UPDATE 2-Webster posts strong Q2, sees pressure from regulation

Fri Jul 16, 2010 12:13pm EDT

* Q2 EPS $0.16 vs est $0.07

* Bad loan provisioning falls 62 pct

* Says new regulations to impact overdraft fee revenue

* Sees lower provisioning in Q3 on improved credit trends

* Stock down 5 pct

(Adds conference call details, updates stock movement)

July 16 (Reuters) - Webster Financial Corp (WBS.N) posted a second-quarter profit that beat analysts' estimates as the top New England lender set aside less money for bad loans, but said new regulations will impact its overdraft fee revenue.

"We continue to estimate that the changes to Reg E could impact our overdraft fee revenue by $5 million to $6 million a quarter before a planned product redesign," Chief Executive James Smith said on a post-earnings call.

The rule will enable consumers to limit the costs of overdraft services by providing consumers a choice regarding their institution's payment of overdrafts for ATM and one-time debit card transactions.

Consumers will get a clear disclosure of the fees and terms associated with the overdraft service.

Smith expects lower provisions for loan losses in the third-quarter on stable asset quality trends.

Provision for loan losses in the second-quarter fell to $32 million from $85 million, last year.

"Asset quality continued to improve in the second quarter, reflected by a lower level of non- performing loans, reduced charge-offs and a further decline in delinquency levels," CFO Jerry Plush said.

Webster, which repurchased $100 million of the shares of preferred stock issued to the U.S. Treasury under the Capital Purchase Program in March, also said it will continue orderly repayment of the Treasury funds.

The Waterbury, Connecticut-based company posted a net income of $17.6 million, or 16 cents a share, compared with a net loss of $31.6 million, or 65 cents a share, a year ago.

Analysts on average were expecting a profit of 7 cents a share, excluding items, according to Thomson Reuters I/B/E/S.

Net interest income increased 11 percent to $132.3 million.

Webster shares were down 5.15 percent at $17.85 in midday trade Friday on the New York Stock Exchange. (Reporting by Abhinav Sharma in Bangalore; Editing by Prem Udayabhanu)