Citigroup (C) tweaked the way it accounted for some mortgages in the first quarter, joining its largest competitors in responding to two new sets of regulatory guidelines.

The third-largest U.S. bank by assets reclassified about $840 million of home equity loans as "nonaccruing" in the first quarter, after four federal agencies issued guidance this year on monitoring credit quality for second liens on residential properties. On Friday, JPMorgan Chase (JPM) and Wells Fargo (WFC) said they had each reclassified more than $1.5 billion worth of similar loans.

"The interagency guidance was that once the first mortgage goes more than 90 days delinquent, that we needed to put the home equity loan also on nonaccrual status," Citigroup Chief Financial Officer John Gerspach told reporters during a conference call Monday.

Citigroup also started accounting for some of the ways it must comply with the national mortgage servicing settlement announced in February. The bank is required to pay $415 million in cash and provide $1.79 billion for borrower relief, as part of an agreement it and the four other largest mortgage servicers reached with state and federal authorities.

The New York bank wrote down about $370 million worth of mortgages to account for the principal forgiveness it will offer borrowers as part of the settlement, Gerspach told reporters.

"We've got a series of loans that are all current, but these are the loans that we will most likely be looking to work with borrowers on, in order to modify [them] under the terms of the national mortgage settlement," he said. "We're basically taking the hit now for principal forgiveness."

He added that Citigroup released about $350 million worth of loan reserves to cover the mortgage chargeoffs, so the writedowns were effectively "neutral" on the bank's profit-and-loss statement, "but it gives us a head start on the impacts of the national mortgage settlement."

The bank on Monday reported first-quarter profit that remained virtually flat from a year earlier at $2.9 billion.

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