Lloyds Bank profits jumped by 23% to £1.6bn. It made pre-tax profits of £1.6bn, 23% higher than the same time last year.
But it said it had put aside another £90m in costs for payment protection insurance (PPI) mis-selling claims, taking its total bill to £18.8bn.
The government sold its last shares in Lloyds in May 2017, eight years after pumping in £20bn to save it. Chief executive Antonio Horta-Osório said the results continued to “demonstrate the strength of our business model”.
Lloyds is the UK’s biggest mortgage provider and Mr Horta-Osório was upbeat on the state of the economy.
He said: “The UK economy continues to be resilient, benefiting from low unemployment and continued GDP growth.
“We expect the economy to continue to perform along these lines during 2018.”
However, overall bad loans rose to £258m during the first three months of 2018, compared with £127m at the same time last year.
Richard Hunter, head of markets at Interactive Investor, said the rise was “slightly troubling, given a fairly benign economic backdrop, although the bank has stressed that it is seeing little deterioration in credit quality at present”.
“This could become relevant in the event of a downturn in UK fortunes, especially given the bank’s exposure through its credit card business,” he added.
Lloyds bought credit card firm MBNA from Bank of America in 2016.
Lloyds said the PPI charge of £90m was due to increased costs resulting from the requirement on banks to “proactively contact” customers who had previously had their complaints turned down.
In the first three months of last year, Lloyds put aside £350m for PPI related claims.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said Lloyds had made a good start to 2018, thanks in part to lower PPI costs.
“PPI costs are much lower than last year, and this is a theme we can expect to continue for the UK banks,” he said.
“As the largest source of compensation, Lloyds also stands to be the biggest beneficiary of PPI disappearing in the rear-view mirror.”
However, he added, with another 18 months until the deadline for PPI claims, “we wouldn’t be entirely surprised to see further costs along the way, as compensation applications ramp up the closer we get to the cut-off date in August 2019”.
Lloyds is in the midst of a three-year strategy, announced in February, focused on expanding its digital services.