UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
         EXCHANGE ACT OF 1934

     For the fiscal year ended February 10, 1998

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                           Commission File No. 1-12979

                             HomeSide Lending, Inc.
             (Exact name of registrant as specified in its charter)

           Florida                                       59-2725415
(State or other jurisdiction of 
incorporation or organization)              (I.R.S. Employer Identification No.)

                   7301 Baymeadows Way, Jacksonville, FL 32256
              (Address of principal executive offices) (Zip Code)

                                 (904) 281-3000
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _x_ No __

Indicate the number of shares  outstanding  of each of the Company's  classes of
common stock, as of the latest practicable date.

     Title of each class                        Outstanding at February 10, 1998
     -------------------                        --------------------------------

Common Stock, $1.00 Par Value                        100 shares

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.


                       DOCUMENTS INCORPORATED BY REFERENCE
      Current Report on Form 8-K dated February 25, 1998,  April 3, 1998,  April
15, 1998 and May 8, 1998.

                                     PART I

ITEM 1.  BUSINESS


General

         HomeSide  Lending  is  one  of  the  largest  full-service  residential
mortgage banking  companies in the United States.  HomeSide  Lending's  strategy
emphasizes variable cost mortgage  origination and low cost servicing.  HomeSide
Lending's mortgage loan production volume,  excluding bulk purchases,  was $20.5
billion for the period from March 1, 1997  through  February  10, 1998 and $20.9
billion for the period from March 16, 1996 to February 28, 1997.  Its  servicing
portfolio  was $98.9 billion on February 10, 1998 and $ 89.2 billion on February
28, 1997.  HomeSide Lending ranks as the 5th largest  originator and 6th largest
servicer in the United States for calendar year 1997 based on data  published by
Inside Mortgage Finance.

         The residential  mortgage market totaled over $3.9 trillion in 1996 and
is the second  largest  debt  market in the world,  exceeded  only by the United
States Treasury market. The residential  mortgage market has grown at a compound
annual rate of  approximately  8% since  1985.  HomeSide  Lending  competes in a
mortgage  banking  market  which is highly  fragmented  with no  single  company
controlling  or  dominating  the  market.   In  1997,  the  largest   originator
represented 6.5% of the market and the largest servicer  represented 5.0%, while
the top 30  originators  and  servicers  represented  48.0%  and  48.7% of their
markets,  respectively,  based on data  published  by Inside  Mortgage  Finance.
Residential  mortgage lenders compete primarily on the basis of loan pricing and
service,   making  effective  cost  management   essential.   The  industry  has
experienced rapid  consolidation  which has been accelerated by the introduction
of  significant  technology  improvements  and the economies of scale present in
mortgage  servicing.  The top 10 mortgage loan servicers  have  increased  their
aggregate market share from 16.6% in 1990 to 30.2% in 1997.

         HomeSide  Lending's  business strategy is to increase the volume of its
loan  originations  and the size of its servicing  portfolio while continuing to
improve  operating  efficiencies.  In originating  mortgages,  HomeSide  Lending
focuses on  variable  cost  channels  of  production,  including  correspondent,
broker, consumer direct,  affinity, and co-issue sources.  HomeSide Lending also
pursues  strategic  relationships  with other production  sources to acquire and
service residential mortgage loans. Management believes that these variable cost
channels of production deliver consistent origination opportunities for HomeSide
Lending without the fixed cost investment  associated  with  traditional  retail
mortgage branch networks.  HomeSide Lending believes that its ongoing investment
in technology will further enhance and expand existing  processing  capabilities
and improve its efficiency. Based on independent surveys of direct cost per loan
and loans serviced per employee,  management  believes that HomeSide Lending has
been one of the industry's  most  efficient  mortgage  servicers.  The Company's
average  cost per  employee  approximates  the average  cost per employee of its
major competitors.

         HomeSide  Lending  plans  to  build  its core  operations  through  (i)
improved  economies of scale in servicing  costs;  (ii)  increased  productivity
using proprietary  technology;  and (iii) expanded and diversified variable cost
origination channels. In addition, HomeSide Lending intends to pursue additional
loan portfolio  acquisitions and strategic origination  relationships similar to
its existing agreement with BankBoston, N.A. ("BKB").

         HomeSide Lending's business activities consist primarily of:

               Mortgage  production:  origination  and  purchase of  residential
          single family  mortgage  loans  through  multiple  channels  including
          correspondents,   strategic  partners,   mortgage  brokers,   co-issue
          partners, direct consumer telemarketing and affinity programs;

               Servicing:  administration,  collection and remittance of monthly
          mortgage  principal and interest  payments,  collection and payment of
          property  taxes and insurance  premiums and management of certain loan
          default activities;

               Secondary  marketing:  sale of residential single family mortgage
          loans as pools  underlying  mortgage-backed  securities  guaranteed or
          issued by  governmental  or  quasi-governmental  agencies  or as whole
          loans or private securities to investors; and

               Risk management:  management of a program  designed  primarily to
          protect the economic performance of the servicing portfolio that could
          otherwise be adversely affected by loan prepayments due to declines in
          interest rates.

Production

         HomeSide Lending,  Inc.  participates in several origination  channels,
with a focus on  wholesale  origination.  Since the  acquisition  of  BancBoston
Mortgage Corporation ("BBMC"), wholesale channels (correspondent,  co-issue, and
broker) have represented more than 95% of HomeSide  Lending's total  production.
Excluding the volumes purchased from BKB and Barnett Bank, N.A. ("Barnett"),  no
single source within the  correspondent  or broker  channels  accounted for more
than 3% of total production during the period from March1,  1997 to February 10,
1998 and the period from March 16, 1996 to February 28,1997.  HomeSide Lending's
other  origination  channels  include  telemarketing,  direct mail campaigns and
other  advertising,  and  mortgages  related to affinity  group and  co-branding
partnerships. HomeSide Lending also purchases servicing rights in bulk from time
to time. This  multi-channel  production base provides access to and flexibility
among production  channels in a wide variety of market and economic  conditions.
The  following  table  sets  forth  production  detail  by  HomeSide   Lending's
origination channels:

Residential Loan Production by Channel

                                       For the Period from   For the Period from
                                        March 1, 1997 to      March 16, 1996 to
(dollars in millions)                   February 10, 1998     February 28, 1997
                                       -------------------   -------------------
Wholesale:
  Correspondent (includes volumes
    purchased from BKB and Barnett)         $ 13,304               $ 11,113
Co-issue (a)                                   5,584                  8,222
Broker                                         1,305                    843
                                       -------------------   -------------------
    Total wholesale                           20,193                 20,178
Direct                                           337                    700
                                       -------------------   -------------------
   Total production                           20,530                 20,878
Bulk acquisitions (a)                          3,446                  4,073
                                       -------------------   -------------------
   Total production and acquisitions        $ 23,976               $ 24,951   
                                       ===================   ===================
---------------------
(a)   Represents the acquisition of servicing rights,  not the underlying loans.
      Amounts  represent the unpaid principal  balance of mortgage debt to which
      the acquired servicing rights relate.

         HomeSide  Lending  competes  nationwide  by offering a wide  variety of
mortgage  products designed to respond to consumer needs and tailored to address
market  competition.  HomeSide  Lending is primarily an originator of fixed rate
15- and 30-year mortgage loans, which collectively  represented 78% of the total
production  in the period  from March 1, 1997 to  February  10,  1998 and 73% of
total  production  in the  period  from March 16,  1996 to  February  28,  1997.
HomeSide Lending also offers other products,  such as ARMs,  balloon,  and jumbo
mortgages.

         HomeSide Lending's  national loan production  operation has resulted in
geographically diverse originations,  enabling HomeSide Lending to diversify its
risk across many  markets in the United  States.  HomeSide  Lending's  servicing
portfolio  composition  reflects its production markets. The largest segments of
the  servicing  portfolio by state on February  10, 1998 were Florida  (17.2% of
unpaid  principal  balance of  production),  California  (15.3%),  Massachusetts
(7.0%),  Texas (6.3) and Maryland (4.6%).  The largest segments of the servicing
portfolio by state on February 28, 1997 were Florida (18.7% of unpaid  principal
balance),  California (15.4%),  Massachusetts (8.4%), Texas (6.1%), and Maryland
(4.6%).

         The mortgage banking industry is generally  subject to seasonal trends.
These trends reflect the general national pattern of sales and resales of homes.
Sales and resales of homes  typically  peak during the spring and summer seasons
and decline to lower levels from  mid-November  through  February.  Refinancings
tend to be less seasonal and more closely  related to changes in interest rates.
Historically, changes in the interest rate environment have mitigated the impact
of  seasonality  on  HomeSide  Lending's  results of  operations.  In  addition,
delinquency  rates  typically rise in the winter months,  which result in higher
servicing costs. However, late charge income has historically been sufficient to
offset such incremental expenses.

         HomeSide Lending's  production  strategy is to maintain and improve its
reputation as one of the largest,  most cost  effective  originators of mortgage
loans nationwide.  HomeSide Lending pursues this strategy through an emphasis on
wholesale and centralized direct  production,  the use of contract and delegated
underwriters,  a  high  degree  of  automation  in  its  processing  and  direct
originations  and quality control.  HomeSide Lending plans to expand  production
through its low cost wholesale and direct channels and to continue to streamline
its  production  operation.  HomeSide  Lending  plans to continue to pursue bulk
acquisitions  in the  secondary  market  for  mortgage  servicing  rights  on an
opportunistic basis.


Wholesale Production

      Correspondent Production

         Through its  correspondent  program,  HomeSide Lending  purchases loans
from approximately 500 commercial banks, savings and loan associations, licensed
mortgage lenders and other financial intermediaries. The correspondent takes the
mortgage  application  and  processes  the loan,  which is  either  underwritten
through  contract  underwriters  or, in some cases,  the  correspondent  to whom
underwriting  authority has been delegated.  Closing  documents are submitted to
HomeSide Lending for legal review and funding.  The participants in this program
are  prequalified  and monitored on an ongoing basis by HomeSide  Lending.  If a
correspondent  subsequently  fails  to  meet  HomeSide  Lending's  requirements,
HomeSide Lending typically terminates the relationship.  Correspondents are also
required to repurchase loans in the event of fraud or  misrepresentation  in the
origination process and for certain other reasons.




      Co-Issue Production

         Co-issue production,  which represents the purchase of servicing rights
from a correspondent  under contracts to deliver  specified volumes on a monthly
or quarterly basis, is another main source of HomeSide Lending's production. The
co-issue  correspondent  controls the entire loan process  from  application  to
closing.  This  arrangement  particularly  suits large  originators who have the
ability to deliver on an automated basis. Reflecting this delegated underwriting
authority,   the   co-issue   correspondent   is   obligated   to  make  certain
representations  and warranties and is required to repurchase loans in the event
of fraud or  misrepresentation  in the origination  process or for certain other
reasons.

      Broker Production

         Under its broker program,  HomeSide Lending funds loans at closing from
a network of approximately 450 mortgage brokers nationwide.  The broker controls
the process of application and loan  processing.  A pre-closing  quality control
review is performed by HomeSide  Lending to verify the  borrower's  credit.  All
loans originated through brokers are underwritten by HomeSide Lending's approved
contract underwriters. Loans are funded by HomeSide Lending and may be closed in
either the  broker's  name or  HomeSide  Lending's  name.  Participants  in this
program prequalify on the basis of creditworthiness, mortgage lending experience
and reputation. Each broker is subject to annual and ongoing reviews by HomeSide
Lending.

Direct Production

      HomeSide Lending's direct production  includes the use of telemarketing to
solicit loans from several sources,  including  refinancing of mortgage loans in
HomeSide  Lending's existing  servicing  portfolio,  leads generated from direct
mail campaigns and other  advertising,  and mortgages  related to affinity group
and co-branding partnerships.  HomeSide Lending believes that these efforts will
have a significant  effect on increasing the percentage of loans captured by the
direct division from loan prepayments in HomeSide Lending's servicing portfolio.
Refinancing  retention  represents  the percentage of loans  refinanced  through
HomeSide  Lending's  direct channel that were serviced by HomeSide Lending prior
to refinancing.

Bulk Acquisition

      Bulk acquisition is the large scale purchase of mortgage servicing rights.
In connection  with such  acquisitions,  HomeSide  Lending does not purchase the
underlying  mortgage loans which were originated by other originators.  HomeSide
Lending  may  purchase  servicing  rights  on an  exclusive  basis or  through a
competitive   bidding  process  and  plans  to  continue  this  practice  on  an
opportunistic  basis in order to grow its  servicing  portfolio and benefit from
economies of scale.

Underwriting and Quality Control

      Underwriting

         HomeSide Lending's loans are underwritten in accordance with applicable
FNMA,  FHLMC,  VA,  and FHA  guidelines,  as well as  certain  private  investor
requirements.  The underwriting  process is organized by origination channel and
by loan type. HomeSide Lending currently employs underwriters with an average of
ten years of underwriting experience.

         HomeSide  Lending  requires  approximately  80%  of  its  correspondent
lenders to have their loans  underwritten  by third party contract  underwriters
prior to  purchase.  These  contract  underwriters  are  designated  by HomeSide
Lending and include General Electric Capital Corp.,  Mortgage Guaranty Insurance
Corp.,  and Private Mortgage  Insurance Corp.  HomeSide Lending grants delegated
underwriting status to the remaining  approximately 20% of correspondents  which
enables the  correspondents  to submit  conventional  loans to HomeSide  Lending
without  prior  underwriting  approval.   Generally,   HomeSide  Lending  grants
delegated  underwriting  status to its larger  correspondents who meet financial
strength,  delinquency,  underwriting  and quality control  standards,  and such
correspondents  are  monitored  regularly.  The FHA and VA require that loans be
underwritten by the originating lender on an Agency-approved or delegated basis.
If  issuance of FHA  guarantees  or VA  insurance  certificates  is denied,  the
correspondent must repurchase the loan.

        HomeSide  Lending's  underwriting  process  for  its  retail  production
operation is fully automated. The automated underwriting technology incorporates
credit  scoring  and  appraisal   evaluation   systems.   These  systems  employ
rules-based and statistical  technologies to evaluate the borrower, the property
and salability of the loan to the secondary  market.  HomeSide  Lending believes
that these  technologies  have contributed to improved  productivity and reduced
underwriting and processing turnaround time.

      Quality Control

         HomeSide   Lending   maintains  a  compliance  and  quality   assurance
department  that  operates   independently  of  the  production,   underwriting,
secondary  marketing  and loan  administration  department.  For its  production
compliance  process,  HomeSide Lending randomly selects a statistical  sample of
all closed loans monthly for review. The sample generally comprises 3.5% - 4% of
all  loans  closed  each  month.  This  review  includes  a credit  scoring  and
reunderwriting  of such loans,  ordering second appraisals on 10% of the sample,
reverifying  funds,  employment and final  applications  and  reordering  credit
reports  on all loans  selected.  In  addition,  a full  underwriting  review is
conducted  on (i) all  jumbo  loans  that  go  into  default  during  the  first
thirty-six  months from the date of origination and (ii) all other loans that go
into default during the first six months from the date of origination.  Document
and file  reviews  are also  undertaken  to  ensure  regulatory  compliance.  In
addition,  random reviews of the servicing portfolio,  covering selected aspects
of the loan administration process, are conducted.

        HomeSide Lending monitors the performance of the underwriting department
through quality assurance reports, HUD/VA reports and audits, reviews and audits
by regulatory agencies,  investor reports and mortgage insurance company audits.
According to HomeSide  Lending's quality control  findings,  less that 1% of its
loans have  underwriting  issues that affect salability to the secondary market.
Flaws in these  loans are  generally  corrected;  otherwise,  the  holder of the
mortgage-backed  security is indemnified  against  future losses  resulting from
such flaws by HomeSide Lending or,  ultimately,  the originating  correspondent.
Correspondents  or co-issue partners are required to repurchase any flawed loans
originated by them.

Secondary Marketing

      HomeSide  Lending  customarily  sells  all  loans  that it  originates  or
purchases while retaining the servicing  rights to such loans.  HomeSide Lending
aggregates  mortgage  loans  into  pools  and  sells  these  pools,  as  well as
individual mortgage loans, to investors  principally at prices established under
forward  sales  commitments.  HomeSide  Lending's FHA and VA loans are generally
pooled and sold in the form of GinnieMae  ("GNMA")  Mortgage Backed  Securities.
Conforming  conventional mortgage loans are generally pooled and exchanged under
the purchase and guarantee programs sponsored by Fannie Mae and FHLMC for Fannie
Mae   Mortgage   Backed   Securities   or  FHLMC   participation   certificates,
respectively.  HomeSide  Lending pays certain  guarantee fees to the Agencies in
connection  with these  programs  and then sells the GNMA,  Fannie Mae and FHLMC
securities  to  securities  dealers.  A limited  number of mortgage  loans (i.e.
non-conforming  loans) are sold to private investors.  For the period from March
1, 1997 to February 10, 1998, approximately 92% of the mortgage loans originated
by HomeSide  Lending were sold to GNMA (47%),  FNMA (31%),  and FHLMC (14%). For
the period from March 16, 1996 to February  28, 1997,  approximately  78% of the
mortgage  loans  originated  by HomeSide  Lending were sold to GNMA (38%),  FNMA
(27%), and FHLMC (13%). The remaining were sold to private investors.

      The  sale of  mortgage  loans  may  generate  a gain  or loss to  HomeSide
Lending.  Gains or losses result  primarily  from two factors.  First,  HomeSide
Lending may purchase a loan at a price that may be higher or lower than HomeSide
Lending would receive if it immediately  sold the loan in the secondary  market.
These pricing  differences occur principally as a result of competitive  pricing
conditions in the primary loan origination market.  Second,  gains or losses may
result from  fluctuations  in interest  rates that create  changes in the market
value of the loans or commitments to purchase loans,  from the time the interest
rate commitment is given to the mortgagor until the loan is sold to an investor.

      HomeSide   Lending   assesses  the  interest  rate  risk  associated  with
outstanding  commitments  that it has  extended  to fund  loans and  hedges  the
interest  rate  risk of  these  commitments  based  upon a  number  of  factors,
including the remaining term of the  commitment,  the interest rate at which the
commitment was provided,  current  interest rates and interest rate  volatility.
HomeSide Lending constantly  monitors these factors and adjusts its hedging on a
daily basis as needed.  HomeSide Lending uses the  Quantitative  Risk Management
system, a sophisticated hedging,  reporting and evaluation system, which has the
ability to perform  analyses  under various  interest rate  scenarios.  HomeSide
Lending's  interest rate risk is currently hedged using a combination of forward
sales of mortgage backed securities and over-the-counter options, including both
puts and calls, on fixed income  securities.  HomeSide Lending generally commits
to sell to investors for delivery at a future time for a stated price all of its
closed loans and a percentage  of the mortgage  loan  commitments  for which the
interest  rate has  been  established.  HomeSide  Lending  aims to  price  loans
competitively,  hedge the interest rate risk of loan originations and sell loans
on a  break-even  basis.  For the period from March 1, 1997 to February 10, 1998
and the period from March 16, 1996 to February  28, 1997,  HomeSide  Lending has
not experienced secondary marketing losses on an aggregate basis.

      HomeSide  Lending's  policy is to sell  mortgage  loans on a  non-recourse
basis.  However,  in the case of VA loans used to form GNMA pools, the VA's loan
guarantees  do not cover the entire  principal  balance of the loan and HomeSide
Lending is responsible for losses which exceed the VA's guaranteed  limitations.
In connection with HomeSide Lending's loan exchanges and sales, HomeSide Lending
makes  representations  and  warranties  customary in the industry  relating to,
among other things, compliance with laws, regulations and program standards, and
to  the   accuracy  of   information.   In  the  event  of  a  breach  of  these
representations  and  warranties,   HomeSide  Lending  typically  corrects  such
problems,  but,  if  the  problems  cannot  be  corrected,  may be  required  to
repurchase such loans.  In cases where loans are originated by a  correspondent,
HomeSide  Lending  may sell the flawed  loan back to the  correspondent  under a
repurchase obligation.

Loan Servicing

      HomeSide  Lending  derives its revenues  predominantly  from its servicing
operations.  HomeSide Lending anticipates that the sale of servicing rights will
not be a significant component of its business strategy in the future. Since its
formation,  HomeSide  Lending  has also  maintained  a risk  management  program
designed  to protect,  within  certain  parameters,  the  economic  value of its
servicing  portfolio,  which is subject to prepayment  risk when interest  rates
decline, providing mortgagors with refinancing opportunities.

      Loan servicing includes collecting payments of principal and interest from
borrowers,  remitting  aggregate  loan  payments to  investors,  accounting  for
principal and interest  payments,  holding  escrow funds for payment of mortgage
related  expenses  such  as  taxes  and  insurance,  making  advances  to  cover
delinquent payments,  inspecting the mortgaged premises as required,  contacting
delinquent mortgagors, supervising foreclosures and property dispositions in the
event of unremedied  defaults,  and other  miscellaneous  duties related to loan
administration.  HomeSide Lending collects  servicing fees from monthly mortgage
payments.  These  fees  generally  range  from  0.25% to 0.50% of the  declining
principal  balances of the loans per annum.  HomeSide Lending's weighted average
servicing fee including ancillary income was 0.438% for the period from March 1,
1997 to  February  10,  1998 and 0.432% for the  period  from March 16,  1996 to
February  28,  1997.  HomeSide  Lending  also  maintains  certain   subservicing
relationships  whereby  servicing  is  performed  by another  servicer  under an
agreement with HomeSide  Lending,  which remains  contractually  responsible for
servicing the loans.  Subservicing  relationships are often entered into as part
of a bulk  servicing  acquisition  where the selling  institution  continues  to
perform servicing until the loans are transferred to the purchasing institution.

      HomeSide Lending's servicing strategy is to continue to build its mortgage
servicing  portfolio  and benefit from the  economies  of scale  inherent in the
business. HomeSide Lending services substantially all of the mortgage loans that
it originates.  In addition,  HomeSide  Lending  purchases the rights to service
mortgage loans originated by other lenders.

      As part of the BMC  Acquisition,  HomeSide Lending acquired a full-service
mortgage company in Hawaii,  Honolulu Mortgage Co. Honolulu Mortgage's servicing
portfolio  totaled $1.9 billion at November 30, 1996 and its loan production was
$257.4  million from its  acquisition  on May 31, 1996 to February 18, 1997.  In
February 1997,  Honolulu  Mortgage Co. sold  substantially  all its assets to an
unaffiliated  third party. The sale did not materially affect HomeSide Lending's
financial results.

      HomeSide Lending's servicing strategy is also to enhance the profitability
of its  servicing  activities  through low cost and  efficient  processes.  This
strategy is pursued through highly automated, cost effective processing systems,
strategic  outsourcing of selected servicing  functions and effective control of
delinquencies  and  foreclosures.  HomeSide  Lending  outsources  to third party
vendors  functions  relating  to  insurance,   taxes  and  default   management,
contributing  to HomeSide  Lending's  ability to maintain a highly variable cost
structure. Using a variety of factors, including loans serviced per employee and
direct cost per loan,  management  believes that HomeSide  Lending is one of the
nation's most efficient servicers based on industry surveys. Management believes
that its low cost  servicing  provides it with a  competitive  advantage  in the
industry.

Servicing Portfolio Composition

      HomeSide  Lending  originates and purchases  servicing rights for mortgage
loans  nationwide.  The broad  geographic  distribution  of  HomeSide  Lending's
servicing   portfolio   reflects  the  national  scope  of  HomeSide   Lending's
originations and bulk servicing acquisitions.  The nine largest states accounted
for 64.5% of the  outstanding  unpaid  principal  balance  ("UPB")  of  HomeSide
Lending's  total  servicing  portfolio on February  10, 1998,  while the largest
volume by state is Florida with a 17.2% share of the total portfolio on February
10, 1998. The nine largest states  accounted for 66.9% of the outstanding UPB of
HomeSide  Lending's  total servicing  portfolio on February 28, 1997,  while the
largest volume by state is Florida with a 18.7% share of the total  portfolio on
February  28,  1997.   HomeSide   Lending   actively   monitors  the  geographic
distribution  of its  servicing  portfolio  to  maintain  a mix  that  it  deems
appropriate and makes adjustments as it considers necessary.

      The  following  table  sets  forth  the  geographic  distribution  of  the
Company's servicing portfolio as of February 10, 1998 and February 28, 1997:


<PAGE>



                                   Servicing Portfolio by State (a)

                            At February 10, 1998        At February 28, 1997
                            --------------------        --------------------
(dollars in millions)       UPB         % of UPB        UPB         % of UPB
                            ---         --------        ---         --------

Florida                $  16,664         17.2%        $  16,559       18.7%
California                14,858         15.3            13,686       15.4
Massachusetts              6,792          7.0             7,383        8.4
Texas                      6,096          6.3             5,434        6.1
Maryland                   4,424          4.6             4,079        4.6
Georgia                    3,720          3.8             3,427        3.9
Virginia                   3,377          3.5             3,218        3.6
Illinois                   3,729          3.8             2,913        3.3
New York                   2,939          3.0             2,517        2.9
Other (b)                 34,327         35.5            29,244       33.1
                       -----------------------------------------------------
Total                  $  96,926        100.0%        $  88,460      100.0%
                       =====================================================
--------------
(a)  Servicing  statistics are based on loans  serviced by HomeSide  Lending and
     exclude loans purchased but not yet on the servicing system.
(b)  No other state  represents more than 2.9% of HomeSide  Lending's  servicing
     portfolio.

      At February 10, 1998,  HomeSide Lending's servicing portfolio consisted of
$74.2 billion of FHA/VA
servicing and $24.7  billion of  conventional  servicing.  At February 28, 1997,
HomeSide  Lending's  servicing  portfolio  consisted of $29.4  billion of FHA/VA
servicing and $59.0 billion of conventional servicing.

      The weighted average interest rate of the loans in the Company's servicing
portfolio  at February  10,  1998 was 7.85% and at February  28, 1997 was 7.92%.
HomeSide Lending's  servicing portfolio of loans was stratified by interest rate
as follows:
<TABLE>

                                                Servicing Portfolio by Interest Rate
<CAPTION>
                              At February 10, 1998                             At February 28, 1997
                              --------------------                             --------------------
                     UPB (a)                                         UPB (a)
                   (dollars in                      Cumulative    (dollars in                  Cumulative
Interest Rate       millions)      % of UPB       % of UPB         millions)      % of UPB     % of UPB
-------------      ------------    --------       ---------       -----------     --------     --------
<S>                <C>             <C>            <C>             <C>             <C>          <C>          
Less than 6.0%       $    922         0.9%           0.9%          $    983          1.1%         1.1%
6.0% to 6.9%           10,851          11.2         12.1              9,633         10.9         12.0
7.0% to 7.9%           41,895         43.2          55.3             37,542         42.4         54.4
8.0% to 8.9%           34,076         35.2          90.5             29,293         33.1         87.5
9.0% to 9.9%            6,331          6.5          97.0              7,274          8.2         95.7
10.0% to 10.9%          2,227          2.3          99.3              2,912          3.3         99.0
Over 11.0%                624          0.7         100.0                823          1.0        100.0
                  ------------- --------------                    ----------- -------------
         Total       $ 96,926         100.0%                       $ 88,460        100.0%
                  ============= ==============                    =========== =============
</TABLE>
------------------------------

(a)  Servicing  statistics are based on loans  serviced by HomeSide  Lending and
     exclude loans purchased not yet on servicing system.


<PAGE>



Loan Servicing Credit Issues

      HomeSide Lending is affected by loan  delinquencies  and defaults on loans
that it  services.  Under  certain  types of servicing  contracts,  particularly
contracts  to  service  loans  that have been  pooled or  securitized,  HomeSide
Lending must forward all or part of the  scheduled  payments to the owner of the
loan,  even when loan payments are  delinquent.  Also, to protect their liens on
mortgaged  properties,  owners of loans  usually  require a servicer  to advance
scheduled  mortgage and hazard  insurance  and tax payments  even if  sufficient
escrow  funds are not  available.  HomeSide  Lending  is  generally  reimbursed,
subject to certain  limitations with respect to FHA/VA loans as described below,
by the mortgage owner or from  liquidation  proceeds for payments  advanced that
the  servicer is unable to recover  from the  mortgagor,  although the timing of
such  reimbursements is typically  uncertain.  In the interim,  HomeSide Lending
absorbs the cost of funds advanced  during the time the advance is  outstanding.
Further,  HomeSide Lending bears the increased costs of collection activities on
delinquent and defaulted loans.  HomeSide Lending also foregoes servicing income
from the time such loans  become  delinquent  until  foreclosure,  when,  if any
proceeds are available,  HomeSide Lending may recover such amounts.  Delinquency
rates  typically  rise in the winter  months,  which result in higher  servicing
costs.  However,  late charge income has historically  been sufficient to offset
such incremental expenses.

      HomeSide Lending  periodically incurs losses attributable to servicing FHA
and VA loans for  investors,  including  actual losses for final  disposition of
loans  that  have  been  foreclosed  or  assigned  to the FHA or VA and  accrued
interest on such FHA or VA loans for which  payment has not been  received.  For
HomeSide    Lending,    servicing   losses   on    investor-owned    loans   and
foreclosure-related  expenses totaled $22.0 million for the period March 1, 1997
to February  10, 1998,  and $17.9  million for the period from March 16, 1996 to
February 28, 1997, primarily  representing losses on VA loans. The VA guarantees
the initial losses on a loan. The guaranteed amount generally ranges from 20% to
35% of the original  principal  balance.  Before each  foreclosure  sale, the VA
determines  whether to bid by comparing  the  estimated net sale proceeds to the
outstanding principal balance and the servicer's accumulated  reimbursable costs
and fees.  If this amount is a loss and exceeds the  guaranteed  amount,  the VA
typically issues a no-bid and pays the servicer the guaranteed amount.  Whenever
a no-bid is issued,  the servicer absorbs the loss, if any, in excess of the sum
of the  guaranteed  principal  and amounts  recovered at the  foreclosure  sale.
HomeSide Lending's historical  delinquency and foreclosure rate experience on VA
loans has generally been consistent with that of the industry.

      Management  believes  that it has an  adequate  level of reserve  based on
HomeSide Lending's servicing volume,  portfolio composition,  credit quality and
historical loss rates, as well as estimated future losses.

The following  table sets forth HomeSide  Lending's  delinquency and foreclosure
experience:
<TABLE>

                                                   Servicing Portfolio Delinquencies
                                                        (Percent by Loan Count)
<CAPTION>
                                               At February 10, 1998        At February 28, 1997
                                               --------------------        --------------------
<S>                                            <C>                         <C>
Delinquent Mortgage Loans (at end of period)
   30 Days                                          3.52%                      3.27%
   60 Days                                          0.78                       0.69
   90 Days                                          0.72                       0.54
       Total Delinquencies                          5.02%                      4.50%
Foreclosure Pending (at end of period)              0.74%                      0.72%
</TABLE>

Servicing Portfolio Hedging Program

      The  value  of  HomeSide  Lending's  servicing  portfolio  is  subject  to
volatility in the event of  unanticipated  changes in  prepayments.  As interest
rates increase,  prepayments by mortgagors  decrease as fewer owners  refinance,
increasing  expected future cash flows from servicing  revenue.  Conversely,  as
interest rates decrease,  prepayments by mortgagors  increase as homeowners seek
to refinance their mortgages, reducing expected future cash flows from servicing
revenues on those  prepaid  mortgages.  Since the value of  servicing  rights is
based on the net present value of future cash flows,  the value of the portfolio
decreases in a declining  interest  rate  environment  and increases in a rising
rate environment.

      HomeSide Lending's risk management policy is designed to minimize exposure
to loss in the value of the servicing  portfolio  caused by  prepayments  due to
declines in interest  rates.  The  servicing  portfolio  is valued  using market
discount rates and market consensus  prepayment  speeds,  among other variables.
The value is then analyzed  under  various  interest  rate  scenarios  that help
HomeSide  Lending  estimate its exposure to loss.  This  potential loss exposure
determines  the hedge profile,  which is monitored  daily and may be adjusted to
reflect significant moves in key variables such as interest rate and yield curve
changes and revised prepayment speed assumptions. Results of the risk management
program  depend  on a  variety  of  factors,  including  the  hedge  instruments
typically issued by HomeSide  Lending,  the relationship  between mortgage rates
and Treasury securities and certain other factors. See "Management's  Discussion
and Analysis of Financial Condition and Results of Operations - HomeSide Lending
- for the period  from March 1, 1997 to  February  10,  1998 and the period from
March 16, 1996 to February 28,  1997-  Results of  Operations - Risk  Management
Activities".

      The FASB has been  evaluating  the  accounting  for  derivative  financial
instruments  and hedging  activities.  The FASB has issued an exposure draft and
numerous comments have been received. It is unclear what changes will ultimately
be made to such exposure draft.  Under current  practice,  derivative  financial
instruments may be accounted for as hedges with changes in the value deferred as
a component of the asset or liability being hedged, provided the instruments are
designated  as a hedge and  reduce  exposure  to loss  with a high  correlation.
Management of HomeSide Lending is unable to predict what effect, if any, changes
in accounting  principles would have on HomeSide Lending's financial  statements
or HomeSide Lending's use of hedge accounting.

Servicing Integration


       HomeSide Lending intends to convert the entire servicing  platform to its
proprietary  software.  This proprietary  servicing technology  accommodates all
areas of loan  servicing,  including  loan  setup and  maintenance,  cashiering,
escrow  administration,   investor  accounting,  customer  service  and  default
management.   The  platform  is  mainframe   based,   with  on-line,   real-time
architecture  and is supported  by an  experienced  staff of over 30  technology
providers.

       HomeSide Lending expects to achieve  significant  competitive  advantages
over time by converting to the proprietary servicing software, which is expected
to cost less to operate and is configured to accommodate growth more efficiently
than HomeSide Lending's current outsourced system.  Once the conversion has been
completed, this architecture is expected to support HomeSide Lending's portfolio
growth up to  approximately  twice  the  number  of loans  serviced  on a single
system. The system is also expected to permit continued  development of workflow
and other client-server applications, contributing to increased productivity.

At February 10, 1998 and February  28, 1997,  approximately  512,732 and 406,221
loans,  respectively,  were  serviced  on the  proprietary  system  at  HomeSide
Lending's  San Antonio  facility.  The  remainder  of the loans  serviced at the
Jacksonville  facility is expected to be transferred by the end of calendar year
1998.

Regulation

      HomeSide  Lending's  mortgage banking business is subject to the rules and
regulations  of HUD,  FHA,  VA,  Fannie Mae,  FHLMC,  GNMA and other  regulatory
agencies  with  respect  to  originating,   processing,  underwriting,  selling,
securitizing and servicing mortgage loans. In addition,  there are other federal
and state statutes and regulations  affecting such  activities.  These rules and
regulations,  among  other  things,  impose  licensing  obligations  on HomeSide
Lending,  prohibit  discrimination and establish  underwriting  guidelines which
include  provisions for inspections  and  appraisals,  require credit reports on
prospective  borrowers and set maximum loan amounts.  Moreover,  lenders such as
HomeSide Lending are required annually to submit audited financial statements to
Fannie Mae, FHLMC, GNMA and HUD and to comply with each regulatory  entity's own
financial   requirements.   HomeSide  Lending's  business  is  also  subject  to
examination by Fannie Mae, FHLMC and GNMA and state  regulatory  agencies at all
times to assure compliance with applicable regulations, policies and procedures.

      Mortgage  origination  activities are subject to the provisions of various
federal and state statutes including, among others, the Equal Credit Opportunity
Act,  the Federal  Truth-in  Lending Act,  RESPA,  the Fair Housing Act, and the
regulations  promulgated  thereunder,  which  among other  provisions,  prohibit
discrimination,  prohibit  unfair and deceptive  trade practices and require the
disclosure of certain basic  information to mortgagors  concerning  credit terms
and settlement costs, limit fees and charges paid by borrowers and lenders,  and
otherwise  regulate  terms and  conditions of credit and the procedures by which
credit  is  offered  and  administered.  Many of the  aforementioned  regulatory
requirements  are designed to protect the interests of  consumers,  while others
protect the owners or insurers of mortgage  loans.  Failure to comply with these
requirements  can lead to loss of  approved  status,  termination  of  servicing
contracts without compensation to the servicers,  demands for indemnification or
loan repurchases,  class action lawsuits and administrative enforcement actions.
Such regulatory  requirements are subject to change from time to time and may in
the future become more restrictive,  thereby making compliance more difficult or
expensive or otherwise  restricting  HomeSide  Lending's  ability to conduct its
business as it is now conducted.

      During the period that BKB or Barnett, or any of their subsidiaries,  held
a material  ownership interest in HomeSide Lending and its subsidiaries (i) were
under the  jurisdiction,  supervision,  and examining  authority of the OCC, and
(ii) could only engage in activities  that were part of, or  incidental  to, the
business of banking.  The OCC has specifically  ruled that mortgage banking is a
proper incident to the business of banking.

      There are  various  other state and local laws and  regulations  affecting
HomeSide Lending's operations. HomeSide Lending is licensed in those states that
require  licensing  to  originate,   purchase  and/or  service  mortgage  loans.
Conventional  mortgage  operations may also be subject to state usury  statutes.
FHA and VA loans are exempt from the effect of such statutes.


<PAGE>



Competition

      Mortgage bankers operate in a highly competitive and fragmented market. In
1997 the  largest  originator  of loans  represented  6.5% of the market and the
largest  servicer  represented  5.0%, while the top 30 originators and servicers
represented 48% and 49% of their markets, respectively,  based on data published
by Inside Mortgage Finance.
<TABLE>
                                                   TOP 10 ORIGINATORS AND SERVICERS
                                                         (dollars in billions)
<CAPTION>
 1997 Originations                                          Servicing Portfolio at December 31, 1997
<S>                                             <C>        <C>                                         <C>   
 1  Norwest Mortgage, IA                        $55.3      1  Norwest Mortgage, IA                     $205.8
 2  Countrywide Home Loans, CA                   43.1      2  Countrywide Home Loans, CA                171.4
 3  Chase Manhattan Mortgage Holdings, FL        40.1      3  Chase Manhattan Mortgage Holdings, FL     169.3
 4  Washington Mutual, WA                        23.4      4  NationsBanc & Affiliates, TX              122.3
 5  HomeSide Lending, FL                         21.8      5  Fleet Mortgage Group, SC                  121.0
 6  Dime/North American Mortgage, CA             16.1      6  HomeSide Lending, FL                       99.2
 7  BankAmerica, CA                              16.0      7  GE Capital Mortgage Svcs., NC              99.0
 8  Fleet Mortgage Group, SC                     15.6      8  Washington Mutual, WA                      97.7
 9  ABN AMRO Mtg., IL (Standard Federal)         15.2      9  BankAmerica, CA                            89.7
10 NationsBanc & Affiliates, TX                  15.1     10  Mellon Mortgage, TX                        66.6
</TABLE>
-----------------
Source:  Inside Mortgage Finance.

       HomeSide  Lending  competes  with  other  mortgage   bankers,   financial
institutions,  and other  providers  of  financial  services.  The  underwriting
guidelines and servicing  requirements  set by the participants in the secondary
markets are standardized. As a result, mortgage banking products (i.e., mortgage
loans and the servicing of those loans) have become difficult to  differentiate.
Therefore,  mortgage bankers compete primarily on the basis of price or service,
making effective cost management essential.

      Mortgage bankers generally seek to develop cost efficiencies in one of two
ways:  economies  of scale or  specialization.  Large  full-service  national or
regional  mortgage bankers have sought economies of scale through an emphasis on
wholesale  originations,  the introduction of automated  processing  systems and
expansion through acquisition.  Smaller companies frequently identify and pursue
a particular expertise or customer base in an attempt to create a market niche.

      The  industry  has  experienced   rapid   consolidation   which  has  been
accelerated by the introduction of significant  technology  improvements and the
economies  of scale  present  in  mortgage  servicing.  The  automation  of many
functions  in mortgage  banking,  especially  those  related to  servicing,  has
reduced costs  significantly  for industry  participants.  Many mortgage bankers
that were not low cost,  high volume  producers or did not operate in a low cost
specialized field experienced earnings declines in the nineties, causing many to
exit the business or to be acquired.  Surviving cost effective  firms  purchased
servicing  portfolios or other companies to expand their servicing  economies of
scale,  while  others  acquired  market  niche  operations.  As evidence of this
consolidation, the top 25 mortgage loan servicers have increased their aggregate
market share from 16.6% in 1990 to 30.9% in 1997.


<PAGE>



Employees

      As of February  10, 1998 and February  28,  1997,  respectively,  HomeSide
Lending had approximately 1,891 and 1,689 total employees,  substantially all of
whom were full-time  employees.  HomeSide Lending has no unionized employees and
considers its relationship with its employees generally to be satisfactory.



ITEM 2.  PROPERTIES

      HomeSide Lending's corporate,  administrative,  and servicing headquarters
are  located  in   Jacksonville,   Florida,   in   facilities,   which  comprise
approximately  145,000  square  feet of owned  space and  approximately  202,000
square feet of leased space.  The  servicing  center lease expires on August 31,
1999 unless HomeSide Lending exercises its options to renew,  which could extend
the  lease  for  an  additional   six  years.   HomeSide   Lending  also  leases
approximately 53,000 square feet of warehouse space in Jacksonville, Florida for
storing  certain  loan  files,  loan  servicing  documents  and other  corporate
records.  In addition HomeSide Lending owns an additional 190,000 square feet of
space  in San  Antonio,  Texas.  HomeSide  Lending  believes  that  its  present
facilities are adequate for its operations.

ITEM 3.  LEGAL PROCEEDINGS

      HomeSide Lending is a defendant in a number of legal  proceedings  arising
in the normal course of business.  HomeSide Lending, in management's estimation,
has  recorded  adequate  reserves  in  the  financial   statements  for  pending
litigation.  Management,  after  reviewing all actions and  proceedings  pending
against or involving HomeSide Lending, considers that the aggregate liability or
loss, if any,  resulting  from the final outcome of these  proceedings  will not
have a material effect on the financial position of HomeSide Lending.

      In recent years,  the mortgage  banking industry has been subject to class
action  lawsuits  which  allege   violations  of  federal  and  state  laws  and
regulations,  including the propriety of collecting  and paying various fees and
charges.  Class action  lawsuits may be filed in the future against the mortgage
banking industry.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of security  holders during the fourth
quarter of the fiscal  year ended  February  10,  1998,  except that in December
1997, the  stockholders  of the Company's  parent,  HomeSide,  Inc.,  adopted an
Agreement and Plan of Merger (the "Merger Agreement")  pursuant to which a newly
formed  wholly-owned   subsidiary  of  National  Australia  Bank  Limited  ("the
National")  was  merged  with and  into  the  Company.  Pursuant  to the  Merger
Agreement,  the  Company  became an  indirect,  wholly-owned  subsidiary  of the
National.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
             MATTERS

      As a consequence of the merger described in Item 4, there is no market for
the Registrant's common equity.


<PAGE>

         ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - HOMESIDE LENDING
The  selected  consolidated  financial  and  operating  information  of HomeSide
Lending set forth below is for the  periods  from March 1, 1997 to February  10,
1998 and March 16, 1996 to February  28, 1997 and should be read in  conjunction
with,  and is  qualified  in its  entirety  by  reference  to, the  Consolidated
Financial Statements and the Notes thereto and in conjunction with "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  of
HomeSide Lending included elsewhere in this document.
<TABLE>
<CAPTION>
                                                      For the Period From      For the Period From
(in thousands, except  share data)                     March 1, 1997 to        March 16, 1996 to
                                                       February 10,1998          February 28,1997
Selected  Income Statement:                          -------------------      -------------------
<S>                                                  <C>                      <C>
Revenues:
     Mortgage servicing fees                            $    393,292              $    308,906
     Amortization of mortgage servicing rights              (207,508)                 (153,694)
                                                     -------------------      -------------------
         Net servicing  revenue                              185,784                   155,212
     Interest income                                          97,050                    81,507
     Interest expense                                        (81,770)                  (66,833)
                                                     -------------------      -------------------
            Net interest revenue                              15,280                    14,674
     Net mortgage origination revenue                         85,206                    66,073
     Other income                                              1,671                       682
                                                     -------------------      -------------------
              Total revenues                                 287,941                   236,641
Expenses:
     Salaries and employee benefits                           75,419                    72,976
     Occupancy and equipment                                  15,447                    11,770
     Servicing losses on investor-owned loans and
foreclosure-related expenses                                  21,974                    17,934
     Other  expenses                                          38,231                    40,766
                                                     -------------------      -------------------
            Total expenses                                   151,071                   143,446
Income before provision for income taxes                     136,870                    93,195
Provision for income taxes                                    53,379                    37,278
                                                     -------------------      -------------------
Net income                                              $     83,491              $     55,917
                                                     ===================      ===================

Selected Balance Sheet Data at Period End:
Mortgage loans held for sale                            $  1,292,403              $    805,274
Mortgage servicing rights                                  1,766,357                 1,596,838
Total assets                                               3,859,291                 2,717,321
Bank credit facility                                       2,074,956                 1,818,503
Long-term debt                                               770,466                    21,128
Total liabilities                                          3,178,468                 2,105,277
Total stockholder's equity                                   680,823                   612,044
                                                     ===================      ===================

Selected Operating Data:
Volume of loan production                               $ 20,529,530              $ 20,877,535
Loan servicing portfolio (at period end)                  98,906,102                89,217,846
Loan servicing portfolio (average outstanding             94,963,812                74,677,171
during the period)
Weighted average interest rate of the servicing
      portfolio (at period end)                                7.85%                     7.92%
                                                               
Weighted average servicing fee of the servicing
portfolio, including ancillary income (during the             
period)                                                       0.438%                    0.432%

</TABLE>


<PAGE>



 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                  OF OPERATIONS

   HOMESIDE LENDING-- FOR THE PERIOD FROM MARCH 1, 1997 TO FEBRUARY 10, 1998
           AND FOR THE PERIOD FROM MARCH 16, 1996 TO FEBRUARY 28, 1997

                                     General

HomeSide  Lending,  Inc., a  wholly-owned  subsidiary  of Homeside,  Inc.  ("the
Parent")  is  one of the  largest  full  service  residential  mortgage  banking
companies in the United States,  formed through the  acquisition of the mortgage
banking  operations of  BankBoston,  N.A.,  formerly known as The First National
Bank of Boston  ("BankBoston"),  and Barnett Banks, Inc.  ("Barnett").  HomeSide
Lending, Inc. is a wholly-owned subsidiary of HomeSide Holdings,  Inc., which is
a wholly-owned  subsidiary of the Parent. HomeSide Lending's strategy emphasizes
variable  cost  mortgage  loan  originations,  low cost  mortgage  servicing and
effective risk  management.  Headquartered in  Jacksonville,  Florida,  HomeSide
Lending ranks as the 5th largest  mortgage loan  originator  and the 6th largest
servicer in the United  States for the twelve  months  ended  December  31, 1997
based on data published by Inside Mortgage Finance.

HomeSide  Lending  plans  to build  its core  operations  through  (i)  improved
economies  of  scale in  servicing  costs;  (ii)  increased  productivity  using
proprietary  technology;  and  (iii)  expanded  and  diversified  variable  cost
origination channels. In addition, HomeSide Lending intends to pursue additional
loan portfolio  acquisitions and strategic origination  relationships similar to
its existing agreement with BankBoston (see Note 4).

On February 10, 1998, National Australia Bank Limited (the "National")  acquired
all  outstanding  shares of common  stock of the Parent for $27.825 per share or
approximately $1.2 billion.  Following this transaction,  the National owns 100%
of the registrant's common stock and the Parent became an indirect, wholly-owned
subsidiary of the National.

  Forward-Looking Statements

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for certain  forward-looking  statements.  This report contains  forward-looking
statements,  which  reflect the  Company's  current views with respect to future
events and financial performance.  These forward-looking  statements are subject
to certain risks and  uncertainties,  including those  identified  below,  which
could cause actual results to differ materially from historical results or those
anticipated.  The words "believe," "expect,"  "anticipate," "intend," "estimate"
and other  expressions,  which  indicate  future  events  and  trends,  identify
forward-looking  statements,  which  speak only as of their  dates.  The Company
undertakes  no  obligation  to  publicly  update or revise  any  forward-looking
statements  whether as a result of new information,  future events or otherwise.
The  following  factors  could cause actual  results to differ  materially  from
historical results or those anticipated: (1) the Company's ability to grow which
is  dependent  on its ability to obtain  additional  financing in the future for
originating  loans,  investment in servicing  rights,  working capital,  capital
expenditures and general corporate purposes, (2) economic factors may negatively
affect the  Company's  profitability  as the  frequency of loan default tends to
increase in such  environments  and (3) changes in interest rates may affect the
volume of loan originations and acquisitions,  the interest rate spread on loans
held for sale,  the amount of gain or loss on the sale of loans and the value of
the Company's servicing portfolio.  These risks and uncertainties are more fully
detailed in the Company's filings with the Securities and Exchange Commission.


<PAGE>



     Mortgage Banking

Mortgage  banking is a  specialized  branch of the financial  services  industry
which  primarily   involves  (i)  originating  and  purchasing   mortgage  loans
("origination"  and/or  "production");  (ii) selling the originated mortgages to
third parties either as mortgage-backed securities or as whole loans ("secondary
marketing");  (iii)  servicing  of  mortgage  loans on  behalf  of the  ultimate
purchasers,  which  includes  the  collection  and  disbursement  of payments of
mortgage  principal  and  interest,  the  collection  of  payments  of taxes and
insurance  premiums to pay property taxes and insurance  premiums and management
of certain loan default activities  (collectively,  "servicing");  and (iv) risk
management,  a program primarily designed to protect the economic performance of
the servicing  portfolio that could otherwise be adversely affected by increased
loan prepayments due to declines in interest rates.

Mortgage bankers originate loans generally  through two channels:  wholesale and
direct.  Wholesale  origination  involves the origination of mortgage loans from
sources other than  homeowners,  including  mortgage  brokers and other mortgage
lenders.  Direct  origination  typically  includes  (i)  networks of retail loan
offices  with sales  staff that  solicit  business  from  homeowners,  realtors,
builders   and  other  real  estate   professionals,   (ii)   centers  that  use
telemarketing,  direct mail,  and  advertising  to market loans directly to home
buyers or  homeowners,  (iii)  affinity and  co-branding  partnerships  and (iv)
corporate  relocation programs.  Once originated or purchased,  mortgage bankers
hold the  loans  temporarily  ("warehousing")  until  they are  sold,  typically
earning an interest  spread equal to the difference  between the loan's interest
rate and the cost of financing the loan.  Each loan is sold either  excluding or
including  the  associated  right to service the loan  ("servicing  retained" or
"servicing released," respectively).

Mortgage bankers rely mainly on short-term borrowings,  such as warehouse lines,
to finance the  origination  of mortgages that are sold.  Mortgage  bankers also
borrow on a longer  term basis to finance  their  servicing  assets and  working
capital  requirements.  Revenues consist primarily of those related to servicing
and, to a lesser extent, fees and interest spreads from originations.  The major
expenses  of a mortgage  banker  include  costs of  financing,  operating  costs
related to origination and servicing and the amortization of mortgage  servicing
rights.

Mortgage  bankers  typically seek to retain the rights to service the loans they
originate or acquire in order to generate recurring fee income. The purchase and
sale of  servicing  rights can occur on a  loan-by-loan  basis  ("flow") or on a
portfolio (group of loans) basis ("bulk" or  "mini-bulk").  Prices for servicing
rights  are  typically  stated  as a  multiple  of  the  servicing  fee  or as a
percentage of the outstanding  unpaid principal  balance for a group of mortgage
loans.  Values of servicing  portfolios are generally based on the present value
of the  servicing  fee income  stream,  net of servicing  costs,  expected to be
received over the estimated life of the loans.  The assets of a mortgage banking
company  consist  primarily of mortgage loans held for sale and the value of the
servicing rights.

   Loan Production Activities

As a  multi-channel  loan  production  lender,  HomeSide  Lending has one of the
industry's largest correspondent lending production  operations,  a full-service
brokered  loan  program and a national  production  center for  consumer  direct
mortgage  lending.  By  focusing on  production  channels  with a variable  cost
structure,   HomeSide  Lending   eliminates  the  fixed  costs  associated  with
traditional mortgage branch offices.  Without the burden of high fixed cost loan
origination  networks,  HomeSide  Lending is  positioned to weather a variety of
interest rate environments.  The following information regarding loan production
activities for HomeSide Lending is presented to aid in understanding the results
of operations  and financial  condition of HomeSide  Lending for the period from
March 1, 1997 to  February  10,  1998 and for the period  from March 16, 1996 to
February 28, 1997 (in millions):


<PAGE>

                                     For the Period From     For the Period From
                                       March 1, 1997 to       March 16, 1996 to
                                      February 10, 1998       February 28, 1997
                                     -------------------     -------------------

Correspondent                               $13,304                 $11,113
Co-issue                                       5,584                  8,222
Broker                                         1,305                    843
                                   ---------------------------------------------
Total wholesale                              20,193                  20,178
Consumer Direct                                  337                    700
                                   ---------------------------------------------
Total production                             20,530                  20,878
Bulk acquisitions                              3,446                  4,073
                                   ---------------------------------------------
Total production and acquisitions           $23,976                 $24,951
                                   =============================================

Total loan production,  excluding bulk  acquisitions,  was $20.5 billion for the
period from March 1, 1997 to February 10, 1998,  relatively  equal to the period
from March 16, 1996 to February 28, 1997.  HomeSide  Lending also purchased bulk
servicing  acquisitions  of $3.4 billion and $4.1 billion during the period from
March 1, 1997 to  February  10,  1998 and the  period  from  March  16,  1996 to
February 28, 1997, respectively.

HomeSide  Lending  continues to examine a number of ways to  diversify  and grow
revenue sources from its existing and new customer base. As part of this effort,
HomeSide Lending has announced an alliance with a subprime lender,  which allows
HomeSide Lending to offer additional mortgage-related products to the production
network.  HomeSide  Lending  then sells the loans,  servicing  released,  to its
strategic partners. The subprime lending unit began operations in January 1998.

   Servicing Portfolio

Management  believes that HomeSide Lending is one of the most efficient mortgage
loan  servicers in the  industry  based on its  servicing  cost per loan and the
number of loans serviced per employee.  The servicing  operation makes extensive
use  of  state-of-the-art   technology,   process   re-engineering  and  expense
management.  With a portfolio size of $98.9 billion,  HomeSide  Lending services
the loans of approximately 1.2 million  homeowners from across the United States
and  is  committed  to  protecting  the  value  of  this  important  asset  by a
sophisticated  risk management  strategy.  HomeSide Lending  anticipates its low
cost of servicing loans will continue to maximize the bottom-line  impact of its
growing servicing portfolio.  HomeSide Lending's focus on efficient and low cost
processes is pursued  through the  selective  use of  automation  as well as the
strategic  outsourcing of selected servicing  functions and effective control of
delinquencies and foreclosures.

The following  information  on the dollar amounts of loans serviced is presented
to aid in  understanding  the results of operations  and financial  condition of
HomeSide  Lending for the period from March 1, 1997 to February 10, 1998 and for
the period from March 16, 1996 to February 28, 1997 (in millions):


<PAGE>


                                        For the Period From  For the Period From
                                         March 1, 1997 to     March 16, 1996 to
                                         February 10, 1998    February 28, 1997
                                         -----------------    ------------------

Balance at beginning of period                $89,218              $41,844
Acquisition of Barnett Mortgage Company          -                  33,082
Other additions                                23,976               25,252
                                         -----------------    ------------------
     Total additions                           23,976               58,334
                                         -----------------    ------------------
Scheduled amortization                          2,035                1,733
Prepayments                                    11,176                6,226
Foreclosures                                      682                  514
Sales of servicing                                395                2,487(a)
                                         -----------------    ------------------
     Total reductions                          14,288               10,960
                                         -----------------    ------------------
Balance at end of period                      $98,906              $89,218
                                         =================    ==================

(a)  Includes  $1.9  billion of  servicing  sold as part of the sale of Honolulu
     Mortgage Company.

The number of loans  serviced at February  10, 1998 was  1,167,210,  compared to
1,070,000  at February  28, 1997.  HomeSide  Lending's  strategy is to build its
mortgage servicing  portfolio by concentrating on variable cost loan origination
strategies,  and as a result, benefit from improved economies of scale. A key to
HomeSide Lending's future growth is the proprietary servicing software purchased
from Barnett.  This system will allow  HomeSide  Lending to double the number of
loans  serviced  on a single  system.  During the  period  from March 1, 1997 to
February 10, 1998,  HomeSide Lending  transferred  approximately  210,000 of the
loans serviced to its proprietary servicing software.  After the transfer,  over
half the servicing portfolio is serviced on the proprietary system. The transfer
of the remaining portfolio is expected to occur by the end of calendar 1998.



Results of Operations

For the period  from March 1, 1997 to February  10, 1998  compared to the period
from March 16, 1996 to February 28, 1997

Summary

HomeSide Lending's net income increased 49% to $83.5 million for the period from
March 1, 1997 to February 10, 1998 from $55.9  million for the period from March
16, 1996 to February 28, 1997.  Total revenues for the period from March 1, 1997
to February 10, 1998 increased 22% to $287.9 million from $236.6 million for the
period from March 16, 1996 to February 28, 1997. The increases in net income and
revenues for the period from March 1, 1997 to February 10, 1998  compared to the
period from March 16, 1996 to February 28, 1997 were primarily  attributable  to
the  acquisition  of  Barnett  Mortgage  Company  ("BMC")  on May 31,  1996  and
increases  of $30.6  million  in net  servicing  revenue,  $19.1  million in net
mortgage  origination revenue and $0.6 million in net interest revenue.  The BMC
servicing portfolio was $33.1 billion at May 31, 1996. Its acquisition increased
HomeSide  Lending's  servicing  portfolio  by 75% on that date,  and was a major
factor  in the  increase  in net  servicing  revenue.  In  addition,  subsequent
increases in the size of the servicing  portfolio  contributed  to the increased
revenue. The servicing portfolio increased to $98.9 billion at February 10, 1998
from $89.2  billion at February  28, 1997,  a 11%  increase.  As part of the BMC
acquisition,  Barnett agreed to sell HomeSide  Lending the loans produced by the
loan production networks retained by Barnett,  which contributed to the increase
in net mortgage  origination  revenue.  Net interest revenue increased primarily
because  of lower  borrowing  costs  resulting  from  the  lower  interest  rate
environment  during the period ending February 10, 1998,  improved terms for the
bank line of  credit  and the  issuance  of  medium-term  notes.  The  Company's
improved  credit  ratings  lowered the cost of borrowing  under the bank line of
credit and  enabled  HomeSide  Lending to issue  publicly  traded  notes,  which
expanded borrowing capacity.

Net Servicing Revenue

Net  servicing  revenue was $185.8  million for the period from March 1, 1997 to
February 10, 1998 compared to $155.2  million for the period from March 16, 1996
to February 28, 1998. Net servicing  revenue is comprised of mortgage  servicing
fees, ancillary servicing revenue, and amortization of mortgage servicing rights
expense.

Mortgage  servicing  fees  increased  27% to $393.3  million for the period from
March 1, 1997 to February 10, 1998 from $308.9 million for the period from March
16, 1996 to February  28,1997,  primarily as a result of the BMC acquisition and
growth of the  servicing  portfolio  through loan  production  channels and bulk
servicing  acquisitions.  The servicing  portfolio increased to $98.9 billion at
February  10, 1997  compared to $89.2  billion at February  28,  1997.  HomeSide
Lending's  weighted average interest rate of the mortgage loans in the servicing
portfolio  was 7.85% at February 10, 1998 and 7.92% at February  28,  1997.  The
weighted average servicing fee,  including  ancillary income,  for the servicing
portfolio  was 0.438% and 0.432% for the period  from March 1, 1997 to  February
10, 1998 and the period from March 16, 1996 to February 28, 1997,  respectively.
The increase in the weighted average  servicing fee for the period from March 1,
1997 to February 10, 1998 compared to the period from March 16, 1996 to February
28, 1997 was due to growth of ancillary revenues,  including late fees and other
mortgage-related products.

Amortization expense increased to $207.5 million for the period March 1, 1997 to
February  10,  1998 from  $153.7  million  for the period from March 16, 1996 to
February  28,  1997 mainly as a result of a higher  average  balance of mortgage
servicing rights and a decrease of 86 basis points in average mortgage  interest
rates from the period  from March 16,  1996 to  February  28, 1997 to the period
from  March 1, 1997 to  February  10,  1998.  Amortization  charges  are  highly
dependent  upon the level of  prepayments  during  the  period  and  changes  in
prepayment expectations, which are significantly influenced by the direction and
level of long-term  interest  rate  movements.  A decrease in mortgage  interest
rates  results  in an  increase  in  prepayment  estimates  used in  calculating
periodic amortization  expense.  Because mortgage servicing rights are amortized
over the  expected  period of service  fee  revenues,  an  increase  in mortgage
prepayment  activity  typically  results  in a  shorter  estimated  life  of the
mortgage servicing assets and, accordingly, higher amortization expense.

Net Interest Revenue

Net interest  revenue is driven by the level of interest rates, the direction in
which  rates are moving  and the spread  between  short and  long-term  interest
rates. These factors influence the size of the residential  mortgage origination
market,  HomeSide  Lending's  loan  production  volumes and the  interest  rates
HomeSide Lending earns on loans and pays to its lenders.

Loan  refinancing  levels are the largest  contributor to changes in the size of
the mortgage  origination  market.  To reduce the cost of their home  mortgages,
borrowers  tend to refinance  their loans during  periods of declining  interest
rates, increasing the size of the origination market and HomeSide Lending's loan
production  volumes.  Higher loan production  volumes resulted in higher average
balances  of loans  held for sale and  consequently  higher  levels of  interest
income  earned on such loans prior to their sale.  This higher level of interest
income due to increased volumes is partially offset by the lower rates earned on
the loans.

Overall   borrowing  costs  also  fluctuate  with  changes  in  interest  rates.
Currently,  the interest expense HomeSide Lending pays to finance mortgage loans
held for sale and other net assets is  generally  calculated  with  reference to
short-term  interest  rates. In addition,  because  mortgage loans held for sale
earn  interest  based on longer term interest  rates,  the level of net interest
revenue  is also  influenced  by the spread  between  long-term  and  short-term
interest rates.

Net interest revenue increased $0.6 million for the period from March 1, 1997 to
February 10, 1998 to $15.3  million from $14.7 million for the period from March
16, 1996 to February 28, 1997,  primarily due to improved funding rates obtained
through improved credit ratings, the issue of medium-term notes and the adoption
of an early  pool  buyout  program.  During  the  period  from  March 1, 1997 to
February 10, 1998,  HomeSide Lending issued $750.0 million of medium-term  notes
to the public  market at an average cost of 6.251% as of February 10, 1998.  The
proceeds were used to pay down existing bank debt, increasing HomeSide Lending's
borrowing  capacity.  An immediate benefit of this increased  borrowing capacity
was the initiation of an early pool buyout program,  which involves the purchase
of  delinquent  government  loans from pools early in the  foreclosure  process,
thereby reducing the unreimbursed interest expense that HomeSide Lending incurs.

Interest  income  increased  from the period from March 16, 1996 to February 28,
1997 to the period  from March 1, 1997 to  February  10,  1998,  primarily  as a
result of an increase of $246.6 million in the average balance of loans held for
sale. Interest expense increased from the period from March 16, 1996 to February
28, 1997 to the period  from March 1, 1997 to  February  10, 1998 as a result of
increased  borrowings  to  fund  growth  of the  servicing  portfolio  and  loan
origination  activity.  These  expenses  were  offset by an  increase in credits
received on  borrowings  as a result of higher  average  balances  of  custodial
deposits.

Net Mortgage Origination Revenue

Net mortgage  origination revenue is comprised of fees earned on the origination
of  mortgage  loans,  gains and  losses on the sale of loans,  gains and  losses
resulting  from hedging of secondary  marketing  activities  and fees charged to
review loan documents for purchased loan production.

Net mortgage  origination revenue was $85.2 million for the period from March 1,
1997 to February  10, 1998  compared to $66.1  million for the period from March
16, 1996 to February  28,  1997,  a 29%  increase.  The increase in net mortgage
origination revenue during the period from March 1, 1997 to February 10, 1998 as
compared to the period  from March 16, 1996 to February  28, 1997 is due in part
to an increase in loan production  volumes  resulting from the preferred  seller
relationships  with Barnett and  BankBoston  and HomeSide  Lending's  broker and
correspondent  lending  channels.  The increase also reflects  larger gains from
secondary marketing activities.

Salaries and Employee Benefits

Salaries and  employee  benefits  expense was $75.4  million for the period from
March 1, 1997 to February 10, 1998 compared to $73.0 million for the period from
March 16, 1996 to February  28, 1997 due to growth in the number of employees as
a result of the purchase of the BMC mortgage  servicing  operations  acquired on
May 31, 1996. The average number of full-time  equivalent employees increased to
1,805 for the period from March 1, 1997 to February  10, 1998 from 1,593 for the
period from March 16, 1996 to February 28, 1997.

   Occupancy and Equipment Expense

Occupancy and equipment expense primarily  includes rental expense,  repairs and
maintenance  costs,  certain  computer  software  expenses and  depreciation  of
HomeSide Lending's  premises and equipment.  Occupancy and equipment expense for
the period from March 1, 1997 to February 10, 1998 was $15.4 million compared to
$11.8  million  for the period from March 16, 1996 to  February  28,  1997.  The
increase  in expense  was mainly due to  increases  in the costs of  information
systems required to handle the growing mortgage servicing portfolio.

Servicing Losses on Investor-Owned Loans and Foreclosure-Related Expenses

Servicing losses on investor-owned loans represent  anticipated losses primarily
attributable to servicing FHA and VA loans for investors.  These amounts include
actual losses for final disposition of loans, non-recoverable foreclosure costs,
accrued  interest for which  payment has been denied and estimates for potential
losses based on HomeSide Lending's experience as a servicer of government loans.

During the period from March 1, 1997 to February 10, 1998, the servicing  losses
on investor-owned loans and  foreclosure-related  expenses totaled $22.0 million
compared to $17.9  million  for the period  from March 16, 1996 to February  28,
1997.  The  increase  was largely  attributable  to the growth of the  servicing
portfolio resulting from loan production and increased foreclosure losses.

Included in accounts  payable and accrued  liabilities  at February 10, 1998 and
February 28, 1997 is a reserve for estimated  servicing losses on investor-owned
loans of $21.7 million.  The reserve has been  established for potential  losses
related to the  mortgage  servicing  portfolio.  Increases  to the  reserve  are
charged to earnings as servicing losses on investor-owned  loans. The reserve is
decreased  for  actual  losses  incurred  related  to  the  mortgage   servicing
portfolio.  HomeSide Lending's  historical loss experience on VA loans generally
has been consistent with industry experience.  Management believes that HomeSide
Lending has an adequate  level of reserve based on servicing  volume,  portfolio
composition,  credit  quality and  historical  loss rates,  as well as estimated
future losses.  Servicing portfolio  delinquencies increased from prior year due
to an increased delinquency trend throughout the industry.

The following  table sets forth HomeSide  Lending's  delinquency and foreclosure
experience:

                        Servicing Portfolio Delinquencies
                             (percent by loan count)

                                          February 10, 1998    February 28, 1997
                                          -----------------    -----------------
Servicing Portfolio Delinquencies,
 excluding bankruptcies (at end of period)
          30 days                                3.52%              3.27%
          60 days                                0.78%              0.69%
          90+ days                               0.72%              0.54%
                                          -----------------    -----------------
               Total past due                    5.02%              4.50%
                                          =================    =================

          Foreclosures pending                   0.74%              0.72%
                                          =================    =================

Other Expenses

Other expenses  consist mainly of  professional  fees,  communications  expense,
advertising  and public  relations,  data  processing  expenses and certain loan
origination expenses.  The level of other expenses fluctuates in part based upon
the level of HomeSide Lending's mortgage servicing portfolio and loan production
volumes.

Other  expenses  during the period from March 1, 1997 to February  10, 1998 were
$38.2  million,  compared to $40.8 million for the period from March 16, 1996 to
February 28, 1997.  The decrease was primarily  due to decreases in  advertising
and certain loan origination expenses.


<PAGE>



Income Tax Expense

HomeSide  Lending's  income tax  expense  was $53.4  million for the period from
March 1, 1997 to February  10, 1998 and $37.3  million for the period from March
16, 1996 to February 28, 1997. The increase was  attributable  to an increase in
net income.  The effective  income tax rate for the period from March 1, 1997 to
February  10, 1998 and the period  from March 16, 1996 to February  28, 1997 was
approximately 39% and 40%, respectively.

Risk Management Activities

HomeSide Lending has a risk management  program designed to protect the economic
value  of its  mortgage  servicing  portfolio  from  declines  in  value  due to
increases in estimated loan prepayment speeds, which are primarily influenced by
declines in interest rates. When loans prepay faster than anticipated,  the cash
flow HomeSide  Lending  expects to receive from servicing such loans is reduced.
The value of mortgage servicing rights is based on the present value of the cash
flows to be received over the life of the loan and  therefore,  the value of the
servicing portfolio declines as prepayments increase.

During the period  from March 1, 1997 to February  10,  1998,  HomeSide  Lending
utilized options on U.S. Treasury bond futures and U.S. Treasury bond futures to
protect a  significant  portion of the market  value of its  mortgage  servicing
portfolio  from a  decline  in  value.  The risk  management  contracts  used by
HomeSide Lending have  characteristics  such that they tend to increase in value
as interest rates decline.  Conversely,  these risk management contracts tend to
decline in value as interest rates rise. Accordingly,  changes in value of these
risk management instruments will tend to move inversely with changes in value of
HomeSide Lending's mortgage servicing rights.

These risk management  instruments are designated as hedges on the purchase date
and such  designation  is at a level at least as  specific as the level at which
mortgage  servicing  rights are evaluated for  impairment.  The risk  management
instruments  are  marked-to-market  with  changes in market  value  deferred and
applied as an adjustment to the basis of the related  mortgage  servicing  right
asset being hedged.  As a result,  any changes in market value that are deferred
are amortized  and  evaluated  for  impairment in the same manner as the related
mortgage  servicing  rights.  The  effectiveness of HomeSide  Lending's  hedging
activity can be measured by the correlation  between changes in the value of the
risk  management  instruments  and  changes in the value of  HomeSide  Lending's
mortgage servicing rights.  This correlation is assessed on a quarterly basis to
ensure that high correlation is maintained over the term of the hedging program.
During the periods presented, HomeSide Lending has experienced a high measure of
correlation  between changes in the value of mortgage  servicing  rights and the
risk management  contracts.  However,  in periods of rising interest rates,  the
increase in value of mortgage  servicing rights may outpace the decline in value
of the options  included in the hedge position,  because the loss on the options
is limited to the premium paid.

During the period from March 1, 1997 to February  10, 1998,  deferred  gains and
losses on risk  management  contracts  resulted in net  deferred  hedge gains of
$142.7  million.  As of February  10, 1998,  net  deferred  hedge gains of $39.5
million  are  included  in the  carrying  value of  mortgage  servicing  rights.
Activity in the deferred  hedge account  during the period from March 1, 1997 to
February 10,1998 is as follows (in thousands):

           Net deferred hedge loss at February 28, 1997         $  (110,637)
           Amortization of net deferred hedge losses
                                                                      7,423
           Net deferred hedge gains                                 142,667
                                                              ================
           Net deferred hedge gain at February 10, 1998         $    39,453
                                                              ================

HomeSide  Lending's future cash needs as they relate to its hedging program will
be  influenced  by such factors as long-term  interest  rates,  loan  production
levels and growth in the mortgage  servicing  portfolio.  The fair value of open
risk  management  contracts  at February 10, 1998 was $43.9  million,  which was
equal  to their  carrying  amount  because  the risk  management  contracts  are
marked-to-market   at  each  reporting  date.  See  "--  Liquidity  and  Capital
Resources"  for further  discussion  of HomeSide  Lending's  sources and uses of
cash. See Note 3 of Notes to Consolidated Financial Statements for a description
of HomeSide Lending's accounting policy for its risk management  contracts.  See
Notes 13 and 14 of Notes to  Consolidated  Financial  Statements  for additional
fair value  disclosures  with  respect to  HomeSide  Lending's  risk  management
contracts.

Liquidity and Capital Resources

The Company's  principal  financing needs are the financing of loan  origination
activities and the investment in mortgage servicing rights. To meet these needs,
the Company currently  utilizes funding from an independent  syndicate of banks,
including  a  warehouse  credit  facility  and  a  servicing-related   facility,
medium-term  notes and cash flow from operations.  HomeSide Lending continues to
investigate  and pursue  alternative  and  supplementary  methods to finance its
growing  operations  through the public and private capital  markets.  These may
include methods designed to expand the Company's  financial  capacity and reduce
its cost of capital.  In addition,  to facilitate the sale and  distribution  of
certain  mortgage  products,  HomeSide  Lending  Mortgage  Securities,  Inc.,  a
wholly-owned  subsidiary  of  HomeSide  Lending,  Inc.,  may  continue  to issue
mortgage backed securities.

   Operations
Net cash used in  operations  for the period from March 1, 1997 to February  10,
1998 was $231.0  million.  Net cash provided by  operations  for the period from
March 16, 1996 to February 28, 1997 was $216.6 million. The primary uses of cash
in operations were to fund loan originations and pay corporate  expenses.  These
uses of cash were offset by cash provided from servicing fee income,  loan sales
and principal  repayments.  Cash flows from loan originations are dependent upon
current economic conditions and the level of long-term interest rates. Decreases
in  long-term  interest  rates  generally  result  in  higher  loan  refinancing
activity, which results in higher cash demands to meet increased loan production
levels.  Higher  cash  demands  to meet  increased  loan  production  levels are
primarily met through borrowings and loan sales.

   Investing
Net cash used in  investing  activities  was $773.7  million for the period from
March 1, 1997 to February 10, 1998 and $862.2  million for the period from March
16, 1996 to February 28, 1997.  Cash used in  investing  activities  was for the
purchase and origination of mortgage servicing rights. For the period from March
1, 1997 to  February  10,  1998,  cash was also used for  funding the early pool
buyout program. During the period from March 1, 1997 to February 10, 1998, these
uses of cash were offset by net proceeds from risk management  contracts,  while
during the period  from March 16, 1997 to February  28,  1997,  cash was used to
purchase risk  management  contracts.  Other assets  increased  $49.5 million to
$125.0  million at  February  10, 1998 from $75.5  million at February  28, 1997
primarily as a result of an increase in HomeSide  Lending's hedge assets.  Early
pool buyout advances, a program initiated in fiscal 1998, totaled $374.1 million
at February  10,  1998.  During the period  from March 16, 1996 to February  28,
1997,  HomeSide  Lending  also made net  payments  of $133.4  million and $106.2
million  to  acquire  certain  mortgage  banking  operations  of BBMC  and  BMC,
respectively (see Note 4 of Notes to Consolidated Financial Statements).  Future
uses  of  cash  for  investing  activities  will be  dependent  on the  mortgage
origination market and HomeSide Lending's hedging needs. Except for the Banc One
acquisition  (see Note 19),  HomeSide Lending is not able to estimate the timing
and  amount of cash  uses for  future  acquisitions  of other  mortgage  banking
entities,  if such  acquisitions  were to occur.  HomeSide Lending will fund the
Banc One acquisition under existing borrowing capacity.


   Financing

Net cash provided by financing activities was $984.1 million for the period from
March 1, 1997 to February 10, 1998 and $698.4  million for the period from March
16,  1996 to  February  28,  1997.  The  primary  source of cash from  financing
activities  during the period from March 1, 1997 to February 10, 1998 was $750.0
million from the issuance of medium-term notes and net borrowings of $256.5 from
HomeSide  Lending's line of credit.  The primary  sources of cash from financing
activities  during the period from March 16, 1996 to February  28, 1997 were net
borrowings  under HomeSide  Lending's lines of credit of $334.2 million,  $393.4
million  from  capital  contributions  from the Parent.  Cash used in  financing
activities during the period ended February 10, 1998 was used for the payment of
debt issue costs and dividends paid to the Parent  totaling $14.7 million.  Cash
used in financing activities for the period ended February 28, 1997 was used for
the payment of debt issue costs and dividends paid to the Parent  totaling $17.0
million..

During the period  from March 1, 1997 to  February  10,  1998,  net cash used in
operations was $231.0 million,  net cash used in investing activities was $773.7
million  and net cash  provided  by  financing  activities  was $984.1  million,
resulting in a net decrease in cash of $20.6 million.  HomeSide  Lending expects
that to the extent cash  generated  from  operations  is  inadequate to meet its
liquidity needs,  those needs can be met through  financing from its bank credit
facility and other  facilities  which may be entered into from time to time,  as
well as from the issuance of debt securities in the public markets. Accordingly,
HomeSide  Lending  does not  currently  anticipate  that it will  make  sales of
servicing  rights to any significant  degree for the purpose of generating cash.
Nevertheless, in addition to its cash and mortgage loans held for sale balances,
HomeSide  Lending's  portfolio of mortgage servicing rights provides a potential
source of funds to meet liquidity requirements,  especially in periods of rising
interest rates when loan origination  volume slows.  Repurchase  agreements also
provide an  alternative  to the bank line of credit for mortgages held for sale.
Future cash needs are highly  dependent on future loan  production and servicing
results, which are influenced by changes in long-term interest rates.

Year 2000 Compliance

HomeSide  Lending uses and is dependent  upon a  significant  number of computer
software programs and operating  systems to conduct its business.  Such programs
and systems include those developed and maintained by HomeSide Lending, software
and systems  purchased  from  outside  vendors and  software and systems used by
HomeSide  Lending's  third party  providers.  HomeSide  Lending has  initiated a
review and assessment of all hardware and software to determine  whether it will
function  properly  in the Year  2000.  It is  anticipated  that  some  level of
modification  or replacement of hardware and software will be necessary in order
to make HomeSide  Lending's  systems  "Year 2000  Compliant."  HomeSide  Lending
presently  estimates  these  remediation  costs  to  total  approximately  $15.0
million.  Remediation  costs are expected to be expensed as  incurred,  with the
exception of new software purchases, which will be capitalized.  The Company has
not incurred significant remediation costs prior to February 10, 1998. Year 2000
remediation costs are based on management's  best estimates,  which were derived
utilizing  numerous   assumptions  of  future  events  including  the  continued
availability  of certain  resources,  third party  modification  plans and other
factors.  However,  there  can be no  guarantee  that  these  estimates  will be
achieved  and actual  results  could  differ  materially  from those  plans.  In
addition,  HomeSide Lending has relationships with vendors,  customers and other
third  parties  that  rely on  software  and  systems  that may not be Year 2000
compliant. With respect to such third parties, Year 2000 compliance matters will
not be within HomeSide Lending's direct control.  There can be no assurance that
Year 2000  compliance  failures by such third  parties  will not have a material
adverse effect on HomeSide Lending's results of operations.


<PAGE>



               ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholder of HomeSide Lending, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  HomeSide
Lending,  Inc.,  (a Delaware  corporation,  see Note 1) and  subsidiaries  as of
February 10, 1998 and February 28, 1997, and the related consolidated statements
of income,  changes in stockholder's  equity and cash flows for the periods from
March 1, 1997 to February  10, 1998 and March 16,  1996 to  February  28,  1997.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of HomeSide Lending,
Inc.  and  subsidiaries  as of February  10, 1998 and  February 28, 1997 and the
results of their  operations  and their cash flows for the periods from March 1,
1997 to February 10, 1998 and March 16, 1996 to February 28, 1997, in conformity
with generally accepted accounting principles.


Arthur Andersen LLP



Jacksonville, Florida
April 15, 1998


<PAGE>

<TABLE>

                     HOMESIDE LENDING, INC. and SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (Dollars in Thousands, Except Share Data)
<CAPTION>
                                                                                    February 10, 1998        February 28, 1997
                                                                                    -----------------        -----------------
<S>                                                                                 <C>                      <C>
ASSETS
Cash and cash equivalents                                                           $       32,113               $   52,691
Mortgage loans held for sale, net                                                        1,292,403                  805,274
Mortgage servicing rights, net                                                           1,766,357                1,596,838
Accounts receivable, net                                                                   227,294                  157,518
Early pool buyout advances                                                                 374,097                     --
Premises and equipment, net                                                                 41,982                   29,515
Other assets                                                                               125,045                   75,485
                                                                                    -----------------        -----------------

Total Assets                                                                        $    3,859,291           $    2,717,321
                                                                                    =================        =================

LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable                                                                       $    2,074,956               $1,818,503
Accounts payable and accrued liabilities                                                   135,803                  123,231
Deferred income taxes                                                                      197,243                  142,415
Long-term debt                                                                             770,466                   21,128
                                                                                    -----------------        -----------------

Total Liabilities                                                                        3,178,468                2,105,277
                                                                                    -----------------        -----------------

Commitments and Contingencies

Stockholder's Equity:
  Common stock:
     Common  stock,  $1.00  par  value,  100  shares   authorized,   issued  and
         Outstanding in 1998 and 1997, respectively, all pledged as second
priority
         Collateral on the long-term debt of the Parent
  Additional paid-in capital                                                               573,092                  573,092
  Retained earnings                                                                        107,731                   38,952
                                                                                    -----------------        -----------------

Total Stockholder's Equity                                                                 680,823                  612,044
                                                                                    -----------------        -----------------

Total Liabilities and Stockholder's Equity                                          $    3,859,291           $    2,717,321

                                                                                    =================        =================
</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>

<TABLE>

                                                HOMESIDE LENDING, INC. and SUBSIDIARIES
                                                   CONSOLIDATED STATEMENTS OF INCOME
                                             (Dollars in Thousands, Except Per Share Data)
<CAPTION>

                                                            For the Period from     For the Period from
                                                             March 1, 1997 to        March 16, 1996 to
                                                             February 10, 1998       February 28, 1997
                                                             -----------------       -----------------
<S>                                                          <C>                     <C>
REVENUES:
Mortgage servicing fees                                      $      393,292          $     308,906
Amortization of mortgage servicing rights                          (207,508)              (153,694)
                                                             -----------------       -----------------
    Net servicing revenue                                           185,784                155,212

Interest income                                                      97,050                 81,507
Interest expense                                                    (81,770)               (66,833)
                                                             -----------------       -----------------
    Net interest revenue                                             15,280                 14,674

Net mortgage origination revenue                                     85,206                 66,073
Other income                                                          1,671                    682
                                                             -----------------       -----------------
    Total Revenues                                                  287,941                236,641

EXPENSES:
Salaries and employee benefits                                       75,419                 72,976
Occupancy and equipment                                              15,447                 11,770
Servicing losses on investor-owned loans
   and foreclosure-related expenses                                  21,974                 17,934
Other expenses                                                       38,231                 40,766
                                                             -----------------       -----------------
    Total Expenses                                                  151,071                143,446

Income before income taxes                                          136,870                 93,195
Income tax expense                                                   53,379                 37,278
                                                             -----------------       -----------------
Net Income                                                   $       83,491          $      55,917
                                                             =================       =================
</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>
<TABLE>
                                             HOMESIDE LENDING, INC. and SUBSIDIARIES
                                           CONSOLIDATED   STATEMENTS  OF  CHANGES  IN
                                                STOCKHOLDER'S  EQUITY (dollars in
                                                  thousands, except share data)

<CAPTION>
                                                                          Additional
                                            Numbers         Common         Paid-in        Retained
                                           of Shares         Stock          Capital       Earnings         Total
                                         ----------------------------------------------------------------------------
<S>                                      <C>                <C>         <C>              <C>             <C>  
Balance,
   March 15, 1996                             --              --        $   --           $    --         $    --
Issuance of common stock                     100              --                              --
Contribution associated with BancBoston
   Mortgage Corporation acquisition, net      --              --         290,000              --           290,000
Contribution associated with Barnett
   Mortgage Company acquisition, net          --              --         244,294              --           244,294
Additional capital contributions              --              --          38,798              --            38,798
Net income                                    --              --            --              55,917          55,917
Dividends declared and paid to Parent         --              --            --             (16,965)        (16,965)
                                         ----------------------------------------------------------------------------
Balance,
   February 28, 1997                         100              --         573,092            38,952         612,044
                                         ----------------------------------------------------------------------------
Net income                                    --              --            --              83,491          83,491
Dividends declared and paid to Parent         --              --            --             (14,712)        (14,712)
                                         ----------------------------------------------------------------------------
Balance,
   February 10, 1998                         100              --        $573,092         $ 107,731        $680,823
                                         ============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>
<TABLE>

                                                HOMESIDE LENDING, INC. and SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (Dollars in Thousands)

<CAPTION>
                                                                         For the Period from      For the Period from
                                                                          March 1, 1997 to         March 16, 1996 to
                                                                          February 10, 1998        February 28, 1997
                                                                       ------------------------  -----------------------
      <S>                                                              <C>                       <C>  
      CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
      Net income                                                       $          83,491         $         55,917
      Adjustments to reconcile net income to net cash (used in)
      provided by  operating activities:
        Amortization of mortgage servicing rights                                207,508                  153,694
        Depreciation and amortization                                              8,850                    8,173
        Servicing losses on investor-owned loans                                  12,346                   13,683
        Deferred income tax expense                                               56,352                   37,278
        Capitalized servicing rights                                                                      (21,015)
                                                                                    --
        Mortgage loans originated and purchased for sale                     (23,975,752)             (12,504,567)
        Proceeds and principal repayments of mortgage loans held for          23,540,371               12,572,217
      sale
        Change in accounts receivable                                            (82,121)                 (63,378)
        Change in other assets and accounts payable and accrued                  (82,036)                 (35,448)
      liabilities
                                                                       ------------------------  -----------------------
          Net cash (used in) provided by operating activities                   (230,991)                 216,554

      CASH FLOWS USED IN INVESTING ACTIVITIES:
      Purchase of premises and equipment, net                                    (17,252)                  (4,929)
      Acquisition of mortgage servicing rights                                  (519,694)                (475,729)
      Net proceeds from (purchases of) risk management contracts                 137,393                 (141,944)
      Purchase of early pool buyout advances, net of repayments                 (374,097)                    --
      Acquisition of BancBoston Mortgage Corp., net of cash acquired                --                   (133,392)
      Acquisition of Barnett Mortgage Co., net of cash acquired                     --                   (106,244)
                                                                       ------------------------  -----------------------
          Net cash used in investing activities                                 (773,650)                (862,238)

      CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
      Net borrowings from banks and short-term lines of credit                   256,453                  334,170
      Issuance of notes payable                                                  750,000                     --
      Payment of debt issue costs                                                 (7,017)                 (11,681)
      Repayment of long-term debt                                                   (661)                    (567)
      Capital contributions from the Parent                                        --                     393,418
      Dividends paid to the Parent                                               (14,712)                 (16,965)
                                                                       ------------------------  -----------------------
          Net cash provided by financing activities                              984,063                  698,375

      Net (decrease) increase in cash and cash equivalents                       (20,578)                  52,691
      Cash and cash equivalents at beginning of period                            52,691                     --
                                                                       ------------------------  -----------------------
      Cash and cash equivalents at end of period                       $          32,113         $         52,691
                                                                       ========================  =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>



HOMESIDE LENDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

HomeSide  Lending,  Inc.  ("HomeSide  Lending" or the  "Company")  is  primarily
engaged in the  mortgage  banking  business and as such  originates,  purchases,
sells and services mortgage loans throughout the United States. The accompanying
consolidated  financial  statements of HomeSide  Lending include the accounts of
HomeSide  Lending  and  its  subsidiaries,  after  elimination  of all  material
intercompany balances and transactions.  Amounts of acquired companies have been
included from the date of acquisition.

HomeSide Lending is a wholly-owned subsidiary of HomeSide Holdings,  Inc., which
is a wholly-owned  subsidiary of HomeSide,  Inc. (the "Parent")(see Note 2). The
Parent has no operations and its only significant  assets are its investments in
HomeSide  Holdings,  Inc.,  HomeSide Lending and certain  capitalized debt issue
costs.  The Parent has $130 million in  outstanding  long-term  debt. All of the
stock of HomeSide  Holdings,  Inc. and HomeSide Lending is pledged as collateral
on the debt of the Parent.  The Parent is dependent upon dividends from HomeSide
Holdings,  Inc. and HomeSide  Lending for the cash flow necessary to service the
Parent's debt.

The  accompanying  financial  statements  of HomeSide  Lending,  Inc.  have been
prepared  for the period  March 1, 1997 to February  10, 1998 and for the period
March 16,  1996 to  February  28,  1997 to  coincide  with the  commencement  of
operations  of the  Parent  and the  merger as  discussed  in Note 2 below.  The
financial   statements  do  not  reflect  the  effects  of  HomeSide   Lending's
acquisition  by National  Australia  Bank  Limited  ("the  National").  HomeSide
Lending  will adopt a fiscal year end of  September  30 to conform to the fiscal
year of the National.

2.  ORGANIZATION

On  December  11,  1995,  HomeSide  Lending  was  formed by an  investor  group,
consisting of Thomas H. Lee Company and Madison Dearborn Partners (collectively,
the  "Investors"),  and signed a definitive  stock  purchase  agreement with The
First  National  Bank of Boston  ("BankBoston")  for the  purpose  of  acquiring
certain  assets  and  liabilities  of the  mortgage  banking  business  owned by
BankBoston.  BankBoston  received  cash and an  ownership  interest  in HomeSide
Lending.  The  transaction  closed on March 15, 1996 and HomeSide  Lending began
operations on March 16, 1996.

On May 31, 1996,  Barnett Banks,  Inc.  ("Barnett") sold certain of its mortgage
banking  operations,  primarily  its  servicing  portfolio,  mortgage  servicing
operations  and  proprietary  mortgage  banking  software  systems,  to HomeSide
Lending.  Barnett received cash and an ownership  interest in HomeSide  Lending.
The  accompanying  financial  statements  reflect  the  effects of both of these
acquisitions.  For more information on these acquisitions,  see Note 4. From May
31, 1996 until the 1997 public  offering of common  stock,  the  Investors  as a
group,  BankBoston  and Barnett each owned  approximately  one-third of HomeSide
Lending. Following the public offering, the Investors as a group, BankBoston and
Barnett  owned in the  aggregate  approximately  79% of the  outstanding  common
stock.

On January 9, 1998, NationsBank  Corporation acquired all the outstanding common
stock of Barnett Banks, Inc. (see Note 15).

On February 10, 1998, the National acquired all outstanding shares of the common
stock of the Parent. As  consideration,  the National paid $27.825 per share for
all of the  outstanding  common stock and paid $17.7  million cash to retire all
outstanding  stock  options.  The total purchase  price was  approximately  $1.2
billion.  The National paid for the purchase with borrowed and available  funds.
The  transaction  was accounted for as a purchase.  As a result,  all assets and
liabilities  were  recorded at their fair value on February  11,  1998,  and the
purchase  price in excess of the fair  value of net  assets  acquired  of $713.6
million was recorded as goodwill. Following the transaction described above, the
National now owns 100% of the Parent's common stock and the Parent has become an
indirect wholly-owned subsidiary of the National.


 3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities,  the  disclosure  of
contingent  liabilities at the date of the financial statements and the reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those estimates.

Risk management of mortgage loan originations

HomeSide  Lending  utilizes a risk management  program to protect and manage the
value of its mortgage loans held for sale and mortgage commitment pipeline. As a
result,  the Company is party to various  derivative  financial  instruments  to
reduce its exposure to interest rate risk. These financial instruments primarily
include  mandatory forward delivery  commitments,  put and call option contracts
and treasury futures contracts. The Company uses these financial instruments for
the  purposes of managing  its resale  pricing and  interest  rate risks.  These
financial  instruments are designated as hedges to the extent they demonstrate a
high  degree of  correlation  with the  underlying  hedged  items.  Accordingly,
hedging gains and losses  related to this risk  management  program are deferred
and  recognized  as a  component  of the gain or loss on sale of the  underlying
mortgage loans or mortgage-backed securities. Such gains and losses are included
in mortgage  origination  revenue.  Hedge losses are recognized currently if the
deferral of such  losses  would  result in mortgage  loans held for sale and the
pipeline being valued in excess of their estimated net realizable value.

Premiums paid for purchased put and call option  contracts are included in other
assets  and  amortized  over the  options'  contract  period as a  component  of
mortgage origination revenue. Unamortized premiums are recognized as a component
of the gain or loss on sale of loans at the  earlier  of the  expiration  of the
underlying contract or when exercise of the contract is considered unlikely.

Risk management of mortgage servicing rights

Mortgage  servicing  rights permit HomeSide  Lending to receive a portion of the
interest  coupon and fees collected from the mortgagor for performing  specified
servicing  activities.  The mortgage  notes  underlying  the mortgage  servicing
rights  permit the  borrower to prepay the loan.  As a result,  the value of the
related  mortgage  servicing  rights  tends to diminish in periods of  declining
interest  rates and increase in value in periods of rising rates.  This tendency
subjects  HomeSide  Lending to substantial  interest rate risk. It also directly
affects the volatility of reported  earnings because  mortgage  servicing rights
are  carried  at the  lower of  amortized  cost or fair  value.  It is  HomeSide
Lending's  policy to mitigate  and hedge this risk  through its risk  management
program.

The risk management  instruments used by HomeSide  Lending have  characteristics
such that they tend to increase in value as interest rates decline.  Conversely,
these risk  management  instruments  tend to decline in value as interest  rates
rise. Accordingly, changes in value of these hedge instruments will tend to move
inversely with changes in value of HomeSide Lending's mortgage servicing rights.

Options on U.S.  Treasury bond futures and U.S.  Treasury bond futures have been
purchased by HomeSide Lending to manage interest rate risk. When purchased,  the
options and futures  contracts are  designated to a specific  strata of mortgage
servicing  rights.  The risk  management  instruments are  marked-to-market  and
changes in market value are included as  adjustments to the basis of the related
mortgage servicing right asset being hedged. Deferred hedge gains and losses are
amortized  and  evaluated  for  impairment  in the same  manner  as the  related
mortgage  servicing rights.  Correlation  between changes in the risk management
contracts and changes in value of HomeSide  Lending's  mortgage servicing rights
is assessed on a quarterly  basis to ensure that high  correlation is maintained
over the term of the hedging program.

Mortgage loans

Mortgage  loans held for sale are carried at the lower of aggregate cost or fair
value.  Fair value is based on the contract  prices at which the mortgage  loans
will be sold or, if the loans are not  committed  for sale,  the current  market
price.  Deferred hedge gains and losses on risk management  hedging  instruments
are included in the cost of the mortgage  loans held for sale for the purpose of
determining the lower of aggregate cost or fair value.

Mortgage  loans held for  investment  are included in other assets and stated at
the lower of cost or fair value at the time the permanent  investment  decisions
are made.  Discounts,  if any, are amortized  over the  anticipated  life of the
investment.

Loans are placed on  non-accrual  status  when any portion of the  principal  or
interest  is  ninety  days past due or  earlier  when  concern  exists as to the
ultimate  collectibility  of  principal  or  interest.  When loans are placed on
nonaccrual status, the related interest  receivable is reversed against interest
income of the current period. Interest payments received on nonaccrual loans are
applied as a reduction of the  principal  balance when concern  exists as to the
ultimate  collection of principal;  otherwise,  such payments are  recognized as
interest  income.  Loans are removed from  nonaccrual  status when principal and
interest become current and they are anticipated to be fully collectible.

Mortgage servicing rights

The total cost of loans originated or acquired is allocated between the mortgage
servicing rights and the mortgage loans (without the servicing  rights) based on
relative  fair  values.  The value of  servicing  rights  acquired  through bulk
acquisitions is capitalized at cost.

Effective  January 1, 1997, the Company  adopted SFAS No. 125,  "Accounting  for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No.  125  supersedes  SFAS  No.  122 and is  effective  for  transfers  and
servicing of financial assets and extinguishments of liabilities occurring after
December  31,  1996.  SFAS No. 125 is based on a  financial-components  approach
which focuses on control. Under the approach required by this standard,  after a
transfer of  financial  assets (for  example,  the sale of mortgage  loans),  an
entity  recognizes  the  financial  and  servicing  assets it  controls  and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered and derecognizes liabilities when extinguished.  The capitalization,
amortization  and  impairment  principles  of SFAS  No.  125  are  substantially
consistent with the principles  previously  defined by SFAS No. 122,  insofar as
they relate to the mortgage banking activities of HomeSide Lending. Accordingly,
the impact of the  adoption  of SFAS No.125 was not  material  to the  Company's
financial statements.

Mortgage  servicing rights are amortized in proportion to and over the period of
the  estimated  net servicing  revenue.  They are  evaluated  for  impairment by
comparing the carrying amount of the servicing rights to their fair value.  Fair
value is estimated based on the market prices of similar servicing assets and on
discounted  anticipated  future net cash  flows  considering  market  prepayment
estimates,  historical  prepayment rates,  portfolio  characteristics,  interest
rates and other  economic  factors.  For purposes of measuring  impairment,  the
mortgage servicing rights are stratified by the predominant risk characteristics
which  include  product  types of the  underlying  loans and  interest  rates of
mortgage notes . Impairment is recognized  through a valuation  reserve for each
impaired stratum and is included in amortization of mortgage  servicing  rights.
An analysis of HomeSide  Lending's mortgage servicing rights is included in Note
5.

Prior to January 1, 1997,  mortgage  servicing  rights  included excess mortgage
servicing  rights,  which represent the present value of servicing fee income in
excess of a normal  servicing  fee rate.  Until the  adoption of SFAS No. 125 on
January 1,  1997,  when loans were sold,  the  estimated  excess  servicing  was
recognized  as income  and  amortized  over the  estimated  servicing  period in
proportion to the aggregate  net cash flows from the loans  serviced.  Remaining
asset  balances were  evaluated  for  impairment  based on current  estimates of
future  discounted cash flows. Such write-downs were included in amortization of
mortgage  servicing  rights.  Upon  the  adoption  of SFAS No.  125,  previously
recognized excess mortgage servicing rights were combined with and accounted for
as mortgage servicing rights.

Accounts receivable

Accounts  receivable  includes  advances,  consisting  primarily of payments for
property  taxes  and  insurance  premiums,  as well as  principal  and  interest
remitted  to  investors  before  they are  collected  from  mortgagors,  made in
connection  with loan servicing  activities.  Accounts  receivable also includes
loans purchased from mortgage-backed securities serviced by HomeSide Lending for
others and mortgage claims filed primarily with the FHA and the VA.

Early pool buyout advances

Early pool buyout advances consist of delinquent government loans in foreclosure
process  that  have  been  purchased  from  pools.   The  program   reduces  the
unreimbursed  interest expense that HomeSide Lending incurs.  The funding of the
purchases  of these  delinquent  loans  for the early  pool  buyout  program  is
recorded as interest  expense.  Interest income earned from the guarantor agency
during the foreclosure process is accrued to match the funding expense incurred.
Scheduled interest payments made to the investor before the loans were purchased
from the pool are  recorded  as early pool  buyout  advances  with a reserve for
advances which will not ultimately be collected.

Premises and equipment

Premises  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful  lives of the  assets.  Leasehold  improvements  are  amortized  over the
shorter of the estimated life of the improvement or the term of the lease.

Long-lived  assets  are  evaluated  regularly  for  the  other-than-   temporary
impairment.  If  circumstances  suggest that their value may be impaired and the
write-down would be material, an assessment of recoverability is performed prior
to any  write-down of the asset.  Impairment,  if any, is  recognized  through a
valuation  allowance with a  corresponding  charge  recorded in the statement of
income.

Goodwill

Net assets acquired in purchase  transactions  are recorded at fair value at the
inception of the date of acquisition.  Goodwill,  representing the excess of the
purchase price over the fair value of the net assets purchased,  is amortized on
a  straight-line  basis over 15 years.  Goodwill  is reviewed  periodically  for
events or changes in  circumstances  that may indicate that the carrying amounts
of the assets are not recoverable on an undiscounted cash flow basis.

Mortgage servicing fees

Mortgage servicing fees represent  servicing and other fees earned for servicing
mortgage loans owned by investors.  Servicing  fees are generally  calculated on
the outstanding  principal  balances of the loans serviced and are recognized as
income on an accrual basis.

HomeSide  Lending's  mortgage  servicing  portfolio  totaled  $98.9  billion  at
February 10, 1998.  Related custodial deposits are segregated in trust accounts,
principally  held with  depository  institutions,  and are not  included  in the
accompanying financial statements.

Interest expense

Interest expense is reduced by credits received from depository institutions for
custodial balances placed with such institutions.

Net mortgage origination revenue

Mortgage  origination  revenue  includes gains and losses from sales of mortgage
loans and fees associated with the origination and purchase of mortgage loans.

Servicing losses on investor-owned loans and foreclosure-related expenses

HomeSide  Lending records losses  attributable to servicing FHA and VA loans for
investors.  These amounts include actual losses for final  disposition of loans,
foreclosure-related   expenses,   accrued   interest   for  which   payment   is
uncollectible  and estimates for  potential  losses based on HomeSide  Lending's
experience as a servicer of government loans.

A reserve for estimated  servicing losses on  investor-owned  loans is available
for potential losses related to the mortgage servicing portfolio and is included
in accounts payable and accrued liabilities (see Note 7).

Income taxes

Current tax  liabilities or assets are recognized  through charges or credits to
the current tax provision for the estimated  taxes payable or refundable for the
current year.

Deferred tax  liabilities  are  recognized for temporary  differences  that will
result in amounts  taxable in the future and deferred tax assets are  recognized
for  temporary  differences  and tax benefit  carryforwards  that will result in
amounts  deductible or creditable in the future. Net deferred tax liabilities or
assets are recognized  through charges or credits to the deferred tax provision.
A deferred tax valuation  reserve is  established  if it is more likely than not
that all or a portion of the deferred  tax assets will not be realized.  Changes
in the deferred tax valuation reserve are recognized  through charges or credits
to the  deferred  tax  provision.  The  effect of  enacted  changes  in tax law,
including  changes in tax rates,  on  deferred  tax  assets and  liabilities  is
recognized in income in the period that includes the enactment date.

Statement of cash flow

For  purposes  of  reporting  on the  statement  of cash  flows,  cash  and cash
equivalents include cash and due from banks and  interest-bearing  deposits with
an original maturity of three months or less.

New accounting standards

In June 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive  Income."
This statement  establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose  financial statements
with the same  prominence  as other  financial  statements.  This  statement  is
effective for fiscal years beginning after December 15, 1997. Management expects
that  the  impact  of  this  statement  on the  presentation  of  the  financial
statements of HomeSide Lending will be immaterial.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information." This statement  establishes  standards for
the way that public  business  enterprises  report  information  about operating
segments in annual financial  statements and interim financial reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic areas, and major customers. This statement is
effective for fiscal years beginning after December 15, 1997. Management expects
that  the  impact  of  this  statement  on the  presentation  of  the  financial
statements of HomeSide Lending will be immaterial.


4.  ACQUISITIONS

Acquisition of BancBoston Mortgage Corporation

On  March  15,  1996,  HomeSide  Lending  acquired  from  BankBoston  all of the
outstanding  stock  of  BancBoston  Mortgage  Corporation  ("BBMC"),  which  was
subsequently  renamed HomeSide  Lending,  Inc. Certain assets and liabilities of
BBMC were retained by BankBoston,  including  BBMC's mortgage retail  production
operations in New England.

HomeSide  Lending made cash payments of $139.5  million in cash and issued $86.8
million of common stock to BankBoston in consideration  for certain assets,  net
of assumed liabilities, and the stock of BBMC. Also, in connection with the BBMC
acquisition,  the Investors purchased  approximately 55% of the then outstanding
common  stock of HomeSide  Lending for $107.2  million in cash.  Simultaneously,
BankBoston paid approximately $1.0 million in cash for all of HomeSide Lending's
class C  non-voting  common  stock.  In  consideration  of services  rendered to
HomeSide Lending with respect to the BBMC Acquisition,  class B non-voting stock
valued at $1.0 million was issued to an investment  bank.  Management  purchased
common  stock for $4.1  million in cash,  $1.9  million of which was financed by
loans  from  HomeSide  Lending.  On May  31,  1996,  HomeSide  Lending  paid  an
additional  $5.0 million to  BankBoston  in  connection  with the closing of the
Barnett Mortgage Company ("BMC") acquisition.  The transaction was accounted for
under the purchase method of accounting. The assets and liabilities of BBMC were
recorded at their fair values at March 16, 1996,  which totaled $1.5 billion and
$1.2 billion,  respectively.  The total purchase price paid for BBMC,  including
transaction costs and interest,  was $247.0 million. The excess of fair value of
net assets acquired over cost was $56.0 million and was allocated as a reduction
mortgage servicing period rights.

Acquisition of Barnett Mortgage Company

On May 31, 1996,  HomeSide Lending acquired from Barnett certain assets,  net of
assumed  liabilities,  and  the  outstanding  common  stock  of  BMC  (the  "BMC
Acquisition").  Certain assets and  liabilities of BMC were retained by Barnett,
including those assets of BMC and its subsidiaries (other than Honolulu Mortgage
Company, Inc.) associated with the loan origination or production activities.

HomeSide   Lending  made  cash   payments  of  $228.0   million  to  Barnett  in
consideration for certain assets, net of assumed  liabilities,  and the stock of
BMC. In connection with the BMC Acquisition,  an affiliate of Barnett  purchased
shares of HomeSide  Lending  common  stock for an  aggregate  purchase  price of
$118.0 million. Also in connection with the BMC Acquisition,  BankBoston and the
Investors  paid  approximately  $42.3 million in cash for  additional  shares of
HomeSide Lending. The transaction was accounted for using the purchase method of
accounting  and,  accordingly,  the results of  operations  of HomeSide  Lending
include BMC from the date of acquisition. The assets and liabilities of BMC were
recorded by HomeSide  Lending at their  estimated  fair values at May 31,  1996,
which  totaled  $764.8  million  and  $521.4  million,  respectively.  The total
purchase price paid for BMC,  including  transaction  costs and  interests,  was
$235.0  million.  The  excess of the  purchase  price over the fair value of net
assets  acquired  was $8.4  million and was  allocated  to goodwill and is being
amortized on a straight-line basis over 15 years.

The unaudited  condensed pro forma statement of income for the period from March
16, 1996 to February  28, 1997,  assuming BMC had been  acquired as of March 16,
1996 is as follows (in millions, except per share data):

                                              Pro Forma for the Period
                                               From March 16, 1996 to
                                                 February 28, 1997

      Net servicing revenue                             $167.3
      Net interest  revenue                               (4.5)
      Net mortgage origination revenue                    67.1               
      Other income                                         0.7
              Total revenues                             230.6
      Expenses                                          (157.5)
      Income before income
      taxes and extraordinary loss                        73.1
      Income tax expense                                 (29.5)
      Income before extraordinary loss                    43.6
      Extraordinary loss                                  (6.4)
                                                         ========
       Net income                                       $ 37.2
                                                         ========


The  purchase  accounting  adjustments  in the  above  pro  forma  statement  of
operations  are based on the actual  purchase price and the amount of assets and
liabilities  actually acquired.  No adjustments have been made for restructuring
costs that might have been  incurred  or for cost  efficiencies  that might have
been realized during the period presented.  Accordingly, these pro forma results
are not indicative of future results.



<PAGE>



5.  MORTGAGE SERVICING RIGHTS

An analysis of mortgage servicing rights is as follows (in thousands):
<TABLE>
<CAPTION>

                                                       February 10, 1998       February 28, 1997
<S>                                                    <C>                     <C> 

Beginning balance                                     $     1,596,838            $   -
Additions, including BBMC and BMC acquisitions                416,822              1,665,640
Sales of servicing                                               (342)               (25,745)    
Net deferred hedge (gain) loss, net of amortization           (39,453)               110,637
Amortization                                                 (207,508)              (153,694)
                                                      ----------------------- ----------------------
Ending balance                                        $     1,766,357            $ 1,596,838
                                                      ======================= ======================
</TABLE>

At February 10, 1998, the net deferred  hedge gain of $39.5 million  consists of
the net deferred loss for the period from March 16, 1996 to February 28, 1997 of
$110.6 million  adjusted for gains of $195.2  million,  losses of $52.5 million,
and amortization of $7.4 million. For the period from March 16, 1996 to February
28, 1997,  the net deferred  hedge loss of $ 110.6 million  consists of gains of
$133.3 million and losses of $254.9 million, less $11.0 million of amortization.


6. PREMISES AND EQUIPMENT

Premises and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 February 10, 1998       February 28, 1997
<S>                                                              <C>                     <C>    

Land                                                                        $  3,451               $  3,451
Buildings and building improvements                                           10,604                 10,986
Furniture and equipment                                                       22,464                 15,739
Leasehold improvements                                                        14,717                  3,808
                                                                 ----------------------- ----------------------
                                                                 ----------------------- ----------------------
                                                                              51,236                 33,984
Accumulated depreciation and amortization                                     (9,254)                (4,469)
                                                                 ======================= ======================
Ending balance                                                             $  41,982               $ 29,515
                                                                 ======================= ======================

</TABLE>

7.  RESERVE FOR ESTIMATED SERVICING LOSSES ON INVESTOR-OWNED LOANS

     An analysis of the reserve for estimated servicing losses on investor-owned
loans is as follows (in thousands):
<TABLE>
<CAPTION>

                                                                For the Period      For the Period 
                                                                March 1, 1997 to    March 16, 1996 to 
                                                                February 10, 1998   February 28, 1997
                                                                    --------             --------
<S>                                                             <C>                 <C>   

Beginning balance                                                 $ 21,650               $  11,100
Provision for servicing losses on
      investor-owned loans                                          12,346                  13,683
Charge-offs                                                        (12,747)                (10,295)
Recoveries                                                             401                      60
Additions from acquisition of BMC                                       -                    7,102
                                                               ------------------    -----------------
Ending balance                                                    $ 21,650               $  21,650
                                                               ==================    =================
</TABLE>


8.    NOTES PAYABLE

Notes payable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                            Weighted Average Interest Rate
                                                Total Outstanding       At Period End        During the Period
<S>                                             <C>                     <C>                  <C>   

Bank line of credit, February 10, 1998             $ 2,074,956              6.00%                  6.04%
                                              ======================

Bank line of credit, February 28, 1997             $ 1,778,496              5.65%                  5.83%
Short-term credit facilities                            40,007              8.25%                  8.25%
                                              ----------------------
  Total, February 28, 1997                         $ 1,818,503
                                              ======================
</TABLE>

HomeSide  Lending borrows funds on a demand basis from an independent  syndicate
of banks under a $2.5 billion credit  facility which, at the request of HomeSide
Lending, may be increased to $3.0 billion. The line of credit is used to provide
funds for HomeSide  Lending's  business of originating,  acquiring and servicing
mortgage loans.  The line of credit includes both a warehouse  credit  facility,
which is limited to 98% of the fair value of  eligible  mortgage  loans held for
sale, and a  servicing-related  facility,  which is capped at $950.0 million. On
February  14,  2000,  the line of credit will  terminate.  The credit  agreement
contains covenants that impose limitations and restrictions on HomeSide Lending,
including the  maintenance  of certain net worth and ratio  requirements.  Under
certain  circumstances set forth in the credit  agreement,  borrowings under the
agreement  become  collateralized  by  substantially  all of HomeSide  Lending's
assets.  HomeSide Lending is in compliance with all requirements included in the
credit  agreement.  At February 10, 1998 and February 28, 1997, $2.1 billion and
$1.8  billion,  respectively,  was  outstanding  under the credit line.  Amounts
outstanding  at February  10, 1998 and  February 28, 1997 under the bank line of
credit are  comprised  of a warehouse  credit  facility of $1.2 billion and $0.8
billion  and a  servicing-related  credit  facility  of $0.9  billion  and  $0.9
billion,  respectively.  The amount of the  unused  bank line of credit was $0.4
billion  and $0.7  billion  as of  February  10,  1998 and  February  28,  1997,
respectively.

Borrowings under the bank line of credit bear interest at rates per annum, based
on, at HomeSide  Lending's  option (A) the highest of (i) the lead bank's  prime
rate,  (ii) the secondary  market rate of certificates of deposit plus 100 basis
points and (iii) the federal funds rate in effect from time to time plus 0.5% or
(B) various rates based on federal fund rates.

On January 15, 1997,  HomeSide Lending entered into a short-term credit facility
with a bank in a maximum aggregate  principal amount of $85.0 million.  On March
14, 1997, HomeSide Lending entered into another short-term credit facility in an
aggregate principal amount of $100.0 million. The facilities each expired on May
1, 1997 and amounts borrowed under these lines were repaid.


9.  LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

                                February 10, 1998          February 28, 1997
                                -----------------          -----------------
Medium-term notes                  $   750,000                    $    -
Mortgage note payable                   20,466                     21,128
                                -----------------          -----------------
  Total                            $   770,466                  $  21,128
                                =================          =================



<PAGE>


  Medium-term notes

As of February 10, 1998, $650.0 million of the outstanding medium-term notes had
been  effectively  converted by interest rate swap  agreements to  floating-rate
notes. The weighted average borrowing rates on medium-term borrowings issued for
the period from March 1, 1997 to February 10, 1998,  including the effect of the
interest rate swap agreements,  was 6.251% . Net proceeds from the issuance were
primarily  used  to  reduce  the  amounts  outstanding  under  the  bank  credit
agreement.  Amounts were subsequently  reborrowed under the bank credit facility
to fund the early pool buyout program.

As of  February  10,  1998,  outstanding  medium-term  notes  issued by HomeSide
Lending, Inc., under a $1.0 billion shelf registration statement were as follows
(in thousands):


 Issue Date     Outstanding Balance  Stated Interest Rate   Maturity Date
  
May 20, 1997            $250,000            6.890%          May 15, 2000
June 30, 1997            200,000            6.883%          June 30, 2002
June 30, 1997             40,000            6.820%          July 2, 2001
July 1, 1997              15,000            6.860%          July 2, 2001
July 31, 1997            200,000            6.818%          August 1, 2004
September 15, 1997        45,000            6.770%          tember 17, 2001
                       ----------
  Total                 $750,000
                       ==========
 
As of February 10, 1998, $250.0 million was available for future issuances under
the shelf  registration.  On March 6,  1998,  HomeSide  Lending,  Inc.  filed an
amendment increasing the shelf registration to $1.5 billion.

  Mortgage note payable

HomeSide  Lending  assumed a mortgage note payable that is due in 2017 and bears
interest at a stated rate of 9.50%.  HomeSide  Lending's main office building is
pledged as collateral.  A purchase accounting premium was recorded in connection
with HomeSide Lending assuming the mortgage note payable.

Principal payments due on long-term debt at February 10, 1998 are as follows (in
thousands):

Fiscal Year
 1999                                         $         256
 2000                                               250,281
 2001                                               100,309
 2002                                               200,340
 2003                                                   373
 Thereafter                                         211,724
 Unamortized purchase accounting premium              7,183
                                              ==============
 Total                                        $     770,466
                                              ==============

Long-term debt of Parent

On May 14,  1996,  the Parent  issued  $200,000,000  of 11.25%  notes  ("Notes")
maturing on May 15, 2003 and paying  interest  semiannually in arrears on May 15
and November 15 of each year,  commencing  on November  15, 1996.  The Notes are
redeemable  at the option of the Parent,  in whole or in part, at any time on or
after May 15,  2001,  at  certain  redemption  prices.  The  indenture  contains
covenants that impose limitations and restrictions on the Parent,  including the
maintenance of certain net worth and ratio requirements.  In addition, the Notes
are secured by a second priority pledge of the common stock of HomeSide Lending,
Inc and  principal  and  interest  payments on the Notes are funded by dividends
received from HomeSide  Lending.  The Parent is in compliance with all net worth
and ratio  requirements  contained in the indenture  relating to the notes.  The
amount of Notes outstanding at February 10, 1998 is $130.0 million.

On February 5, 1997, the Parent issued  8,452,500  shares of common stock to the
public at $15 per share. A portion of the proceeds from the offering was used to
pre-pay $70.0  million of the Notes at a premium of $7.9 million.  In connection
with the early  repayment  of the Notes,  the Parent  wrote off a portion of the
unamortized  debt issuance  costs related to the Notes and incurred a prepayment
penalty equal to one year's interest on the Notes retired . The loss amounted to
$6.4  million,  net of tax,  and was  recorded  as an  extraordinary  item.  The
remaining  proceeds were used to reduce amounts  outstanding under the bank line
of credit.

During the period from March 1, 1997 through  February 10, 1998,  and the period
from March 16, 1996  through  February  28,  1997,  HomeSide  Lending paid $14.7
million and $17.0  million,  respectively,  in dividends to the Parent to enable
the Parent to service the debt and pay certain debt issuance costs.


10. INCOME TAXES

The  Company  files a  consolidated  federal  income tax return.  All  companies
included in the consolidated federal income tax return are jointly and severally
liable for any tax assessments based on such consolidated return.

Components  of the  provision  for  income  taxes  before  the effect of the tax
benefit  associated  with the early  extinguishment  of debt were as follows (in
thousands):

                     For the Period From       For the Period From
                       March 1, 1997 to          March 16, 1996 to
                      February 10, 1998         February 28, 1997
                    ---------------------     ---------------------
Current:
     Federal               $   2,856                     $   -
     State                       -                           -
                    ---------------------     ---------------------
                           $   2,856                         -
Deferred;
     Federal                  42,462                     30,872
     State                     8,061                      6,406
                    ---------------------     ---------------------
                            $ 50,523                   $ 37,278
                    ---------------------     ---------------------

     Total                  $ 53,379                   $ 37,278
                    =====================     =====================


The following is a  reconciliation  of the statutory  federal income tax rate to
the  effective  income tax rate as reflected in the  consolidated  statements of
income.

                                    For The Period From     For The Period From
                                     March 1, 1997 to        March 16, 1996 to
                                     February 10, 1998       February 28, 1997

 Statutory federal income tax rate            35.0%                   35.0%
 State income and franchise taxes,
        net of federal tax effect              3.5%                    4.0%
 Other                                          .5%                    1.0%
                                    --------------------    -------------------
       
 Effective income tax rate                    39.0%                   40.0%
                                    ====================    ===================


The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities are presented below (in
thousands):



                                          February 10, 1998    February 28, 1997
Deferred tax assets:
   Net operating loss carryforwards           $    23,114            $  40,891
   Alternative minimum tax credit 
     carry forward                                  2,856                 -
   Loss reserves                                   25,404               17,563
   Hedge activities                                30,754                 -
   Other assets                                     4,879               12,087
                                           ===============       ==============
      Total gross deferred tax assets        $     87,007            $  70,541
                                           ===============       ==============


Deferred tax liabilities:
   Mortgage servicing fees                   $    267,871            $ 207,278
   Other liabilities                               16,379                5,678
                                           ---------------       --------------
      Total gross deferred tax liabilities        284,250              212,956
                                           ===============       ==============
        Net deferred tax liability        $       197,243            $ 142,415
                                           ===============       ==============

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which these temporary  differences become deductible.  Management  considers the
scheduled reversal of deferred tax liabilities,  projected future taxable income
and tax planning  strategies in making this assessment.  No valuation  allowance
was recorded at February 10, 1998 or February 28, 1997.

The Company has consolidated tax net operating loss carryforwards at February
10, 1998.  These carryforwards expire in the years 2002 to 2012.


11.  LEASE COMMITMENTS

HomeSide  Lending  leases office  facilities and equipment  under  noncancelable
leases that include  renewal  options and  escalation  clauses which extend into
2004.  Rental  expense for leases of office  facilities  and  equipment was $4.5
million and $3.9  million for the period  March 1, 1997 to February 10, 1998 and
for the period  March 16,  1996 to February  28,  1997,  respectively.  HomeSide
Lending's minimum future lease commitments are as follows (in thousands):

Fiscal Year         
1999                       $        2,124
2000                                  984
2001                                  800
2002                                  710
2003                                  625
Thereafter                            700
                           ---------------
     Total                 $        5,943
                           ===============




12.  SUPPLEMENTAL CASH FLOW INFORMATION

In connection with the  acquisitions of BBMC and BMC,  HomeSide Lending recorded
non-cash assets and assumed  liabilities,  including fair value adjustments,  of
approximately $2.3 billion and $1.7 billion in 1998 and 1997, respectively.

HomeSide  Lending paid $58.8  million and  $60.1million  of interest  during the
period  from March 1, 1997 to  February  10, 1998 and March 16, 1996 to February
28, 1997,  respectively.  HomeSide  Lending paid taxes totaling $0.3 million and
received $51.7 million cash for reinstated loans from early pool buyout advances
for the period from March 1, 1997 to February 10, 1998.


13.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair  value  estimates  are made as of a  specific  point  in time  based on the
characteristics   of  the  financial   instruments   and  the  relevant   market
information.  Where  available,  quoted  market prices are used. In other cases,
fair values are based on estimates  using other  valuation  techniques,  such as
discounting estimated future cash flows using a rate commensurate with the risks
involved or other acceptable methods. These techniques involve uncertainties and
are  significantly  affected  by the  assumptions  used and the  judgments  made
regarding risk  characteristics of various financial  instruments,  prepayments,
discount  rates,  estimates  of  future  cash  flows,  future  anticipated  loss
experience and other factors.  Changes in assumptions could significantly affect
these  estimates.  Derived  fair  value  estimates  cannot be  substantiated  by
comparison to independent  markets and, in many cases,  could not be realized in
an  immediate   sale  of  the   instrument.   Also  because  of  differences  in
methodologies  and assumptions  used to estimate fair value,  the Company's fair
values should not be compared to those of other companies.

Fair  value  estimates  are  based on  existing  financial  instruments  without
attempting to estimate the value of anticipated future business and the value of
assets  and  liabilities   that  are  not  considered   financial   instruments.
Accordingly,  the aggregate  fair value  amounts  presented do not represent the
underlying  value of the  Company.  For  certain  assets  and  liabilities,  the
information required is supplemented with additional  information relevant to an
understanding of the fair value.

The methods and  assumptions  used to estimate  the fair values of each class of
financial instruments are as follows:

   Cash and cash equivalents
The carrying amount reported in the balance sheet approximates fair value.

   Mortgage loans held for sale
Fair values are based on the estimated value at which the loans could be sold in
the secondary  market.  These loans are priced to be sold with servicing  rights
retained, as this is the Company's normal business practice.

   Accounts receivable, early pool buyout advances and accounts payable
Carrying amounts are considered to approximate  fair value.  Accounts payable do
not include the effects of additional costs incurred and additional  liabilities
assumed in connection with HomeSide Lending's acquisition by the National.

   Risk management contracts
Fair values are estimated based on actual market quotes or option models.


   Notes payable
The  carrying  amount  of  the  notes  payable  reported  in the  balance  sheet
approximates its fair value due to the short-term nature of the borrowings under
the credit agreements.

   Long-term debt
Fair value of long-term debt is estimated by discounting  estimated  future cash
flows using a rate  consistent  with the  Company's  current  borrowing  rate as
adjusted for the effects of certain prepayment penalties.

   Commitments to originate mortgage loans
Fair value is estimated  using quoted  market  prices for  securities  backed by
similar loans adjusted for differences in loan characteristics.
   Forward contracts to sell mortgages
Forward contracts to sell mortgages,  which represent legally binding agreements
to sell loans to permanent  investors at a specified price or yield,  are valued
using market prices for securities  backed by similar loans and are reflected in
the fair  values  of the  mortgages  held for sale,  to the  extent  that  these
commitments  relate to  mortgage  loans  already  originated,  or of the related
commitments to extend credit.

   Options on mortgage-backed securities and U.S. treasury bond futures
The fair values of options are estimated based on actual market quotes.  In some
instances,  quoted prices for the underlying  loans or valuations  determined by
option models are used.

   Interest rate swaps
The fair values of interest rate swaps are estimated based on dealer quotes.

Fair Value

The fair  values of the  Company's  financial  instruments  are as  follows  (in
thousands):
<TABLE>
<CAPTION>

                                                     February 10, 1998                   February 28, 1997
                                                    -----------------                   -----------------
                                                  Carrying            Fair            Carrying             Fair
<S>                                               <C>                 <C>             <C>                 <C>    
                                                   Amount             Value            Amount             Value
ASSETS
Cash and cash equivalents                      $     32,113    $      32,113      $      52,691     $      52,691
Mortgage loans held for sale                      1,292,403        1,296,685            805,274           806,432
Accounts receivable and early pool buyout
   advances                                         601,391          601,391            157,518           157,518
Risk management contracts for
   mortgage servicing rights                         43,947           43,947             45,212            45,212

LIABILITIES
Notes payable                                     2,074,956        2,074,956          1,818,503         1,818,503
Long-term debt                                      770,466          799,893             21,128            21,128
Accounts payable and accrued liabilities            135,802          135,802            123,231           123,231

Off-balance sheet(1)
Commitments to originate mortgage loans                --             (1,510)              --              (2,805)
   Mandatory forward contracts to sell mortgages       --             (3,621)              --               3,588
   Mandatory forward contracts to sell U.S.
       Treasuries                                      --                 65               --                   7
   Option contracts on mortgage-backed
       securities                                     3,543            5,890              2,025             1,741
Option contracts on U.S. treasury bond futures          743              604                321              (147)
Interest rate swaps                                    --             13,496               --                  --
-----------------------------
(1) Parenthesis denote a liability
</TABLE>

Fair value estimates are made as of a specific point in time,  based on relevant
market data and information about the financial  instrument.  These estimates do
not reflect any premium or discount that could result from offering for sale the
Company's entire holding of a particular financial instrument. Because no active
market  exists for some portion of the  Company's  financial  instruments,  fair
value  estimates  are  based  on  judgments   regarding   future  expected  loss
experience,  current economic conditions,  current interest rates and prepayment
trends, risk characteristics of various financial instruments and other factors.

These estimates are subjective in nature and involve  uncertainties  and matters
of significant  judgment and,  therefore,  cannot be determined  with precision.
Changes in any of these  assumptions  used in calculating  fair value would also
significantly  affect the  estimates.  Further,  the fair value  estimates  were
calculated as of February 10, 1998 and February 28, 1997.  Subsequent changes in
market interest rates and prepayment  assumptions could significantly change the
fair value.

14.  RISK MANAGEMENT AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

As discussed in Note 3,  HomeSide  Lending  utilizes risk  management  financial
instruments  to manage  interest  rate risk related to the value of its mortgage
servicing  rights. A summary of HomeSide  Lending's  position in risk management
financial  instruments  at February  10, 1998 and  February 28, 1997 is included
below.

The fair value of  HomeSide  Lending's  risk  management  contracts  is based on
quoted  market  prices of the  underlying  instruments  at February 10, 1998 and
February  28,  1997.  The  notional  amounts  represent  the  par  value  of the
underlying U.S. Treasury bonds. However, the notional amounts are not recognized
in the balance sheet and should not be considered as a measure of credit risk or
future cash requirement.

The amount of the risk management  contracts  maintained depends on factors such
as interest  rates,  interest  volatility  and growth in the mortgage  servicing
portfolio.  HomeSide  Lending  is  subject  to market  risk to the  extent  that
interest rates fluctuate;  however, the purpose of the risk management contracts
is to hedge the  value of the  mortgage  servicing  rights  portfolio.  HomeSide
Lending's risk management financial  instruments qualify as hedges, and gains or
losses on the risk management instruments correlate to movements in the value of
the mortgage  servicing rights.  Cash requirements for HomeSide Lending's option
contracts are limited to premiums paid. Cash  requirements for futures contracts
are managed based on limits  established by HomeSide  Lending's risk  management
committee.  HomeSide  Lending's credit risk on its risk management  contracts is
limited because the contracts are traded on a national exchange which guarantees
counterparty performance.

As discussed in Note 3, HomeSide  Lending  purchases  financial  instruments and
enters  into  financial  agreements  with  off-balance  sheet risk in the normal
course of business  through the origination and selling of mortgage loans and as
part of its risk management  programs.  These  instruments  involve,  to varying
degrees,  elements  of  credit  and  interest  rate  risk.  Credit  risk  is the
possibility  that a loss may occur if a counterparty  to a transaction  fails to
perform  according  to the  terms of the  contract.  Interest  rate  risk is the
possibility  that a change in interest rates will cause the value of a financial
instrument to decrease or become more costly to settle.

  Options and forward contracts

The  notional  amount of the  options  and  forward  contracts  used in HomeSide
Lending's risk  management  programs is the amount upon which interest and other
payments under the contract are based and is generally not exchanged. Therefore,
the  notional  amounts  should not be taken as the  measure of credit  risk or a
reflection of future cash  requirements.  The risk  associated  with options and
forwards is the  exposure to current and expected  market  movements in interest
rates and the ability of the  counterparties to meet the terms of the contracts.
The cash requirements associated with these options and forward contracts, aside
from the initial purchase price, are minimal.  These contracts generally require
future  performance on the part of the counterparty  upon exercise of the option
or execution of the forward contract by HomeSide Lending.

HomeSide Lending is exposed to credit loss in the event of nonperformance by the
counterparties to the various instruments.  HomeSide Lending controls credit and
market  risk  associated  with  interest  rate  products  by  establishing   and
monitoring  limits with  counterparties as to the types and degree of risks that
may be undertaken.  HomeSide  Lending's  exposure to credit risk in the event of
default by the  counterparties  for the options is $57.0 million at February 10,
1998.

HomeSide  Lending's  exposure  to  credit  risk in the event of  default  by the
counterparty  for mandatory  forward  commitments  to sell mortgage loans is the
difference  between the contract price and the current  market price,  offset by
any available  margins retained by HomeSide  Lending or an independent  clearing
agent,  which totaled  $30.2 million at February 10, 1998.  The amount of credit
risk as of February 10, 1998, if all counterparties failed completely and if the
margins, if any, retained by HomeSide Lending or an independent clearing were to
become  unavailable,  was  approximately  $4.4  million  for  mandatory  forward
commitments of mortgage-backed securities.

The  following  is a summary of  HomeSide  Lending's  notional  amounts and fair
values of interest rate products (in thousands):

<TABLE>
<CAPTION>
                                                            February 10,                       February 28, 1997
                                                                1998
                                                    Notional                             Notional
                                                     Amount         FairValue(1)          Amount         Fair Value (1)
                                                     ------         ------------          ------         --------------
<S>                                                 <C>             <C>                  <C>             <C>   

Purchased commitments to sell Mortgage loans:
  Mandatory forward contracts                    $  2,847,668      $   (3,556)        $  1,445,345        $    3,588
  Options on mortgage-backed
      securities                                      835,000           5,890              755,000             1,741
  Options on U.S. treasury
      bond futures                                    145,000             604              140,000              (147)
Risk management contracts on
   mortgage servicing rights:
   Options on U.S. treasury                                    
      bond futures                                  4,440,100          50,487            3,572,300             45,212
   Futures contracts on U.S. treasury
      bonds                                         2,121,800          (6,540)               --                 --
------------------------------------------------
(1)   Fair  value  represents  the amount at which a given  instrument  could be
      exchanged  in an arms  length  transaction  with a third  party  as of the
      balance sheet date.
</TABLE>


  Commitments to originate mortgage loans

HomeSide  Lending  regularly  enters into  commitments to originate and purchase
mortgage  loans at a future date subject to compliance  with stated  conditions.
Commitments  to  originate  mortgage  loans have  off-balance  sheet risk to the
extent HomeSide Lending does not have matching  commitments to sell loans, which
exposes HomeSide  Lending to lower of cost or market valuation  adjustments in a
rising interest rate environment.  Additionally,  the extension of a commitment,
which is subject to HomeSide  Lending's  credit  review and  approval  policies,
gives rise to credit exposure when certain borrowing  conditions are met and the
loan is made.  Until such time,  it  represents  only  potential  exposure.  The
obligation  to  lend  may  be  voided  if  the  customer's  financial  condition
deteriorates or if the customer fails to meet certain conditions. Commitments to
originate  mortgage loans do not  necessarily  reflect future cash  requirements
since  some  of the  commitments  will  not be  drawn  upon  before  expiration.
Commitments to originate mortgage loans totaled $3.2 billion and $2.7 billion at
February 10, 1998 and February 28, 1997, respectively.

  Mortgage loans sold with recourse

HomeSide  Lending sells  mortgage  loans with recourse to various  investors and
retains  the  servicing  rights and  responsibility  for credit  losses on these
loans.  The total  outstanding  balance  of loans  sold with  recourse  does not
necessarily  represent  future cash outflows.  The total  outstanding  principal
balance of loans  sold with  recourse  was $16.7  million  and $14.2  million at
February 10, 1998 and February 28, 1997, respectively.

For five  years  following  the May 31,  1996  acquisition  of BMC,  Barnett  is
obligated to  repurchase  or reimburse  HomeSide  Lending for any credit  losses
related to $101.0 million of loans serviced with recourse.

  Servicing commitment to investors

HomeSide  Lending is required to submit to certain  investors,  primarily  GNMA,
guaranteed  principal and interest  payments from the underlying  mortgage loans
regardless of actual collections.

  Purchase mortgage servicing rights commitments

HomeSide  Lending   routinely  enters  into  commitments  to  purchase  mortgage
servicing rights associated with mortgages originated by third parties,  subject
to compliance with stated  conditions.  These  commitments to purchase  mortgage
servicing rights correspond to mortgage loans having an aggregate loan principal
balance of approximately  $0.6 billion and $2.3 billion at February 10, 1998 and
February 28, 1997, respectively.

  Geographical concentration of credit risk

HomeSide  Lending  is  engaged  in  business  nationwide  and  has  no  material
concentration of credit risk in any geographic region.


15. OTHER RELATED PARTY TRANSACTIONS

HomeSide  Lending  entered into an  agreement  with  BankBoston  and Barnett for
certain  corporate  support  services.  For the  period  March 1,  1997  through
February 10, 1998,  HomeSide  Lending paid BankBoston and Barnett  approximately
$5.2 million and $0.5 million,  respectively, for these services. For the period
March 16, 1996 to February  28,  1997,  HomeSide  Lending  paid  BankBoston  and
Barnett  approximately  $2.5 million and $0.9 million,  respectively,  for these
services.

HomeSide Lending purchases  mortgage loans eligible for sale from BankBoston and
Barnett.  For the period  March 1, 1997  through  February  10,  1998,  HomeSide
Lending paid  approximately  $5.3 million and $45.4  million,  respectively,  to
BankBoston and Barnett for the purchase of mortgage  servicing  rights.  For the
period from March 1, 1996  through  February  28,  1997,  HomeSide  Lending paid
approximately  $4.7 million and $27.6 million,  respectively,  to BankBoston and
Barnett for the purchase of mortgage  servicing  rights.  HomeSide  Lending also
purchases the mortgage  servicing  rights to the mortgage  loans  BankBoston and
Barnett hold in their portfolios.  For the period March 1, 1997 through February
10,  1998,  HomeSide  Lending  purchased  mortgage  servicing  rights  for loans
retained by BankBoston and Barnett totaling  approximately $1.6 million and $9.5
million,  respectively.  For the period from March 16, 1996 to February 28, 1997
HomeSide  Lending  purchased  mortgage  servicing  rights for loans  retained by
BankBoston  and Barnett  totaling  approximately  $1.3 million and $8.2 million,
respectively.  The  BankBoston and Barnett  purchases  represent 2.8% and 20.4%,
respectively,  of the Company's  total  production  for the period from March 1,
1997 to February 10, 1998. For the period of March 16, 1996 through February 28,
1997,  the  BankBoston  and  Barnett  purchases  represented  2.8%  and  16.0 %,
respectively, of the Company's total production.

HomeSide  Lending  services  residential  mortgage  loans held in  portfolio  by
BankBoston  and Barnett.  The servicing  fees paid by BankBoston  and Barnett to
HomeSide  Lending are  market-based  fees  consistent  with the fees  charged by
HomeSide  Lending to other  investors.  For the period March 1, 1997 to February
10,  1998,  BankBoston  and  Barnett  paid $3.8  million  and $29.1  million  in
servicing  fees,  respectively.  For the period  March 16, 1996 to February  28,
1997,  BankBoston  and Barnett paid $5.3 million and $ 23.6 million in servicing
fees, respectively.

As a result of NationsBank Corporation's acquisition of Barnett Banks, Inc., the
Company agreed to release  Barnett from a five year agreement to sell certain of
its mortgage loans to HomeSide Lending.  In consideration,  the Company received
the right to purchase $5.0 billion in mortgage  servicing rights, an increase in
the  weighted  average  servicing  fee for  Barnett  portfolio  loans  currently
serviced, and will receive $3.0 million cash in June 1998.


16.  CONTINGENCIES

HomeSide  Lending,  along with its  subsidiaries,  is a defendant in a number of
legal proceedings arising in the normal course of business. HomeSide Lending, in
management's  estimation,  has  recorded  adequate  reserves  in  the  financial
statements for pending litigation.  Management,  after reviewing all actions and
proceedings  pending against or involving  HomeSide Lending,  considers that the
aggregate liabilities or loss, if any, resulting from the final outcome of these
proceedings will not have a material effect on the financial  position,  results
of operations or liquidity of HomeSide Lending.


17.  EMPLOYEE BENEFITS

HomeSide  Lending  offers a 401(k)  defined  contribution  benefit plan in which
employees  may  contribute a portion of their  compensation.  Substantially  all
employees are eligible for  participation  in the plan. The Company matches 100%
of amounts  contributed  up to 4% of an employee's  compensation.  Further,  the
Company may  contribute  additional  amounts at its  discretion.  Total  expense
related to the benefit plan was approximately  $3.0 million and $4.0 million for
the period from March 1, 1997 to February 10, 1998 and the period from March 16,
1996 to February 28, 1997, respectively.


18.  QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>

                                         For the Period From     For the Three Months   For the Three Months   For the Three Months
                                         December 1, 1997 to      Ended November 30,    Ended August 31,          Ended May 31, 
                                          February 10, 1998              1997                 1997                   1997
                                          -----------------              ----                 ----                   ----
<S>                                      <C>                     <C>                    <C>                    <C>  

(in thousands, except share data)
Revenue                                     $    65,264             $   75,619              $   76,330            $   70,727
Expenses                                         38,241                 39,432                  37,454                35,943
Provision for income taxes                       11,433                 14,577                  14,391                12,978       
                                       ------------------------- ---------------------- ---------------------- ---------------------
Net income                                  $    17,888             $   22,801              $   22,507            $   20,295       
                                       ========================= ====================== ====================== =====================
</TABLE>



<PAGE>
<TABLE>
<CAPTION>


                                         For the Period From     For the Three Months   For the Three Months   For the Three Months
                                         December 1, 1997 to      Ended November 30,    Ended August 31,          Ended May 31, 
                                          February 10, 1998              1997                 1997                   1997
                                          -----------------              ----                 ----                   ----
<S>                                      <C>                     <C>                    <C>                    <C>   

(in thousands, except share data)
   Revenue                             $             68,841      $     68,073             $    63,640             $   36,087
   Expenses                                          39,987            40,335                  40,515                 22,609
   Provision for income taxes                        10,898            11,373                   9,481                  5,526
                                       ------------------------- ---------------------- ---------------------- ---------------------
   Net income                          $             17,956      $     16,365             $    13,644             $    7,952       
                                       ========================= ====================== ====================== =====================

</TABLE>

19.  SUBSEQUENT EVENTS

On April 1, 1998,  HomeSide  Lending  entered  into an  agreement  with Banc One
Mortgage  Corporation  ("Banc One") to acquire the mortgage  servicing assets of
Banc One.  HomeSide  Lending  and Banc One have also  entered  into a  Preferred
Partner  agreement,  whereby  Banc One will sell a  significant  portion  of its
residential  mortgage  loans to HomeSide  Lending over the next five years.  The
total purchase  consideration  is $201.0  million cash.  The mortgage  servicing
rights acquired relate to mortgage servicing loans of approximately $18 billion.
The transaction is subject to regulatory approvals and is expected to close late
in the second calendar quarter of 1998.

On April 6, 1998, the Company signed an agreement with  NationsBank  Corporation
whereby  NationsBank  agreed  to sell  HomeSide  Lending  a  national  wholesale
mortgage loan network which was formerly owned by Barnett Banks, Inc.

     Effective April 30, 1998, HomeSide,  Inc., the Parent,  amended its charter
to change its name to HomeSide International, Inc.

<PAGE>


 BBMC (Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide 
       Lending, Inc.)
 ITEM 6. Summary Historical Consolidated Financial and Operating Information

      The following table sets forth summary historical  consolidated  financial
and operating information for BBMC (formerly BancBoston Mortgage Corporation and
the  Predecessor to the Issuer) for the periods prior to its  acquisition by the
Parent. Such information should be read in conjunction with, and is qualified in
its entirety by reference  to, the  Consolidated  Financial  Statements  and the
Notes thereto and in conjunction with  "Management's  Discussion and Analysis of
Financial  Condition and Results of  Operations"  of BBMC included  elsewhere in
this document.

<TABLE>
<CAPTION>
                                                                                              For the Period
                                                                                                From January 1,
                                                        Years ended December 31,                1996 to March 15,
                                            ------------------------------------------------- ---------------------
                                                 1993             1994            1995                1996
                                            ---------------- --------------- ---------------- ---------------------
                                                         (dollars in thousands)
<S>                                         <C>              <C>             <C>              <C>   

Consolidated Statements of  Operations
  Data:
Revenues:
Mortgage servicing fees                     $    111,822       $  140,491       $ 173,038        $    38,977
Gain (loss) on risk management contracts           6,688           (6,702)        108,702           (128,795)
Amortization of mortgage servicing rights       (112,492)         (66,801)       (108,013)           (7, 245) 
                                            ---------------- --------------- ---------------- ---------------------
     Net servicing  revenue                        6,018           66,988         173,727            (97,063)
Interest income                                   50,156           31,585          24,324              8,423
Interest expense                                 (44,199)         (33,952)        (27,128)           (10,089)
                                            ---------------- --------------- ---------------- ---------------------
     Net interest revenue                          5,957           (2,367)         (2,804)            (1,666)
Net mortgage origination revenue (expense)         6,173            4,983           3,417              7,638
Gain on sales of servicing rights                    651           10,862          10,230               --
Other income                                          50              147             511                253
                                            ---------------- --------------- ---------------- ---------------------
          Total revenues                          18,849           80,613         185,081            (90,838)
Expenses:
Salaries and employee benefits                    33,096           40,370          45,381             10,287
Occupancy and equipment                            7,966            9,012          10,009              2,041
Servicing losses on investor-owned loans           2,770            7,177           9,981              5,560
Real estate acquired                               1,600              253           1,054                291
Other  expenses                                   22,058           19,326          21,896              7,377
                                            ---------------- --------------- ---------------- ---------------------
          Total expenses                          67,490           76,138          88,321             25,556
                                            
Income (loss) before income taxes and
  cumulative effects of changes in                                                         
  accounting  principles                    $    (48,641)    $      4,475     $    96,760      $    (116,394)
                                            ================ =============== ================= ====================
                                                                                              
Net income (loss)                           $    (85,185)    $      5,405     $    58,826      $     (73,861)                   
                                            ================ =============== ================ =====================
Selected Balance Sheet Data (at Period
  end):
Mortgage loans held for sale                $       607,506  $    271,215     $   388,436      $     628,504
Mortgage servicing rights                           281,727       431,148         551,338            542,862
Total assets                                      1,193,583     1,006,887       1,254,303          1,520,357
Note payable to Bank of Boston                    1,019,011       779,021         966,000          1,256,000
Total Liabilities                                 1,071,223       879,122       1,067,712          1,407,627
Total stockholders' equity                          122,360       127,765         186,591            112,730
                                            

Selected Operating Data
Volume of loans originated and acquired     $    13,682,761    $4,473,000      $9,567,521        $ 4,187,603(a)
Loan servicing portfolio (at period end)         27,999,100    37,971,200      41,555,354         44,158,163(a)
Loan servicing portfolio (average)               25,852,400    33,178,600      39,283,700         43,158,072(a)
Weighted average interest rate (at period
  end)                                              8.07%         7.91%           7.97%            7.90%(a)
Weighted average servicing fee (average
  for period)                                      0.372%        0.389%          0.383%           0.380%(a)
-------------------------
(a)  Period information is for the period January 1, 1996 to March 31, 1996 and 
period end information is at March 31, 1996.

</TABLE>


<PAGE>


  ITEM 7.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
  RESULTS OF OPERATIONS  BANCBOSTON MORTGAGE  CORPORATION--FOR THE
  PERIODS  JANUARY  1, 1996 TO MARCH 15,  1996 AND  JANUARY 1, 1995 TO MARCH 31,
  1995 AND FOR THE YEAR ENDED DECEMBER 31, 1996

General

         Prior to March 15, 1996, BBMC was a wholly-owned  subsidiary of Bank of
Boston, a subsidiary of Bank of Boston Corporation  ("BKBC"). On March 15, 1996,
BBMC was acquired by HomeSide.  The interim  financial  statements  of BBMC have
been prepared for the period  January 1, 1996 to March 15, 1996 to coincide with
the  closing  of  the  BBMC  Acquisition.  Results  of  operations  for  periods
subsequent  to March  15,  1996 are  included  in the  financial  statements  of
HomeSide.  Results of operations  for the three months ended March 31, 1995 have
been presented for comparative purposes.  Unless otherwise noted,  references to
the first quarter 1996 pertain to the period  January 1, 1996 to March 15, 1996.
BBMC reported earnings on a calendar year basis.

         BBMC  operates as a  full-service  mortgage  banking  firm  emphasizing
wholesale  mortgage  originations  and low cost  mortgage  servicing.  Servicing
activities represent BBMC's primary revenue source. BBMC also generates revenue,
to a lesser extent,  from mortgage loan  origination  fees. BBMC incurs expenses
for amortization of mortgage  servicing  rights,  interest on its line of credit
and general corporate activities.

         On June 1, 1995,  BBMC  purchased  certain  assets and assumed  certain
liabilities  of  Bell  Mortgage  Company  ("Bell  Mortgage"),  a  privately-held
mortgage origination company located in Minneapolis,  Minnesota. The acquisition
of Bell  Mortgage was  accounted  for under the purchase  method of  accounting.
Results of  operations  of Bell  Mortgage are included in the 1995  consolidated
financial  statements  from  the  date of  acquisition.  See Note 16 of Notes to
Consolidated Financial Statements of BancBoston Mortgage Corporation for further
discussion.

Results of Operations

Summary
         BBMC  reported net income of $58.8  million in 1995 and $5.4 million in
1994.  Net income in 1994 included an after tax positive  effect of $3.5 million
from a change in the accounting for mortgage servicing fee income.  Prior to the
effect of such  adjustment,  BBMC had  income of $58.8  million in 1995 and $2.0
million in 1994. See Note 2 of Notes to  Consolidated  Financial  Statements for
further discussion of BBMC's accounting changes.
         The  increase in net income in 1995 as  compared to 1994 was  primarily
due to factors  that  resulted  from a decrease in interest  rates  coupled with
growth in  BBMC's  servicing  portfolio.  The lower  interest  rate  environment
resulted  in a gain  related to BBMC's  risk  management  activities  in 1995 as
compared  to a loss in 1994.  BBMC  also  benefited  from a 9%  increase  in the
balance of its  residential  servicing  portfolio from $38.0 billion at December
31, 1994 to $41.6  billion at December 31, 1995.  The increases  were  partially
offset,  however, by higher mortgage servicing rights amortization  charges as a
result of larger mortgage  servicing volumes and higher  prepayment  activity in
1995.

         Long-term  interest  rates  declined  through  mid-February  1996,  the
continuation  of a trend which began in 1995. This decline led to an increase in
loan  production  to $4.2  billion  during  the first  quarter of 1996 from $1.2
billion  during the first  quarter  of 1995,  and  resulted  in growth in BBMC's
mortgage servicing portfolio, which increased from $41.6 billion at December 31,
1995 to  $44.2  billion  at March  31,  1996.  Beginning  in late  February  and
continuing through March 1996, long-term interest rates increased and negatively
affected BBMC's results of operations for the first quarter. BBMC reported a net
loss of $73.9 million  during the first quarter of 1996,  compared to net income
of $3.4  million in the first  quarter of 1995.  The  decrease in net income was
primarily due to losses of $128.8  million on BBMC's risk  management  contracts
during the first quarter of 1996, a result of increasing  interest rates in late
February and March 1996.

Net Servicing Revenue
         Net servicing  revenue  increased from $67.0 million to $173.7 million,
an  increase  of $106.7  million or 159.3%,  from 1994 to 1995.  This growth was
comprised of a $115.4 million increase in gain on risk management  contracts and
a $32.5 million increase in mortgage  servicing fees,  offset by a $41.2 million
increase  in  amortization  of  mortgage  servicing  rights.  The  gain  on risk
management  contracts resulted primarily from a decline in interest rates in the
fourth quarter of 1995 and was substantially offset by a related decrease in the
economic value of the servicing  portfolio,  which was not reflected in earnings
for the  period.  The cost of  acquiring  the right to  service  mortgage  loans
originated  by others is  capitalized  and amortized as a reduction of servicing
fee revenue  over the  estimated  servicing  period.  The  increases in mortgage
servicing fees and amortization of mortgage  servicing rights were primarily due
to growth in BBMC's average servicing  portfolio during 1995.  Average servicing
fees,  excluding  ancillary  income,  decreased  slightly from 0.389% in 1994 to
0.383% in 1995.

         At December  31,  1995,  BBMC  serviced  approximately  510,000  loans,
including loans  purchased not yet on BBMC's  servicing  system,  with an unpaid
principal  balance ("UPB") of $41.6 billion,  compared to approximately  484,000
loans with UPB of $38.0  billion at  December  31,  1994,  an  increase  of $3.6
billion,  or 9.5%. The average  servicing volume increased from $33.2 billion in
1994 to $39.3 billion in 1995,  an increase of $6.1 billion or 18.4%.  Growth in
BBMC's servicing portfolio was primarily generated by wholesale loan production,
which includes correspondent,  co-issue and broker channels. BBMC also purchased
servicing rights in bulk from other mortgage servicing entities.  Bulk purchases
totalled $5.5 billion and $0.7 billion in 1994 and 1995, respectively.

         In addition to growth in the servicing  portfolio,  an increase in late
fee income  contributed to the rise in mortgage  servicing  revenue during 1995.
Late fees are  included  as a  component  of mortgage  servicing  revenue.  BBMC
instituted  efforts to improve the collection of ancillary fee income during the
year which  contributed to an increase in late fee charges  collected from $10.5
million in 1994 to $14.4  million in 1995.  Late fee income also  increased as a
result of increases in BBMC's  servicing  portfolio  size and average loan size.
The higher average loan size  translates into higher loan payments on which late
fees are  based.  There was  little or no change in the rate on which  late fees
were computed during 1995 as compared to 1994.

         During the first quarter of 1996,  BBMC had net  servicing  revenues of
$(97.1) million, as compared to servicing revenues of $24.2 million in the first
quarter of 1995. The net negative amount  recorded as servicing  revenue in 1996
was primarily due to losses on BBMC's risk management  contracts.  Excluding the
effect of risk management contracts,  net servicing revenue increased from $20.6
million in the first quarter 1995 to $31.7 million in the first quarter 1996. In
the first quarter of 1995, BBMC recorded gains on risk  management  contracts of
$3.6 million.  Due to an increase in long-term  interest  rates in late February
and early March 1996, BBMC  experienced  losses on risk management  contracts of
$128.8  million  during the  quarter.  Changes  in the value of BBMC's  mortgage
servicing  rights  substantially  offset the loss on risk management  contracts.
However,  such  changes  in  value  were not  fully  recorded  in the  financial
statements  of BBMC  because  servicing  rights  were  recorded  at the lower of
amortized cost or market value.

         The  decrease  in net  servicing  revenue  was  partially  offset  by a
reduction in amortization of mortgage servicing rights from $23.1 million in the
first  quarter  of 1995 to $7.2  million  in the  first  quarter  of  1996.  The
reduction in  amortization  was due to the increase in long-term  interest rates
noted above,  which had a favorable  effect on the prepayment  estimates used in
calculating  BBMC's periodic  amortization  expense.  Because mortgage servicing
rights are  amortized  over the  expected  period of  service  fee  revenues,  a
reduction  in  mortgage  prepayment  activity  typically  results  in  a  longer
estimated  life  of  the  mortgage  servicing  asset  and,  accordingly,   lower
amortization  expense.  Amortization charges are highly dependent upon the level
of prepayments during the period and changes in prepayment  expectations,  which
are  significantly  influenced by the direction and level of long-term  interest
rate movements.

Risk Management Activities
         BBMC had a risk  management  program  designed to protect the  economic
value  of its  mortgage  servicing  portfolio  from  declines  in  value  due to
increases in estimated  prepayment  speeds,  which are  primarily  influenced by
declines in interest rates. When loans prepay faster than anticipated,  the cash
flow BBMC would expect to receive from servicing such loans was reduced. Because
the value of the mortgage  servicing rights is based on the present value of the
net cash  flows to be  received  over the  life of the  loan,  the  value of the
servicing portfolio declines as prepayments increase.

         Prior to 1994, risk management of the mortgage  servicing  rights value
was  principally  conducted  by BKB as part of a  consolidated  risk  management
program. Through the third quarter of 1995, BKB continued to manage a portion of
the risk associated with the servicing portfolio.

         To  implement  its risk  management  objectives,  BBMC  purchased  risk
management  contracts  that  increased in value when  long-term  interest  rates
declined,  or when prepayment  speeds increased above a specified level.  During
1994 and 1995, BBMC purchased  options on long-term  United States Treasury bond
futures to protect a  significant  portion of the market  value of its  mortgage
servicing portfolio from a decline in value. The value of
BBMC's risk management position was designed to perform inversely with changesin
value of mortgage servicing rights due to the effects of the changes in interest
rates.  The options were marked to market at each reporting date with changes in
value reported in revenues.  BBMC recognized a gain on risk management contracts
of $108.7 million in 1995. While the value of the servicing  portfolio declined,
the full effect of such decline was not  reflected in BBMC's  financial  results
because the value of the associated  service rights exceeded its book value. Due
to a rising  interest  rate  environment,  BBMC  experienced a $6.7 million loss
related to its risk management contracts in 1994.

         BBMC recognized a gain on risk  management  contracts of $108.7 million
in 1995,  of which $86.5  million was  unrealized.  During the first  quarter of
1996,  long-term  interest rates increased,  reversing the declining trend which
prevailed  during  1995.  As a result,  through  the date of the sale of BBMC in
March  1996,  BBMC  recognized  a loss on risk  management  contracts  of $128.8
million,  which  included  a  reversal  of such $86.5  million  unrealized  gain
recognized  during  1995.  In 1995 and  1996,  changes  in the  value of  BBMC's
mortgage  servicing  rights  substantially  offset the gain and loss on the risk
management contracts.  However, such changes in value were not fully recorded in
the financial  statements of BBMC because  servicing  rights are recorded at the
lower of amortized cost or market value.

Net Interest Revenue/Expense
         Net interest expense was $2.4 million in 1994 and $2.8 million in 1995.
Interest income decreased $7.3 million in 1995 as compared with 1994,  primarily
as a result of a decrease in the average  rate  earned on  warehouse  loans from
9.52% in 1994 to 7.78% in 1995.  The  reduction in interest  income on warehouse
loans was  partially  offset by a $2.1  million  increase in interest  earned on
mortgage loans held for investment.  Interest expense  decreased $6.8 million in
1995 as compared  with 1994 as a result of a decline in the average rate paid on
BBMC's borrowings from 7.14% in 1994 to 6.89% in 1995.

         Net interest  expense  decreased from $2.0 million in the first quarter
of 1995 to $1.7 million in the first quarter of 1996.  Interest income increased
in the first  quarter of 1996 as  compared  with the first  quarter of 1995 as a
result of an  increase in the  average  balance of mortgage  loans held for sale
from $124.6  million  during the first quarter of 1995 to $535.6  million during
the first quarter of 1996.  Increased loan production  volumes,  $4.2 billion in
the first quarter of 1996 compared to $1.2 billion in the first quarter of 1995,
created  the  increased  average  balance of  mortgage  loans held for sale.  In
addition, an increase in long-term interest rates during February and March 1996
improved  the  yield on its  mortgage  loans  held for  sale.  Interest  expense
incurred on BBMC's credit  facility  with Bank of Boston  increased in the first
quarter of 1996 as  compared  with the first  quarter of 1995 as a result of the
increase  in the  average  balance of BBMC's  loans held for sale.  In the first
quarter of 1996 as well as the first quarter of 1995,  interest  earned on loans
held for sale was less than interest expense on borrowings, thereby creating net
interest  expense for BBMC; but the increase in long-term  interest rates during
February and March 1996, without a corresponding increase in short-term rates on
BBMC's credit  facility,  resulted in a decrease in net interest  expense in the
first quarter of 1996 as compared with the first quarter of 1995.

Net Mortgage Origination Revenue
         Net mortgage origination revenue decreased from $5.0 million in 1994 to
$3.4 million in 1995.  Lower  production  volumes and gains on sales of mortgage
loans were the primary reasons for this decline.

         Net  mortgage  origination  revenue  (expense)  increased  from  $(1.1)
million  in the first  quarter of 1995 to $7.6  million in the first  quarter of
1996. The increase in net  origination  revenue during the first quarter of 1996
was  partially  due to the  adoption of SFAS No. 122,  "Accounting  for Mortgage
Servicing  Rights" as of January 1, 1996, which had the effect of increasing net
mortgage  origination revenue by $3.1 million. In previous periods,  the cost of
mortgage  servicing rights for originated loans was included in the basis of the
related  loan.  SFAS No. 122  requires  that the cost of an  originated  loan be
allocated between the loan sold and the servicing rights retained. Consequently,
the cost basis of loans  originated  in 1996 was lower than the basis that would
have  been  recorded  prior to the  adoption  of SFAS No.  122 and  resulted  in
additional  gain  on the  sale  of  loans.  The  remaining  increase  was due to
increases in origination income resulting from higher loan production volumes.

Gain on Sales of Servicing Rights
         Gain on sales of servicing  rights decreased from $10.9 million in 1994
to $10.2  million in 1995.  Gains on sales of  servicing  rights  represent  the
excess of proceeds  from the sale over the cost basis of the assets.  Gains tend
to be higher on sales of servicing  rights with little or no cost basis,  as was
the case for  BBMC's  sales in 1994.  The  servicing  rights  sold  during  1994
consisted  primarily of retail  originated loans and consequently had relatively
low  cost  basis.  The  servicing  rights  sales in 1995  consisted  of a higher
percentage  of servicing on purchased  loans,  which had a higher basis  because
servicing rights on purchased loans are capitalized.

         Gain on sales of servicing  rights during the first quarter of 1995 was
$4.3 million.  There were no sales of servicing  rights during the first quarter
of 1996.

Salaries and Employee Benefits
         Salaries and employee benefits  increased from $40.4 million in 1994 to
$45.4 million in 1995, or 12.4%.  Including  capitalized direct loan origination
costs (principally salary and employee benefits), salaries and employee benefits
increased  from $51.5 million to $56.5  million from 1994 to 1995, or 9.7%.  The
increase  included  a $3.9  million  increase  in  salaries  and a $1.1  million
increase in  benefits  and were the result of a larger  staff  needed to support
BBMC's growing servicing portfolio.  The increases in salaries and benefits were
partially  offset by the outsourcing of certain default  administration  and tax
payment  administration   activities  during  1995.  BBMC  determined  that  the
performance of these services on a contracted basis was more cost effective than
maintaining  the  personnel  and  infrastructure  necessary  to carry  out these
functions in-house.  Salaries and employee benefits decreased from $11.7 million
in the first  quarter of 1995 to $10.3  million in the first quarter of 1996, or
12.1%. If capitalized  direct loan  origination  costs  (principally  salary and
employee  benefits) were included,  the salaries and employee benefits increased
from $12.8  million in the first  quarter of 1995 to $13.5  million in the first
quarter of 1996,  or 5.8%.  The increase  reflected  general  salary and benefit
increases as compared to the first quarter of 1995 and a slight  increase in the
number of full time  equivalent  employees  from  1,117 as of March 31,  1995 to
approximately 1,120 as of March 15, 1996.

Occupancy and Equipment Expense
         Occupancy and equipment  expense increased from $9.0 million in 1994 to
$10.0  million in 1995,  or 11.1%,  due  primarily  to the  acquisition  of Bell
Mortgage and the larger servicing  operations.  Occupancy and equipment  expense
decreased $0.4 million,  from $2.4 million for the first quarter of 1995 to $2.0
million for the first  quarter of 1996.  The  decrease  was  primarily  due to a
decline in equipment  repair and  maintenance  expenses in the first  quarter of
1996 as compared to the first quarter of 1995.

Servicing Losses on Investor-Owned Loans
         Servicing   losses  on   investor-owned   loans   primarily   represent
anticipated  losses  attributable  to servicing FHA and VA loans for  investors.
These amounts  include  actual losses for final  disposition  of loans,  accrued
interest for which payment has been denied and  estimates  for potential  losses
based on experience as a servicer of government loans.
Servicing losses on investor-owned loans totaled $7.2 million and $10.0 million 
for 1994 and 1995, respectively,  primarily representing losses on VA loans. In 
1994 and 1995,  BBMC  recorded  provisions  in excess of actual  foreclosure
losses.  Management  believes  that BBMC had an  adequate  level of reserve
based on its servicing  volume,  portfolio  composition,  credit quality and 
historical  loss rates,  as well as estimated  future  losses.  For an analysis 
of changes in the reserve for estimated  servicing losses on investor-owned 
loans for each of the two years ended December 31, 1995, see Note 4 of Notes to
Consolidated Financial Statements of BancBoston Mortgage Corporation.

         Servicing losses on investor-owned loans increased from $0.7 million in
the first  quarter  of 1995 to $5.6  million in the first  quarter of 1996.  The
increase was  primarily  due to a change in the VA's method of  calculating  the
amount it will  guarantee  on any  loan,  coupled  with  planned  military  base
closings in California  that may have an impact on the performance of certain VA
loans  serviced by BBMC.  The  increase  in the VA  marketing  rate  effectively
represents a potential increase in BBMC's exposure on properties conveyed to the
VA. BBMC  analyzed  the effect of these  factors on the level of its reserve for
estimated  servicing losses and recorded a higher provision in the first quarter
of 1996 in order to bring the reserve to an acceptable level.

Real Estate Owned Expense
         Real estate owned expense  increased  from $0.3 million in 1994 to $1.1
million  in  1995.  Real  estate  owned  expense  is  incurred  from  foreclosed
properties  on which BBMC has taken title and includes  declines in the value of
the  property,  as well as the  incurrence of property  holding and  maintenance
costs.  The change in real estate owned  expense in 1995 was due primarily to an
increase in the average  balance of real estate  owned from $1.4 million in 1994
to $1.6 million in 1995. As part of the BBMC Acquisition,  BKB retained all real
estate owned.

         Real estate  owned  expense  increased  from $0.2  million in the first
quarter of 1995 to $0.3 million in the first quarter of 1996. The change was due
to an  increase in the average  balance of real estate  owned from $1.2  million
during the first  quarter of 1995 to $2.6  million  during the first  quarter of
1996.

Other Expenses
         Other expenses increased from $19.3 million to $21.9 million, or 13.3%,
from 1994 to 1995.  The increase in other  expenses  from 1994 to 1995  included
increases of $1.1 million in advertising and public  relations,  $1.0 million in
contracted  services,  $0.9  million  in  software  costs  and $0.6  million  in
communication expenses.  These increases were partially offset by a $0.7 million
reduction  in  loan-related  expenses.  The increase in  advertising  and public
relations  expense was due to a major  advertising  campaign  carried out during
1995 in addition to normal advertising  activity.  Contracted services increased
due to an increase in bank service  charges for loan payment  processing,  which
also increased with the larger BBMC servicing  volume.  Software costs increased
as BBMC  continued  to expand and  redesign  its  computer  platform in order to
deliver more  efficient  and reliable  service.  The increase in  communications
expense was due to higher telephone postage and delivery expenses resulting from
higher loan production levels.

         Other  expense  increased  $2.7 million,  from $4.7 million  during the
first quarter of 1995 to $7.4 million in the first quarter of 1996. The increase
was the result of a $0.5 million increase in  communications  expense and a $0.4
million  increase in loan  expense,  coupled with a decrease in expense  credits
resulting from a decline in early pool buyout activity in 1996.  These increases
are reflective of the increase in BBMC's servicing  portfolio,  $44.2 billion at
March 31, 1996 as compared to $37.8  billion at March 31, 1995,  and higher loan
production  levels in the first quarter of 1996 as compared to the first quarter
of 1995.

Provision for (Benefit from) Income Taxes
         BBMC  recorded a provision  for income  taxes of $2.5 million and $37.9
million for 1994 and 1995, respectively. The effective income tax rate was 39.2%
and 56.4% for 1995 and 1994,  respectively.  The difference  between these rates
and the statutory  federal tax rate was primarily due to state income taxes, net
of federal tax benefit.  The changes in the  provisions  for, and benefit  from,
income taxes were the result of variances in BBMC's  pre-tax income and loss for
each of the years presented.  For additional information regarding income taxes,
refer to Note 10 of Notes to  Consolidated  Financial  Statements  of BancBoston
Mortgage Corporation.

         BBMC's  benefit  from income taxes was $42.5  million  during the first
quarter of 1996 as compared to a provision  for income  taxes of $2.3 million in
the first  quarter of 1995.  The change in BBMC's  income tax  provision was the
result of a decline  in  pre-tax  income  during  the first  quarter  of 1996 as
compared to the first quarter of 1995,  and a decrease in the effective tax rate
from 39.9% during the first quarter of 1995 to 36.5% during the first quarter of
1996.

Accounting Changes
         On January 1, 1994,  BBMC changed its method of accounting for mortgage
servicing fees from the cash basis to the accrual basis.  See Note 2 of Notes to
Consolidated Financial Statements of BancBoston Mortgage Corporation for further
discussion  of  BBMC's   accounting   changes.   See   "-Liquidity  and  Capital
Resources-New  Accounting  Standard"  for a discussion of Statement of Financial
Accounting  Standards No. 122, "Accounting for Mortgage Servicing Rights," which
was adopted by BBMC in 1996.

Liquidity and Capital Resources

Overview
         BBMC's primary  sources of cash were revenues earned from the servicing
of mortgage loans,  sales of mortgage loans and servicing  rights and borrowings
under BBMC's warehouse line of credit.  BBMC's primary uses of cash were to fund
loan  originations  and  purchases,  purchase bulk servicing  rights,  repay its
warehouse  line of credit and pay  general  corporate  expenses.  BBMC had a net
increase (decrease) in cash of ($4.8 million) and $0.3 million in 1995 and 1994,
respectively,  and ($4.4 million) and $22.4 million in the first quarter of 1995
and the first quarter of 1996, respectively.

         The net  decrease  in cash in 1995  compared  with  1994 was  primarily
attributable  to the use of cash to meet growth in loan  origination  volume and
purchases of mortgage servicing rights,  coupled with a reduction in proceeds on
sales  of  mortgage  loans.  Declining  interest  rates in 1995  increased  loan
production across the industry. Cash inflows in 1995 were positively affected by
an increase in the proceeds from risk management  contracts,  which increased in
value as a result of the decline in interest rates.

         Prior to the BBMC Acquisition, a line of credit with Bank of Boston was
used to fund the origination and purchase of mortgage loans until the loans were
sold to investors.  The proceeds of such sales were  typically  used to pay down
the related warehouse debt, with any excess retained by BBMC. Maximum borrowings
under the line of credit were $1.25  billion.  The higher level of borrowings in
1995 was indicative of higher loan  production and purchase  volumes during that
year as compared to 1994.

         Net cash  provided by operating  activities  and  investing  activities
decreased  in the first  quarter of 1996 as compared  with the first  quarter of
1995, principally as a result of an increase in net cash used in the origination
and  purchase  of loans held for sale and in the  purchase  and  origination  of
mortgage servicing rights and the purchase of risk management  contracts.  These
increases  were the result of higher loan  production  levels and an  increasing
loan servicing portfolio.  As a result of increased loan production and held for
sale  balances in the first  quarter of 1996 as compared to the first quarter of
1995,  BBMC had net borrowings of $290.0 million on its line of credit with Bank
of Boston  during the first  quarter of 1996,  as opposed to net  repayments  of
$130.5 million on the line of credit during the first quarter of 1995.

Impact of Inflation
         Inflation  affects BBMC primarily  through its effect on interest rates
because  interest rates normally  increase  during periods of high inflation and
decrease during periods of low inflation.

New Accounting Standard
         In May  1995,  FASB  issued  SFAS No.  122,  "Accounting  for  Mortgage
Servicing  Rights." This Statement,  among other  provisions,  requires that the
value of mortgage  servicing rights associated with mortgage loans originated by
an entity be  capitalized  as assets,  which  results in an increase in mortgage
origination  revenues.  The value of  originated  mortgage  servicing  rights is
determined by allocating the total costs of the mortgage loans between the loans
and the mortgage servicing rights based on their relative fair values. Also, the
Statement requires that capitalized servicing rights be evaluated for impairment
based  on the fair  value  of these  rights.  For the  purposes  of  determining
impairment, mortgage servicing rights that are capitalized after the adoption of
this  Statement  are  stratified  based on one or more of the  predominant  risk
characteristics  of the  underlying  loans.  Impairment is recognized  through a
valuation  allowance  for each  impaired  stratum.  BBMC adopted this  Statement
effective January 1, 1996.



<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


The Board of Directors
BancBoston Mortgage Corporation

We have  audited  the  accompanying  consolidated  balance  sheet of  BancBoston
Mortgage  Corporation  as of December  31,  1995,  and the related  consolidated
statements of operations and retained  earnings and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  BancBoston
Mortgage  Corporation as of December 31, 1995, and the  consolidated  results of
their  operations  and their cash flows for the year then ended,  in  conformity
with generally accepted accounting principles.


Coopers & Lybrand L.L.P.



Jacksonville, Florida

January  18,  1996,  except  for the  second  paragraph  of Note 1 and the fifth
paragraph of Note 2, as to which the date is March 4, 1996


<PAGE>


REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors of
BancBoston Mortgage Corporation

We have  audited  the  accompanying  consolidated  balance  sheet of  BancBoston
Mortgage Corporation and subsidiaries (see Note 1) as of March 15, 1996, and the
related  consolidated  statements of operations  and retained  earnings and cash
flows for the period from  January 1, 1996 to March 15,  1996.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  BancBoston
Mortgage  Corporation and subsidiaries as of March 15, 1996 and the consolidated
results of their  operations and their cash flows for the period from January 1,
1996 to March  15,  1996,  in  conformity  with  generally  accepted  accounting
principles.


Arthur Andersen LLP


Jacksonville, Florida
March 14, 1997



<PAGE>


<TABLE>



                                                    BANCBOSTON MORTGAGE CORPORATION
           (The Predecessor, acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending, Inc. -- Note 1)

                                                      CONSOLIDATED BALANCE SHEETS

<CAPTION>

                                                                                       At December 31, 1995     At March 15, 1996
     (in thousands)
                                                                                      ----------------------- ----------------------
<S>                                                                                   <C>                     <C>   


                                                   ASSETS
     Cash.................................................                             $           830           $       23,216
     Mortgage loans
       Held for sale, net.................................                                     388,436                  628,504
                                                                                      
       Held for investment................................                                      33,183                   65,068
     Purchased mortgage servicing rights, net.............                                     533,891                  522,469
     Excess mortgage servicing receivable, net............                                      17,447                   20,393
     Accounts receivable..................................                                      82,473                   65,599
     Accounts receivable from Bank of Boston and affiliates                                        343                     --
     Pool loan purchases..................................                                      65,272                   56,261
     Mortgage claims receivable, net......................                                      45,422                   17,563
     Accrued income tax receivable........................                                        --                     40,867
     Deferred tax asset...................................                                      40,724                   36,390
     Real estate acquired.................................                                       2,627                    2,797
     Premises and equipment, net..........................                                      25,386                   25,071
     Other assets.........................................                                      18,269                   16,159
                                                                                      ======================= ======================
               Total Assets...............................                                  $1,254,303               $1,520,357
                                                                                      ======================= ======================

                                     LIABILITIES & STOCKHOLDER'S EQUITY

     Note payable to Bank of Boston.......................                                    $966,000               $1,256,000
     Accounts payable and accrued liabilities.............                                      51,683                  137,837
     Accrued income taxes.................................                                      36,213                    --
     Long-term debt.......................................                                      13,816                   13,790
                                                                                      ----------------------- ----------------------
               Total liabilities..........................                                   1,067,712                1,407,627
                                                                                      ----------------------- ----------------------
     Commitments  and   Contingencies   (Notes  9,  11,  12,  13,  15,  and  16)
     Stockholder's Equity:
       Common stock, $1 par value per share: 10,000 shares
          authorized; 100 shares issued and outstanding...                                        --                      --
       Additional paid-in capital.........................                                     156,666                  156,666
       Retained earnings (accumulated deficit)............                                      29,925                  (43,936)
                                                                                                              
                                                                                      ----------------------- ----------------------
               Total stockholder's equity.................                                     186,591                  112,730
                                                                                      ======================= ======================
               Total Liabilities and Stockholder's Equity.                                  $1,254,303               $1,520,357
                                                                                      ======================= ======================
</TABLE>

The  accompanying  notes are an  integral  part of these financial statements.


<PAGE>
<TABLE>



                                                    BANCBOSTON MORTGAGE CORPORATION
           (The Predecessor, acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending, Inc. -- Note 1)

                                      CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<CAPTION>
                                                                                                       For the Period
                                                                                 Year Ended           January 1, 1996
                                                                                December 31,              through
                                                                                    1995               March 15, 1996
                                                                                    ----               --------------

                                                                                             (In thousands)
<S>                                                                         <C>                   <C>    
      Revenues:
        Mortgage servicing fees......................                          $ 173,038              $ 38,977
        Gain (loss) on risk management contracts.....                            108,702              (128,795)
        Amortization of mortgage servicing rights....                           (108,013)               (7,245)
                                                                            --------------------- -------------------------
           Net servicing revenues....................                            173,727               (97,063)
                                                                            --------------------- -------------------------
        Interest income..............................                             24,324                 8,423
        Interest expense.............................                            (27,128)              (10,089)
                                                                            --------------------- -------------------------
           Net interest revenue (expense)............                             (2,804)               (1,666)
                                                                            --------------------- -------------------------
        Net mortgage origination revenue.............                              3,417                 7,638
        Gain on sales of servicing rights............                             10,230                   --
        Other income.................................                                511                   253
                                                                            --------------------- -------------------------
                Total Revenues.......................                            185,081               (90,838)
                                                                            --------------------- -------------------------
      Expenses:
        Salaries and employee benefits...............                             45,381                10,287
        Occupancy and equipment......................                             10,009                 2,041
        Servicing losses on investor-owned loans.....                              9,981                 5,560
        Real estate acquired.........................                              1,054                   291
        Other expenses...............................                             21,896                 7,377
                                                                            --------------------- -------------------------
                Total Expenses.......................                             88,321                25,556
                                                                            --------------------- -------------------------
      Income (loss) before income taxes and cumulative
        effect of change in accounting principle.....                             96,760              (116,394)
      Income tax expense (benefit) before cumulative
        effect of change in accounting principle:
        Current......................................                             47,646               (46,867)
        Deferred.....................................                             (9,712)                4,334
                                                                            --------------------- -------------------------
                Total Income Tax Expense (Benefit)...                             37,934               (42,533)
                                                                            --------------------- -------------------------
                Net Income (Loss)....................                             58,826               (73,861)
      Retained Earnings (Accumulated Deficit), January 1                         (28,901)               29,925
                                                                            ===================== =========================
      Retained Earnings (Accumulated Deficit), end of
        period.......................................                            $29,925             $ (43,936)
                                                                            ===================== =========================

The  accompanying  notes are an  integral  part of these financial statements.

</TABLE>

<PAGE>



<TABLE>

                                                    BANCBOSTON MORTGAGE CORPORATION
           (The Predecessor, acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending, Inc. -- Note 1)

                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                                    For the Period
                                                                    Year Ended      January 1, 1996
                                                                   December 31,         through
                                                                       1995         March 15, 1996
                                                                             (In thousands)
<S>                                                                <C>              <C>
                  Cash flows provided by (used in) operating activities:
                    Net income (loss)...........................    $    58,826      $   (73,861)
                    Adjustments to reconcile net income (loss)
                  to cash
                       provided by (used in) operations:
                       Cumulative effect of change in
                  accounting for                                             --               --
                         mortgage servicing fees, net of tax....
                       Amortization.............................        108,404            7,327
                       Depreciation.............................          3,133              719
                       Servicing losses on investor-owned loans.          9,981            5,560
                       Deferred tax (benefit) expense...........         (9,712)           4,334
                       Gain on sale of mortgage servicing rights        (10,230)              --
                       (Gain) loss on risk management contracts.       (108,702)         128,795
                       Write down of real estate acquired.......          1,699            1,067
                       Capitalized excess mortgage servicing
                         receivable.............................         (7,513)          (3,967)
                       Mortgage loans originated and purchased
                  for                                                (4,816,964)      (2,027,741)
                         sale...................................
                       Proceeds and principal repayments of
                  mortgage                                            4,694,909        1,787,673
                         loans held for sale....................
                       Change in accounts receivable............        (16,053)          17,217
                       Change in pool loan purchases............         12,205            9,011
                       Change in mortgage claims receivable.....         (5,383)          25,863
                       Change in accrued income taxes...........         31,388          (77,080)
                       Change in other assets and accounts
                  payable and                                           (11,899)          82,622
                         accrued liabilities....................
                                                                  ---------------- ----------------
                       Net cash provided by (used in) operating
                         activities.............................        (65,911)        (112,461)
                                                                  ---------------- ----------------

                  Cash flows provided by (used in) investing
                    activities:
                    Principal payments on (net origination) of
                  mortgage
                       loans                                             12,966          (31,885)
                       held for investment......................
                    Purchase of premises and equipment..........         (3,141)            (404)
                    Acquisition of Bell Mortgage................           (891)              --
                    Purchase of mortgage servicing rights.......       (193,013)         (60,171)
                    Proceeds from (amounts paid for) risk
                  management                                             27,120          (63,426)
                       contracts, net...........................
                    Proceeds from real estate acquired..........          2,610              759
                    Proceeds from sales of mortgage servicing            28,649               --
                  rights........................................
                                                                  ---------------- ----------------
                       Net cash used in investing activities....       (125,700)        (155,127)
                                                                  ---------------- ----------------
                  Cash flows provided by (used in) financing activities:
                    Borrowings from Bank of Boston..............      3,669,085        1,692,500
                    Repayments to Bank of Boston................     (3,482,106)      (1,402,500)
                    Repayment of long-term debt.................           (191)             (26)
                                                                  ---------------- ----------------
                       Net cash provided by (used in) financing
                         activities.............................        186,788          289,974
                                                                  ---------------- ----------------
                  Net increase (decrease) in cash...............         (4,823)          22,386
                    Cash at January 1...........................          5,653              830
                                                                  ================ ================
                    Cash at end of period.......................    $       830      $    23,216
                                                                  ================ ================

                  Supplemental disclosures of cash flow information:
                    Cash paid during the year for:
                       Interest.................................    $    27,498      $     9,211
                       Income taxes.............................    $    16,258      $    30,213
                                                                  ================ ================

                  Supplemental schedule of non-cash investing
                    activities:
                    BBMC purchased bulk mortgage servicing
                  rights
                       during the years 1994 and 1995. In           $    23,022      $        --
                  conjunction
                       with purchases, accounts payable were
                  assumed.......................................
                                                                  ================ ================

</TABLE>




<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

         BancBoston  Mortgage  Corporation  ("BBMC"  or  the  "Company")  was  a
wholly-owned subsidiary of The First National Bank of Boston ("Bank of Boston"),
which was a wholly-owned  subsidiary of Bank of  BostonCorporation.  In December
1995, Bank of Boston  Corporation signed an agreement with Thomas H. Lee Company
and  Madison  Dearborn  Partners   ("Investors")  to  sell  BBMC,   creating  an
independent mortgage company.  Under the terms of the agreement,  Bank of Boston
received  cash and an equity  interest in the new  company,  HomeSide,  Inc. The
Investors
acquired majority interest in HomeSide, Inc. The transaction closed March 15, 
1996. Upon completion of the transaction, BBMC was renamed HomeSide Lending,
Inc. BBMC is the Predecessor company to both HomeSide, Inc. and HomeSide 
Lending, Inc.

         On March 4, 1996,  Barnett  Banks,  Inc.  ("Barnett")  entered  into an
agreement to sell  certain of its mortgage  banking  operations,  primarily  its
servicing  portfolio  and  proprietary  mortgage  banking  software  systems  to
HomeSide, Inc. Barnett received cash and an ownership interest in HomeSide, Inc.
The transaction closed May 31, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
         The consolidated financial statements include BBMC and its wholly-owned
subsidiaries. All material intercompany transactions have been eliminated. These
financial statements have been prepared using the carrying values of BBMC and do
not reflect the purchase of BBMC as discussed in Note 1.

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the  reported  amounts of assets and  liabilities,  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting   period.   Actual   results   could  differ  from  those   estimates.
Specifically,  management  adjusts the amount of amortization  recorded based on
the effect of anticipated changes in prepayment speeds.

Interest rate products
         BBMC  enters  into  financial   agreements   and  purchases   financial
instruments  as  part of its  interest  rate  risk  management  strategy.  These
agreements are not considered trading instruments and are primarily entered into
for purposes of managing the prepayment risk associated with mortgage  servicing
rights and interest  rate risk  relative to  commitments  to originate  mortgage
loans against market value  declines  resulting  from  fluctuations  in interest
rates.  These instruments and agreements are designated as a part of BBMC's risk
management strategy and are linked to the related assets being managed.

         BBMC acquires financial  instruments,  including  derivative  contracts
(risk  management  contracts),  to  partially  protect  the  value  of  mortgage
servicing rights from the effects of prepayment activity caused by interest rate
declines.  These  financial  instruments  increase  or  decrease  in value in an
inverse  relationship  to  changes in market  interest  rates.  Accordingly,  as
interest rates decline,  these financial instruments will increase in value, and
as interest rates increase,  these financial  instruments will decline in value.
The value of these financial instruments will fluctuate daily with interest rate
changes, and these fluctuations may be significant.  However, the decline in the
value of these  financial  instruments  is limited to the value  recorded in the
balance sheet.  These financial  instruments  primarily  include options on U.S.
treasury futures, forward contracts, and interest rate floors.

         As of March 15, 1996, due to rising interest rates, the risk management
contracts had declined in value by the carrying  amount  recorded on the balance
sheet at December 31, 1995 (see Note 14).

         The cost of option  contracts to manage  BBMC's fixed and variable rate
loan  origination  commitments are capitalized and amortized as an adjustment of
gain or loss  over  the  life of the  underlying  option  contract.  Unamortized
premiums are included in other assets on the balance  sheet.  At March 15, 1996,
BBMC had call options to purchase  mortgage-backed  securities with a total face
amount of $653.0 million. The unamortized premiums associated with these options
were $2.6 million at March 15, 1996. There were no put options outstanding as of
the balance sheet date.

         Short-term  option contracts that are used to manage interest rate risk
on BBMC's mortgage  servicing rights are  marked-to-market  with gains or losses
recognized in current income. The current market value of these option contracts
are included in the balance of capitalized  mortgage  servicing rights. At March
15,  1996,  the  current  market  value of these  option  contracts  included in
mortgage  servicing  rights was $20.2  million.  Unrealized  gains  (losses)  at
December 31, 1995 and March 15, 1996, included in the consolidated statements of
operations were $86.5 million and ($56.6) million, respectively.

Mortgage loans
         Mortgage loans held for sale are carried at the lower of aggregate cost
or fair value.  Fair value is based on the contract prices at which the mortgage
loans  will be sold or, if the loans are not  committed  for sale,  the  current
market price.  Loan origination fees and certain direct costs are deferred until
the related mortgage loans are sold.

         Mortgage  loans held for  investment are stated at the lower of cost or
fair value at the time the permanent investment  decisions are made.  Discounts,
if any, are amortized over the anticipated life of the investment.
         Loans are placed on nonaccrual status when any portion of the principal
or  interest is ninety days past due or earlier  when  concern  exists as to the
ultimate  collectibility  of  principal  or  interest.  When loans are placed on
nonaccrual status, the related interest  receivable is reversed against interest
income of the current period. Interest payments received on nonaccrual loans are
applied as a reduction of the  principal  balance when concern  exists as to the
ultimate  collection of principal;  otherwise,  such payments are  recognized as
interest  income.  Loans are removed from  nonaccrual  status when principal and
interest become current and they are estimated to be fully collectible.

Purchased and originated mortgage servicing rights
         Purchased  mortgage  servicing  rights  (PMSR)  represent  the  cost of
purchasing the right to service  mortgage loans  originated by others.  PMSR are
amortized as a reduction of servicing  fee income over the  estimated  servicing
period in  proportion  to the  estimated  future  net cash  flows from the loans
serviced.  Remaining  PMSR  asset  balances  are  evaluated  for  impairment  by
determining  their estimated  recoverable  amount through  applying the discount
rate in effect at the time the servicing  was purchased to the estimated  future
aggregate net cash flows from the  underlying  mortgages.  The carrying value is
written  down  for  any  impairment;   such  write-downs  are  included  in  the
amortization of mortgage servicing rights.

         On January 1, 1996,  BBMC adopted  Statement  of  Financial  Accounting
Standards (SFAS) No. 122 which, among other provisions,  requires that the value
of mortgage  servicing  rights  associated with mortgage loans  originated by an
entity  be  capitalized  as  assets.  The value of  BBMC's  originated  mortgage
servicing  rights  (OMSR) is  determined  by  allocating  the total costs of the
mortgage  loans  between the loans and the  mortgage  servicing  rights based on
their relative fair values. Previously, OMSRs were included with the cost of the
related loans and  considered in  determining  the gain or loss on sale when the
loans were sold.  Through March 15, 1996, BBMC capitalized $3.1 million of OMSR,
which had the effect of  increasing  net  mortgage  origination  revenue by $3.1
million for the period  January 1, 1996 to March 15, 1996 since a portion of the
basis of loans  originated  for sale was  allocated to OMSR.  Since SFAS No. 122
prohibits retroactive  application,  historical accounting results have not been
restated and,  accordingly,  the accounting results for the previous years ended
are not directly  comparable  with the period  January 1, 1996 through March 15,
1996.

         SFAS No. 122 also requires that capitalized  mortgage  servicing rights
be evaluated for  impairment  based on the fair value of these  rights.  For the
purposes  of  determining  impairment,  BBMC's  mortgage  servicing  rights  are
stratified  based on interest  rate and type of loan  (conventional/government).
Impairment,  if any,  is  recognized  through  a  valuation  allowance  for each
impaired  stratum.  BBMC did not record any  impairment  charges  related to its
mortgage  servicing right portfolio for the period January 1, 1996 through March
15, 1996.

Excess mortgage servicing receivable
         Excess  mortgage  servicing  receivable  (EMSR)  represents the present
value of servicing  fee income in excess of a normal  servicing  fee. When loans
are sold, the estimated  excess  servicing is recognized as income and amortized
over the  estimated  servicing  period in  proportion  to the  estimated  future
aggregate net cash flows from the loans  serviced.  Remaining asset balances are
evaluated for impairment  based on current  estimates of future  discounted cash
flows.  Such  write-downs  are included in  amortization  of mortgage  servicing
rights.

Accounts receivable
         Accounts  receivable  includes  advances made in  connection  with loan
servicing activities.  These advances consist primarily of payments for property
taxes and insurance  premiums,  as well as,  principal and interest  remitted to
investors before they are collected from mortgagors.

Pool loan purchases

         Pool loan  purchases  are carried at cost and  consist of  FHA-insured,
VA-guaranteed,  and conventional loans purchased from mortgage-backed securities
serviced by BBMC for others.  At the purchase date,  these loans were delinquent
or in the process of foreclosure or repayment.  Losses associated with pool loan
purchases are largely reimbursed by the insurer.

Mortgage claims receivable
         Mortgage claims receivable includes claims filed primarily with the FHA
and the VA.  These  receivables  are  carried  at cost,  less an  allowance  for
estimated amounts that are not collectible from the mortgage insuring agencies.

Real estate acquired
         Real estate acquired  includes  properties on which BBMC has foreclosed
and taken title. It is initially  reported at the lower of the carrying value of
the loan or the fair value of the real estate obtained,  less estimated  selling
costs.  The  excess,  if any,  of the loan  balance  over the fair  value of the
property  at the time of  transfer  to real  estate  acquired  is charged to the
reserve for  estimated  servicing  losses on  investor-owned  loans.  Subsequent
declines in the value of the property and costs  related to holding the property
are charged against income.

Premises and equipment
         Premises   and   equipment   are   stated  at  cost  less   accumulated
depreciation.  Depreciation is computed using the straight-line  method over the
estimated useful lives of the assets.  Leasehold improvements are amortized over
the lesser of the estimated life of the improvement or the term of the lease.

Other assets

         Other  assets  consist  primarily of a prepaid  pension  asset of ($9.8
million at March 15, 1996) allocated from the Bank of Boston,  and the excess of
cost over fair value of net assets acquired.  The excess of cost over fair value
of net assets  acquired is amortized  using a  straight-line  basis over periods
varying from seven to twenty-five years.

Mortgage servicing fees
         Mortgage  servicing fees  represent fees earned for servicing  mortgage
loans owned by investors.  The fees are generally  calculated on the outstanding
principal  balances  of the  loans  serviced  and are  recognized  as  income on
anaccrual basis.

Servicing losses on investor-owned loans
         BBMC records  losses  attributable  to  servicing  FHA and VA loans for
investors.  These amounts include actual losses for final  disposition of loans,
accrued interest for which payment has been denied,  and estimates for potential
losses based on BBMC's experience as a servicer of government loans.

         A reserve for estimated  servicing  losses on  investor-owned  loans is
available for potential losses related to the mortgage  servicing  portfolio and
is included in the balance of accounts payable and accrued liabilities.

Net mortgage origination revenue
         Net mortgage  origination  revenue includes gains and losses from sales
of mortgage loans, deferred origination fees and expenses, and the present value
of gains from the EMSR.

Income taxes
         BBMC files its federal tax return  through  inclusion in Bank of Boston
Corporation's  consolidated  return.  Accordingly,  Bank of Boston's federal tax
provision  is  allocated  to all member  subsidiaries  as if each  member were a
separate taxpayer.  However,  the timing of utilization of certain of BBMC's tax
attributes  may differ from a stand-alone  tax-paying  basis.  BBMC accounts for
income taxes in accordance  with SFAS No. 109,  "Accounting  for Income  Taxes."
Under SFAS No. 109,  current tax  liabilities or assets are  recognized  through
charges or credits to the current tax provision for the estimated  taxes payable
or refundable for the current year.

         Deferred tax liabilities are recognized for temporary  differences that
will  result in  amounts  taxable  in the  future  and  deferred  tax assets are
recognized for temporary  differences  and tax benefit  carryforwards  that will
result in amounts  deductible  or  creditable  in the future.  Net  deferred tax
liabilities or assets are recognized  through charges or credits to the deferred
tax  provision.  A deferred tax valuation  reserve is  established if it is more
likely  than not that all or a portion of the  deferred  tax assets  will not be
realized.  Changes in the deferred tax valuation reserve are recognized  through
charges or credits to the deferred tax provision.

         The effect of  enacted  changes  in tax law,  including  changes in tax
rates,  on deferred tax assets and  liabilities  is  recognized in income in the
period that includes the enactment date.

3. PURCHASED MORTGAGE SERVICING RIGHTS AND EXCESS MORTGAGE SERVICING  RECEIVABLE
PMSR consist of the following:

                                 December 31,           March 15,
                                      1995                 1996
                               ------------------   -------------------
                                            (in thousands)

PMSR                               $ 954,931            $ 951,817
Accumulated amortization            (421,040)            (429,348)
                              -------------------   -------------------
Balance                            $ 533,891            $ 522,469
                              ===================   ===================
EMSR consist of the following:

                                 December 31,            March 15,
                                      1995                  1996
                              -------------------   -------------------
                                            (in thousands)

PMSR                               $  66,465            $  70,432
Accumulated amortization             (49,018)             (50,039)
                              -------------------   -------------------
Balance                            $  17,447            $  20,393
                              ===================   ===================


4. RESERVE FOR ESTIMATED SERVICING LOSSES ON INVESTOR-OWNED LOANS
An  analysis of the reserve for  estimated  servicing  losses on  investor-owned
loans is as follows:

                                              December 31,           March 15,
                                                   1995                  1996
                                           ----------------     ----------------
                                                        (in thousands)

Balance at January 1                          $    (6,650)          $  (9,400)
Servicing losses on investor-owned loans           (9,981)             (5,560)
Charge-offs                                         7,473               2,725
Recoveries                                           (242)                 -
                                          -----------------     ----------------
Ending Balance                                $    (9,400)          $ (12,235)
                                          =================     ================



5. MORTGAGE SERVICING PORTFOLIO
         BBMC's residential  mortgage servicing  portfolio totaled $41.5 billion
and $44.2  billion at December  31, 1995 and March 15, 1996,  respectively,  and
included  mortgage-backed  securities  of $28.5  billion  and $29.1  billion  at
December  31,  1995 and  March  15,  1996,  respectively.  In  addition,  BBMC's
commercial  loan  servicing  portfolio  totaled $0.9 billion and $0.2 billion at
December 31, 1995 and March 15, 1996, respectively.  Related fiduciary funds are
segregated in trust accounts, principally deposited with Bank of Boston, and are
not included in the accompanying
consolidated financial statements.

         BBMC has in force an errors and  omissions  policy in the amount of $25
million. Fidelity coverage up to a limit of $75 million, subject to a $1 million
deductible, is provided under a Bank of Boston master program.


6. PREMISES AND EQUIPMENT
         Premises and equipment consist of the following:
                                              December 31,           March 15,
                                                 1995                  1996
                                            ----------------      --------------
                                                      (in thousands)

Land                                         $        4,086       $       4 086
Building                                             14,477              14,476
Furniture and Equipment                              26,870              25,967
Leasehold improvements                                  824                 877
                                             ---------------      --------------
                                                     46,257              45,406
Accumulated depreciation and amortization           (20,871)            (20,335)
                                             ---------------      --------------
Balance                                      $       25,386        $     25,071
                                             ===============      ==============


7. NOTE PAYABLE TO BANK OF BOSTON
         BBMC borrows  funds on a demand basis from Bank of Boston under a $1.25
billion line of credit, collateralized by substantially all of BBMC's assets. At
December  31,  1995 and March 15,  1996,  the  interest  rate was 6.8% and 7.7%,
respectively,  less the benefit  received  from balances held at Bank of Boston.
Interest  expense,  net of this benefit,  was $20.5 million and $6.7 million for
the years ended  December 31, 1995,  and for the period January 1, 1996 to March
15, 1996, respectively.

8. LONG-TERM DEBT
         Long-term  debt consists of a 30-year  mortgage note,  payable  monthly
with interest at 9.5%,  maturing in 2017. BBMC's main office building is pledged
as  collateral.  Principal  payments due on long-term debt as of March 15, 1996,
are as follows:



               
                         March 15, 1996
                     ---------------------

1997                  $           230
1998                              234
1999                              258
2000                              283
2001                              312
Thereafter                     12,473
                     ---------------------
Total Due              $       13,790
                     =====================
9. EMPLOYEE BENEFITS
         BBMC  participates  with  Bank  of  Boston  and  its  affiliates  in  a
non-contributory  defined benefit pension plan (Plan) covering substantially all
full-time  employees.  Bank of  Boston  funds  the Plan in  compliance  with the
requirements of the Employee Retirement Income Security Act.

         The Plan is an  account  balance  defined  benefit  plan in which  each
employee has an account to which amounts are allocated based on level of pay and
years of  service  and which  grows at a  specific  rate of  interest.  Benefits
accrued  prior  to  1989  are  based  on  years  of  service,   highest  average
compensation,  and social security  benefits.  Expense (income)  associated with
this Plan was $0.5  million  for the year  ended  December  31,  1995,  and $0.3
million for the period January 1, 1996 to March 15, 1996.

         BBMC also maintains  non-qualified deferred compensation and retirement
plans for certain officers. All benefits provided under these plans are unfunded
and any payments to plan  participants are made by BBMC. As of December 31, 1995
and March 15, 1996,  approximately $0.7 million and $0.7 million,  respectively,
were included in accrued expenses and other liabilities for these plans. For the
year ended  December  31,  1995 and for the period  January 1, 1996 to March 15,
1996,  expense  related  to these  plans  was  $0.2  million  and $0.1  million,
respectively.

         BBMC also  participates  with Bank of Boston  and its  affiliates  in a
thrift incentive plan.  Under this plan,  employer  contributions  are generally
based on the amount of eligible employee  contributions.  The amounts charged to
operating  expense  under this plan were $0.2  million and $0.1  million for the
year ended  December  31,  1995 and for the period  January 1, 1996 to March 15,
1996,  respectively.  BBMC  employees are eligible to  participate in the thrift
plan until October 1, 1996 at which time BBMC  participant  accounts will become
part of a similar plan offered by the new company.

         BBMC  participates  with Bank of Boston and its affiliates by providing
certain  health and life  insurance  benefits  for retired  employees.  Eligible
employees currently receive credits up to $10 thousand based on years ofservice,
which are used to purchase  post-retirement health care coverage. Life insurance
coverage is  dependent  on years of service at  retirement.  Amounts  charged to
employee  benefits expense for these benefits were $0.5 million and $0.8 million
for the year ended December 31, 1995 and for the period January 1, 1996 to March
15, 1996, respectively.
After March 15, 1996 retiree  benefits  associated with current retirees will be
assumed by Bank of Boston.



<PAGE>


The components of post-retirement benefits expense for the year 
ended December 31 were as follows:
                                                         1995
                                                    ---------------
                                                    (In Thousands)

Service cost (benefits earned during the period)      $    53
Interest cost on projected benefit obligation             264
Amortization:
   Unrecognized net asset                                 250
   Unamortized gain                                       (53)
                                                    ---------------
Net post-retirement benefit cost                    $     514
                                                    ===============

BBMC's  unfunded  accumulated  post-retirement  benefit  obligation for the year
ended December 31 was as follows:

                                                         1995  
                                                  -----------------
                                                    (In Thousands)

Accumulated post-retirement benefit
   obligation for retirees                          $   3,515
Unrecognized net gain                                   1,541
Unrecognized net obligation                            (4,250)
                                                   ----------------
Post-retirement benefit liability                   $     806
                                                   ================

Assumptions used in actuarial computations were:
                                                         1995  
                                                   ----------------

Rate of increase in future
   compensation levels                                  4.50%
Weighted average discount rate                          7.25%
Medical inflation rate                             8% declining to 
                                                      5% in 1999

         An  increase  of 1% in the  assumed  health  care cost trend rate would
result  in an  increase  of  5.8%  in the  accumulated  post-retirement  benefit
obligation and 4.9% in annual post-retirement  benefit expense for the yearended
December 31, 1995.

         These  retirement plans are assessed  annually.  There was no actuarial
valuation  at March 15,  1996.  Post-retirement  benefit  expense for the period
January 1, 1996 to March 15, 1996 was $0.1 million.


<PAGE>


10. INCOME TAXES
         The components of the net deferred tax asset are as follows:

                                        December 31,           March 15,
                                            1995                  1996
                                    --------------------  --------------------
                                                  (In Thousands)

PMSR                                 $    34,008            $  28,167
EMSR                                       8,957                8,881
Reserve for estimated servicing
   losses on investor-owned loans          3,657                4,759
Other                                     (1,301)              (1,303)
Valuation reserve                         (4,597)              (4,114)
Net deferred tax assets,
                                     -------------------  --------------------
   Net of reserve                    $    40,724            $  36,390
                                     ===================  ====================

         The deferred tax assets, net of the valuation reserve,  can be realized
from the  reversal of existing  deferred  tax  liabilities  and by  carryback to
previous  years with taxable  income.  The valuation  reserve has been primarily
established against state deferred tax assets where carryback is not permitted.

The components of the provision for (benefit from) income taxes are as follows:

                                               December 31,          March 15,
                                                    1995                 1996
                                             ---------------      --------------
                                                         (In Thousands)

Current tax provision (benefit)              $    47,646            $ (46,867)
Deferred tax (benefit) expense on income          (8,651)               4,817
Change in valuation reserve                       (1,061)                (483)
                                             ---------------      --------------
Net deferred tax (benefit) expense                (9,712)               4,334
Income tax provision (benefit) before
   cumulative effect of changes in
   accounting principles                          37,934              (42,533)
Total income tax provision (benefit)         $    37,934            $ (42,533)
                                            ===============       ==============




         The  following  table  reconciles  the expected  federal tax  provision
(benefit) on income  (loss)  before  cumulative  effect of change in  accounting
principle,  based on the  federal  statutory  tax rate of 35%, to the actual tax
provision   (benefit)  before   cumulative   effect  of  changes  in  accounting
principles:


<PAGE>



                                                    December 31,     March 15,
                                                        1995            1996
                                                   -------------- --------------
                                                              (In Thousands)

Expected tax provision (benefit) applicable to
   income (loss) before cumulative effect of
   change in accounting principle                  $   33,866        $ (40,738)
Effect of:
   State income taxes, net of federal tax
     benefits                                           3,774              743
   Other                                                  294           (2,538)
Actual tax provision (benefit) before
   cumulative effect of change in
                                                 --------------    -------------
   accounting principle                            $   37,934        $ (42,533)
                                                 ==============    =============
11. LEASE COMMITMENTS

         BBMC leases office facilities and equipment under noncancelable  leases
that include  renewal  options and  escalation  clauses  which extend into 1999.
Rental expense for leases of office facilities and equipment was $3.9million for
the year ended December 31, 1995 and $1.8 million for the period January 1, 1996
to March 15, 1996. BBMC's minimum future lease commitments are as follows:

                  December 31,     March 15,
                      1995            1996
                 -------------- ---------------
                         (In Thousands)

1996              $   1,996        $  1,837
1997                    622           1,910
1998                    280           1,764
1999                     52           1,079
2000                      -             107
Thereafter                -              21
                 --------------  --------------
Total            $    2,950         $  6,718
                 ==============  ==============

12. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
         BBMC  purchases   financial   instruments  and  enters  into  financial
agreements with off-balance  sheet risk in the normal course of business through
the  origination and selling of mortgage loans and the management of the risk of
fluctuations in interest rates. These instruments  involve,  to varying degrees,
elements of credit and interest rate risk. Credit risk is the possibility that a
loss may occur if a counterparty to a transaction  fails to perform according to
the terms of the contract.  Interest rate risk is the possibility  that a change
in interest rates will cause the value of a financial  instrument to decrease or
become  more  costly to settle.  Financial  instruments  primarily  used by BBMC
include   commitments   to  extend  credit,   mandatory  and  optional   forward
commitments,  commitments  to  purchase  mortgage  servicing  rights,  and other
instruments to minimize the interest rate risk of capitalized  servicing assets,
primarily options on treasury bond futures.

Options and forward contracts
         BBMC  purchases  options and forward  contracts to protect the value of
mortgage servicing assets from exposure to increases in prepayment  activity and
to reduce the impact of interest rate  fluctuations on its lending  commitments.
The  notional  amount of the options and  forward  contracts  is the amount upon
which  interest and other payments under the contract are based and is generally
not  exchanged.  Therefore,  the  notional  amounts  should  not be taken as the
measure of credit risk or a  reflection  of future cash  requirements.  The risk
associated  with  options and  forwards is the  exposure to current and expected
market movements in the interest rates and the ability of the  counterparties to
meet the terms of the contracts.  The cash  requirements  associated  with these
options  and  forward  contracts,  aside from the initial  purchase  price,  are
minimal. These contracts generally require future performance on the part of the
counterparty upon exercise of the option or execution of the forward contract by
BBMC.

         BBMC is exposed to credit  loss in the event of  nonperformance  by the
counterparties to the various instruments.  BBMC controls credit and market risk
associated with interest rate products by establishing and monitoring  limits as
to the types and  degree of risks that may be  undertaken.  BBMC's  exposure  to
credit  risk in the event of default by the  counterparties  for the  options is
$20.2 million which was due at March 15, 1996.

         BBMC's  exposure  to  credit  risk  in  the  event  of  default  by the
counterparty  for mandatory  forward  commitments  to sell mortgage loans is the
difference  between the contract price and the current  market price,  offset by
any available  margins  retained by BBMC or an independent  clearing agent.  The
amount  of  credit  risk as of March  15,  1996,  if all  counterparties  failed
completely  and if the  margins,  if any,  retained  by  BBMC or an  independent
clearing agent were to become  unavailable,  was approximately $16.1 million for
mandatory forward commitments of mortgage-backed securities.

         The following is a summary of BBMC's  notional  amounts and fair values
of interest rate products as of December 31, 1995, and March 15, 1996:
<TABLE>
<CAPTION>

                                                             December 31, 1995                      March 15, 1996
                                                       Notional           Estimated          Notional          Estimated
                                                        Amount          Fair Value(1)         Amount         Fair Value(1)
                                                    ---------------- -------------------- ---------------- ----------------
                                                                                 (In Thousands)
<S>                                                 <C>              <C>                  <C>              <C> 

Purchased commitments to sell mortgage loans:
   Mandatory forward contracts                      $  1,169,559     $  (9,798)           $   941,087       $   16,099
   Options on mortgage-backed securities                 315,000          -                   653,000            7,607
Risk management contracts:
   Purchased                                           3,107,500       118,753                781,000           17,990
   Sold                                                  295,000       (33,833)                -                -
</TABLE>

(1) Fair  value  represents  the  amount  at which a given  instrument  could be
exchanged  in an arms  length  transaction  with a third party as of the balance
sheet date.(2) See Note 14 for additional disclosures on fair value of financial
instruments.

Commitments to originate mortgage loans
         BBMC regularly enters into commitments to originate mortgage loans at a
future  date  subject to  compliance  with  stated  conditions.  Commitments  to
originate mortgage loans have off-balance sheet risk to the extent BBMC does not
have matching  commitments to sell loans, which exposes BBMC to lower of cost or
market   valuation   adjustments   in  a  rising   interest  rate   environment.
Additionally,  the extension of a commitment,  which is subject to BBMC's credit
review  and  approval  policies,  gives  rise to credit  exposure  when  certain
borrowing conditions are met and the loan is made.
         Until such time, it represents only potential exposure.  The obligation
to lend may be voided if the customer's  financial condition  deteriorates or if
the customer fails to meet certain conditions. Commitments to originate mortgage
loans do not  necessarily  reflect  future cash  requirements  since some of the
commitments  are expected to expire  without  being drawn upon.  Commitments  to
originate  mortgage loans totaled $885.6 million at December 31, 1995 and $956.4
million at March 15, 1996.

Mortgage loans sold with recourse

         BBMC sells  mortgage  loans with  recourse  to  various  investors  and
retains the servicing  rights on these loans. The total  outstanding  balance of
loans sold with recourse does not  necessarily  represent  future cash outflows.
The total  outstanding  principal  balance of loans sold with  recourse was $6.8
million at December 31, 1995 and $7.0 million at March 15, 1996.

Servicing commitments to investors
         BBMC is  required  to  submit to  certain  investors,  primarily  GNMA,
guaranteed  principal and interest  payments from the underlying  mortgage loans
regardless of actual collections.

         Purchase  mortgage  servicing rights  commitments BBMC routinely enters
into commitments to purchase mortgage servicing rights associated with mortgages
originated by third parties, subject to compliance with stated conditions. These
commitments to purchase mortgage servicing rights,  correspond to mortgage loans
having an aggregate  loan  principal  balance of  approximately  $2.7 billion at
December 31, 1995 and $0.9 billion at March 15, 1996.

Geographical concentration of credit risk
         BBMC  is  engaged  in   business   nationwide   and  has  no   material
concentration of credit risk in any geographic region.

13. OTHER RELATED PARTY TRANSACTIONS
         BBMC services mortgage loans for Bank of Boston and its affiliates. The
balances of those  portfolios  totaled $2.0 billion and $2.0 billion at December
31, 1995 and March 15, 1996,  respectively.  Related servicing fees are included
in mortgage  servicing  fees and were $7.6 million and $1.2 million for the year
ended  December  31, 1995 and for the period  January 1, 1996 to March 15, 1996,
respectively.  BBMC  reimburses  Bank of Boston and its  affiliates  for certain
occupancy and supplies costs.  Total costs  reimbursed were $0.7 million for the
year ended  December 31, 1995 and $0.2 million for the period January 1, 1996 to
March 15, 1996.

         BBMC  services  real  estate  acquired  by the Bank of  Boston  and its
affiliates.  Related  expenses are reimbursed and were $1.7 million for the year
ended  December 31, 1995 and $1.7 million for the period January 1,1996 to March
15, 1996.

         An  affiliate  of Bank of Boston  purchases a 99.25%  participation  in
mortgages in the process of being sold to  permanent  investors.  The  principal
balances sold under this agreement aggregated approximately  $6.5billion for the
year ended December 31, 1995, and $0.7 billion for the period January 1, 1996 to
March 15, 1996.

         BBMC  purchased  mortgage  servicing  rights from Bank of Boston during
1995 and capitalized $4.8 million in mortgage  servicing rights  associated with
this transaction.

         BBMC sold  mortgage  loans to Bank of Boston and its  affiliates in its
normal  course of business.  These sales totaled $0.5 billion for the year ended
December 31, 1995,  and $0.6 billion for the period January 1, 1996 to March 15,
1996.  Included in mortgage  loans held for sale are loans which will be sold to
Bank of Boston and its  affiliates  totaling $18.1 million at December 31, 1995,
and $64.1 million at March 15, 1996.

         Miscellaneous   administrative   services   are   provided  by  related
companies.  These  services did not have a material  impact on the  consolidated
financial statements.

14.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
         SFAS No. 107, "Disclosures about Fair Value of Financial  Instruments,"
requires  disclosure  of fair  value  information  about  financial  instruments
whether or not recognized in the balance  sheet,  for which it is practicable to
estimate fair value.

         Financial  instruments  include  such items as mortgage  loans held for
sale,  mortgage  loans  held for  investment,  interest  rate  contracts,  notes
payable, and other instruments.

         Fair value  estimates are made as of a specific  point in time based on
the  characteristics  of the  financial  instruments  and  the  relevant  market
information.  Where  available,  quoted  market prices are used. In other cases,
fair values are based on estimates  using other  valuation  techniques,  such as
discounting estimated future cash flows using a rate commensurate with the risks
involved or other acceptable methods. These techniques involve uncertainties and
are  significantly  affected  by the  assumptions  used and the  judgments  made
regarding risk  characteristics of various financial  instruments,  prepayments,
discount rates, estimates of future cash flows, future expected loss experience,
and other  factors.  Changes in  assumptions  could  significantly  affect these
estimates. Derived fair value estimates cannot be substantiated by comparison to
independent  markets  and, in many cases,  could not be realized in an immediate
sale of the  instrument.  Also,  because of  differences  in  methodologies  and
assumptions  used to  estimate  fair value,  BBMC's  fair  values  should not be
compared to those of other companies.

         Under  the  Statement,  fair  value  estimates  are  based on  existing
financial  instruments  without  attempting to estimate the value of anticipated
future business and the value of assets and liabilities  that are not considered
financial instruments.  Accordingly,  the aggregate fair value amounts presented
do  not  represent  the  underlying  value  of  BBMC.  For  certain  assets  and
liabilities,  the information  required under the Statement is supplemented with
additional information relevant to an understanding of the fair value.

         The methods and  assumptions  used to estimate  the fair values of each
class of financial instruments are as follows:

Cash

         The carrying amount reported in the balance sheet approximates fair 
value.

Mortgages held for sale
         Fair values are based on the  estimated  value at which the loans could
be  sold in the  secondary  market.  These  loans  are  priced  to be sold  with
servicing rights retained, as is BBMC's normal business practice.

Mortgages held for investment
         Fair value is estimated  using market quotes for  securities  backed by
similar loans or by discounting contractual cash flows, adjusted for credit risk
and prepayment estimates. These loans are priced with servicing rights retained.
Discount rates are obtained from secondary market sources.

         Accounts   receivable,   pool  loan  purchases,   and  mortgage  claims
receivable,  net Carrying  amounts are considered to approximate fair value. All
amounts  that are  assumed  to be  uncollectible  within a  reasonable  time are
written off.

Excess mortgage servicing receivable
         Fair value is based on the present  value of  expected  future net cash
flows and the current estimated servicing life.

         Risk  management  contracts  Fair values are estimated  based on actual
market quotes or option models.

Note payable to Bank of Boston
         The carrying  amount of the note payable to Bank of Boston  reported in
the balance sheet approximates its fair value.

Long-term debt
         Fair value of  long-term  debt is estimated  by  discounting  estimated
future cash flows using a rate commensurate with the risks involved. Commitments
to originate mortgage loans

         Fair value is  estimated  using  quoted  market  prices for  securities
backed by  similar  loans  adjusted  for  differences  in loan  characteristics.
Forward contracts to sell mortgages
         Forward  contracts to sell mortgages,  which represent  legally binding
agreements to sell loans to permanent  investors at a specified  price or yield,
are valued using market  prices for  securities  backed by similar loans and are
reflected in the fair values of the mortgages  held for sale, to the extent that
these commitments relate to mortgage loans already originated, or of the related
commitments to extend credit.

Options on mortgage-backed securities
         The fair values of options are estimated based on actual market quotes.
In some instances,  quoted prices for the underlying  loans or option models are
used.



<PAGE>


The estimated fair values of BBMC's financial instruments are as follows:
<TABLE>
<CAPTION>

                                                            December 31, 1995                         March 15, 1996
                                                       Carrying              Fair             Carrying              Fair
                                                        Amount              Value              Amount               Value
                                                  ------------------- ------------------- ----------------- -------------------
                                                                                  (In Thousands)
<S>                                               <C>                <C>                 <C>                <C>   


ASSETS
Cash                                              $      830         $       830         $    23,216         $   23,216
Mortgages held for sale                              388,436             395,984             628,504            633,993
Mortgages held for investment                         33,183              35,003              65,068             65,068
Accounts receivable                                   82,816              82,816              65,599             65,599
Pool loan purchases                                   65,272              65,272              56,261             56,261
Mortgage claims receivable                            45,422              45,422              17,563             17,563
Excess mortgage servicing receivable                  17,447              19,117              20,393             23,100
Risk management contracts, classified as
   PMSR, and other assets (2)                         84,520              84,920              20,169             20,169
LIABILITIES
Note payable to Bank of Boston                       966,000             966,000           1,256,000          1,256,000
Long-term debt                                        13,816              16,211              13,790             21,695
OFF-BALANCE SHEET (1)
Commitments to originate mortgage loans                -                   1,094          -                      27,250
Mandatory forward contracts to
   sell mortgages (2)                                  -                  (9,798)         -                      16,099
Options on mortgage-backed securities (2)              -                    -             -                       7,607
</TABLE>

(1) Parentheses denote a liability.(2) See Note 12 for additional disclosures on
notional amounts.
         Fair value estimates are made as of a specific point in time,  based on
relevant  market data and  information  about the  financial  instrument.  These
estimates do not reflect any premium or discount that could result  fromoffering
for sale BBMC's entire holding of a particular financial instrument.  Because no
active  market  exists for some portion of BBMC's  financial  instruments,  fair
value  estimates  are  based  on  judgments   regarding   future  expected  loss
experience,  current economic  conditions,  current interest rates and repayment
trends,  risk  characteristics  of  various  financial  instruments,  and  other
factors.

         These estimates are subjective in nature and involve  uncertainties and
matters of  significant  judgment  and,  therefore,  cannot be  determined  with
precision.  Changes in any of these  assumptions  used in calculating fair value
would also significantly affect the estimates. Further, the fair value estimates
were  calculated  as of December 31, 1995 and March 15, 1996.  Changes in market
interest rates and prepayment  assumption  could  significantly  change the fair
value.

15. CONTINGENCIES
         BBMC is a  defendant  in a number of legal  proceedings  arising in the
normal  course of  business.  BBMC,  in  management's  estimation,  has recorded
adequate   reserves  in  the  financial   statements  for  pending   litigation.
Management,  after  reviewing  all actions and  proceedings  pending  against or
involving  BBMC,  considers  that  the  aggregate  liability  or  loss,  if any,
resulting from the final outcome of these  proceedings  will not have a material
effect on the financial position or results of operations of BBMC.

16. ACQUISITION OF BELL MORTGAGE
         On June 1, 1995,  BBMC  purchased  the assets and  liabilities  of Bell
Mortgage  Company  ("Bell  Mortgage"),  a  privately-held  mortgage  origination
company  located  in  Minneapolis,  Minnesota,  for $0.9  million  in cash.  The
acquisition of Bell Mortgage was accounted for as a purchase.  Accordingly,  the
purchase price was allocated to net assets  acquired based upon their  estimated
fair market value. As of a result of the  acquisition,  goodwill of $0.4 million
was recorded and is being amortized over a 7-year period using the straight-line
method.

         Also,  under  the  terms of the  agreement,  the  shareholders  of Bell
Mortgage will receive additional contingent cash payments based on Bell Mortgage
reaching specific performance goals over the next 3 years. These additional cash
payments  will be recorded as additions  to goodwill and will be amortized  over
the remainder of the original 7-year period using the straight-line method.

         Results of operations  after the  acquisition  date are included in the
consolidated  financial  statements.  Pro forma financial results would not have
been materially different as a result of this acquisition.







ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE

Effective April 1, 1998,  HomeSide Lending,  Inc. dismissed its prior certifying
accountants,  Arthur  Andersen,  L.L.P.  and  retained  as  its  new  certifying
accountants,  KPMG Peat Marwick,  L.L.P.  Arthur Andersen's report on HomeSide's
financial  statements during the two most recent fiscal years and all subsequent
interim  periods  preceding  the date hereof  contained no adverse  opinion or a
disclaimer of opinions, and was not qualified as to uncertainty,  audit scope or
accounting  principles.  The  decision  to change  accountants  was  approved by
HomeSide's Board of Directors.

During the last two fiscal years and the  subsequent  interim period to the date
hereof, there were no disagreements  between HomeSide and Arthur Andersen on any
matters of accounting  principles or practices,  financial statement disclosure,
or auditing  scope or  procedure,  which  disagreements,  if not resolved to the
satisfaction  of Arthur Andersen would have caused it to make a reference to the
subject matter of the disagreements in connection with its reports.

None of the  "reportable  events"  described in Item 304(a)(1) of Regulation S-K
occurred  with  respect to  HomeSide  within  the last two fiscal  years and the
subsequent interim period to the date hereof.

Effective April 1, 1998,  HomeSide Lending engaged KPMG Peat Marwick,  L.L.P. as
its principal  accountants.  During the last two fiscal years and the subsequent
interim  period to the date  hereof,  HomeSide did not consult KPMG Peat Marwick
regarding any of the matters or events set forth in Item 304(a)(2) of Regulation
S-K.


<PAGE>





                                                               PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                                                              MANAGEMENT

The  following  table sets forth the name,  age and position with the Company of
each person who is an executive officer or director of the Company.
<TABLE>
<CAPTION>
         <S>                                 <C>       <C>    
                 Name                        Age          Position
         Joe K. Pickett....................   52       Chairman of the Board and Chief Executive Officer, Director
         Hugh R. Harris..................     46       President and Chief Operating Officer; Director
         Kevin D. Race...................     37       Executive Vice President and Chief Financial Officer
         Robert J. Jacobs.................    45       Executive Vice President, Secretary and General Counsel; Director
         Betty L. Francis.................    51       Chief Credit Officer and Executive Vice President
         Mark F. Johnson................      43       Executive Vice President - Production
         William Glasgow, Jr..........        48       Executive Vice President - Servicing
         Daniel T. Scheuble.............      39       Executive Vice President - Technology
         Thomas H. Fisher...............      65       Executive Vice President and Assistant Secretary
         W. Blake Wilson................      32       Executive Vice President, Director of Capital Markets
         Charles D. Gilmer...............     50       Senior Vice President and Treasurer
         Ann R. Mackey..................      40       Senior Vice President and Finance Director
         Debra F. Watkins...............      40       Senior Vice President, Cash Management and marketing Operations
</TABLE>

The  directors  of the  Company  are  elected  each  year  by  vote  of  HHI,  a
wholly-owned  subsidiary of the Parent. Each of the officers and directors shall
serve until their  successors  are elected and  qualified or until their earlier
resignation or removal.  It is expected that  corporate  officers of the Company
will be appointed annually by its Board of Directors.

Joe K. Pickett has served as chairman of the Board and Chief  Executive  Officer
of the Company  since April 1990 and as Chairman of the Board,  Chief  Executive
Officer and a Director of the Parent  since March 14,  1996.  From  October 1994
through  October  1995,  Mr.  Pickett  served  concurrently  as President of the
Mortgage Bankers  Association of America.  Mr. Pickett also serves as a Director
of Fannie Mae and of Baptist Medical Center, Jacksonville, Florida.

Hugh R.  Harris  has  served as  President  and Chief  Operating  Officer of the
Company  since  January 1993 and as  President,  Chief  Operating  Officer and a
Director of the Parent since March 14, 1996.  From January 1988 to January 1993,
Mr. Harris served as Vice Chairman of HLI in charge of production  and secondary
marketing.  Mr.  Harris  currently  serves as a Director  of  Republic  Mortgage
Insurance Company (RMIC).

Kevin D. Race has served as Executive Vice President and Chief Financial Officer
of the Company and Vice President,  Chief Financial Officer and Treasurer of the
Parent since October 1996.  From 1993 to 1996, Mr. Race served as Executive Vice
President,  Chief  Financial  Officer and Treasurer of Fleet Mortgage  Group. In
1996, Mr. Race was named  president of Fleet Mortgage  Group.  In 1989, Mr. Race
served in the mortgage  capital  markets and  non-conforming  products  areas of
Fleet Mortgage  Group.  From 1985 to 1989, Mr. Race served as Vice President and
National Product Manager for Mortgage Backed Securities for Citicorp.  From 1982
to 1985,  Mr.  Race served in the  secondary  marketing  area of North  American
Mortgage Company.

Robert J. Jacobs has served as Executive Vice President and Secretary of the 
Company since February 2, 1996.  Mr. Jacobs has served as a Director of HLI
since March 14, 1996.  Mr. Jacobs has also served as Secretary of the Parent 
since March 14, 1996 and as Vice president of the Parent since April 10, 1996. 
From 1987 to 1996, Mr. Jacobs served as a Senior Vice President and Chief Legal
Officer of Chase Manhattan Mortgage Corporation, and served as General Counsel 
for Citicorp Savings of Florida from 1984 to 1986.  Mr. Jacobs currently serves
as President and Legislative Chairman of the Mortgage Bankers Association of 
Florida.

Betty L.  Francis  has served as Chief  Credit  Officer  and as  Executive  Vice
President of the Company since October 1996 and as Vice  President of the Parent
since April 10,  1996.  Ms.  Francis  served from March 1994 to October  1996 as
Chief Financial Officer of HLI. Ms. Francis served from April 1993 to March 1994
as the Senior Finance Officer of the Personal Banking Group, and from April 1990
to April 1993 as the  Comptroller  of Bank of Boston and BKBC.  Ms. Francis is a
Trustee  of  Commonwealth  Energy  Services,  a  gas  and  electric  utility  in
Massachusetts.

Mark F. Johnson has served as Executive Vice President of Production of the 
Company since April 1, 1992.  From 1988 to 1992, Mr. Johnson served as Senior 
Vice President and Director of Wholesale Lending for HLI.  Mr. Johnson also has 
served as Vice President of the Parent since April 10, 1996.

William Glasgow, Jr. has served as Executive Vice President of the Company since
July 1991.  From October 1989 to July 1991, Mr.Glasgow served as Senior Vice 
President with Citicorp Mortgage Inc. in St. Louis, Missouri.  Mr.Glasgow has 
also served as Vice President of the Parent since April 10, 1996.

Daniel T. Scheuble has served as Executive Vice President for Technology, Loan
Processing and Consumer Direct Lending of the Company since 1993.  From 1990 to
1992, Mr. Scheuble served as a Senior Technology and Operational Manager at Bank
of Boston.  Mr. Scheuble has also served as Vice President of the Parent since 
April 10, 1996.

Thomas H. Fish has served as Executive Vice President of the Company since 1988.
Mr. Fish has served as Assistant Secretary of HLI since March 14, 1996.  Mr.
Fish served as Secretary and General Counsel of HLI from 1988 to March 14, 1996.

W. Blake Wilson has served as Executive  Vice  President and Director of Capital
Markets of the Company since September 1997. He previously served as Senior vice
President and Director of Capital Markets of the Company from June 1996.  Before
joining HLI, Mr. Wilson served in Capital  Markets for Prudential  Home Mortgage
("PHM")  from 1992  through  June 1996.  Prior to joining PHM, he worked in KPMG
Peat Marwick's  National  Mortgage and  Structured  Finance Group in Washington,
D.C.

Charles D. Gilmer has served as Senior Vice President and Treasurer of the 
Company since October 1993.  Mr. Gilmer previously served as the Director of 
Liability Management for Citicorp from November 1989 to October 1993.

Ann R. Mackey has served as Senior Vice  President  and Finance  Director of the
Company since July 1993.  From September 1992 to July 1993, Ms. Mackey served as
a manager  in  International  Risk  Management  for Bank of Boston.  Ms.  Mackey
previously  served as Senior  Audit  Manager at KPMG Peat  Marwick  from 1985 to
1992.

Debra F. Watkins has served as Senior Vice President, Cash Management and 
Marketing Operations of the Company since October 1993. From July 1987 to 
October 1993, Ms. Watkins served in various management positions in Secondary 
Marketing and Production Operations at the Company.  Ms. Watkins currently 
serves as Chairperson of the GNMA Liaison Committee of Mortgage Association of 
America.

ITEM 11.  EXECUTIVE COMPENSATION

                                                        EXECUTIVE COMPENSATION

         The following table sets forth all  compensation  awarded to, earned by
or paid to the Company's  Chief  Executive  Officer and the Company's  five most
highly  compensated  executive  officers other than the Chief Executive  Officer
whose total annual salary and bonus exceeded  $100,000 for all services rendered
in all capacities to the Company and its subsidiaries for the periods from March
1, 1997 to February 10, 1998, and from March 16, 1996 to February 28, 1997.
<TABLE>

                                                      Summary Compensation Table
<CAPTION>


                                                                               Long-Term
                                                                             Compensation
                                                                                Awards
                                                                          --------------------

                                                          Annual              Securities
           Name and Principal              Fiscal        Compensation          Underlying            All Other
                                                    ----------------------
          HomeSide Lending Position         Year     Salary      Bonus          Options            Compensation

------------------------------------------ -------- ---------- ---------- -------------------- -- ---------------
<S>                                        <C>     <C>        <C>              <C>                   <C>    

 Joe K. Pickett .......................     1998   $ 372,000  $ 500,000         45,000               $ 23,954                   
                Chairman & CEO              1997     312,000    362,000        242,862 (a)             16,135 (b)
                                                       


  Hugh R. Harris.......................     1998     360,000    470,000         45,000                 14,411
             President and Chief            1997     300,000    350,000        242,862 (a)              7,842 (b)
            Operating Officer

 Kevin D. Race .........................    1998     250,000    300,000         45,000                  9,333
             Executive Vice President       1997     250,000    100,000         97,155 (a)            413,145 (b)(d)
               and Chief Financial
                  Officer                              (c)                                               
                

 Mark F. Johnson ......................     1998     230,000    200,000         30,000                10,623
        Executive Vice President            1997     200,000    150,000         97,155 (a)             6,714 (b)
         Secondary Marketing and
               Production

  William Glasgow, Jr. ...............      1998     230,000    200,000         30,000                14,299
           Executive Vice President         1997     200,000    150,000         97,155 (a)             6,522 (b)

------------------------------------------
</TABLE>

(a)      Reflects a 17 for 1 stock split of the Company's Common Stock effected 
immediately prior to the Company's January 1997 initial public offering.
(b)      Includes  amounts  received  for (1) matching  contributions  under the
         Company's  savings  plan of  $6,000  with  respect  to each of  Messrs.
         Pickett,  Harris,  Johnson,  Glasgow;  and (2) the dollar value of life
         insurance  premiums  paid by the Company with  respect to: Mr.  Pickett
         $10,135; Mr. Harris $1,842; Mr. Race $74; Mr. Johnson $714; Mr. Glasgow
         $522.
(c) The  salary of Mr.  Race is per annum.  Mr.  Race has been  employed  by the
Company since October 1996.
(d)      Includes a bonus of $375,000 received by Mr. Race as an inducement to 
join the Company and $38,071 in relocation expenses.



<PAGE>


Option Grants for the Period from March 1, 1997 to February 10, 1998

         The following table provides  information on option grants with respect
to common Stock of the Company for the period from March 1, 1997 to February 10,
1998 to the named executive officers.  Pursuant to applicable regulations of the
Securities and Exchange commission (the "Commission"),  the following table also
sets forth the hypothetical value which might have been realized with respect to
such  options  based  on  assumed  rates  of  stock  appreciation  of 5% and 10%
compounded annually from date of grant to the end of the option terms:
<TABLE>
<CAPTION>

                                         Individual Grants
                         ------------ -- ------------------ -- -------------- -- ----------------

                          Number of
                         Securities       % of Total                                                Potential Realizable
                                                                                                          Value at
                         Underlying        Options                                              Assumed Annual Rates of Stock
                           Options        Granted to         Exercise                          Price Appreciation for Option
                           Granted        Employees           Price             Expiration              Term (a)
                                                                                                   -- -------------- -----
        Name                 (#)           in 1997            ($/Sh)               Date              5%           10%
---------------------    ------------    -------------    ---------------    ------------------    --------     --------
<S>                      <C>             <C>                 <C>                <C>                <C>          <C>

Joe K.Pickett..........   15,000(b)         10.84%           $20.500             07/10/07          193,385      490,076
                          30,000(c)         10.84%           $20.500             01/10/07          362,919      907,645
Hugh R.Harris..........   15,000 (b)        10.84%           $20.500             05/31/07          193,385      490,076
                          30,000 (c)        10.84%           $20.500             11/20/06          362,919      907,645
Kevin D.Race...           15,000 (b)        10.84%           $20.500             10/08/07          193,385      490,076
                          30,000 (c)        10.84%           $20.500             04/08/07          362,919      907,645
Mark F.Johnson........    10,000 (b)         7.23%           $20.500             05/31/06          128,923      326,717
                          20,000 (c)         7.23%           $20.500             11/30/05          241,946      605,096
William Glasgow,Jr.       10,000 (b)         7.23%           $20.500             05/31/06          128,923      326,717
                          20,000 (c)         7.23%           $20.500             11/30/05          241,946      605,096
---------------------
</TABLE>

(a)      These values are based on assumed rates of  appreciation  only.  Actual
         gains, if any, on shares acquired on option  exercises are dependent on
         the future performance of the Company's Common Stock.
(b)      Non-qualified,  timed-based  options granted  pursuant to the Company's
         1996 Stock Option Plan.  Options vest annually in arrears in five equal
         installments of 20% per year.
(c)      Non-qualified,   performance-based  options  granted  pursuant  to  the
         Parent's  1996 Time  Accelerated  Restricted  Stock Option Plan.  These
         options  vest no later than nine  years  from the date of grant  unless
         accelerated based on the achievement of certain performance criteria.




<PAGE>


                  Aggregated Option Exercises and Option Values
             for the Period from March 1, 1997 to February 10, 1998

         The following table provides information on option exercises during the
period from March 1, 1997 to February  10, 1998 with respect to the Common Stock
of the Company and on the values of the named  executive  officers'  unexercised
options at February 10, 1998:
<TABLE>
<CAPTION>

                            Shares                                Number of                           Value of Unexercised
                                   Securities
                           Acquired                         Underlying Unexercised                      In-the-Money
                              on            Value           Options at Year-End (#)                    Options at Year-End
        Name                Exercise      Realized      Exercisable        Unexercisable       Exercisable     Unexercisable (a)
----------------------     -----------    ----------    -------------    ------------------    -------------   ------------------
<S>                        <C>            <C>           <C>                <C>                 <C>             <C>

Joe K.Pickett...........        0             $0            48,573             239,289          $500,010        $2,922,511
Hugh R. Harris.......           0              0            48,573             239,289           500,010         2,922,511
Kevin D.Race..........          0              0            19,431             122,724           200,023         1,722,591
Mark F. Johnson......           0              0            19,431             107,724           200,023         1,415,091
William Glasgow, Jr.            0              0            19,431             107,724           200,023         1,415,091
---------------------- 
</TABLE>

 (a)     Value  of  unexercised   in-the-money   stock  options  represents  the
         difference  between the  exercise  prices of the stock  options and the
         closing  price of the  Parent's  Common  Stock  on The New  York  Stock
         Exchange on February 10, 1998

Employment Contracts and Termination of Employment Arrangements

         Certain of the Company's executive officers including each of the named
executive  officers are party to employment  agreements  and/or  non-competition
agreements with the Company. The Company is therefore contractually obligated to
continue to pay such salaries during the executive  officer's term of employment
with the Company.

         Pursuant to severance  agreements with the Company,  certain  executive
officers,  including  each of the named  executive  officers,  were  entitled to
severance benefits if he were terminated,  or constructively  terminated through
diminution in job  responsibilities or compensation  following an acquisition (a
"Trigger Event"). If such named executive officer offers to remain in the employ
of the  Company  for  one  year  following  any  Trigger  Event,  and is  either
terminated during the first year or has his job responsibilities or compensation
diminished, he is entitled to a severance benefit. The severance benefit will be
a lump sum  payment  in cash equal in the case of each of  Messrs.  Pickett  and
Harris  to the sum of (i)  twice  his  annual  salary  in  effect at the time of
termination,  (ii) twice his annual bonus  received for the  preceding  year and
(iii) a pro rata  portion  of the bonus he would have  received  for the year in
which  termination  occurs (paid at the time the amount of such bonus would have
been determined).  The severance benefit for the other named executive  officers
will be equal to the sum of (i) such  officer's  annual  salary in effect at the
time of  termination,  (ii)  his  annual  bonus  received  for the year in which
termination  occurs  (paid at the time the amount of such bonus  would have been
determined).  The named executive  officers will also receive continued coverage
under  the  Company's   medical  benefit  plans  for  one  year  following  such
termination,  or two years following termination in the case of Messrs.  Pickett
and Harris. Each of the Severance Agreements is for a term of one (1) year which
is automatically renewed on April 1 of each year for additional one-year periods
unless  either the  Company  or the  executive  has given  notice not later than
December  31st of the  previous  year to the other not to extend the term of the
Agreement.  If a Trigger  event has  occurred  during the term of the  Severance
Agreement,  however,  the  Agreement  continues  for one (1) year  following the
closing of the Trigger Event. Since the 1998 fiscal year end and the NAB merger,
all severance agreements have been canceled.

Employment  Agreements  with  NAB  and  the  Company.  In  connection  with  the
acquisition  of the Parent by NAB, NAB and the Company  entered into  employment
agreements  (the  "Employment  Agreement")  with Joe K.  Pickett,  the Company's
Chairman and Chief Executive Officer;  Hugh R. Harris,  the Company's  President
and Chief  Operating  Officer;  Kevin D. Race,  the  Company's  Vice  President,
Treasurer  and Chief  Financial  Officer;  Mark F. Johnson,  the Company's  Vice
President,  Loan  Production;  and William  Glasgow,  Jr.,  the  Company's  Vice
President,  Loan  Administration  and six other  officers  of the  Company  (the
"Executives").  Each Employment Agreement became effective upon the consummation
of the Merger and provides for a three-year  term of employment  commencing upon
the  consummation  of the Merger.  Pursuant to the  Employment  Agreements,  Mr.
Pickett  serves as Chairman  and Chief  Executive  Officer of the  Company.  Mr.
Harris  serves as President and Chief  Operating  Officer of the Company and Mr.
Race serves as  Executive  Vice  President  and Chief  Financial  Officer of the
Company. The Employment Agreements for Messrs.  Johnson and Glasgow provide that
each such Executive serves as an Executive Vice President of the Company.

Pursuant to their respective Employment  Agreements,  Messrs.  Pickett,  Harris,
Race,  Johnson  and  Glasgow  each (i) will  receive  an annual  base  salary of
$450,000,  $410,000,  $300,000, $230,000 and $230,000,  respectively,  (ii) will
receive a guaranteed annual bonus of $800,000,  $800,000, $337,500, $362,500 and
$362,500 respectively,  payable on each of the first and second anniversaries of
the effective  time of the Merger,  (iii) will be eligible to participate in the
Company's  annual bonus plan ("ABP"),  (iv) will be eligible to  participate  in
NAB's  Executive  Share Option Plan and will receive an initial grant of options
to purchase  50,000,  45,000,  35,000,  30,000 and 30,000 NAB  ordinary  shares,
respectively,  and (v) will be eligible to participate in a long-term  incentive
plan  (funded by NAB with a cash pool not in excess of  $15,000,000),  the first
award under such plan (the "Anniversary Award") to be payable in a lump sum cash
payment within 30 days following the third  anniversary of the effective time of
the Merger (the "Anniversary Date"),  provided that the Executive is employed by
the Company on the Anniversary Date. The Employment  Agreements provide that NAB
shall cause the entire  long-term  incentive plan cash pool to be distributed to
eligible  Company  executives.  The  Employment  Agreements  for the  six  other
officers provide for annual base salaries aggregating $1,120,000, and guaranteed
annual  bonuses  aggregating  $712,500;  and such  officers  will receive in the
aggregate  initial grants of options of purchase 150,000 NAB ordinary shares and
will be eligible to  participate  in the Company's  annual bonus plan and in the
long-term  incentive  plan  referred  to in clause  (v)  above.  The  Employment
Agreements  also provide that each Executive will be (i) entitled to participate
in  employee  benefit  plans as may be in  effect of  senior  executives  of the
Company from time to time, (ii) entitled to paid vacation in accordance with the
vacation policy applicable to the Company's senior executives,  (iii) reimbursed
by the Company for reasonable business expenses and (iv) entitled to receive the
same  perquisites  that  such  Executives  received  immediately  prior  to  the
Effective  Time. The Employment  Agreements  further provide that each Executive
will be eligible to participate in a nonqualified  deferred compensation plan to
which  such  Executive  may elect to defer any amount of such  Executive's  cash
compensation.

Each  Employment  Agreement may be terminated  by the  applicable  Executive for
"good  reason" and by the Company for  "cause," as such terms are defined in the
Employment Agreements, or by voluntary resignation of the Executive, upon ninety
(90) days'  written  notice  provided the Executive  waives any amounts  payable
under the Employment Agreement and provided further that Executive's obligations
under the  Confidentiality  and  Noncompetition  Agreement  (described below) to
which such Executive is a party remain  unaffected by such  resignation.  In the
event that the Company  terminates  the  Executive's  employment  for any reason
other than cause or disability or the Executive  terminates  his  employment for
good  reason,  the  Company  is  obligated  to  (A)  pay to  the  Executive  his
Anniversary  Award pursuant to the long-term  incentive plan if he is terminated
prior to the third  anniversary  of the Merger and (B) (i) pay to the  Executive
for the twenty-four  (24) month period ( the eighteen (18) month period,  in the
case of each  Executive  other than Messrs.  Pickett and Harris)  following  the
Executive's  termination  (the  "Continuation  Period"),  an amount equal to his
average  monthly  base  salary  for the two year  period  (or  portion  thereof)
immediately  preceding  the  date of  termination,  plus  (ii) at the end of the
Continuation  Period,  an amount  equal to two times (1.5 times,  in the case of
each  Executive  other than  Messrs.  Pickett and Harris) the average of (x) the
Executive's  target bonus under the ABP for the year in which termination occurs
and (y) the annual bonus under the ABP for the year  immediately  preceding  the
year in which termination  occurs,  (iii) the pro rata portion of the guaranteed
annual bonus,  if any, for the year of termination and (iv) the pro rata portion
of  Executive's  ABP  award for the year of  termination,  and (C)  provide  the
Executive  during the  Continuation  Period with  continued  coverage  under the
Company's health, life and disability  insurance plans,  provided that Executive
continues  to  contribute  the  employee  share of the cost  applicable  to such
coverages.  The amounts  under  clauses (B) (i) and (ii) and the coverage  under
clause (C) in the immediately preceding sentence will be payable or provided, as
the case may be, only so long as the  Executive  complies  with his  obligations
under the  confidentiality  and  Noncompetition  Agreement  (described below) to
which such Executive is a party.

In the  event an  Executive's  employment  is  terminated  by reason of death or
disability,  the Company shall pay such Executive (or his designated beneficiary
or  estate,  as the case may be) the  pro-rated  portion  of (i) the  guaranteed
annual bonus,  if any, for the year of termination  of employment,  (ii) any ABP
award  such  Executive  would  have  received  for the  year of  termination  of
employment, and (iii) any applicable award payable under the long-term incentive
plan (which is the  Anniversary  Award in the event of termination of employment
on or before the third anniversary of the Merger).

Each Employment  Agreement provides that the Executive waives any and all rights
to benefits  payable under any prior severance  agreement to which the Executive
and the Company are parties and agrees that such  severance  agreement  shall be
void and of no further  effect and shall be  superseded  in its  entirety by the
Employment Agreement

Historical Executive Compensation

         The following table sets forth all  compensation  awarded to, earned by
or paid to the Company's  Chief  Executive  Officer and the Company's  four most
highly  compensated  Executive  Officers other than the Chief executive  officer
whose total annual salary and bonus exceeded  $100,000 for all services rendered
in all capacities to BancBoston  Mortgage  Corporation and its  subsidiaries for
the fiscal year ended December 31, 1995.  None of the Company's  named executive
officers received any compensation from Barnett Mortgage Company during 1995.
<TABLE>

                                                      Summary Compensation Table
<CAPTION>

                                                                        Long-Term Compensation
                                                                    ------------------------------- -- ---------

                                                                         Awards (b)                     Payouts
                                                                      ------------------               -----------

                                                                                                   Long-Term
                                                Annual            Restricted       Securities      Incentive
  Name and Principal       Fiscal            Compensation           Stock         Underlying         Plan
                                         ---------------------
       Position             Year      Salary(a)   Bonus(a)         Awards            Options       Payouts (c)    Compensation (d)
-----------------------    -------    ----------- ----------    --------------     ------------    ------------ --------------------
<S>                        <C>        <C>         <C>           <C>               <C>              <C>            <C>

Joe K.Pickett..........     1995      $287,000    $200,000      $68,700              9,600            $215,156      $11,480
  Chairman & CEO
Hugh R.Harris..........     1995       275,000     225,000       42,938              6,000                   0       11,000
  President
Charles D.Gilmer....        1995       170,769     155,000            0                  0                   0            0
  Director, Risk
      Management
Mark F.Johnson.........     1995       190,577     125,000       28,625              4,000                   0        7,623
   Director, Wholesale/
   Securities Marketing
William Glasgow,Jr.....     1995       189,230     125,000       28,625              4,000                   0        7,569
   Director, Loan
    Administration
-----------------------
</TABLE>

(a)      The salary and bonus amounts presented were earned in 1995. The payment
         of certain such amounts occurred in 1996. The amounts  reflected in the
         table do not include the following  bonuses paid to the named executive
         officers in 1996 in connection  with the closing of the  acquisition of
         BancBoston  Mortgage  Corporation:  Mr. Pickett,  $50,000;  Mr. Harris,
         $225,000; Mr. Gilmer, $175,000; Mr. Johnson, $200,000; and Mr. Glasgow,
         $200,000.

(b)      Involves  common  stock of BKBC.  As of December  31,  1995,  the named
         executive  officers held the following  number of restricted  shares of
         BKBC common stock having the corresponding year-end market values:
<TABLE>
<CAPTION>
     
                                                       As of December 31, 1995

                                                           Total Number of                  Aggregate
         Name                                          Restricted Shares Held              Market Value
         <S>                                           <C>                                 <C>    

         Joe K. Pickett....................................   5,600                           $259,900

         Hugh R. Harris.................................      4,135                            191,244

         Charles D. Gilmer............................            0                                  0

         Mark F. Johnson................................      1,784                             82,510

         William Glasgow, Jr..........................        1,700                             78,625
</TABLE>

         In connection  with the BancBoston  Mortgage  Corporation  acquisition,
         vesting  on  all of  the  restricted  stock  owned  by  its  employees,
         including the restricted  stock listed above,  was  accelerated and all
         prior forfeiture and transferability restrictions thereon were removed.

(c)      Represents the dollar value of vested shares of performance  restricted
         stock  calculated by multiplying the closing price of BKBC common stock
         on each vesting date by the number of shares that vested on that date.
(d)      Includes  matching   employer   contributions  and  credits  under  the
         BankBoston   thrift-incentive   plan   and  the   BankBoston   deferred
         compensation plan for the named executive officers.


Retirement Benefits

The  following  table  shows  the  years of  service  and the  estimated  annual
retirement  benefits  that are  payable at age 65 from BKBC to each of the named
executive  officers  in the form of a single  lifetime  annuity  with an assumed
future  annual  interest  rate of 6.3% through 1996 and 5.5%  thereafter on each
individual's cash balance account:

                          Prior Years of Service       Estimated Annual
        Name                  as of 12/31/95          Retirement Benefit
----------------------    ------------------------ -------------------------

Joe K.Pickett.........              15                     $73,883
Hugh R.Harris.........              12                      50,676
Charles D.Gilmer..                   2                       2,386
Mark F.Johnson........              13                      48,616  
William Glasgow, Jr..                4                       6,836


         The estimates shown above reflect  BankBoston's cash balance formula as
of December 31, 1995 (under which credits are made  annually to an  individual's
account at a rate based on the individual's age and years of service),  plus any
accrued benefits under the prior plan formula. These benefits are provided under
a  combination  of  BankBoston's   tax-qualified  retirement  plan  and  certain
supplemental plans.




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

Capital Stock of the Company

All of the outstanding  common stock of HomeSide Holdings,  Inc.,  consisting of
10,000 shares, is owned by the Parent,  and all of the outstanding  common stock
of HomeSide Lending,  consisting of 100 shares,  is owned by HomeSide  Holdings,
Inc.

Capital Stock of the Parent

The following table and the paragraphs that follow set for the information  with
respect to the beneficial  ownership of shares of the Parent's voting securities
as of February 10, 1998 by (i) all shareholders of the Company who own more than
5% of  any  class  of  such  voting  securities;  (ii)  each  director  who is a
stockholder;  (iii)  certain  executive  officers;  and (iv) all  directors  and
executive  officers as a group,  as determined in accordance with Section 13 (d)
of the Securities Exchange Act of 1934 and the rules thereunder:
<TABLE>
<CAPTION>

                                    Amount and Nature of
Name of Beneficial Owner               Title of Class         Beneficial Ownership        Percentage of Class
------------------------               --------------         --------------------        -------------------
<S>                                 <C>                       <C>                         <C>    

BankBoston, N.A.                       Common Stock                   11,461,400                  26.42%
     100 Federal Street
     Boston, MA

Siesta Holdings, Inc.                  Common Stock                   11,461,400                  26.42%
     3800 Howard Hughes
     Parkway, Suite 1560
     Las Vegas, NV

THL (a)                                Common Stock                    8,596,050                  19.82%
     75 State Street
     Boston, MA

Madison Dearborn Capital               Common Stock                    2,865,350                   6.60%
 Partners, L.P.
     Three First National Plaza
     Chicago, IL

Joe K. Pickett                         Common Stock                  126,797 (a)                    *

Hugh R. Harris                         Common Stock                  121,435 (a)                    *

Kevin D. Race                          Common Stock                   48,586 (b)                    *

William Glasgow, Jr.                   Common Stock                   63,955 (b)                    *

Mark F. Johnson                        Common Stock                   68,051 (b)                    *

Thomas M. Hagerty                      Common Stock                   25,194 (c)                    *

David V. Harkins                       Common Stock                   39,661 (d)                    *

All Directors and Executive
Officers as a Group
(18 persons)                           Common Stock                  593,568 (e)                  1.36%
--------------------------------------
*        Less than 1%
</TABLE>

(a) Includes 48,573 shares currently exercisable under the Parent's stock option
plan. (b) Includes 19,431 shares currently  exercisable under the Parent's stock
option plan. (c) Does not include 8,570,856 shares owned by THL, as to which Mr.
Hagerty disclaims  beneficial  ownership.  (d) Does not include 8,556,389 shares
owned by THL, as to which Mr. Harkins disclaims beneficial ownership.
(e)      Does not  include  the  shares  held by THL,  MDP,  Bank of Boston  and
         Siesta,  with which certain directors are affiliated;  includes 202,073
         shares currently exercisable under the Parent's stock option plan.

         The  Parent was  formed on  December  11,  1995,  to  acquire  HomeSide
(formerly  BancBoston  Mortgage  Corporation) the mortgage banking subsidiary of
BankBoston Corporation. That acquisition was completed on March 15, 1996. On May
31, 1996 the Parent acquired HomeSide Holdings,  Inc. (formerly Barnett Mortgage
Company), the mortgage banking subsidiary of Barnett Banks, Inc. ("Barnett").

         In addition to those shares of capital stock set forth in the preceding
table,  97,138  shares of Class C Common  Stock  (non-voting)  of the Parent are
beneficially  owned by Robert  Morrissey,  constituting  100% of the outstanding
Class C Common Stock.  Within 180 days of the initial public  offering of Common
Stock of the Parent in January 1997, a holder of Class C Common Stock at a price
based upon the average bid prices of the Common Stock for the preceding 20 days.
In addition,  upon  consummation of a merger or sale of substantially all of the
assets of the Parent, a holder of Class C Common Stock may require the Parent to
purchase any portion of its shares of Class C Common Stock at an appraised  fair
market value price.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Exclusive Marketing Agreements

         HomeSide Lending has entered into a Marketing Agreement dated March 15,
1996 (the "BKBC  Marketing  Agreement")  with  BankBoston  Corporation  ("BKBC")
pursuant  to which  HomeSide  Lending  and BKBC may market  services to HomeSide
Lending  customers  who are also BKBC  customers  ("BKBC  Customers")  and other
customers of HomeSide  Lending.  Under this agreement:  (a) HomeSide Lending has
the exclusive right, subject to certain limitations,  to market to all customers
any mortgage loan refinancing,  (b) HomeSide Lending has the non-exclusive right
to market first  mortgage loans (other than  refinancing)  to BKBC Customers and
the exclusive right market such loans to other HomeSide Lending  customers,  (c)
HomeSide  Lending has the exclusive  right to market  "other"  mortgage loans to
customers who are not BKBC Customers, (d) HomeSide Lending has the non-exclusive
right,  subject to certain  limitations,  to offer certain  "Eligible  Products"
(mortgage credit insurance,  relocation services, title insurance, title search,
appraisal  services,   private  mortgage  insurance,   escrow  services,  hazard
insurance  services  and  certain  other  products)  to BKBC  Customers  and the
exclusive right to offer Eligible Products to other customers, and (e), BKBC has
the exclusive right to offer certain banking  services to BKBC Customers and the
non-exclusive right to offer such services to other customers.

         Under the BKBC  Marketing  Agreement,  BKBC may not  engage in a formal
program to solicit HomeSide Lending's customers for refinancing.

         The terms of the BKBC  Marketing  Agreement  is the later of: (a) eight
years,  or (b)  the  third  anniversary  of  the  termination  of the  Operating
Agreement  (which has a term of five years).  See "--Other  BKBC  Agreements  --
Operating Agreement" below.

         HomeSide Lending has also entered into a marketing  Agreement dated May
31, 1996 (the "Barnett Marketing Agreement") with Barnett which is substantially
similar to the BKBC  Marketing  Agreement,  except  that it governs  rights with
respect to "Barnett  Customers" as defined  therein  rather than with respect to
BKBC Customers.

         HomeSide  Lending  does not pay any fee or moneys  (other than  certain
reimbursement obligations) to BKBC or Barnett for its marketing and other rights
under the BKBC Marketing Agreement or Barnett Marketing Agreement.

Transitional Services Agreements

Bank Boston and its affiliate banks (the "BKB Banks") and HomeSide  Lending have
entered into a series of Transitional  Services  Agreement dated March 15, 1996,
pursuant to which the BKB Banks agreed to make available to HomeSide Lending, at
the  BKB  Banks'  cost,  certain  corporate   services,   including  travel  and
relocation,  general ledger support, audit, payroll,  retirement plans, computer
services,  disbursement accounting,  purchasing,  telecommunications/workstation
support and human  resources.  HomeSide Lending also agreed to make available to
the BKB Banks, at HomeSide  Lending's  cost,  certain  administrative  services,
including  mortgage loan  origination  support,  mortgage  loan quality  control
services, affordable housing loan support and pledged loan support services. For
the period from March 1, 1997 to February 10, 1998, HomeSide Lending paid to BKB
Banks  approximately $5.2 million under such Transitional  Services  Agreements.
For the period from March 16, 1996 to February 28, 1997,  HomeSide  Lending paid
to BKB  Banks  approximately  $2.5  million  under  such  Transitional  Services
Agreements.

         Barnett and HomeSide Lending have entered into a Transitional  Services
Agreement dated May 31, 1996, pursuant to which Barnett agreed to make available
to HomeSide  Lending  office  space and certain  corporate  services,  including
finance  services,   accounting  services,  purchasing  services,  benefits  and
compensation   administration,   human  resources  and  staffing   services  and
technology services.  HomeSide Lending pays Barnett a monthly fee based on rates
established under a fee schedule for the different services provided to HomeSide
Lending.  For the  period  from March 1, 1997 to  February  10,  1998,  HomeSide
Lending  paid to Barnett  approximately  $0.5  million  under such  Transitional
Services  Agreements.  For the period from March 16, 1996 to February  28, 1997,
HomeSide  Lending  paid  to  Barnett   approximately  $0.9  million  under  such
Transitional Services Agreements.

         The terms of the  services  provided  under the  Transitional  Services
Agreements  vary. As a general  matter,  the services were to be provided to the
receiving party until the receiving  party no longer requires the services,  but
in no event later than December 31, 1996. The term was extended to June 30, 1997
with respect to some services.

Other BKBC Agreements

     Operating Agreement

         The BKB Banks and  HomeSide  Lending  have  entered  into an  Operating
Agreement,  dated March 15, 1996 (the "BKBC  Operating  Agreement"),  which sets
forth the parties'  roles with respect to new loan  originations  and  servicing
rights. With certain exceptions, the BKB Banks are required to sell all mortgage
loan  production  to  HomeSide  Lending  during  the term of the BKBC  Operating
Agreement. In particular,  among other things, the BKBC Operating Agreement: (a)
describes the mortgage  loan  products to be purchased by HomeSide  Lending from
BKB Banks, (b) ensures that the BKB Banks receive the most favorable pricing and
service released premiums offered by HomeSide Lending to correspondent  lenders,
(c)  describes  HomeSide  Lending's  customer  service  levels,  (d) sets  forth
warehouse  and pipeline  management  rights and  obligations,  (e) describes the
technology  support which the parties provide to one another,  (f) describes the
mortgage loan  production  and support  functions to be provided by the parties,
(g)  describes the reports and  information  provided  periodically  by HomeSide
Lending  to the BKB Banks,  including,  but not  limited  to,  risk  management,
internal  performance and management reports, (h) sets forth the penalties to be
paid by the BKB Banks for failing to satisfy the buy price expiration dates, (i)
describes BKB Banks'  mortgage loan  repurchase  obligations,  and (j) restricts
HomeSide  Lending's  ability to sell  servicing  rights  relating  to BKB Banks'
portfolio mortgage loans.

         The term of the BKBC Operating Agreement is five years. The termination
of the BKBC Operating  Agreement  will not affect  HomeSide  Lending's  right to
service mortgage loans serviced prior to the termination date.

        Correspondent Loan Purchase and Sale Agreement

         HomeSide   Lending  and  the  BKB  Banks  have  also   entered  into  a
Correspondent  Loan Purchase and Sale Agreement,  dated March 15, 1996 (the "BKB
Correspondent  Loan Purchase  Agreement"),  which  describes the mortgage  loans
eligible for sale to HomeSide  Lending by BKB, and related  pricing and delivery
requirements  for such loans.  The BKB Banks receive the most favorable  pricing
offered by HomeSide Lending to correspondent lenders. For the periods from March
1, 1997 to February 10, 1998 and March 16, 1996 to February  28, 1997,  HomeSide
Lending paid  approximately  $5.3 million and $4.7 million,  respectively to the
BKB Banks under the BKB  Correspondent  Loan Purchase and Sale Agreement.  Under
certain conditions,  the BKB Banks must indemnify HomeSide Lending or repurchase
mortgage  loans  from  HomeSide   Lending.   The  agreement   provides   certain
underwriting, appraisal, mortgage insurance and escrow requirements.

         The term of the BKB Correspondent Loan Purchase Agreement is five years
but  will  automatically   terminate  upon  the  termination  of  the  Operating
Agreement.

      PMSR Flow Agreement

         HomeSide  Lending  and the BKB  Banks  have  entered  into a PMSR  Flow
Agreement dated March 15, 1996, which requires the BKB Banks, subject to certain
exceptions,  to sell to HomeSide  Lending the servicing rights to the BKB Banks'
portfolio  mortgage loans.  The purchase price for the servicing rights is based
upon a percentage  (which varies depending on the type of loan) of the principal
balance of the loan, as may be adjusted  based on an  independent  third party's
revaluation.  For the periods  from March 1, 1997 to February 10, 1998 and March
16, 1996 to February 28, 1997,  HomeSide Lending paid approximately $1.6 million
and $1.3 million, respectively, to the BKB Banks under this PMSR Flow Agreement.
The  agreement  also  requires  the BKB  Banks to  provide  certain  notices  to
government agencies,  flood service providers,  insurance carriers and borrowers
upon the  transfer  of  servicing  rights to  HomeSide  Lending.  The  agreement
describes  the BKB Banks'  obligation  to  prepare  and  record  assignments  of
mortgage and pay tax, service-related fees and flood service fees. Under certain
conditions,  the BKB Banks must reimburse the servicing rights purchase price to
HomeSide Lending.

         The  term  of  the  PMSR  Flow   Agreement   is  five  years  but  will
automatically terminate upon the termination of the BKBC Operating Agreement.

      Mortgage Loan Servicing Agreement

         HomeSide  Lending and the BKB Banks have entered  into a Mortgage  Loan
Servicing Agreement dated March 15, 1996 (the "BKBC Servicing Agreement"), which
requires HomeSide  Lending,  subject to certain  exceptions,  to service the BKB
Banks'  portfolio  mortgage  loans.  HomeSide  Lending is also  required  to use
reasonable  efforts to collect  mortgage loan payments,  to remit  principal and
interest  to the BKB  Banks  each  month and to  perform  certain  default  loan
administration and foreclosure activities.  HomeSide Lending provides additional
services for the BKB Banks' private banking clients.

         The  servicing  fees  paid by the BKB  Banks to  HomeSide  Lending  are
market-based  fees consistent with the fees charged by HomeSide Lending to other
mortgagees.  For the periods  from March 1, 1997 to February  10, 1998 and March
16, 1996 to February 2, 1997, the BKB Banks paid  approximately  $3.8million and
$5.3  million,  respectively,  to  HomeSide  Lending  under  the BKBC  Servicing
Agreement.

         The term of the BKBC Servicing  Agreement is five years.  The BKB Banks
will not be obligated to deliver  portfolio  mortgage loan  servicing  rights to
HomeSide Lending upon the termination of the BKBC Operating Agreement.  However,
the  termination  of the  BKBC  Operating  Agreement  will not  affect  HomeSide
Lending's  right to continue  servicing the BKB Banks'  portfolio loans that are
being serviced by HomeSide Lending as of such termination date.


<PAGE>


Other Barnett Agreements

    Operating Agreement

         Barnett and HomeSide Lending have entered into an Operating  Agreement,
dated May 31, 1996 (the  "Barnett  Operating  Agreement"),  which sets forth the
parties' roles with respect to new loan originations and servicing rights.  With
certain  exceptions,  Barnett and its affiliate banks (the "Barnett  Banks") are
required to sell all mortgage  loan  production to HomeSide  Lending  during the
term of the Barnett Operating Agreement. In particular,  among other things, the
Barnett  Operating  Agreement:  (a)  describes  the mortgage loan products to be
purchased by HomeSide  Lending from Barnett Banks,  (b) ensures that the Barnett
Banks receive the most favorable pricing and servicing released premiums offered
by HomeSide Lending to mortgage correspondents, (c) describes HomeSide Lending's
customer  service levels,  (d) sets forth  warehousing  and pipeline  management
rights and obligations,  (e) describes the technology  support which the parties
provide to one another,  (f) describes the mortgage loan  production and support
functions  to be  provided  by  the  parties,  (g)  describes  the  reports  and
information  provided  periodically  by HomeSide  Lending to the Barnett  Banks,
including,  but not  limited  to,  risk  management,  internal  performance  and
management reports, (h) sets forth penalties to be paid by the Barnett Banks for
failing to satisfy the buy price expiration  dates, (i) describes Barnett Banks'
mortgage  loan  repurchase  obligations,  and (j) restricts  HomeSide  Lending's
ability to sell  servicing  rights  relating  to the  Barnett  Banks'  portfolio
mortgage loans.

          Correspondent Loan Purchase Agreement

         HomeSide  Lending and Barnett  Banks have entered into a  Correspondent
Loan Purchase  Agreement,  dated May 16, 1996 (the "Barnett  Correspondent  Loan
Purchase Agreement"),  which describes the mortgage loans which are eligible for
sale to HomeSide  Lending by the Barnett Banks and related  pricing and delivery
requirements  for such loans.  The  Barnett  Banks  receive  the most  favorable
pricing  offered by HomeSide  Lending to other  correspondents.  For the periods
from March 1, 1997 to February 10, 1998 and March 16, 1996 to February 28, 1997,
HomeSide   Lending  paid   approximately   $45.4  million  and  $27.6   million,
respectively to Barnett under the Barnett Correspondent Agreement. Under certain
conditions,  the  Barnett  Banks must  repurchase  mortgage  loans for  HomeSide
Lending.  The Barnett  Correspondent  Loan Purchase  Agreement  provides certain
underwriting, appraisal, mortgage insurance and escrow requirements.

         PMSR Flow Agreement

         HomeSide  Lending and the Barnett  Banks have  entered into a PMSR Flow
Agreement dated May 31, 1996 ("PMSR Flow Agreement"), which requires the Barnett
Banks, subject to certain exceptions,  to sell to HomeSide Lending the servicing
rights to the Barnett Banks'  portfolio  mortgage loans.  The purchase price for
the servicing  rights is based upon a percentage  (which varies depending on the
type of loan) of the principal  balance of the loan, as may be adjusted based on
an independent third party's revaluation.  For the periods from March 1, 1997 to
February 10, 1998 and from March 16, 1996 to February 28, 1997, HomeSide Lending
paid approximately $9.5 million and $8.2 million, respectively, to Barnett under
this PMSR Flow  Agreement.  The  agreement  also  requires the Barnett  Banks to
provide  certain  notices  to  government  agencies,  flood  service  providers,
insurance  carriers  and  borrowers  upon the  transfer of  servicing  rights to
HomeSide  Lending.  The  agreement  describes the Barnett  Banks'  obligation to
prepare and record assignments of mortgage and pay tax, service-related fees and
flood service fees. Under certain  conditions,  the Barnett Banks must reimburse
the servicing rights purchase price to HomeSide Lending.

         As a result of NationsBank  Corporation's acquisition of Barnett Banks,
Inc., the Company agreed to release Barnett from its five year agreement to sell
certain of its mortgage loans to HomeSide Lending. In consideration, the Company
received the right to purchase  $5.0 billion in mortgage  servicing  rights,  an
increase in the  weighted  average  servicing  fee for Barnett  portfolio  loans
currently serviced, and will receive $3.0 million cash in June 1998.

Mortgage Loan Servicing Agreement

         HomeSide  Lending and the Barnett  Banks have  entered  into a Mortgage
Loan  Servicing  Agreement  dated as of May 31,  1996  (the  "Barnett  Servicing
Agreement") which requires HomeSide Lending,  subject to certain exceptions,  to
service the Barnett Banks'  portfolio  mortgage loans.  HomeSide Lending is also
required to use reasonable  efforts to collect mortgage loan payments,  to remit
principal  and interest to the Barnett  Banks each month and to perform  general
ledger  reconciliations  and  other  related  tasks.  HomeSide  Lending  is also
required  to  perform  certain  default  loan   administration  and  foreclosure
activities. HomeSide Lending provides additional services for the Barnett Banks'
private banking clients. For the periods from March 1, 1997 to February 10, 1998
and March 16, 1996 to February  28, 1997,  Barnett paid $29.1  million and $23.6
million in servicing fees, respectively.

         Each of the foregoing agreements described under "Certain Relationships
and  Related  Transactions"  was  entered  into in  connection  with  either the
acquisition of BancBoston  Mortgage  Corporation or Barnett Mortgage Company. No
additional  consideration was paid or received by HomeSide Lending in connection
with the execution and delivery thereof.

Management Agreements

         HomeSide  Lending  agreed  to pay  the  Thomas  H.  Lee  Company,  MDP,
BankBoston  and  Barnett  pursuant  to  management  agreements  entered  into in
connection with the BancBoston  Mortgage  Corporation  and the Barnett  Mortgage
Company acquisitions,  an annual management fee of $250,000,  $83,334,  $333,333
and $333,333,  respectively. Such management agreements had a term of five years
automatically  extended for successive one year terms, except either party could
terminate the agreement by delivering notice thereof 90 days prior to the end of
any such term. The management  agreements  terminated  upon  consummation of the
January 1997 offering of Common Stock of the Parent.

      As of February 28, 1997,  certain  members of management owed $1.9 million
related to loans  granted to  purchase  shares of the  Company's  common  stock.
During the period from March 1, 1997 to February  10,  1998,  all related  loans
were repaid.

                                                                PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                 FORM 8-K

    (a) The following documents are filed as a part of this Report:

         1.  Financial Statements:  See Part II, Item 7 hereof.

         2.  Financial Statement Schedule and Auditors' Report

                  All  schedules  omitted are  inapplicable  or the  information
required is shown in the Consolidated Financial Statements or notes thereto.

         3. The following exhibits are submitted herewith:
<TABLE>
<CAPTION>

              Unless otherwise indicated, all Exhibits are incorporated by 
reference to the Company's Registration Statement on Form S-1, No. 333-17685.

              Number       Description
              <S>          <C>    

                  3.1      Certificate of Incorporation of HomeSide Lending, Inc.
                  3.2      By-Laws of HomeSide Lending, Inc.
                  4.1      Form of Common Stock Certificate
                 10.1      Stock Purchase Agreement dated December 11, 1995 between HomeAmerica Capital,
                           Inc. (currently known as HomeSide, Inc.) and The First National Bank of Boston
                           (the "BBMC Purchase Agreement")
                 10.2      Amendment No. 1, dated as of March 15, 1996, to the BBMC Purchase Agreement
                 10.3      Marketing Agreement dated as of March 15, 1996 between HomeSide, Inc. and The First National 
                           Bank of Boston
                 10.4      Repurchase of Mortgage Loan Servicing Rights Letter Agreement between The First
                           National Bank of Boston (currently known as BankBoston, N.A.) and BancBoston Mortgage Corporation
                           (currently known as HomeSide Lending, Inc.)
                 10.5      Operating  Agreement  effective  as of March  15,  1996
                           between The First National Bank of Boston (currently known as BankBoston,  N.A.)
                           and BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.)
                 10.6      Brokered Loan Purchase and Sale Agreement dated as of March 15, 1996 between
                           BancBoston Mortgage Corporation  (currently known as HomeSide Lending, Inc.) and
                           each of The First National Bank of Boston  (currently known as BankBoston N.A.),
                           Bank of Boston  Connecticut,  Rhode Island Hospital Trust National Bank and Bank
                           of Boston Florida, N.A.
                 10.7      Master Take-Out Commitment dated as of March 15, 1996 between BancBoston
                           Mortgage Corporation (currently known as HomeSide Lending, Inc.) and each of The
                           First National Bank of Boston  (currently  known as BankBoston,  N.A.),  Bank of
                           Boston Connecticut, Rhode Island Hospital Trust National Bank and Bank of Boston
                           Florida, N.A.
                 10.8      Neighborhood Assistance Corporation of America Mortgage Loan Take-Out
                           Commitment dated as of March 15, 1996 between  BancBoston  Mortgage  Corporation
                           (currently  known as  HomeSide  Lending,  Inc.) and The First  National  Bank of
                           Boston (currently known as BankBoston, N.A.)
                 10.9(DELTA)  PMSR Flow  Agreement  dated as of March 15, 1996
                           between BancBoston  Mortgage  Corporation  (currently known as HomeSide Lending,
                           Inc.)  and  each of The  First  national  Bank of  Boston  (currently  known  as
                           BankBoston,  N.A.),  Bank of Boston  Connecticut,  Rhode Island  Hospital  Trust
                           National Bank and Bank of Boston Florida, N.A.
                 10.10(DELTA) Mortgage Loan Servicing Agreement dated as of March 15, 1996 between BancBoston
                           Mortgage Corporation (currently known asHomeSide Lending, Inc.) and each of the First National Bank
                           of Boston, Bank of Boston Connecticut, Rhode Island Hospital Trust National Bank and Bank of Boston
                           Florida, N.A.
                 10.11     Stock Purchase Agreement dated as of March 4, 1996 between Grant America, Inc.
                           (currently known as HomeSide, Inc.) and Barnett Banks, Inc. (the "BMC Purchase Agreement")
                 10.12     Amendment  No. 1, dated as of May 31, 1996,  to the BMC
                           Purchase  Agreement 10.13 Tax Indemnity Letter Agreement dated
                           as of March 4, 1996 between Barnett Mortgage
                           Company  (currently known as HomeSide Holdings, Inc.) and Barnett Banks, Inc.
                 10.14     Amended and Restated Shareholder Agreement dated as of May 31, 1996 among
                           HomeSide, Inc. and the shareholders thereof
                 10.15     Amended and Restated Registration Rights Agreement dated
                           as of May 31, 1996 between HomeSide, Inc. and certain shareholders thereof
                 10.16     Marketing Agreement dated as of May 31, 1996 between HomeSide, Inc. and Barnett Banks, Inc.
                 10.17     Transitional Services Agreement dated as of may 31, 1996 between Barnett Banks, Inc.,
                           Barnett Mortgage Company (currently known as HomeSide Holdings, Inc.) and HomeSide, Inc.
                 10.18     Operating Agreement dated as of May 31, 1996 between HomeSide Lending, Inc. and
                           Barnett Banks, Inc.
                 10.19(DELTA) Mortgage Loan Servicing Agreement dated as of April, 1996 between HomeSide
                           Lending, Inc. and Barnett Banks, Inc.
                 10.20(DELTA) PMSR Flow Agreement dated as of May 31, 1996 between HomeSide Lending, Inc. and
                           Barnett Banks, Inc.
                 10.21     Correspondent Agreement dated May 16, 1996 between HomeSide Lending, Inc. and
                           Barnett Banks, Inc.
                 10.22     Delegated Underwriting  Agreement  dated as of May 15,
                           1996 between HomeSide Lending, Inc. and HomeSide Holdings, Inc.
                 10.23*    Amended and Restated Credit Agreement dated as of January 31, 1997 among
                           HomeSide Lending, Inc., Honolulu Mortgage Company, Inc., the Lenders parties thereto, and The
                           Chase Manhattan Bank as Administrative Agent (the "Credit Agreement")
                 10.24*    Amended and Restated Holdings Pledge Agreement dated as of January 31, 1997 between HomeSide Lending,
                           Inc. and The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to 
                           the Credit Agreement
                 10.25*    Amended and Restated HomeSide Lending Pledge Agreement dated as of January 31, 1997
                           between HomeSide Lending, Inc. and The Chase Manhattan Bank, as Administrative Agent for the Lenders
                           parties to the Credit Agreement
                 10.26*    Amended and Restated BMC Pledge Agreement dated as of January 31, 1997 between HomeSide Holdings, Inc. 
                           and The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
                 10.27     Registration Rights Agreement dated as of May 14, 1996 among HomeSide, Inc. and Merrill Lynch & Co.,
                           Merrill Lynch, Pierce, Fenner & Smith Incorporated, Smith Barney Inc. and Friedman, Billings, 
                           Ramsey & Co., Inc.
                 10.28*    Amended and Restated  Holdings  Guaranty  dated as of January  31, 1997 by  HomeSide,  Inc. 
                           in favor of The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the 
                           Credit Agreement
                 10.29*    Amended and Restated  HomeSide Lending Guaranty dated as of January 31, 1997 by HomeSide  Lending,  
                           Inc. in favor of The Chase Manhattan Bank, as  Administrative Agent for the Lenders parties to 
                           the Credit Agreement
                 10.30*    Amended and Restated Subsidiaries Guaranty dated as of January 31, 1997 by each of SWD Properties, Inc.,
                           Stockton Plaza, Inc., HomeSide Lending Mortgage Securities, Inc. and Honolulu Mortgage Company, Inc. in
                           favor of The Chase Manhattan Bank, as Administrative Agent   for the Lenders parties to the 
                           Credit Agreement
                 10.31*    Amended and Restated BMC Guaranty dated as of January 31, 1997 by HomeSide
                           Holdings, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to
                           the Credit Agreement
                 10.32*    Amended and Restated Security and Collateral Agency Agreement dated as of January
                           31, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank, as Administrative
                           Agent for the Lenders parties to the Credit Agreement
                 10.33*    Amended and Restated Security and Collateral Agency Agreement dated as of January
                           31, 1997 between Honolulu Mortgage Company, Inc. and The Chase Manhattan Bank, as Administrative 
                           Agent for the Lenders parties to the Credit Agreement
                 10.34*    Amended and Restated Security and Collateral Agency Agreement dated as of January
                           31, 1997 between HomeSide Holdings, Inc. and The Chase Manhattan Bank, as Administrative
                           Agent for the Lenders parties to the Credit Agreement
                 10.35*    Intercreditor Agreement dated as of May 31, 1996 between HomeSide Lending, Inc. HomeSide Holdings, 
                           The Bank of New York, as Trustee, and The Chase Manhattan Bank, as Administrative Agent under the
                           Credit Agreement
                 10.36     HomeSide, Inc. Time Accelerated Restricted Stock Option Plan
                 10.37     HomeSide, Inc. Non-Qualified Stock Option Plan
                 10.38     Class B Non-Voting Common Stock Issuance Agreement dated as of March 14, 1996
                           between HomeSide, Inc. and Smith Barney Inc.
                 10.39     Transitional Services Agreement dated as of March 15, 1996 between The First National
                           Bank of Boston (currently known as BankBoston, N.A.) and BancBoston Mortgage Corporation 
                           (currently known as HomeSide Lending, Inc.)
                 10.40     Transitional Services Agreement dated as of March 15, 1996 between The First National
                           Bank of Boston (currently known as BankBoston, N.A.) and BancBoston Mortgage corporation 
                           (currently known as HomeSide Lending, Inc.)
                 10.41     Management Agreement dated as of March 15, 1996 between BancBoston Mortgage
                           Corporation (currently known as HomeSide Lending, Inc.) and The First National Bank of Boston
                           (currently known as BankBoston, N.A.)
                 10.42     Management Agreement dated as of March 15, 1996 between BancBoston Mortgage
                           Corporation (currently known as HomeSide Lending, Inc.) and Thomas H. Lee Company
                 10.43     Management Agreement dated as of March 15, 1996 between BancBoston Mortgage
                           Corporation (currently known as HomeSide Lending, Inc.) and Madison Dearborn Partners, Inc.
                 10.44     Management  Stockholder Agreement dated as of May 15, 1996 between HomeSide,  Inc., 
                           The First National Bank of Boston (currently known BankBoston,  N.A.), Thomas H. Lee Equity Fund III,  
                           L.P. and certain  affiliates thereof,  Madison Dearborn Capital Partners, L.P. and
                           certain employees of HomeSide  Lending,  Inc. and its subsidiaries
                 10.45     Management Agreement dated as of May 31, 1996 between HomeSide Lending, Inc. and
                           Barnett Banks, Inc.
                 10.46     Form of HomeSide Severance Agreement
                 10.47*    Loan and Security Agreement dated January 15, 1997 between HomeSide Lending, Inc.
                           and The Chase Manhattan Bank
                 10.48*    First Amendment dated February 28, 1997 to Loan and Security Agreement dated
                           January 15, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank
                 10.49*    Second  Amendment  dated  March  31,  1997 to Loan and
                           Security Agreement dated January 15, 1997 between HomeSide Lending, Inc. and The
                           Chase Manhattan Bank.
                 10.50*    Loan and Security Agreement dated March 14, 1997 between HomeSide Lending, Inc.
                           and Merrill Lynch Mortgage Capital Inc.
                 10.51*    First  Amendment  dated  March  31,  1997 to Loan  and
                           Security  Agreement  dated March 14, 1997  between  HomeSide  Lending,  Inc. and
                           Merrill Lynch Mortgage Capital Inc.
                 10.52*    Third  Amendment  dated  April  11,  1997 to Loan  and
                           Security Agreement dated January 15, 1997 between HomeSide Lending, Inc. and The
                           Chase Manhattan Bank.
                 10.53*    Second  Amendment  dated  April  14,  1997 to Loan and
                           Security  Agreement  dated March 14, 1997  between  HomeSide  Lending,  Inc. and
                           Merrill Lynch Mortgage Capital Inc.
                 10.54*    Fourth  Amendment  dated  April  29,  1997 to Loan and
                           Security Agreement dated January 15, 1997 between HomeSide Lending, Inc. and The
                           Chase Manhattan Bank.
                 10.55*    Third  Amendment  dated  April  29,  1997 to Loan  and
                           Security  Agreement  dated March 14, 1997  between  HomeSide  Lending,  Inc. and
                           Merrill Lynch Mortgage Capital Inc.
                 10.56*    Amendment  dated  as of  September  30,  1997  to the
                           Credit Agreement dated as of January 31, 1997.
                 10.57*    Second Amendment dated as of December 31, 1997 to the Credit Agreement dated as of
                           January 31, 1997.
                 10.58*    Employment Agreement and Confidentiality and Non-Competition Agreement, each dated
                           as of October 25, 1997, each between HomeSide Lending, Inc. and Joe K. Pickett.
                 10.59*    Employment Agreement and Confidentiality and Non-Competition Agreement, each dated
                           as of October 25, 1997, each between HomeSide Lending, Inc. and Hugh R. Harris.
                 10.60*    Employment Agreement and Confidentiality and Non-Competition Agreement, each dated
                           as of October 25, 1997, each between HomeSide Lending, Inc. and Kevin D. Race.
                 10.61*    Employment Agreement and Confidentiality and Non-Competition Agreement, each dated
                           as of October 25, 1997, each between HomeSide Lending, Inc. and William Glasgow.
                 10.62*    Employment Agreement and Confidentiality and
                           Non-Competition    Agreement,   each   dated
                           October  25,  1997,  each  between  HomeSide
                           Lending, Inc., and Mark F. Johnson.
                 12.1      Computation of the Ratio of Earnings to Fixed Charges
                 21.1*     List of subsidiaries of HomeSide Lending, Inc.
                 23.6(a)   Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
                           Exhibit 5.1)
                 24.1      Powers of Attorney
                 26.0      Excerpts from 1997 and 1998 Annual Report to Stockholders
                 26.1      Item 15 of the Company's Registration Statement on form S-1, No. 333-17685
                 27.1      Financial Data Schedule
             ----------------
</TABLE>

         * Incorporated by reference to Exhibits of HomeSide Lending,  Inc.'s (a
         wholly-owned  subsidiary of the  Registrant  Registration  Statement on
         Form S-1,  Registration No. 333-21193  (DELTA) Portions of this Exhibit
         have been omitted  pursuant to an order by the  Securities and Exchange
         Commission granting confidential treatment.


     (b) Reports on form 8-K

         HomeSide  Lending  filed no reports  on form 8-K for the  period  from
         December 1, 1997 to February 10, 1998.







<PAGE>



                                   SIGNATURES


    Pursuant to the  requirements  of the Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.


                                            HomeSide Lending, Inc.
                                           (Registrant)

                                            By:   _  /s/____________________
                                            Joe K. Pickett
                                            Chairman and Chief Executive Officer

<TABLE>
<CAPTION>

    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report has been signed by the  following  persons in the  capacities  and on the
dates indicated.
<S>                            <C>                                                           <C>   
         Signature                                Title                                         Date

              /s/              Chairman of the Board, Chief Executive Officer and            May 8, 1998
---------------------------
     Joe K. Pickett            Director (Principal Executive Officer)

            /s/ ___________    President, Chief Operating Officer and Director               May 8, 1998
----------------
     Hugh R. Harris

           /s/ ____________     Vice President and Chief Financial Officer and Treasurer      May 8, 1998
---------------
     Kevin D. Race             (Principal Financial and Accounting Officer)


          /s/ _____________    Vice President and Secretary, General Counsel                 May 8, 1998
--------------
     Robert J. Jacobs

</TABLE>