Royal Bank of Scotland's pre-tax profit soared to £1.14 billion in the first half of the year from £15 million a year earlier.
Its operating profit rose to £1.6 billion from a loss of £3.4 billion in 2009.
The 84%-taxpayer-owned bank has been cutting costs and has announced 23,000 job losses worldwide since October 2008, with 17,100 of those in the UK.
A reduction in staff costs, coupled with efficiency gains from its business services, which provides technology, property and operational services to the group's customer-facing divisions, helped reduce costs by 7%.
Earlier this week, it agreed to sell 318 branches to Santander (BNC) for a £350 million premium on the value of the assets. RBS was told to sell branches by the European Commission last year to safeguard competition concerns after it was bailed out by the UK government.
Chief executive Stephen Hester said: "The bank remains on track to meet the far-reaching goals of our five-year restructuring plan which commenced last year. We are making good progress with disposals and overall business restructuring.
"Our customer base is solid and I believe that the future potential of RBS for all its constituencies becomes increasingly visible. The rebuilding of RBS is a marathon and not a sprint."
All banks have been criticised for not doing enough to support firms during the economic downturn and RBS said that its overall lending was down by 3% on 2009 levels, but added that the bulk of its £23.5 billion in new loans were to small businesses.
It has invested in a marketing campaign to reach businesses and has set up a lending hotline for small companies in distress as well as reallocating 500 of its most experienced bankers to concentrate on helping small and medium-sized companies who need credit.
Meanwhile, the bank's insurance arm has fallen foul of the increasingly prevalent compensation culture, saying injury claims meant its car insurance business experienced further operating losses.
However, it said its home insurance book continued to make good progress and has now established itself as market leader within the UK.
What next for government stakes?
As the banking results week draws to a close, the debate continues over whether the government should now sell its shares in Lloyds Banking Group and RBS.
The Centre for Economic and Business Research (CEBR) predicted that taxpayers stood to make a profit of £19 billion if the governement's stake in the two banks were wound down over the next five years.
The CEBR said better-than-expected profits from the clearing banks - including Northern Rock, in which the taxpayer has an equity interest of around £1.4 billion - pointed to a handsome return for the general public over the medium term.
Chief executive Douglas McWilliams said then-chancellor Alistair Darling succeeded in buying £65.8 billion worth of Lloyds and RBS shares "on the cheap" by refusing to provide the banks with loans.
"Having ripped off the banks' shareholders? the government is now in healthy profit on the shares after fees are taken into account," McWilliams added. He said some of the original shareholders who were displaced by the Treasury at the bottom of the market "may yet take this issue to court".
Although the nationalised banks are returning to health, City minister Mark Hoban has said a sale is unlikely to begin before the end of 2011.