Citigroup (C) took $370 million in credit losses during the fourth quarter tied directly to principal reduction under the foreclosure settlement.

The bank reported a slight dip in earnings Monday morning, down to $2.93 billion for the first quarter. In March, state and federal prosecutors announced a $25 billion settlement with Citi and four of the other largest mortgage servicers in the U.S. over alleged foreclosure abuses.

Of that total, the servicers committed to provide up to $10 billion in principal reduction for underwater borrowers to be credited on a partial basis.

Citi reported $1.7 billion in credit losses during the quarter and said $370 million of it was previously deferred principal on mortgages already modified before the start of the year.

Servicers will often defer principal during a modification to the back-end of the mortgage. The borrower will still have to pay it, but usually the terms are extended (under HAMP, it could go out to as far as 40 years) and the interest rate is also reduced to shrink the monthly payment.

Citi decided to forgive the deferred principal, allowed it to be counted to the settlement and took the hit against its balance sheet for the first quarter.

Servicers were encouraged to write down principal faster by getting more credits for reductions in the first year. For every dollar in principal written down in the first year after the servicers sign on, an extra 25 cents will be credited toward the $10 billion commitment — on top of the full dollar amount considered satisfied, according to the settlement documentation.

JPMorgan Chase (JPM) and Wells Fargo (WFC) did not disclose how much relief each bank gave in relief under the settlement so far. But a federal judge only approved it in recent weeks.

"What you can expect, as most institutions get into the national mortgage settlement, should be an increase in both net credit losses as well as reserve releases in the mortgage business. And what you see in our results today is basically the first installment of what you can expect to see on our part," said John Gerspach, Citi CFO, in a statement.

Additional reporting by Justin T. Hilley.