Bradford & Bingley, the former building society, has taken a further £89.4 million charge to cover potential claims relating to endowment mortgage mis-selling.
The move, which knocked a hole in half-year figures from the mortgage bank, added to provisions of £75.8 million booked by the bank since 2004.
The claims arise from endowment and investment products sold mainly in the 1980s and prior to the closure of its independent financial advice business more than two years ago.
The Financial Services Authority estimated industry-wide compensation for mis-selling endowment policies had reached £1.1 billion by the end of 2004, although the figure is certain to increase as more homeowners lodge claims.
B&B said the level of claims had been higher than expected in the first half of 2006: "Cons equently, we have reassessed our estimate of the remaining liability and set aside a further £89.4 million against these costs."
As a result, half-year pretax profits fell to £74.8 million from £147.9 million, although the underlying figure showed a rise of nine per cent to £164.2 million.
Chief executive Steven Crawshaw said it had been a "very successful" first half for the bank, which has 350 branches and 3,000 staff.
He pointed to 19 per cent growth in residential lending balances as the company benefited from continued demand for buy-to-let and self-certification mortgages. In terms of buy-to-let, the group said many customers continued to invest in the sector as an alternative source of retirement provision.
Mr Crawshaw said: "Our business is bearing the fruits of focus. Our markets are continuing to perform well and we have a very robust pipeline, ensuring we are well placed to continue this growth."
Referring to the extra provision for mis-selling, Mr Crawshaw said he could not rule out any further set-asides.
"It'd be a very brave person who would say that this is the last, but there are signs of light at the end of the tunnel," he added.
The company added that credit quality remained good across all its lending portfolios, even though the level of arrears increased modestly in the first half.
The number of homeowners more than three months in arrears or having their properties repossessed represented 1.36 per cent of the total mortgage book at the end of June, compared with 1.19 per cent for the past financial year.
