July 22 (Bloomberg) -- Regions Financial Corp., Alabama's biggest bank, slashed its dividend by 74 percent and reported second-quarter profit that fell more than analysts expected as home borrowers and builders missed loan payments.

Net income fell by half to $206.4 million, or 30 cents a share, from $453.3 million, or 63 cents, a year earlier, the Birmingham-based bank said today in a statement. Excluding merger-related charges, Regions earned 39 cents a share, missing the 43-cent average estimate of 19 analysts surveyed by Bloomberg.

Regions joins at least 16 other U.S. financial firms that cut their dividends this year, exceeding the previous five years combined, as companies hang on to capital to absorb soaring loan losses. Regions said the cut in the quarterly dividend, to 10 cents a share from 38 cents, would save $780 million a year.

``While we're not going to put it in the plus column, it's decidedly better for these companies to cut the dividend as opposed to them coming to markets to raise common equity,'' said Jeff Davis, an analyst at FTN Midwest Securities in Nashville, Tennessee.

The company's dividend yield soared beyond 20 percent this month, the highest among large U.S. banks. The yield was almost 15 percent yesterday.

Regions rose $1, or 9.6 percent, to $11.40 at 4:01 p.m. in New York Stock Exchange composite trading. The shares are down 52 percent this year.

Florida Expansion

Regions' Tier 1 capital ratio at the end of the quarter was estimated at 7.47 percent, below the 7.5 percent level preferred by rating companies and regulators. The ratio, a measure of banks' ability to absorb loan losses, must exceed 6 percent to qualify as a ``well capitalized'' institution. The dividend cut will increase the ratio by 0.97 percent by the end of 2009, the company said.

The bank may consider raising capital by issuing hybrid securities if ``the market opens up with reasonable terms,'' Chief Financial Officer Irene Esteves said on a conference call with analysts and investors today. The bank doesn't need to issue common stock to bolster capital ``at this point,'' she said.

Regions expanded into Florida with the $10.5 billion acquisition of AmSouth Bancorp in November 2006, just before U.S. housing prices plunged in the worst real estate crisis since the Great Depression. The state ranks fourth in home foreclosures, according to RealtyTrac Inc., a seller of default data.

Losing Value

Regions has lost about two-thirds of its market value since completing the AmSouth purchase, and banks across the U.S. have experienced similar declines. The 24-stock KBW Bank Index plunged 33 percent this year, led by declines at National City Corp. and Wachovia Corp. Wachovia cut its dividend today for the second time in three months, slashing the payout 87 percent.

Regions' nonperforming assets, for which the bank isn't receiving interest, rose to $1.6 billion from $1.2 billion on March 31. Most of the problems involve loans to home builders and buyers of condominiums, the company said.

``There is no quick fix to today's housing related issues,'' said Chief Executive Officer Dowd Ritter in a conference call with analysts and investors. ``We think it is prudent to plan for no real improvements until 2010.''

Florida, which has experienced some of the nation's sharpest declines in housing prices, makes up 25 percent of Regions' loans to home builders. The company said property prices in the state ``have experienced significant and rapid deterioration.''

The bank recorded $309 million in pretax charges for losses on loans, from $60 million a year ago. Loans tied to the value of homes in Florida suffered losses at more than triple the rate of those in other states.

The bank cut 600 jobs in the quarter and raised its estimate for merger-related cost savings to $700 million by year end, from an earlier target of $400 million.

Regions has branches in 16 states from Florida to Iowa, and its Morgan Keegan securities brokerage has more than 400 offices in 19 states. Morgan Keegan had earnings of $38.2 million in the quarter, down 24 percent from the same period a year earlier. The brokerage wrote off $13.4 million in investments in two mutual funds.

To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; David Mildenberg in Charlotte, North Carolina, at dmildenberg@bloomberg.net.

Last Updated: July 22, 2008 16:13 EDT