The group saw statutory pre-tax profits tumble from £2.1 billion to £863 million in the first six months of this year.
It set aside a further £1.1bn relating to misconduct including an additional £600m for payment protection insurance (PPI) mis-selling.
That brought its total provision for PPI to £10.4bn with around one fifth of that relating to the expected administrative costs of sorting through the cases.
Other provisions taken in the half-year included £225m for potential pay-outs on investment and protection products and a similar sum for payments related to attempted rigging of interest rates and manipulation of fees through a government lending scheme. There was also £50m for small businesses which may have been mis-sold complex interest rate swap loans.
However on an underlying level there were some encouraging financial signs with profits rising 32 per cent from £2.9bn to more than £3.8bn.
Loans and advances to customers, excluding assets that are being run-off, were down very slightly at £465.8m but chief executive Antonio Horta-Osorio insisted Lloyds was growing lending in its key sectors such as SME, consumer finance and mortgages.
He said: "We grew lending to SMEs by five per cent in the last 12 months, against a market contraction of three per cent. Similarly, our lending to mid-market corporates grew marginally, against a contracting market.
"We have supported over 52,000 start-ups and we continue to lend more to first-time buyers than anyone else."
Loan impairment levels dropped 58 per cent from £1.8bn to £758m with Lloyds suggesting its impaired assets would be below £20bn by the end of the year, an improvement from the £23bn originally forecast.
Mr Horta-Osorio said: "We substantially improved our underlying financial performance and delivered a statutory profit, despite further charges for legacy issues."
Lloyds also confirmed it will approach the Prudential Regulation Authority (PRA) before the end of the year in a bid to start re-paying dividends for the first time in six years.
The bank said any payment would be at a "modest" level and would relate to its results for 2014.
George Culmer, chief financial officer, suggested the performance in the first six months of the year would strengthen Lloyds's hand when presenting its case to the PRA.
He said: "I think the results demonstrate a bank that is delivering sustainable, strong earnings and dealing with its legacy issues and generating strong capital while we are doing that."
Mr Culmer expects performance to continue to improve in the second-half of the year and indicated he believes that will give the UK government further scope on when it decided to sell its 24.9 per cent stake in Lloyds.
While Mr Culmer reaffirmed the bank would not enter the political debate around the Scottish referendum he confirmed that a yes vote will have a significant impact on its operations here, where around 16,000 staff are employed including in Bank of Scotland, Scottish Widows and Halifax.
He said: "The outcome could have a significant impact on the legal, regulatory, currency and tax regime within which the group operates.
"We are taking comfort in the time we would be allowed to effect those changes. We are comfortable that we are ready to respond whatever the outcome. We feel we are prepared."
Meanwhile, TSB, which was spun out from Lloyds last month, showed a 16.9 per cent dip in underlying profits for the half-year from £94.6m to £78.9m.
That was mainly as a result of a £62.4m rise in operating expenses as the bank ran on a standalone basis rather than benefiting from economies of scale as part of a larger group.
Separately Santander UK, which is headed by Ana Botin, said it had added 1.1 million current account customers in the past year and made a pre-tax profit of £545m, from £461m.