Lloyds, formed last year when Lloyds TSB took over Halifax/Bank of Scotland, said net profit was £596 million ($950 million), down from £7.1 billion a year earlier when the company benefited from an £11.2 billion exceptional goodwill gain on the acquisition of HBOS.

Provisions for bad loans and other losses dropped from £13.4 billion to £6.55 billion.

Before taxes, the bank made a profit of 1.6 billion compared to a loss of £4 billion a year ago and £6.3 billion in the second half of 2009. Revenue was up 5 percent to £12.5 billion.

Comparisons with 2009 assume that Lloyds had control of HBOS for all the first half.

Shares in Lloyds, in which the government holds a 41 percent stake after bailing it out during the credit crisis, were up 3.4 percent at 74.34 pence in early trading on the London Stock Exchange.

Bruce Packard, analyst at Seymour Pierce in London, was unimpressed by Lloyds’ improved results.

“This is profit in an accounting sense, rather than an economic sense, given the 132 billion of government support the group is still receiving and the billions of wholesale funding with maturity of less than one year,” Packard said.

“As a stock broker it is pleasing to see customer deposits leaving the banking system to go into equity markets, as a banks analyst it makes us nervous,” said Packard, who rated Lloyds shares as “sell.” Other analysts noted that the absence of a dividend continues to make some investors shy away from Lloyds.

Danny Clarke, analyst at Shore Capital in London, nevertheless saw the bank’s report as “very strong” and he upgraded his recommendation from “hold” to “buy.” Looking ahead, the company’s chief executive was upbeat about the bank’s prospects.

“Based on our economic outlook and the current regulatory context we would expect to see a smaller, more productive balance sheet and are expecting returns on equity of more than 15 percent over the medium to longer term,” CEO J. Eric Daniels said.

Lloyds said it shed £23 billion of assets in the first half, bringing the total reduction to 83 billion since the HBOS acquisition on Jan. 19, 2009.

The bank said impairment losses in its retail division fell by 39 percent to £857 million, helped by stabilizing house prices and continued low interest rates.

Retail impairment losses as a percentage of average loan balances fell from 1.15 percent a year ago to 0.7 percent.

Wholesale impairment losses dropped from £9.7 billion last year to £3 billion in the first half.