The group, which is 25 per cent owned by the taxpayer, said it “substantially improved” its financial performance in the six months to June 30, with profits excluding the PPI charge up 32 per cent to £3.8bn.
The overall profit of £863m came despite a hit of £1.1bn to cover legacy issues, including its £217m fine this week for rate-rigging which included ripping off the Bank of England over its financial life-support scheme.
The group’s £600m increase in its provision for expected PPI costs in the second quarter brought the running total to £10.4bn, of which more than £2bn relates to anticipated administrative costs.
Lloyds is forecasting a slower decline in complaints levels, with the increased provision accounting for an extra 155,000 complaints.
Lloyds shares opened one per cent higher after the group upgraded its net interest margin - a key measure of profitability - to around 2.45 per cent for the full-year.
It added that it remains on track to restart dividend payments in the next year, subject to the approval of the Prudential Regulatory Authority.
Chief executive Antonio Horta-Osorio plans to issue an update on his proposals for the group in the autumn.
He said: “It has been a successful first half for the group. With our initial three-year strategic plan now substantially complete, we are progressing our plans for how we will take the group forward into 2015 and beyond, and take advantages of the new growth phase of the UK economy.”
The Halifax owner said it provided one in four of all mortgages to first-time buyers in the first half, with lending of £5.7bn to more than 43,000 customers.
Overall new mortgage lending was £20bn - £6bn higher than in the first half of 2013 - while it said it has lent almost £1bn through the Government’s Help to Buy mortgage guarantee scheme.
The company added that around 10 per cent of its new residential mortgages were written at a loan-to-income ratio at or greater than a 4.5 multiple.
Royal Bank of Scotland, which is 80 per cent owned by the taxpayer, said last week that it nearly doubled underlying profits to £2.65bn in the first half of the year, despite an extra £250m hit for mis-selling financial products.