The financial condition improved at Citigroup, and expenses were flat, even as sales and profits fell.

FORTUNE – Citigroup C is healing, but it’s still not growing.

Profit at the bank, the third major financial institution to reveal results for the first quarter, fell slightly from a year ago to $2.9 billion, but after a number of accounting adjustments were better than analysts had been expecting. Sales were down as well to $19.4 billion, but only slightly. Many of Citi’s businesses were flat from the year before. Card sales, though, were down. After accounting adjustments, Citi’s per share earnings were $1.11. Analysts had been expecting the company to earn $1.00 a share.

Perhaps more importantly, the company’s financial condition appeared to improve in the quarter. Last month, the Federal Reserve, as part of a stress test of the nation’s largest banks, told Citigroup it didn’t have enough capital on hand to raise it’s dividend. That raised concern that the bank would not be able to survive another economic downturn. But the company’s first quarter results should remove some of those concerns. Expenses, which grew at other banks, were flat at Citi. And the amount of cash in reserves the bank has to cover potential loan loses rose nearly 10%. The bank increased it’s lending by 12%. On a conference call with analysts, one analyst remarked that Citi seemed to have the ability to increase lending even more when the economy improved. Net credit losses fell by 37%.

Citi once again lowered its provision for future loan losses, a move that critics say boosts the company’s earnings artificially. But the benefit Citi took from the maneuver was down significantly from a year ago, $1.2 billion from $3.4 billion in the same quarter in 2011. That was another sign that the company’s businesses were improving.

In the bank’s retail operations, sales rose 37%, helped by an increase in its mortgage division. A number of banks have reported strong mortgage sales as lower rates induced borrowers to refinance. The company’s trading revenue also more than doubled from the previous quarter, signalling improving conditions on Wall Street.

What’s more, the company said if you exclude accounting losses it had to record because its cost of lending fell, the company’s revenue and earnings actually jumped in the quarter. “While the operating environment improved in the first quarter, there is still much macro uncertainty and we will continue to manage risk carefully,” said CEO Vikram Pandit.

Investors seemed to be pleased by the bank’s results, perhaps focusing in on the improving financial condition at the bank rather than the mostly flat results. Citigroup’s shares were up about 3% at mid-day to $34.25.