Pre-tax profits increased by 158 per cent to £4.24bn, a level last seen in 2006 before the financial crisis, the BBC reports.
Provisions for PPI declined from £4bn to £1bn, bringing the total to £17bn.
The UK government’s stake in Lloyds has now fallen below 5 per cent and it has said it wants to return the bank to full private ownership this year.
The government spent £20.3bn to acquire a 43 per cent stake in Lloyds at the height of the financial crisis.
It has returned more than £18.5bn to the taxpayer since 2009.
However, underlying profits for 2016 fell to £7.9bn, down from £8.1bn.
Total income for the group also edged down to £17.5bn compared with £17.6bn the previous year.
The company has increased its dividend by 13 per cent and will also pay a special dividend.
Lloyds, which is the UK’s biggest retail banking group, also owns the Halifax and HBOS brands.
“Given our UK focus, our performance is inextricably linked to the health of the UK economy which has been more resilient than the market expected post referendum, with GDP growth of 2 per cent in 2016,” said group chief executive Antonio Horta-Osorio.
“The UK’s decision to leave the European Union means the exact nature of our relationship with Europe going forward remains unclear and the economic outlook is uncertain.
“However, the recovery in recent years with low unemployment, reduced levels of household and corporate indebtedness and increased house prices means the UK is well positioned,” he added.
Richard Hunter, head of research at Wilson King Investment Management, said Mr Horta-Osorio had “transformed” Lloyds into “something of a modern day success story in the aftermath of the financial crisis” with its recovery seemingly nearing completion.
However, he added: “Naturally, challenges will follow as the UK consumer is showing some early signs of retrenchment, which makes the rise in the impairment number a little more troubling.
“Historically low interest rates will also continue to provide a difficult backdrop for banks in general, whilst the cost or regulation – let alone any further fines darkening the picture – will be a necessary cost of doing business.
“Even so, the overall picture is one of robust recovery for Lloyds, where the share price has enjoyed a strong run of late, having added 21 per cent over the last six months alone.”
Lloyds shares rose by 3.6 per cent following the results, making the bank the biggest riser on the FTSE 100.