However, there were some positive signs for the bank. Cards purchase sales rose 20% as consumer spending picked up during the quarter. Executives at other large U.S. banks have also indicated that consumers have started to show signs of taking on more debt, while their cash balances are diminishing.
"While strong consumer balance sheets have impacted lending, we are seeing higher consumer spending across our cards products," said Chief Executive Officer Jane Fraser.
For the three months ended Sept. 30, net income jumped 48% to $4.6 billion, or $2.15 per share, from $3.1 billion, or $1.36 per share, a year earlier. Analysts on average had expected a profit of $1.65 per share, according to Refinitiv IBES data.
Citi's shares were up nearly 1.5% following the results.
The bank took down $1.16 billion of loss reserves built during the pandemic for potentially sour loans that have not materialized. A year earlier Citigroup had added $436 million to its reserves.
JPMorgan Chase, Bank of America and Wells Fargo have also released funds set aside during the pandemic.
Investment banking revenue at Citigroup increased 39% to $1.9 billion, helping offset a 16% decline in fixed-income revenue from a year earlier when there was unprecedented volatility in the markets.
Higher expenses and lower net interest revenue also weighed on the results.
Net interest revenue declined 1% from a year earlier, but was 2% more than in the second quarter, suggesting an end to the downward trend that started when the pandemic began and the Federal Reserve cut interest rates to near zero and many borrowers paid down their loan balances.
Lower interest rates also hurt Citigroup's Treasury and Trade Solutions business, which saw revenue decline 4% even as it collected more fees and saw growth in trading.
Revenue from Citi-branded cards in North America declined 1% and revenue from cards issued for retailers fell 6%.
The results included the impact of a loss on the previously announced sale of its Australia consumer banking business. Excluding the loss on the sale, revenue increased 3%, driven by the institutional business.
Operating expenses increased 5% to $11.5 billion as the company ramped up spending on technology and personnel to improve its control systems to comply with demands made by regulators a year ago.
Investors have been particularly concerned about Citigroup's expenses as the bank has not said how much money and time it will take to meet requirements of regulators and fix its systems.
The bank is also spending more on its wealth management business and its transaction services to companies.
Fraser expects the increased spending to bolster what she has described as Citigroup's "transformation" into a more efficient and focused company that will earn returns closer to its peers.
Expenses for marketing credit cards have been rising at Citigroup and at competing card-issuers. JPMorgan said on Wednesday that it will likely spend more on card marketing to attract spending from customers as the pandemic eases.
Citigroup has produced lower returns on equity than competitors for more than a decade and the stock market values the company at less than shown on its balance sheet.
(Reporting by David Henry in New York and Anirban Sen in Bengaluru; Editing by Sriraj Kalluvila) ((firstname.lastname@example.org;))