UPDATE: Puerto Rico's Popular 4Q Loss Widens Amid Higher Provision

Popular Inc. (BPOP), one of the winners in the regulator-driven consolidation of the banking industry in Puerto Rico last year, on Friday reported a wider fourth-quarter loss, as it set aside more funds to cover potential loan losses and took a charge related to loan sales.

Puerto Rico's largest bank by assets and deposits reported a $227 million fourth-quarter loss, compared to a $213.2 million loss a year earlier. Its shares dropped 1% to $3.27 in recent trading.

Popular, which has been struggling for its footing after the financial meltdown, is getting more aggressive in cleaning house, and decided to sell more mainland U.S. subprime mortgages and island construction loans it doesn't expect will be paid back in full. Popular took a $186 million charge related to its plans to sell $1 billion of loans.

On Monday, it said it would sell about $500 million of construction and commercial real-estate loans.

Many banks have taken such action in recent months, a sign that the benefit of getting rid of loans and the prices banks can fetch selling soured loans has begun to outweigh the short-term earnings hit from such dispositions.

Chairman and Chief Executive Richard Carrion said during a conference call with investors he expects the bank to be profitable this year. In a press release, he said the bank last year was "successful in strengthening our capital base and our leadership position in the Puerto Rico market. We also made significant progress in improving our asset quality."

Losses from the loans Popular itself made, as opposed loans originally made by Westernbank, which it acquired in April, stabilized, the bank reported Friday. Popular's fourth-quarter loan-loss provisions rose to $354.4 million from $352.8 million a year earlier and $215 million the prior quarter. Though net interest income jumped 32% to $354.6 million, noninterest income plunged 40% to $105.6 million.

Popular bought Westernbank, a competitor that failed because it made bad construction loans, in April. Popular hopes Westernbank customers will help it grow. But Popular on Friday had to restate its second- and third-quarter results because it expected losses from Westernbank's bad loans to be $1 billion less than originally expected, which makes the loss guarantees it received from the Federal Deposit Insurance Corp. less valuable and required an accounting adjustment for those quarters.

-By Matthias Rieker and Matt Jarzemsky, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

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