Updated from 8:15 a.m. EST

PNC Financial ( PNC) slashed its dividend by 85% in what the company called a "proactive step" to protect its balance sheet and capital levels.

The Pittsburgh-based company said early Monday that its board plans to reduce the company's quarterly dividend to 10 cents a share from 66 cents a share. The move is expected to save roughly $1 billion in capital each year, PNC said.

"While our overall capital and liquidity positions are strong, extreme market deterioration and the changing regulatory environment drove this difficult but prudent decision," Chairman and CEO James Rohr said in a statement Monday. "We continue to be optimistic about the long-term benefits of the National City acquisition."

The bank said its first-quarter results to date are in line with the estimates of Wall Street analysts. Analysts, on average, predict the company to earn 52 cents a share for the first three months of the year, according to Thomson Reuters.

Pittsburgh-based PNC said its tier-1 risk-based capital ratio was 9.7% at the end of 2008, while its tangible common equity ratio was 2.9%.

"Given today's economic uncertainty, we believe the dividend reduction was simply the prudent thing to do," Rohr said on a brief analyst conference call Monday morning.

He added that the company does not plan to issue any additional common shares.

PNC received $7.6 billion last year through the Treasury Department's Troubled Asset Relief Program, or TARP. The company acquired troubled lender, National City on Dec. 31.

Rohr said he expected the company to exit its TARP agreement "as soon as appropriate."

Rohr emphasized that the repayment of TARP funds depends on several factors. Banks could not repay the capital for at least three years under the original TARP plan, but that restriction appears it will be relaxed under the Obama administration, Rohr said. Still, Rohr said he has concerns on whether he would want PNC to have lower capital levels than other large and mid-size banks just to get out of the agreement.

"I don't think you want to do it until you get an economic environment that is clearly more favorable to the depositor," he added.

PNC said that due to further credit deterioration, its provision for loan losses this year will increase from last year, but not "out of the outside of the bounds that we expected when we put the budget together," Rohr said.

The company believes it is adequately reserved with sufficient capital levels to withstand further economic deterioration within the range of current expectations, it said.

PNC said it would cut 5,800 jobs over the next several years as it reported a fourth-quarter loss.

Other companies are also looking to their dividends to shore up capital. Last week JPMorgan Chase ( JPM) and General Electric ( GE) also cut their dividends.

Shares of PNC were trading down 5.6% to $25.82 in recent trading.

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