Wells Fargo & Co beat Wall Street estimates with a 20 percent increase in fourth-quarter profit, boosted by improving credit quality and continued loan growth.

The jump in profit at the fourth-largest U.S. bank contrasted with an 11 percent decline in profit at Citigroup Inc, which saw its capital markets business battered by the European debt crisis.

Wells Fargo has a better business model for the environment we're in now because commercial lending is their biggest sector, said Jeffrey Sica, president of SICA Wealth Management in Morristown, New Jersey, which is generally negative on the banking sector.

They're not overly involved in the trading activities that the other banks are involved in.

The San Francisco-based bank said it earned 73 cents per share. The average estimate from analysts was 72 cents per share, according to Thomson Reuters I/B/E/S.

The bank's total loans grew about $9.5 billion from the end of September to $769.6 billion at the end of December. The loan growth mirrored a trend shown in JPMorgan's results, a potential sign of an improving U.S. economy.

Wells said the planned run-off of loans in liquidating portfolios was more than offset by growth in a broad range of loan types. Loans made to businesses were a significant driver of the increase as the bank made more loans to existing and new customers.

The bank's total loan growth also included purchases of U.S. commercial real estate portfolios from European banks and other one-time additions. Citigroup analyst Keith Horowitz in a research note estimated core loans increased 1 percent from the previous quarter, which he called weak.

In a conference call with analysts, Chief Financial Officer Tim Sloan said there was actual growth in the quarter, while the bank also noted it gained market share from other banks.

Net income applicable to common shareholders in the fourth quarter was $3.89 billion, compared with from $3.23 billion, or 61 cents per share, a year earlier. For all of 2011, Wells posted net income applicable to common shareholders of about $15 billion, up from $11.6 billion in 2010.

The report came the same day that Citigroup Inc posted net income of $1.16 billion, or 38 cents per share, down from $1.31 billion, or 43 cents per share, a year earlier. JPMorgan Chase & Co on Friday reported fourth-quarter net income of $3.72 billion, or 90 cents a share, down from $4.83 billion, or $1.12 a share, a year earlier.

Wells Fargo shares climbed 1.3 percent to $30 in morning trading, while Citigroup's fell 5.6 percent to $29.01.

Wells Fargo, which became a coast-to-coast bank with its 2008 purchase of Wachovia, recorded a loan-loss provision of about $2 billion, which was down from about $3 billion a year earlier. For the seventh straight quarter the bank reversed reserves the bank had previously booked for bad loans.

The so-called reserve release in the fourth quarter was about $600 million, down from $800 million in the third quarter. Chief credit officer Mike Loughlin said the bank expects additional releases in 2012, absent significant credit deterioration in the economy.

Still, big banks are struggling to pad revenues at a time when low interest rates are making it difficult for them to earn money from loans and as new regulations curb fees they can charge for debit card use.

Wells reported total revenue of $20.6 billion, down from $21.5 billion a year ago but up from $19.6 billion in the third quarter.

Mortgage banking income increased to $2.4 billion in the fourth quarter, up from $1.8 billion in the third, but down from $2.8 billion a year ago, as the bank benefited from an increase in home loan refinancings. Wells is the largest originator of home loans in the U.S.

The bank also posted a $430 million gain from trading activities, an improvement from a $442 million loss in the third quarter but down about $100 million from a year ago.

In a bid to improve profits, Wells Fargo, like other banks, has launched a wide-ranging efficiency program called Project Compass. Wells said fourth-quarter noninterest expense was up from the third-quarter as expected on higher seasonal expenses and mortgage-related costs. But the bank reiterated its goal of reducing quarterly expenses to about $11 billion by the end of this year, a reduction of about $1.5 billion.

Wells also said it purchased 27 million shares of its common stock in the fourth quarter, plus an additional 6 million shares through a transaction that will settle in the first quarter of this year.

We're seeing continued progress in Wells Fargo, Marty Mosby, bank analyst with Guggenheim Partners, said. Earnings continue to move northward and there's still growth. On the disappointing side, the expense number was higher. We were looking for greater efficiency.

(Reporting By Rick Rothacker in Charlotte, North Carolina; Additional reporting by Lauren Tara LaCapra in New York; editing by Dave Zimmerman)

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