 12, I would like to summarize the main aspects for fourth-quarter and full-year 2018 results.
In the fourth quarter, the bank got back on a profitable track with a $20.7 million net income on the backdrop of quarter on quarter increase in topline revenue and portfolio average balances coupled with the normalization of credit provisioning.
Annual profits up $11.1 million were mostly impacted by credit impairments and to a lesser extent operational charges, all of which totaled $68 million.
Annual revenue decreased by 8%, mostly on account of lower average annual lending spread reflecting improved quality of the commercial portfolio although we saw a stabilization of credit spread in the last month of the year.
Capitalization remains solid at 18.1% Tier 1 ratio, while our Board of Directors capped our quarterly dividend unchanged at $0.385 per share.

Summary:
First, let me highlight on page 4 the banks return to profitability, recording a fourth-quarter 2018 profit of $20.7 million or $0.52 per share in the improvement of quarter on quarter top line revenue by 13%, mainly on account of increased loan average portfolio balances and higher fees as well as the normalization of credit provisioning.
For the year 2018, profits of $11.1 million reflect impairment losses on financial instruments and nonfinancial assets for a total of $68 million.
Net interest income for the fourth quarter of 2018 increase by 2% quarter on quarter to $28 million, mainly driven by 4% increase in average loan balances in the absence of NPL's interest reversal, partly affected by higher low yielding liquid assets.