Citigroup's second-quarter net income rose 22 percent to $3.3 billion as the bank lost less money on bad loans. Earnings per share came in at $1.09, topping estimates of 96 cents a share. A year ago, the company earned 90 cents a share.

Shares gained 3 percent in premarket trading.

The financial services group reported $16.3 billion in revenue, slightly lower than the previous year due to a revenue drop at Citi Holdings, the unit devoted to ridding the company of its toxic assets.

According to Thomson Reuters, analysts expected Citigroup to earn 96 cents a share on revenue of $1.98 billion.

It was the sixth consecutive quarterly profit for Citigroup, which needed $45 billion in U.S. bailouts to survive the financial crisis.

"Revenues were higher than we expected. The actual reserve release came in below expectations," Anthony Polini, analyst at Raymond James, told CNBC. "So the quality of earnings given a little lower tax rate seems to be better than the prior quarter."

Profit growth had come mainly from the bank setting aside less money to cover bad loans, which is not a source of profits long term.

Since December, when the U.S. government sold off the last of its common share stake in Citigroup, Chief Executive Vikram Pandit has been trying to show investors that the bank can move beyond recovery to growth.

"Citi achieved another solid quarter of operating performance as we continue to execute our strategy," Pandit said in a statement.

Boosting business has been difficult this year for most US banks, as weak fixed-income trading and market volatility weighed heavily on Citigroup and its main rivals.

JPMorgan Chase said on Thursday that bond trading revenue fell in the second quarter, though the drop-off was not as bad as some investors had feared.

The two earnings beats come as financials have vastly underperformed the rest of the market through the year and expectations have been low.

"There's got to be a crowded trade on the upside down the road," Polini said in general of the banks, on which he has a strong buy rating. "They're being killed not by the fundamental outlook but by the regulatory, political and macro uncertainty. If you believe those clouds will thin these are great buying opportunities."

This year, Pandit has tried to rebuild Citigroup's investment bank, which lost talent, business and reputation during the crisis. Since taking over the bank at the start of the crisis, he has shed assets and tried to refocus Citigroup on its main banking businesses.

This spring Citigroup reinstated a nominal dividend, after shrinking its outstanding share count with the 1-for-10 reverse split.

Investors remain skeptical that the bank's recovery is completely over.

Citigroup's shares have fallen more than 13 percent since the split took effect, and closed down 1.1 percent at $39.02 on Thursday.

© 2011 CNBC.com