Mortgage-related issues will continue to be the "single largest source of risk facing the U.S. banking industry," Citigroup (C) Chief Financial Officer John Gerspach said in a Tuesday conference call. Gerspach said the banking giant expects its delinquencies to rise slightly in coming quarters as previously modified mortgages start redefaulting. However, he says those redefault rates remain below the bank's expectations. For the full year, the banking giant earned $11.3 billion, up about 6.6% from $10.6 billion in 2010. Revenue fell 9% to $78.4 billion from $86.6 billion in 2010, driven by a $6.4 billion fall in Citi Holdings revenues. Bank risk professionals agree with Gerspach. A fourth quarter FICO surveyed found that found that 47% of risk managers expect mortgage delinquencies to rise, while 13% believe delinquencies will fall. Similarly, the latest mortgage monitor from Lender Processing Services (LPS) shows the level of homeowners 90 days or more behind on their house payments stayed essentially flat over the second half of 2011, indicating that while the situation is not getting markedly worse, it is not improving either. "Despite the expected delinquency increase, we saw some positive signs in early-bucket mortgage delinquencies that we will continue to watch carefully," Gerspach said. Early-bucket delinquencies are delinquencies on mortgages that have already been modified. "In the meantime, litigation and regulatory risk in the mortgage business will remain high and we continue to focus on further reducing our portfolio," he said. In an ongoing procedural fight between Citigroup, the Securities and Exchange Commission and a New York federal judge, the 2nd Circuit Court of Appeals intervened in December. The 2nd Circuit granted a stay to the underlying litigation stemming from the SEC's investigation of collateralized debt obligations linked to Citi. The stay stops the underlying litigation between the parties temporarily while the attorneys work through another appeal. Gerspach said overall delinquency trends are beginning to show the impact of previously modified mortgages, while the pace of asset sales and modifications have slowed. Write to Justin T. Hilley. Follow him on Twitter @JustinHilley.