Lloyds TSB has posted a 4% rise in pre-tax profits to £3.82bn, but bad debts hit its High Street operations.
Retail banking profits fell 7% to £1.53bn for the full year, as more customers struggled to repay debts.
The provision for non-performing loans rose 34%, and Lloyds said it expected the credit environment in its retail operations to deteriorate further.
But the UK's fifth biggest bank reported 20% profits growth in its wholesale and global banking units.
The rise helped push shares in the group 25.5 pence, or 4.71%, higher to close at 566.5p on the London market.
"Most importantly, our customer relationship programmes are being effectively implemented and we are delivering higher revenues per customer in our retail and corporate banking businesses," chief executive Eric Daniels said.
However, the weakness in Lloyds TSB's retail banking arm came as little surprise.
"The headline numbers look broadly in line (with expectations)," said WestLB analyst James Hamilton.
Meanwhile, profits in insurance and investments after provisions rose 3%.
Lloyds said the deficit in its staff pension fund stood at £2.91bn the end of 2005, and it was looking into ways of addressing the shortfall.
Lloyds currently undergoing a cost-cutting drive, in an effort to save £275m a year.
Under the shake-up the bank has simplified its back office operations and axed more than 2,700 jobs.
Meanwhile, Mr Daniels refused to comment on ongoing speculation that Lloyds could be a takeover target - recent reports have suggested that US rival Wells Fargo and Spain's Banco Bilbao Vizcaya Argentaria could bid for the business.
The bank maintained its dividend of 23.5 pence a share to give a total for 2005 of 34.2p.