*Q3 oper income 17 cents/share vs market estimate of 28 cents
*Provision for credit losses almost triples to $45.5 million
*Sees flat Q4 net interest margin due to deposit competition
*Shares fall 8 pct (Recasts, adds conference call details, share movement)
Oct 21 (Reuters) - Webster Financial Corp (WBS.N) posted a quarterly loss, hurt by write-downs and higher provision for bad loans, and said deposit pricing competition would pressure net interest margin in the fourth quarter, sending its shares down 8 percent.
"We're seeing very aggressive pricing of deposits as the biggest players look to attract deposit funding even at relatively high cost as an alternative in the severely stressed capital markets," Chief Executive James Smith said in a conference call with analysts.
The parent of Webster Bank posted third-quarter net loss of $16.8 million, or 42 cents a share, compared with a profit of $35.0 million, or 64 cents a share, a year earlier.
Third-quarter net loss includes $33.5 million in other-than-temporary impairment charges and $2 million of losses on sales of Fannie Mae FNM.N and Freddie Mac FRE.N stock.
Operating income was 17 cents a share for the quarter, below analysts' consensus estimate of 28 cents, according to Reuters Estimates.
Net interest income was $129.2 million in the third quarter, compared with $127.1 million a year ago and $125.7 million in the second quarter.
"Our primary market in southern New England is holding up reasonably well to this point in the down leg of the economic cycle. In Connecticut and Massachusetts, for example, job loss has been below the national average," Smith said.
The largest bank in New England set aside $45.5 million to cover bad loans, nearly three times the amount it set aside a year ago. The provision was $25 million in the second quarter.
The company expects fourth-quarter core provisioning to be comparable with the third quarter, if not higher, and net interest margin to be flat sequentially.
Net interest margin, the difference between what the bank earns on loans and pays on deposits, fell to 3.32 percent for the third quarter from 3.38 percent a year earlier.
Total non-performing assets rose to $250.5 million on Sept. 30, or 1.94 percent of total loans, from $224.1 million, or 1.75 percent of total loans, on June 30.
Foreclosure expenses more than doubled from the second quarter to $3.5 million and the bank sees rising foreclosure costs.
The bank's Tier-1 capital ratio, which measures its ability to cover losses, was 8.61 percent as of Sept. 30. Regulators consider 6 percent sufficient.
Shares of the company fell to a low of $17.87 earlier, but pared some losses to trade down 5 percent at $18.36 Tuesday afternoon on the New York Stock Exchange. (Reporting by Ratul Ray Chaudhuri in Bangalore; Editing by Deepak Kannan)