However, the volatile fixed-income market pressured by the bailout of Ireland and falling bond prices reduced earnings at the New York bank.
Citigroup's result fell short of analysts' estimates. On a per share basis, Citigroup's earnings amounted to 4 cents a share, while analysts surveyed by FactSet were looking for 7 cents a share.
Citi's stock was down 5 percent in pre-market trading.
The results were an improvement compared to the loss of $7.6 billion, or 33 cents a share, reported for the same quarter of last year. Citigroup reported fourth quarter revenue of $18.37 billion, compared to $5.4 billion a year earlier.
For the year, it reported a profit of $10.6 billion on revenue of $86.6 billion. It's the first year the bank reported an annual profit since 2007.
More of Citigroup's customers were able to meet payments on credit cards and home loans. Its credit losses of $6.9 billion were down $805 million from the previous quarter, or 11 percent, marking the sixth consecutive quarter of decline. The reduced losses allowed the bank to release $2.3 billion from the reserves that it had set aside for bad loans.
As expectations of an economic recovery have increased, the New York bank has set aside $4.8 billion for future losses, its lowest level since the second quarter of 2007.
This is the first time that the bank is releasing results after being partly owned by the U.S. government for two years. The U.S. Treasury sold the last of its equity stake in December.
"2010 was a year full of milestones and was critical for the turnaround of this institution," said Vikram Pandit, CEO of Citigroup.