The Co-operative Group has seen profits surge as it attracted thousands of bank account customers disillusioned with Britain's big banks.

The acquisition of the Somerfield supermarket chain and the merger of its financial services arm with Britannia Building Society have also boosted Britain's biggest mutual retailer.

The Co-op is paying its 5 million members - up 1.5 million over the last year - a dividend of £55m, 16% higher than in 2008. The "divi" was re-introduced by the group in 2006 after 30 years.

The group, which traces its roots to the founding of the co-operative movement in Rochdale in 1844, today reported a 38% jump in new current accounts as consumers deserted the bigger banks in droves in the wake of the financial crisis. It gained 140,000 new customers, taking the total to 1.2 million, and doubled its share of the current account market to 4%.

"We're already seeing a flight to trust," said Peter Marks, the chief executive. "People are weary of big business, especially in the financial services sector. They want to feel confident about where they're putting their hard-earned savings."

Operating profits at the financial arm, which owns brands such as the online bank Smile, rose 21% to £177m. The Co-op, which now has 330 bank branches and customer deposits of £32.5bn following the merger with Britannia, is hoping to make further inroads into the mortgage market, of which it has 3-4%, with the launch of new products starting with a three-year tracker mortgage at 2.49% tomorrow.

In the grocery business, like-for-like sales were flat in the first three months of the year - hit by the VAT increase and January's heavy snow - but in line with the rest of the market. "I think we will get a lift in the summer - if we have a summer - and England make progress in the World Cup. We could have a decent summer," said Marks.

Overall profits before payments to members soared 85% to £402m in the year to 2 January, with sales up 31% to £13.7bn, the third consecutive year of double-digit growth. Underlying profits are 20% ahead, in line with recent years.

Like-for-like food sales were up 5.5% on 2008. The Co-op, the UK's fifth-largest grocer with 3,000 stores and 21 million customers every week, extended its Simply Value range which enjoyed 85% growth last year while its premium range, Truly Irrestistible, also did well, with sales up 10%.

"These are record results in what has been an historic year for the Co-operative Group," said Marks. "Our business has continued to thrive in spite of economic pressure, and we are on track with the integration of both Somerfield and Britannia. And, it seems, our business model has never been quite so relevant. Our Financial Services business has continued to flourish in spite of the global recession."

He was cautious in his assessment of the months ahead, saying "2010 is going to be a very tough year". "We're not seeing an awful lot of feelgood factor around." This echoed comments from other retailers who fear that consumer confidence will be hit by post-election tax hikes and spending cuts needed to bring the government's massive budget deficit under control.

The Co-op also runs Britain's third-largest retail pharmacy chain as well as the number one provider of funeral services.