Citigroup Inc. (C) and Wachovia Corp. (WB), two of the four largest U.S. banks, on Friday reported record quarterly profits, as consumers borrowed more, bad loans declined and costs were kept in check.

Citigroup, the largest bank, said first-quarter profit increased 3 percent, while Wachovia, the fourth-largest, reported a 30 percent increase. Citigroup also said it may buy back up to an additional $15 billion of stock.

"In a challenging revenue growth environment, banks are focused on holding expenses down," said Mark Batty, an analyst at PNC Advisors in Philadelphia. "Wachovia has clearly done that and Citigroup is taking steps toward that. Credit quality appears to have improved again. That's a good sign, reflecting the economy's improvement."

Another big bank, KeyCorp (KEY), on Friday also reported a higher profit. Other large U.S. banks will report results next week, including Bank of America Corp. (BAC) on Monday, Wells Fargo & Co. (WFC) on Tuesday and J.P. Morgan Chase & Co. (JPM) on Wednesday.

In afternoon trading on the New York Stock Exchange, Citigroup rose 1.9 percent to $46.26, Wachovia fell 0.24 percent to $49.99, and KeyCorp rose 3.43 percent to $32.60. The Philadelphia KBW Bank Index rose 0.1 percent.

New York-based Citigroup said net income rose to $5.44 billion, or $1.04 per share, from $5.27 billion, or $1.01, a year earlier, helped by growth in retail banking, credit cards and international businesses.

Profit from continuing operations was $5.17 billion, or 99 cents per share.

Analysts polled by Reuters Estimates on average forecast $1.02 per share. Batty estimated Citigroup earned $1.03 per share after items.

Revenue rose 6 percent to $21.53 billion, below analysts' forecast for $22.56 billion, but increased twice as fast internationally as in North America excluding Mexico.

"I feel very, very good about the international business as it relates to (the) consumer." Chief Executive Charles Prince said on a conference call.

Operating expenses rose 12 percent to $11.66 billion, but were little changed from the fourth quarter.

The 18-month stock buyback program increases Citigroup's total repurchase authorization to $16.3 billion, and lets the bank repurchase roughly 6.3 percent of its shares.

Prince said it allows Citigroup to efficiently return capital to shareholders rather than "sit on it."

In March the Federal Reserve told Citigroup to delay big acquisitions until the bank tightens its internal controls and addresses a slew of regulatory problems.

Consumer profit rose 9 percent to $2.82 billion on revenue of $12.05 billion. Profit increased 13 percent in retail banking, and 11 percent in credit cards and consumer finance.

"We've seen a consumer who ... is acting very responsibly and very conservatively with their financials," Chief Financial Officer Sallie Krawcheck said.

Corporate and investment banking profit dipped 2 percent to $1.68 billion. Citigroup set aside 19 percent less for credit losses.

Charlotte, N.C.-based Wachovia said net income rose to $1.62 billion, or $1.01 per share, from $1.25 billion, or 94 cents, spurred by growth in loans, deposits and debit cards.

Excluding merger charges, profit rose to $1.03 per share. On that basis, analysts expected $1.01.

Revenue increased 14 percent to $6.47 billion, while expenses rose just 6 percent to $3.87 billion.

Chief Executive Ken Thompson said Wachovia is on track and on budget in integrating SouthTrust Corp., which it bought on Nov. 1. The purchase made Wachovia a dominant bank in several southeastern and eastern states.

Wachovia is separately cutting up to 4,000 jobs to help save $1 billion by 2007.

"Stronger expense discipline has become part of the DNA of this company," Thompson said on a conference call.

Profit rose 38 percent in consumer banking to $947 million. It increased 13 percent in corporate and investment banking, 6 percent in capital management and 33 percent in wealth management. Wachovia set aside 44 percent less for bad loans.

Cleveland-based KeyCorp, the No. 13 bank, said net income rose to $264 million, or 64 cents per share, from $250 million, or 59 cents, as commercial loan demand increased and bad loans fell by nearly one-half. Analysts forecast 61 cents.