DIRECTORS' REPORT

Results and dividends

The consolidated income statement shows a profit attributable to equity shareholders for the year ended 31 December 2008 of £819 million.

An interim dividend of 11.4p per ordinary share was paid on 1 October 2008. This dividend absorbed £648 million.

Principal activities, business review, future developments and financial risk management objectives and policies

The Company is a holding company and its subsidiary undertakings provide a wide range of banking and financial services through branches and offices in the UK and overseas. A review of the development and performance of the business during the financial year and an indication of the likely future developments are given in the Business Review. Key performance indicators are shown in Group Key Performance Indicators. Information regarding the financial risk management objectives and policies of the Company and its subsidiary undertakings, in relation to the use of financial instruments, is given in Risk Management and in note 49.

Group Structure

On 16 January 2009, Lloyds TSB Group plc changed its name to Lloyds Banking Group plc, following the acquisition of HBOS plc.

Post Balance Sheet Events

Details are given in note 52.

Directors

Biographical details of directors are shown in The Board sections. Particulars of their emoluments and interests in shares in the Company are given in the Directors' remuneration report.

Ms T A Dial and Mr M E Fairey left the board on 18 April 2008 and 30 June 2008, respectively. Mr Ewan Brown will retire at the annual general meeting in 2009.

Sir David Manning joined the board on 1 May 2008.

Mr M A Scicluna, Ms C J McCall and Mr T J W Tookey joined the board on 1 September 2008, 1 October 2008 and 30 October 2008, respectively, and Mr T T Ryan and Mr Anthony Watson have been appointed directors from 1 March 2009 and 2 April 2009, respectively. In accordance with the articles of association, they offer themselves for election at the annual general meeting.

Sir Victor Blank, Mr A G Kane and Lord Leitch retire at the annual general meeting and offer themselves for re-election.

Directors' indemnities

The directors, including two former directors who left during the year, have entered into individual contracts of indemnity with the Company which constituted 'qualifying third party indemnity provisions' and 'qualifying pension scheme indemnity provisions' for the purposes of the Companies Act 2006. These contracts were in force during the whole of the financial year or from the date of appointment in respect of the four directors who joined the board in 2008. The contracts remain in force and are available for inspection at the Company's registered office.

Share capital

Information about share capital is shown in note 41; in note 6 of the parent company accounts, included within this document; in the Corporate governance report; and in the Directors' remuneration report.

It is intended to issue ordinary shares by way of a capitalisation issue in May 2009, at the rate of one share for every 40 shares held.

CHANGE OF CONTROL

The Company is party to significant contracts that are subject to change of control provisions in the event of a takeover bid as follows:

The Company is party to a deed of covenant with each of the four Lloyds TSB Foundations (the 'Foundations') which hold limited voting shares in the Company (the limited voting shares are further described in note 41). Under the terms of the deeds of covenant, the Company makes an annual payment to each of the Foundations. In the event of a successful offer for more than 50 per cent of the issued ordinary share capital of the Company, each limited voting share would convert to an ordinary share under the terms of the Company's articles of association. The payment obligation under the deeds of covenant would come to an end one year following the conversion of the limited voting shares.

Employees

Lloyds Banking Group is committed to providing employment practices and policies which recognise the diversity of our workforce and ensure equality for employees regardless of sex, race, disability, age, sexual orientation or religious belief.

In the UK, Lloyds Banking Group belongs to the major employer groups campaigning for equality for the above groups of staff, including Employers' Forum on Disability, Employers' Forum on Age, Stonewall and the Race for Opportunity. Our involvement with these organisations enables us to identify and implement best practice for our staff.

Employees are kept closely involved in major changes affecting them through such measures as team meetings, briefings, internal communications and opinion surveys. There are well established procedures, including regular meetings with recognised unions, to ensure that the views of employees are taken into account in reaching decisions.

Schemes offering share options or the acquisition of shares are available for most staff, to encourage their financial involvement in Lloyds Banking Group.

Donations

The income statement includes a charge for charitable donations totalling £29,603,000 in 2008 (2007: £37,463,000), including £28,997,000 (2007: £37,183,000) which will be paid under the deeds of covenant to the four Lloyds TSB Foundations during 2009.

Policy and practice on payment of creditors

The Company follows 'The Better Payment Practice Code' published by the Department of Business, Enterprise and Regulatory Reform (BERR), regarding the making of payments to suppliers. A copy of the code and information about it may be obtained from the BERR as shown in Shareholder information.

The Company's policy is to agree terms of payment with suppliers and these normally provide for settlement within 30 days after the date of the invoice, except where other arrangements have been negotiated. It is the policy of the Company to abide by the agreed terms of payment, provided the supplier performs according to the terms of the contract.

The number of days required to be shown in this report, to comply with the provisions of the Companies Act 1985, is 23. This bears the same proportion to the number of days in the year as the aggregate of the amounts owed to trade creditors at 31 December 2008 bears to the aggregate of the amounts invoiced by suppliers during the year.

Directors' responsibility statement

Each of the current directors, whose names and functions are shown are shown in The Board - Non-Executive Directors and The Board - Executive Directors of this annual report, confirms that, to the best of his or her knowledge:

– the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and Group; and

– the management report contained in the business review includes a fair review of the development and performance of the business and the position of the Company and Group, together with a description of the principal risks and uncertainties they face.

Auditors and audit information

Each person who is a director at the date of approval of this report confirms that, so far as the director is aware, there is no relevant audit information of which the Company's auditors are unaware and each director has taken all the steps that he or she ought to have taken as a director to make himself or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 234ZA of the Companies Act 1985.

Resolutions concerning the re-appointment of PricewaterhouseCoopers LLP as auditors and authorising the audit committee to set their remuneration will be proposed at the annual general meeting.

On behalf of the board

Harry F Baines
Company Secretary and General Counsel
26 February 2009