State-backed Lloyds Banking Group has added £1.4 billion to its bill for compensating customers mis-sold payment protection insurance (PPI).
But Lloyds was still able to report a 38% rise in pre-tax profits for the first half of the year to £1.19 billion and announce a 0.75p dividend for shareholders, amounting to £535 million.
The Treasury's stake in the lender – rescued by the taxpayer at the height of the financial crisis – has shrunk to less than 15% in recent months.
Chief executive Antonio Horta-Osorio said: "Today's results demonstrate the strong progress we have made in the first half of the year.
"We remain focused on our aim to become the best bank for customer sand shareholders while at the same time supporting the UK economy."
The lender remains hampered by issues from the past such as PPI. Its bill for the mis-selling scandal has now risen to £13.4 billion.
It also took a £660 million charge on the disposal of its stake in TSB, which is being bought by Spain's Banco de Sabadell.
Underlying profit stripping out one-off items rose 15% to £4.38 billion.