Santander took a £55m provision for costs arising from its decision to pull out of a £1.7bn deal to buy 318 branches from Royal Bank of Scotland in September.
But a squeeze on margins from low interest rates and rising bad debts were offset by cost-cutting and the impact of a debt buy-back.
It also benefited from the absence of a £751m charge to cover payment protection insurance mis-selling compensation in 2011.
In 2012, Santander UK took a £232m provision relating to retail products and to interest rate derivatives sold to corporates.
Santander has made a drive into the Scottish business market as part- nationalised Royal Bank of Scotland and Lloyds Banking Group, owner of Bank of Scotland, seek to slim down balance sheets.
Its net lending to UK companies rose by £700m in the year as its corporate banking book grew to £19.6bn from 18.9bn.
Lending to small and medium-sized enterprises rose from £9bn to £10.6bn.
As interest rates remained low, Santander's net income margin, the gap between the amount charged on loans and paid out on deposits fell 23% to 1.44%. This led to a 5% fall in operating income.
Bad debts were up in both mortgage lending and business banking with non-performing loans accounting for 2.17% of assets at the year-end.
Chief executive Ana Botin said: "We look forward to greater regulatory clarity, regarding capital, liquidity, conduct and governance, as this will provide us with the certainty we need to continue to support the UK economy."