New British bank venture NBNK
Lloyds said in a statement on Thursday that it had received three formal offers for the assets and had decided to take forward discussions with two bidders.
Lloyds did not identify who those bidders were, but sources told Reuters that they were NBNK and Co-Op's financial services arm.
Lloyds has been forced to sell the branches by European competition regulators to compensate for it having been bailed out by the British government during the credit crisis.
(Reporting by Sudip Kar-Gupta; Editing by Greg Mahlich)