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 September 30, 1999

                                       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 December 28, 1999
   -------------------                         --------------------------------

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.


<PAGE>



                       DOCUMENTS INCORPORATED BY REFERENCE

                                     PART I

ITEM 1.  BUSINESS

General

     HomeSide  Lending,  Inc. (the "Company") is one of the largest full service
residential  mortgage  banking  companies in the United States.  On February 10,
1998,  National  Australia Bank, Ltd. (the "National")  acquired all outstanding
shares of the common stock of HomeSide  International,  Inc. (the  "Parent") and
the Company  adopted a fiscal year end of  September 30 to conform to the fiscal
year of the  National  (see Note 2 of the  Consolidated  Financial  Statements).
HomeSide's   predecessor   ("HomeSide   Predecessor")  was  formed  through  the
acquisition  of the mortgage  banking  operations  of  BankBoston,  N.A.  ("BBMC
Predecessor"  to  HomeSide  Predecessor)  on March  16,  1996  and  subsequently
purchased  the  mortgage  banking  operations  of  Barnett  Banks,  Inc.  Unless
otherwise designated,  the term "HomeSide" refers to the Company for the periods
subsequent  to February 10, 1998, to HomeSide  Predecessor  for the periods from
March 16, 1996 to February 10, 1998 and to BBMC Predecessor for periods prior to
March 16, 1998.

     HomeSide's  strategy  emphasizes  variable cost mortgage loan originations,
low cost mortgage  servicing and effective  risk  management.  Headquartered  in
Jacksonville,   Florida,  HomeSide  ranks  as  the  7th  largest  mortgage  loan
originator  and the 7th largest  servicer in the United  States at September 30,
1999 based on data published by Inside Mortgage Finance.

     The residential mortgage market, which totaled  approximately $4.7 trillion
at September 30, 1999, is the largest debt market in the world.  The residential
mortgage  market has grown at a compound annual rate of  approximately  8% since
1985.  HomeSide competes in a mortgage banking market which is highly fragmented
with no single company  controlling  or dominating the market.  At September 30,
1999,  the  largest  originator  represented  7.6% of the market and the largest
servicer   represented   6.4%,  while  the  top  30  originators  and  servicers
represented  59.8%  and  57.2% 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 17% in 1990 to 40% as
of September 30, 1999.

     HomeSide'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 focuses on variable
cost channels of production,  including correspondent,  broker, consumer direct,
affinity,  and co-issue sources.  HomeSide 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  without  the  fixed  cost
investment associated with traditional retail mortgage branch networks. HomeSide
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 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 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  intends to pursue  additional  loan portfolio
acquisitions  and strategic  origination  relationships  similar to its existing
relationships with Banc One Mortgage  Corporation  ("Bank One"),  People's Bank,
and Cendant Mortgage Company ("Cendant").

         HomeSide'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 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 90% of HomeSide's total production.  Excluding the volumes
purchased from BankBoston, N.A., Barnett Bank, N.A. ("Barnett") and Banc One, no
single source within the  correspondent  or broker  channels  accounted for more
than 7% of total production since March 16, 1996.  HomeSide's other  origination
channels include telemarketing, direct mail campaigns and other advertising, and
mortgages related to affinity group and co-branding partnerships.  HomeSide 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's  origination  channels.  The periods  presented
coincide with the  commencement of operations of HomeSide and the acquisition of
HomeSide by the National (see Note 2 of the Consolidated Financial Statements):

Residential Loan Production by Channel



(dollars in millions)                 For the Period From    For the Period From
                                      October 1, 1998 to    February 11, 1998 to
                                      September 30, 1999      September 30, 1998
                                      ------------------     -------------------
Wholesale:
  Correspondent                             $17,927                  $11,309
  Co-issue (a)                                7,737                    2,906
  Broker                                      3,818                    1,980
                                      -------------------   --------------------
    Total wholesale                          29,482                   16,195
Direct                                        1,451                      631
                                      -------------------   --------------------
   Total production                          30,933                   16,826
Bulk acquisitions (b)                        35,608                   18,947
                                      -------------------   --------------------
   Total production and acquisitions        $66,541                  $35,773
                                      ===================   ====================

(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.

(b)  Represents  the  acquisition  of servicing  rights from  another  servicer.
     Amounts  represent the unpaid  principal  balance of mortgage debt to which
     the acquired servicing rights relate.

         HomeSide  competes  nationwide  by offering a wide  variety of mortgage
products  designed to respond to consumer  needs and tailored to address  market
competition.  HomeSide is primarily an  originator of fixed rate 15- and 30-year
mortgage loans,  which  collectively  represented 98% of the total production in
the fiscal year ended  September  30, 1999,  98% of the total  production in the
period from February 11, 1998 to September 30, 1998.  HomeSide also offers other
products, such as ARMs, balloon, and jumbo mortgages.

         HomeSide's   national  loan   production   operation  has  resulted  in
geographically  diverse  originations,  enabling  HomeSide to diversify its risk
across  many  markets  in the  United  States.  HomeSide's  servicing  portfolio
composition  reflects  its  production  markets.  The  largest  segments  of the
servicing  portfolio by state on September  30, 1999 were  California  (11.8% of
unpaid principal balance),  Florida (9.7%),  Illinois (8.5%),  Texas (5.6%), and
Michigan  (5.0%).  The largest  segments of the servicing  portfolio by state on
September 30, 1998 were California (14.1% of unpaid principal balance),  Florida
(14.0%),  Texas (6.9%),  Massachusetts  (5.5%) and Illinois (4.9%).  The largest
segments of the  servicing  portfolio by state on February 10, 1998 were Florida
(17.2% of unpaid principal balance),  California (15.3%),  Massachusetts (7.0%),
Texas (6.3%), 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'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's   production   strategy  is  to  maintain  and  improve  its
reputation as one of the largest,  most efficient  originators of mortgage loans
nationwide.  Its  variable  cost loan  origination  channels  can be adjusted to
accommodate  varying  market  sizes and  allow  HomeSide  to remain  competitive
through  interest  rate cycles.  HomeSide  also plans to continue to pursue bulk
acquisitions of mortgage servicing rights.

Wholesale Production

Correspondent Production

         Through  its  correspondent  program,  HomeSide  purchases  loans  from
approximately  850 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  for legal  review and funding.  The  participants  in this program are
prequalified  and monitored on an ongoing basis by HomeSide.  If a correspondent
subsequently   fails  to  meet  HomeSide's   requirements,   HomeSide  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'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  funds  loans at  closing  from a
network of approximately 2,150 mortgage brokers nationwide.  The broker controls
the process of application and loan  processing.  A pre-closing  quality control
review is  performed  by HomeSide  to verify the  borrower's  credit.  All loans
originated  through  brokers are  underwritten by HomeSide's  approved  contract
underwriters.  Loans are  funded  by  HomeSide  and may be closed in either  the
broker's name or HomeSide'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.

Direct Production

     HomeSide's direct production  includes soliciting loans via its website and
the use of  telemarketing  to solicit  loans  from  several  sources,  including
refinancing of mortgage loans in HomeSide's existing servicing portfolio,  leads
generated  from direct  mail  campaigns  and other  advertising,  and  mortgages
related to affinity group and co-branding  partnerships.  HomeSide 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's
servicing  portfolio.  Refinancing  retention represents the percentage of loans
refinanced  through  HomeSide's  direct  channel that were  serviced by HomeSide
prior to refinancing.

Bulk Acquisition

      Bulk acquisition is the large scale purchase of mortgage servicing rights.
In connection with such acquisitions,  HomeSide does not purchase the underlying
mortgage loans which were originated by other originators. HomeSide 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.



<PAGE>


Underwriting and Quality Control

Underwriting

         HomeSide's loans are underwritten in accordance with applicable  Fannie
Mae,  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  currently  employs  underwriters with an average of ten
years of underwriting experience.

         HomeSide 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 and include
Mortgage  Guaranty  Insurance  Corp. and Republic  Mortgage  Insurance  Company.
HomeSide grants delegated underwriting status to the remaining approximately 20%
of correspondents  which enables the correspondents to submit conventional loans
to HomeSide  without prior  underwriting  approval.  Generally,  HomeSide 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's  underwriting  process for its retail production operation is
fully automated.  The automated underwriting  technology uses third-party vendor
systems to analyze credit risk.  HomeSide believes that these  technologies have
contributed to improved  productivity  and reduced  underwriting  and processing
turnaround time.

Quality Control

         HomeSide  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
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  reunderwriting of such loans, ordering second appraisals on 10%
of  the  sample,  reverifying  funds,  employment  and  final  applications  and
reordering credit reports. In addition,  a full underwriting review is conducted
on (i) all jumbo loans that  become  thirty  days  delinquent  in the first four
payments and jumbo loans that go into foreclosure in the first thirty-six months
and (ii) all  conventional  loans that become sixty days delinquent in the first
six payments. 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 monitors the performance of loan  underwriting  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's quality control findings, less than 5% 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 or,
ultimately, the originating  correspondent.  Correspondents or co-issue partners
are required to repurchase any flawed loans originated by them.

Secondary Marketing

      HomeSide customarily sells all loans that it originates or purchases while
retaining the servicing rights to such loans. HomeSide 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'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 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 on a servicing-released basis. For the fiscal year ended September 30,
1999,  approximately  94% of the mortgage loans originated by HomeSide were sold
to Fannie Mae (49%),  GNMA (28%),  and FHLMC (17%). For the period from February
11,  1998  to  September  30,  1998,  approximately  92% of the  mortgage  loans
originated  by HomeSide  were sold to Fannie Mae (36%),  GNMA  (34%),  and FHLMC
(22%). The remaining were sold to private investors.

      The sale of mortgage loans may generate a gain or loss to HomeSide.  Gains
or losses result primarily from two factors. First, HomeSide may purchase a loan
at a price  that may be  higher  or lower  than  HomeSide  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  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  constantly
monitors  these  factors  and  adjusts  its  hedging on a daily basis as needed.
HomeSide 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'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  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 aims to price loans competitively, hedge the interest rate risk of loan
originations  and sell loans on a  break-even  basis.  For the fiscal year ended
September 30, 1999, the period from February 11, 1998 to September 30, 1998, and
the period from March 1, 1997 to February 10, 1998, HomeSide has not experienced
secondary marketing losses on an aggregate basis.

      HomeSide'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 is
responsible  for  losses  which  exceed  the  VA's  guaranteed  limitations.  In
connection   with   HomeSide's   loan   exchanges  and  sales,   HomeSide  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 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 may sell the flawed loan back
to the correspondent under a repurchase obligation.

Loan Servicing

      HomeSide derives its revenues predominantly from its servicing operations.
HomeSide anticipates that the sale of servicing rights will not be a significant
component of its business strategy in the future. Since its formation,  HomeSide
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 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's  weighted  average  servicing  fee
including  ancillary  income was 0.467% for the fiscal year ended  September 30,
1999 and 0.469% for the period from  February  11, 1998 to  September  30, 1998.
HomeSide also maintains certain subservicing  relationships whereby servicing is
performed by another  servicer under an agreement  with HomeSide,  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's  servicing  strategy  is to  continue  to  build  its  mortgage
servicing  portfolio  and benefit from the  economies  of scale  inherent in the
business.  HomeSide  services  substantially  all of the mortgage  loans that it
originates. In addition, HomeSide purchases the rights to service mortgage loans
originated by other lenders.

      HomeSide'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  outsources  functions  relating  to
insurance, taxes and default management to third party vendors,  contributing to
HomeSide'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  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.



<PAGE>


Servicing Portfolio Composition

      HomeSide  originates  and purchases  servicing  rights for mortgage  loans
nationwide.  The broad geographic distribution of HomeSide's servicing portfolio
reflects  the  national  scope of  HomeSide's  originations  and bulk  servicing
acquisitions.  Nine  states  accounted  for  57.0%  of  the  outstanding  unpaid
principal  balance  ("UPB") of HomeSide's  total  servicing  portfolio,  and the
largest volume by state is California  with a 11.8% share of the total portfolio
on September 30, 1999. Nine states accounted for 59.9% of the outstanding unpaid
principal  balance ("UPB") of HomeSide's total servicing  portfolio on September
30, 1998, while the largest volume by state was California with a 14.1% share of
the total  portfolio.  Nine states accounted for 64.5% of the outstanding UPB of
HomeSide's  total  servicing  portfolio on February 10, 1998,  while the largest
volume by state was Florida with a 17.2% share of the total portfolio.  HomeSide
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 September 30, 1999,  September 30, 1998 and
February 10, 1998:
                        Servicing Portfolio by State (a)

<TABLE>
<CAPTION>
                             At September 30, 1999         At September 30, 1998    At February 10, 1998
                             ---------------------         ---------------------    --------------------
(dollars in millions)         UPB        % of UPB          UPB         % of UPB      UPB           % of UPB
                              ---        --------          ---         --------      ---           --------
<S>                        <C>             <C>          <C>             <C>       <C>               <C>
California                 $ 16,334        11.8%        $ 15,859        14.1%     $ 14,858          15.3%
Florida                      13,424         9.7           15,750        14.0        16,664          17.2
Illinois                     11,740         8.5            5,544         4.9         3,729           3.8
Texas                         7,825         5.6            7,772         6.9         6,096           6.3
Michigan                      6,981         5.0             (b)         (b)           (b)            (b)
Connecticut                   6,737         4.9             (b)         (b)           (b)            (b)
Massachusetts                 6,295         4.5            6,190         5.5         6,792           7.0
Maryland                      4,924         3.5            4,498         4.0         4,424           4.6
New York                      4,809         3.5            3,144         2.8         2,939           3.0
Arizona                       4,402         3.2            4,405         3.9          (b)            (b)
Indiana                       4,240         3.1             (b)         (b)           (b)            (b)
Virginia                      3,965         2.9            3,504         3.1         3,377           3.5
Colorado                      3,954         2.8            3,716         3.3          (b)            (b)
Georgia                       3,936         2.8            3,676         3.3         3,720           3.8
Other (b)                    39,182        28.2           38,351        34.2        34,327          35.5
                         -------------- ----------- -------------- ---------- --------------- ---------------
Total                      $138,748       100.0%        $112,409       100.0%     $ 96,926         100.0%
                         ============== =========== ============== ========== =============== ===============
</TABLE>

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

(b)  No other state represents more than 2.8% of HomeSide's  servicing portfolio
     at  September  30,  1999 or  2.8%  of  HomeSide's  servicing  portfolio  at
     September 30, 1998.

Servicing Portfolio by Loan Type

     At September 30, 1999,  HomeSide's  servicing  portfolio consisted of $44.2
billion of FHA/VA  servicing and $100.7 billion of  conventional  servicing.  At
September 30, 1998, HomeSide's servicing portfolio consisted of $47.5 billion of
FHA/VA  servicing and $67.4 billion of conventional  servicing.  At February 10,
1998,  HomeSide's  servicing  portfolio  consisted  of $46.4  billion  of FHA/VA
servicing and $52.5 billion of conventional servicing.

      The weighted average interest rate of the loans in the Company's servicing
portfolio was 7.44% at September 30, 1999, 7.72% at September 30, 1998 and 7.85%
at February 10, 1998.  HomeSide's servicing portfolio of loans was stratified by
interest rate as follows:


<PAGE>

<TABLE>

                    Servicing Portfolio by Interest Rate (a)
<CAPTION>

                             At September 30, 1999                 At September 30, 1998                  At February 10, 1998
                             ---------------------                 ---------------------                  --------------------
                        UPB                                  UPB                                   UPB
                    (dollars in               Cumulative   (dollars in              Cumulative    (dollars in             Cumulative
                     millions)    % of UPB     % of UPB     millions)   % of UPB     % of UPB       millions)  % of UPB    % of UPB
                    -----------   --------     --------    -----------  --------    ----------    -----------  --------   ----------
<S>                 <C>           <C>          <C>         <C>          <C>         <C>           <C>          <C>        <C>
 Interest Rate
Less than 6.0%       $   631        0.5%          0.5%      $  1,113       1.0%         1.0%        $   983       1.1%        1.1%
6.0% to 6.9%          32,353       23.3          23.8         13,491      12.0         13.0           9,633      10.9        12.0
7.0% to 7.9%          77,552       56.0          79.8         56,217      50.0         63.0          37,542      42.4        54.4
8.0% to 8.9%          22,258       16.0          95.8         33,012      29.4         92.4          29,293      33.1        87.5
9.0% to 9.9%           4,085        2.9          98.7          5,907       5.2         97.6           7,274       8.2        95.7
10.0% to 10.9%         1,435        1.0          99.7          2,081       1.8         99.4           2,912       3.3        99.0
Over 11.0%               434        0.3         100.0            588       0.6        100.0             823       1.0       100.0
                    -----------   --------                ------------  --------                  -----------  --------
             Total  $138,748      100.0%                    $112,409     100.0%                    $ 88,460     100.0%
                    ===========   ========                 ===========  ========                  ===========  ========
</TABLE>

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

Loan Servicing Portfolio Delinquencies, Foreclosures and Losses

      HomeSide 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 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 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  absorbs the cost of funds  advanced  during the time the
advance  is  outstanding.   Further,  HomeSide  bears  the  increased  costs  of
collection  activities on delinquent and defaulted loans. HomeSide also foregoes
servicing income from the time such loans become  delinquent until  foreclosure,
when,  if any  proceeds  are  available,  HomeSide  may  recover  such  amounts.
Delinquency  rates  typically rise in the winter months,  which result in higher
servicing   costs.   However  income  from  late  payment  fees  collected  have
historically been sufficient to offset such incremental expenses.

      HomeSide  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.  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's  historical  delinquency and foreclosure  rate experience on VA loans
has generally been consistent with that of the industry.

      For   HomeSide,    servicing   losses   on   investor-owned    loans   and
foreclosure-related expenses, primarily representing losses on VA loans, totaled
$31.7 million for the fiscal year ended  September  30, 1999,  $21.2 million for
the period  February 11, 1998 to September  30, 1998,  and $22.0 million for the
HomeSide,  Inc.  Predecessor period from March 1, 1997 to February 10, 1998. The
decrease,  on an annualized  basis, for the fiscal year ended September 30, 1999
compared  to the  period  from  February  11,  1998 to  September  30,  1998 was
primarily  attributable to a decrease in loan charge-offs.  The increase,  on an
annualized  basis,  for the period from February 11, 1998 to September 30, 1998,
compared  to the period  from March 1, 1997 to  February  10,  1998 was  largely
attributable to the growth of the servicing portfolio and increased  foreclosure
losses,  which may  continue  at this  level as the  servicing  portfolio  ages.
Management  believes  that it has an  adequate  level of reserve  for  servicing
losses on investor-owned loans based on HomeSide's  servicing volume,  portfolio
composition,  credit  quality and  historical  loss rates,  as well as estimated
future losses.  Servicing losses are generally  greatest during the three to six
year age of the loan.



<PAGE>


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

                        Servicing Portfolio Delinquencies
                             (Percent by Loan Count)
<TABLE>
<CAPTION>

                                                                                                        HomeSide Predecessor
                                                     At September 30, 1999    At September 30, 1998     February 10, 1998
<S>                                                  <C>                      <C>                       <C>
Delinquent Mortgage Loans (at end of period)
   30 Days                                                          3.33%                    3.72%                     3.52%
   60 Days                                                          0.64                     0.81                      0.78
   90 Days                                                          0.53                     0.65                      0.72
                                                    ------------------------ ------------------------ -------------------------
       Total Delinquencies                                          4.50%                    5.18%                     5.02%
                                                    ======================== ======================== =========================
Foreclosure Pending (at end of period)                              0.61%                    0.70%                     0.74%

</TABLE>

Servicing Portfolio Hedging Program

      The value of  HomeSide'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'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 sophisticated cash flow
valuation tools.  Key assumptions  involved in the valuation  include  servicing
costs and revenues,  market  discount rates,  prepayment  speeds and a number of
other  variables.  The  value  is then  analyzed  under  various  interest  rate
scenarios that help HomeSide  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 used by HomeSide,  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 - Risk Management
Activities"  for the fiscal  year ended  September  30,  1999,  the period  from
February 11, 1998 to September 30, 1998.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Statement No. 133, "Accounting for Derivative  Instruments
and  Hedging  Activities."  This  statement   standardizes  the  accounting  for
derivative  instruments  and  hedging  activities  by  requiring  that an entity
recognize  those items as assets or  liabilities  in the  statement of financial
position  and  measure  them at fair  value.  If certain  conditions  are met, a
derivative  instrument  may be  specifically  designated  as (a) a hedge  of the
exposure to changes in the fair value of a recognized asset or liability,  or of
an unrecognized  firm commitment,  (b) a hedge of the exposure to variability in
the cash flows of recognized assets,  liability or forecasted transaction or (c)
a hedge of the foreign currency exposure of an unrecognized firm commitment,  an
available-for-sale  security, a forecasted  transaction or a net investment in a
foreign operation. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial  Accounting Standards No. 137, "Accounting for Derivative
Instruments  and Hedging  Activities  - Deferral of the  Effective  Date of FASB
Statement  No. 133 - an Amendment  of FASB  Statement  No. 133." This  statement
deferred  the  effective  date of FAS 133 to fiscal  quarters  of  fiscal  years
beginning  after June 15, 2000.  Management has not yet determined the impact of
these statements on the financial statements of HomeSide.

Servicing Technology

       HomeSide's  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 technology providers.

       HomeSide expects to achieve significant  competitive advantages over time
through the use of its proprietary  servicing  software.  At September 30, 1999,
HomeSide has  substantially  completed the conversion of its mortgage  servicing
portfolio to its proprietary  servicing software and services  approximately 1.7
million loans on the system. This architecture will support HomeSide's portfolio
growth up to  approximately  twice the number of loans  typically  serviced on a
single system. The system will also permit continued development of workflow and
other client-server applications, contributing to increased productivity.

Regulation

      As a United States  subsidiary  of a foreign bank,  HomeSide is subject to
regulation, supervision and examination by the Federal Reserve Board. HomeSide's
mortgage  banking  business is also subject to the rules and  regulations of the
U.S.  Department of Housing and Urban Development  ("HUD"),  the Federal Housing
Administration ("FHA"), the Veterans Administration ("VA"), the Federal National
Mortgage  Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation
("FHLMC" or "Freddie Mac"), the Government National Mortgage Association ("GNMA"
or "Ginnie  Mae") 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,   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  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'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's ability to conduct its business as
it is now conducted.

      During the period that BKB,  Barnett or any of their  subsidiaries  held a
material ownership interest in HomeSide,  HomeSide and its subsidiaries (i) were
under the jurisdiction,  supervision,  and examining  authority of the Office of
the  Comptroller  of the  Currency  ("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's  operations.  HomeSide  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.

Competition

      Mortgage bankers operate in a highly competitive and fragmented market. As
of September 30, 1999, the largest  originator of loans  represented 7.6% of the
market and the largest servicer  represented  6.4%, while the top 30 originators
and servicers represented 60% and 57% of their markets,  respectively,  based on
data published by Inside Mortgage Finance.


<TABLE>

             TOP 10 ORIGINATORS AND SERVICERS (dollars in billions)
<CAPTION>

9 Months - 1999 Originations                                   Servicing Portfolio at September 30, 1999
<S>                                         <C>       <C>                                           <C>
 1  Chase Home Finance, NJ                  $79.8     1  Chase Home Finance, NJ                     $300.8
 2  Norwest Mortgage, IA                     69.0     2  Bank of America MTG. & affiliates, NC       285.2
 3  Countrywide Credit Industries, CA        63.2     3  Norwest Mortgage, CA                        274.3
 4  Bank of America Mtg. & Affiliates, NC    50.8     4  Countrywide Credit Industries, CA           238.9
 5  Washington Mutual, WA                    31.3     5  Washington Mutual, WA                       157.3
 6  Fleet Mortgage Group, SC                 29.8     6  GMAC Mortgage Corp., PA                     147.5
 7  HomeSide Lending, Inc., FL               23.3     7  HomeSide Lending, Inc., FL                  145.6
 8  ABN AMRO Mortgage Group, IL              23.1     8  FleetBoston Financial Corp., SC             142.8
 9  Cendant Mortgage Services NJ             21.1     9  First Nationwide Mortgage, CA                95.3
10 Dime / North American Mortgage Co., CA    19.1    10  GE Capital Mortgage Services, Inc., NJ       88.0
Source:  Inside Mortgage Finance.
</TABLE>

       HomeSide  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 20.7% in 1990 to 49.6% as of September 30, 1998.

Employees

      As of  September  30,  1999,  September  30,  1998,and  February 10, 1998,
respectively,  HomeSide had  approximately  2,611 total  employees,  2,356 total
employees and 1,891 total  employees,  substantially  all of who were  full-time
employees.  HomeSide has no unionized  employees and considers its  relationship
with its employees generally to be satisfactory.

ITEM 2.  PROPERTIES

     HomeSide's  corporate,   administrative,  and  servicing  headquarters  are
located in Jacksonville,  Florida, in facilities,  which comprise  approximately
146,939  square feet of owned  space and  approximately  397,161  square feet of
leased  space.  On December 4, 1998,  HomeSide  entered  into a long-term  lease
agreement  for a 137,029  square  foot  building  that was  constructed  in 1999
adjacent to its Jacksonville  headquarters.  The building is primarily used as a
servicing center.  Included in the total is approximately  57,000 square feet of
warehouse space in  Jacksonville,  Florida for storing certain loan files,  loan
servicing documents and other corporate records.  In addition,  HomeSide owns an
additional 190,000 square feet of space in San Antonio, Texas. HomeSide believes
that its present facilities are adequate for its operations.

ITEM 3.  LEGAL PROCEEDINGS

      HomeSide is a defendant  in a number of legal  proceedings  arising in the
normal course of business.  HomeSide, 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,  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.

      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

      None.
                                     PART II

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

      As a consequence of the  acquisition  by the National,  there is no market
for  the  Registrant's  common  equity.  HomeSide  is an  indirect  wholly-owned
subsidiary of the National.


<PAGE>


PART II

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

The selected  consolidated  financial and operating  information of HomeSide set
forth below for the year ended  September  30, 1999 and the period from February
11,  1998 to  September  30,  1998 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 included
elsewhere in this document.  The periods presented coincide with the acquisition
of  HomeSide  by  the  National  (see  Note  2  of  the  Consolidated  Financial
Statements):

<TABLE>
<CAPTION>

(dollar amounts in thousands,
  except  share data)                                   For the Fiscal      For the Period From
                                                          Year Ended       February 11, 1998 to
                                                      September 30, 1999    September 30, 1998
<S>                                                   <C>                  <C>
Selected Statement of Earnings Data:
Revenues:
     Mortgage servicing fees                                 $   605,995          $   312,678
     Amortization of mortgage servicing rights                  (407,085)            (189,881)
                                                      ------------------- --------------------
         Net servicing  revenue                                  198,910              122,797

     Interest income                                             181,173               99,749
     Interest expense                                          (121,697)             (62,476)
                                                      ------------------- --------------------
            Net interest revenue                                  59,476               37,273

     Net mortgage origination revenue                            155,937               83,706
     Other income                                                  5,844                6,495
                                                      ------------------- --------------------
              Total revenues                                     420,167              250,271
Expenses:
     Salaries and employee benefits                              132,716               73,983
     Occupancy and equipment                                      28,319               13,107
     Servicing losses on investor-owned loans
        and foreclosure-related expenses                          31,749               21,202
    Goodwill amortization                                         34,965               22,283
     Other  expenses                                              60,077               39,150
                                                      ------------------- --------------------
            Total expenses                                       287,826              169,725
Income before income taxes                                       132,341               80,546
Income tax expense                                                63,234               40,101
                                                      ------------------- --------------------
Net income                                                    $   69,107           $   40,445
                                                      =================== ====================
Selected Balance Sheet Data at End of Period:
Mortgage loans held for sale                                 $ 1,292,562          $ 2,048,989
Mortgage servicing rights                                      3,478,835            1,766,214
Total assets                                                   6,363,652            5,720,161
Bank credit facility                                           1,505,401            2,749,000
Commercial paper                                               1,163,903                  -
Long-term debt                                                 1,184,384            1,185,926
Total liabilities                                              5,007,513            4,364,647
Total stockholders' equity                                     1,356,139            1,355,514
                                                      =================== ====================
Selected Operating Data:
Volume of loan production                                  $  30,933,088        $  16,826,364
Loan servicing portfolio (at period end)                     144,866,369          114,902,121
Loan servicing portfolio (average
         outstanding during the period)                      129,641,346          106,857,298
Weighted average interest rate of the
          servicing portfolio (at period end)                      7.44%                7.72%
Weighted average servicing fee of the
          servicing portfolio, including ancillary                0.467%               0.469%
          income (for the period)

</TABLE>


<PAGE>


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

           HOMESIDE - FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 AND
           FOR THE PERIOD FROM FEBRUARY 11, 1998 TO SEPTEMBER 30, 1998

General

HomeSide Lending,  Inc. (the "Company" or "HomeSide") is one of the largest full
service residential mortgage banking companies in the United States.  HomeSide's
strategy emphasizes variable cost mortgage loan originations,  low cost mortgage
servicing and effective risk management. Headquartered in Jacksonville, Florida,
HomeSide ranks as the 7th largest  mortgage loan  originator and the 7th largest
servicer in the United States at September  30, 1999 based on data  published by
Inside Mortgage Finance.

HomeSide 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  intends to pursue  additional  loan portfolio
acquisitions  and strategic  origination  relationships  similar to the existing
Bank One, People's Bank and Cendant relationships.

HomeSide's   predecessor   ("HomeSide   Predecessor")  was  formed  through  the
acquisition  of the mortgage  banking  operations  of  BankBoston,  N.A.  ("BBMC
Predecessor"  to  HomeSide  Predecessor)  on March  16,  1996  and  subsequently
purchased  the  mortgage  banking  operations  of  Barnett  Banks,  Inc.  Unless
otherwise designated,  the term "HomeSide" refers to the Company for the periods
subsequent to February 10, 1998 and to the HomeSide  Predecessor for the periods
from March 16, 1996 to February 28, 1997 and March 1, 1997 to February 10, 1998.

On February 10, 1998,  National  Australia Bank, Ltd. (the "National")  acquired
all outstanding shares of the common stock of HomeSide International,  Inc. (the
"Parent"). As consideration,  the National paid $27.825 per share for all of the
outstanding  common stock and $17.7 million cash to retire all outstanding stock
options.   The  total  purchase  price  was  approximately  $1.2  billion.   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 $719.6
million was recorded as goodwill. Following the transaction described above, the
National  owns 100% of the  Parent's  common  stock and the Parent has become an
indirect  wholly-owned  subsidiary of the  National.  The Company also adopted a
fiscal year end of September 30 to conform to the fiscal year of the National.

The following periods presented coincide with the acquisition of HomeSide by the
National  (see  Note 2 of the  Consolidated  Financial  Statements).  HomeSide's
operating  results  are not  directly  comparable  to its  historical  operating
results due, in part, to different  balance  sheet  valuations  (estimated  fair
value as compared to historical cost).

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 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.

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 designed to protect and manage the value of the Company's
mortgage loans held for sale and mortgage commitment pipeline and 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  rate  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 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.  HomeSide also purchases servicing rights in bulk from time to time. By
focusing  on  production  channels  with a  variable  cost  structure,  HomeSide
minimizes the fixed costs associated with  traditional  mortgage branch offices.
Without  the burden of high fixed cost loan  origination  networks,  HomeSide is
positioned  to weather a variety of  interest  rate  environments.  For the nine
months  ended  September  30,  1999,  HomeSide  was ranked the  seventh  largest
originator in the United  States,  according to Inside  Mortgage  Finance,  with
approximately  2.2% market share of the estimated  $1.1  trillion  single-family
mortgage origination market.

The following  information  regarding loan production activities for HomeSide is
presented  to aid in  understanding  the  results of  operations  and  financial
condition of HomeSide for the fiscal year ended  September 30, 1999 and from the
period from February 11, 1998 to September 30, 1998 (in millions):

                                  For the Fiscal             For the Period From
                                     Year Ended             February 11, 1998 to
                                September 30, 1999           September 30, 1998
                            ------------------------     ---------------------
Wholesale:
  Correspondent               $ 17,927                          $ 11,309
  Co-issue(a)                    7,737                             2,906
  Broker                         3,818                             1,980
                            ------------------------     ---------------------
    Total wholesale             29,482                            16,195
Direct                           1,451                               631
                            ------------------------     ---------------------
   Total production             30,933                            16,826
Bulk acquisitions(b)            35,608                            18,947
                            ------------------------       ---------------------
   Total production and
     acquisitions             $ 66,541                          $ 35,773
                            ========================     =====================
-------------------------
(a)  Represents the  acquisition of servicing  rights,  which occurs  concurrent
     with  the  origination  of the loan by a third  party  or on a flow  basis.
     Amounts  represent the unpaid  principal  balance of mortgage debt to which
     the acquired servicing rights relate.
(b)  Represents  the  acquisition  of servicing  rights from  another  servicer.
     Amounts  represent the unpaid  principal  balance of mortgage debt to which
     the acquired servicing rights relate.

Total loan production,  excluding bulk  acquisitions,  was $30.9 billion for the
fiscal year ended  September  30, 1999  compared to $16.8 billion for the period
from  February 11, 1998 to September  30, 1998, a 15% increase on an  annualized
basis. HomeSide's wholesale lending channels, including correspondent,  co-issue
and broker  originations,  were the primary  contributors  to production  volume
increases on an annualized basis.

Correspondent  lending  volume was  approximately  equal to the prior year on an
annualized basis.  Co-issue volume increased 66% on an annualized basis. A major
contributor  to 1999  correspondent  and co-issue  volumes were the additions of
Bank One and People's  Bank as  Preferred  Partners on June 5, 1998 and November
23, 1998,  respectively.  As Preferred Partners, Bank One and People's Bank will
sell a  significant  portion of the  residential  mortgage  loans  originated to
HomeSide  over  the next  five  years.  Another  contributor  was the  strategic
alliance  formed on June 15,  1999  between  HomeSide  and  Cendant,  one of the
largest retail mortgage loan originators in the United States. Cendant agreed to
sell up to $7 billion of servicing  assets  annually to HomeSide for a five-year
period.

On May 29, 1998, HomeSide purchased the operations of NationsBank's  subsidiary,
Loan  America,  a national  broker  network.  This purchase is  contributing  to
HomeSide's  expansion of its broker network, a production channel that is key to
HomeSide's  variable  cost  origination  strategy.  The  broker  channel  volume
increased  21% from the period from  February 11, 1998 to September 30, 1998, on
an annualized basis.

Consumer direct lending volume increased 44%, on an annualized  basis,  from the
period from February 11, 1998 to September 30, 1998.  HomeSide made  significant
investments  during the fiscal year ended 1999 in its consumer direct technology
platform.   This  advanced  platform   combines   telephone  and  internet  loan
origination  capabilities.  HomeSide also partnered with Intuit and Microsoft to
grow the direct lending channel by increasing internet business.

The  interest  rate  environment  has  significantly  affected  the  size of the
mortgage origination market, primarily refinances.  When interest rates decline,
increasing  numbers  of  mortgagees  refinance  their  loans.  As a result,  the
mortgage  origination  market  grows.  During  1998 and  1999,  periods  of high
refinances, HomeSide strived to keep production at sustainable levels should the
market  size  return  to 1997  and 1996  volumes.  As an  alternative,  HomeSide
emphasized  its  acquisitions  strategy to maintain and  increase the  servicing
portfolio size during these periods of relatively high portfolio runoff.

As part of this  acquisition  strategy,  HomeSide  completed  bulk  acquisitions
totaling $35.6 billion and $18.9 billion for the fiscal year ended September 30,
1999 and the period from February 11, 1998 to September 30, 1998,  respectively.
These purchases were a continuation of HomeSide's  targeted approach to grow the
servicing  portfolio.  Included in bulk  acquisitions  for the fiscal year ended
1999 is the March 4, 1999 purchase of First Chicago NBD Mortgage Company's $18.0
billion  servicing  portfolio.  This  acquisition  is an expansion of HomeSide's
strategic  alliance  with Bank One. In addition,  First Chicago has committed to
sell the servicing rights associated with its residential mortgage  originations
to HomeSide on a flow basis.  Also included in 1999 bulk  acquisitions  are $5.0
billion in mortgage loans  purchased from People's Bank on November 23, 1998 and
$8.8 billion in mortgage  loans  purchased  from Cendant during the fiscal year.
Included in bulk  acquisitions  for fiscal 1998 is the $16.6  billion  servicing
portfolio from Bank One on June 5, 1998.

Servicing Portfolio

Management  believes  that HomeSide 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 $144.9 billion, HomeSide services the loans of approximately
1.7  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 anticipates its low cost of servicing loans will continue to
maximize the bottom-line impact of its growing servicing  portfolio.  HomeSide'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.  At September
30, 1999, HomeSide was ranked the seventh largest servicer in the United States,
with  approximately  3.1%  market  share  of the  $4.7  trillion  single  family
mortgages outstanding.

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 for the year ended  September 30, 1999 and the period from February 11,
1998 to September 30, 1998 (in millions):



<PAGE>
<TABLE>
<CAPTION>


                                      For the Fiscal            For the Period From
                                        Year Ended              February 11, 1998 to
                                    September 30, 1999           September 30, 1998
                                 -------------------------    -------------------------
<S>                                       <C>                          <C>
Balance at beginning of period            $114,902                     $ 98,906
Additions                                   66,541                       35,773
Reductions:
   Scheduled amortization                    3,386                        1,747
   Prepayments                              30,201                       16,809
   Foreclosures                              1,296                          848
   Sales of servicing                        1,694                          373
                                 -------------------------    -------------------------
Total reductions                            36,577                       19,777
                                 -------------------------    -------------------------
Balance at end of period                  $144,866                     $114,902
                                 =========================    =========================
</TABLE>

The number of loans  serviced at September  30, 1999 was  1,656,986  compared to
1,394,286 at September  30, 1998.  HomeSide'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
efficiently  servicing  HomeSide's  future  portfolio  growth is its proprietary
servicing  software.  This system allows  HomeSide to double the number of loans
typically serviced on a single system.  HomeSide had substantially converted its
loan servicing portfolio to its proprietary  servicing software at September 30,
1998.

Results of Operations  for the fiscal year ended  September 30, 1999 compared to
the period from February 11, 1998 to September 30, 1998:

Summary

HomeSide's net income,  excluding goodwill  amortization from the acquisition of
HomeSide by the National, increased on an annualized basis to $104.1 million for
the year ended  September  30,  1999 from  $62.7  million  for the  period  from
February 11, 1998 to  September  30,  1998.  Total  revenues for the fiscal year
ended September 30, 1999 increased on an annualized basis to $420.2 million from
$250.3  million for the period from  February  11, 1998 to  September  30, 1998.
Annualized  increases  in net  income  and  revenues  for the  fiscal  year 1999
compared  to the period  from  February  11,  1998 to  September  30,  1998 were
primarily attributable to increases in loan production volumes and growth in the
servicing  portfolio  through strategic bulk  acquisitions.  Record low mortgage
rates and high  mortgage  pre-payment  activity  continued  in the U.S.  housing
market through the third quarter of fiscal 1999. Total expenses  increased on an
annualized  basis for the fiscal year ended  September  30, 1999 from the period
February 11, 1998 to September  30, 1998 as a result of increases in  production
volume,  expenses  associated with the growing mortgage servicing  portfolio and
high loan pre-payment activity.

Net Servicing Revenue

Net servicing revenue was $198.9 million for the fiscal year ended September 30,
1999  compared  to $122.8  million  for the period  from  February  11,  1998 to
September  30, 1998.  Net servicing  revenue is comprised of mortgage  servicing
fees, ancillary servicing revenue, and amortization of mortgage servicing rights
expense.

Mortgage  servicing fees increased 21%, on an annualized basis to $606.0 million
for the fiscal year ended  September 30, 1999 from $312.7 million for the period
from February 11, 1998 to September 30,1998,  primarily as a result of strategic
acquisitions  and growth of the  servicing  portfolio  through  loan  production
channels.  The servicing  portfolio increased to $144.9 billion at September 30,
1999  compared  to $114.9  billion  at  September  30,  1998,  due to  increased
production  volume and bulk  acquisitions,  partially offset by loan prepayments
and scheduled  amortization.  HomeSide's  weighted  average interest rate of the
mortgage  loans in the  servicing  portfolio was 7.44% at September 30, 1999 and
7.72% at September  30, 1998.  The weighted  average  servicing  fee,  including
ancillary  income,  for the  servicing  portfolio was 0.467% for the fiscal year
ended  September  30, 1999 and 0.469% for the period from  February  11, 1998 to
September 30, 1998.

Amortization  expense increased 34% on an annualized basis to $407.1 million for
the fiscal year ended September 30, 1999 from $189.9 million for the period from
February  11, 1998 to  September  30, 1998 due to  increased  prepayment  rates.
Prepayment  rates were  affected by the  increased  level of refinance  activity
during fiscal 1999, which was driven by the relative level of mortgage  interest
rates and activity in the home purchase market.  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,  the spread between short and long-term  interest rates,
and the rates at which HomeSide is able to borrow.  These factors  influence the
size of the residential mortgage origination market,  HomeSide's loan production
volumes and the interest rates HomeSide 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's  loan
production  volumes.  Higher loan  production  volumes  result 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 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  totaled $59.5 million for the fiscal year ended September
30, 1999,  approximately  equal on an annualized basis to net interest income of
$37.3 million for the period from  February 11, 1998 to September 30, 1998.  Net
interest  earned  on  mortgage  loans  held for sale  increased  as a result  of
increased  production,  on an  annualized  basis,  during the fiscal  year ended
September  30,  1999.  Credits  earned  on  escrow  deposits  increased,  on  an
annualized basis, due to an increase in loan prepayments  during the fiscal year
ended September 30, 1999. The principal  balances of prepaid  mortgage loans are
accumulated  in escrow  accounts  before they are remitted to  investors.  These
increases  were offset by increased  interest  expense on borrowings to fund the
growing mortgage servicing assets.

During  the  fiscal  year  1999,   HomeSide   diversified   funding  sources  by
establishing a $1.5 billion commercial paper program, increasing its medium-term
note shelf  registration  by $1.0 billion,  and issuing $230 million in floating
rate  notes.  In June  1998,  HomeSide  established  a line of  credit  with the
National  with the  borrowing  rate of LIBOR.  The line of credit  agreement was
amended on June 22, 1999. Under the credit  facility,  HomeSide can borrow up to
$2.5  billion,  subject  to limits  imposed  by  regulatory  authorities.  As of
September 30, 1999,  Australian  financial  regulations  limited the  National's
ability to lend funds to HomeSide,  a non-bank affiliate,  to approximately $2.1
billion.

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 $155.9  million for the fiscal year ended
September  30, 1999  compared to $83.7  million for the period from February 11,
1998 to September 30, 1998, a 16% increase on an annualized basis. This increase
is attributable to an annualized  increase in HomeSide's loan production volumes
resulting  from  increases  in  refinancing  levels and the  origination  market
through the third quarter of fiscal 1999.

Other Income

Other  income for the fiscal  year ended  September  30,  1999 was $5.8  million
compared to $6.5 million for the period from  February 11, 1998 to September 30,
1998. The decrease was primarily due to the prior year  recognition of income in
relation  to  payments   received  for  termination  of  the  Preferred   Seller
arrangement with  NationsBank that resulted from the NationsBank  acquisition of
Barnett.

Salaries and Employee Benefits

Salaries and employee  benefits  expense was $132.7  million for the fiscal year
ended  September 30, 1999 compared to $74.0 million for the period from February
11, 1998 to September  30,  1998.  The average  number of  full-time  equivalent
employees  increased to 2,627 for the fiscal year ended  September 30, 1999 from
2,356 for the period from February 11, 1998 to September 30, 1998. The increases
on an annualized  basis were due to growth in the number of employees to service
the growing mortgage  servicing  portfolio,  increased  prepayment  activity and
increased production volume.




Occupancy and Equipment Expense

Occupancy and equipment expense primarily  includes rental expense,  repairs and
maintenance  costs,  certain  computer  software  expenses and  depreciation  of
HomeSide's  premises and  equipment.  Occupancy  and  equipment  expense for the
fiscal year ended September 30, 1999 was $28.3 million compared to $13.1 million
for the period from  February 11, 1998 to September  30,  1998.  The  annualized
increase was mainly due to  increased  expenses  incurred to enhance  processing
systems and  technology  expenditures  necessary  to support  targeted  business
growth.

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's experience as a servicer of government loans.

During the  fiscal  year ended  September  30,  1999,  the  servicing  losses on
investor-owned  loans and  foreclosure-related  expenses  totaled  $31.7 million
compared to $21.2 million for the period from February 11, 1998 to September 30,
1998. The decrease,  on an annualized  basis,  was primarily  attributable  to a
decrease in loan charge-offs.

Included in accounts  payable and accrued  liabilities at September 30, 1999 and
September 30, 1998 is a reserve for estimated servicing losses on investor-owned
loans of $16.7  million and $21.7  million,  respectively.  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's  historical  loss
experience on VA loans generally has been  consistent with industry  experience.
The reserve was reduced in fiscal 1999 based on a reduction  in  charge-off  and
delinquency  trends  and  changes  in  HomeSide's   portfolio   characteristics.
Management  believes  that  HomeSide 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  losses are  generally
greatest during the three to six year age of the loan.

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

                        Servicing Portfolio Delinquencies
                             (percent by loan count)
<CAPTION>

                                                                                 September 30, 1999    September 30, 1998
                                                                                 ------------------    -------------------
<S>                                                                              <C>                   <C>
Servicing Portfolio Delinquencies, excluding bankruptcies (at end of period)
          30 days                                                                      3.33%                 3.72%
          60 days                                                                      0.64%                 0.81%
          90+ days                                                                     0.53%                 0.65%
                                                                                 ------------------    -------------------
               Total past due                                                          4.50%                 5.18%
                                                                                 ==================    ===================
          Foreclosures pending                                                         0.61%                 0.70%
                                                                                 ==================    ===================

                                                                                 September 30, 1999     September 30, 1998
                                                                                 ------------------    -------------------

Weighted average portfolio age in months                                               44.1                   46.1
</TABLE>

Other Expenses and Goodwill Amortization

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's  mortgage  servicing  portfolio  and  loan  production
volumes.

Other expenses,  excluding goodwill amortization of $35.0 million resulting from
the  acquisition  of HomeSide by the  National,  were $60.1  million  during the
fiscal year ended  September 30, 1999,  compared to $39.2 million for the period
from  February  11, 1998 to September  30, 1998, a 4% decrease on an  annualized
basis.  The  annualized   decrease  was  primarily  due  to  lower   consulting,
advertising,  litigation and insurance  expenses  associated  with a decrease in
production  volumes and loan  pre-payment  activity during the fourth quarter of
fiscal 1999.


Income Tax Expense

HomeSide's  income tax  expense  was $63.2  million  for the  fiscal  year ended
September  30, 1999 and $40.1  million for the period from  February 11, 1998 to
September  30,  1998.  The  effective  income tax rate for the fiscal year ended
September  30, 1999 and for the period from  February 11, 1998 to September  30,
1998 was approximately 48% and 50% respectively.

Risk Management Activities

HomeSide has a risk management program designed to protect the economic value of
its  mortgage  servicing  portfolio  from  declines  in value  primarily  due to
increases in estimated loan prepayment  speeds,  which are mainly  influenced by
declines in interest rates. When loans prepay faster than anticipated,  the cash
flow HomeSide 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 fiscal year ended September 30, 1999,  HomeSide  utilized  options on
U.S.  Treasury  bond and note  futures,  U.S.  Treasury  bond and note  futures,
options on Eurodollar  futures,  swaptions and interest rate swap cap structures
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  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'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'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'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.  If management's
ongoing  assessment of correlation  indicates that high correlation is not being
achieved,  the Company will  discontinue the application of hedge accounting and
recognize a gain or loss to the extent the hedge results have not been offset by
changes in value of the hedged asset during the hedge period. During the periods
presented,  HomeSide  has  experienced  a high  measure of  correlation  between
changes  in the  value of  mortgage  servicing  rights  and the risk  management
contracts.

During the  fiscal  year  ended  September  30,  1999,  deferred  losses on risk
management  contracts  resulted in net deferred  hedge losses of $494.7  million
which were  substantially  offset by changes in the value of mortgage  servicing
rights and included in the carrying value of mortgage servicing rights. Activity
in the deferred hedge account during the fiscal year ended September 30, 1999 is
as follows (in thousands):

  Net deferred hedge gain at October 1, 1998                  $ 389,572
  Net deferred hedge losses                                    (898,112)
  Amortization                                                   13,797
                                                            --------------------
  Net deferred hedge loss at September 30, 1999               $(494,743)
                                                            ====================

HomeSide'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 September 30, 1999 was ($290.4) million.  This amount is
comprised  of  interest  rate  swaps,  caps and  swaptions  with a fair value of
$(349.8) million, partially offset by options on U.S. Treasury bonds and options
on Eurodollar  futures with a fair market value of $59.4  million.  The premiums
paid on options along with amounts due to or from counterparties related to risk
management  contracts are included in Other Assets and Other  Liabilities in the
accompanying   consolidated  balance  sheets.  See  "--  Liquidity  and  Capital
Resources"  for further  discussion of HomeSide's  sources and uses of cash. See
Note 3 of  Notes to  Consolidated  Financial  Statements  for a  description  of
HomeSide's accounting policy for its risk management contracts. See Notes 12 and
13 of Notes to  Consolidated  Financial  Statements  for  additional  fair value
disclosures with respect to HomeSide'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
and from the National,  commercial  paper,  medium-term notes and cash flow from
operations.  In the  past,  the  Company  has also  utilized  short-term  credit
facilities  and  public  offerings  of  common  stock.   HomeSide  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 Mortgage  Securities,  Inc., a wholly-owned
subsidiary of HomeSide, may continue to issue mortgage backed securities.

Operations

Net cash provided by operations for the fiscal year ended September 30, 1999 was
$1,459.2  million.  Net cash used in operations for the period from February 11,
1998 to  September  30, 1998 was $408.0  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 $1,374.1  million and $612.2 million
for the fiscal year ended  September  30, 1999 and for the period from  February
11,  1998 to  September  30,  1998,  respectively.  For the  fiscal  year  ended
September 30, 1999,  cash was used for the purchase and  origination of mortgage
servicing rights, the purchase of risk management  contracts and the purchase of
premises and equipment.  Uses of cash were partially  offset by cash provided by
early pool  buyout  reimbursements.  For the period  from  February  11, 1998 to
September 30, 1998,  cash was used for the purchase and  origination of mortgage
servicing  rights,  funding  the early pool buyout  program and the  purchase of
premises and equipment. These uses of cash were offset by net proceeds from risk
management  contracts.  Future  uses of cash for  investing  activities  will be
dependent on the  mortgage  origination  market and  HomeSide's  hedging  needs.
HomeSide 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.

Financing

Net cash provided by financing  activities was $82.7 million for the fiscal year
ended  September 30, 1999 and $1,023.1  million for the period from February 11,
1998 to September 30, 1998. The primary source of cash from financing activities
during the  fiscal  year  ended  September  30,  1999 was from the  issuance  of
commercial paper and short-term notes. Cash used in financing  activities during
the period ended  September 30, 1999 was for the  re-payment of borrowings  from
HomeSide's  line of credit and dividends paid to the Parent.  The primary source
of cash from  financing  activities  during the period from February 11, 1998 to
September 30, 1998 was from the issuance of medium-term notes and net borrowings
from HomeSide's  line of credit.  Cash used in financing  activities  during the
period from  February 11, 1998 to September 30, 1998 was used for the payment of
debt issue costs and dividends to the Parent.

During the fiscal year ended September 30, 1999, net cash provided by operations
was $1,459.2 million, net cash used in investing activities was $1,374.1 million
and net cash provided by financing activities was $82.7 million,  resulting in a
net increase in cash of $167.9 million. HomeSide 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 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'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

General.  In common with many business users of computers  around the world, the
Company  has  investigated  to what extent the date change from 1999 to 2000 may
affect its business.  The Company has established a program designed to minimize
the impact of the change to 2000 on the Company and its customers.  The Board of
Directors  has made the work  associated  with the change to 2000 a key priority
for management.

The Company 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 the Company,  software and
systems  purchased  from  outside  vendors and  software and systems used by the
Company's third party providers. The Company recognizes that the Year 2000 issue
is one of  the  most  complex  data  processing  problems  faced  by  businesses
worldwide.  As the Company  approaches the century change, its primary objective
is to maintain "business as usual."

The  Company  began  its   information   technology  Year  2000  assessment  and
remediation  efforts  in the third  quarter  of  calendar  year  1996  under the
sponsorship  of its  executive  management.  A formal,  enterprise-wide  program
commenced  in January  1998.  The Year 2000 issue has been  identified  as a top
priority. The Company's executive management and Board of Directors are provided
with frequent detailed updates.  The Company has dedicated  resources to assess,
repair and test programs,  applications,  equipment and facilities.  The Company
has established a Year 2000 Program Office that is coordinating the preparations
for the change to 2000 with each business unit throughout the Company.

The Company's  program  involves an extensive  review of its own  operations and
scoping the work that needs to be completed to minimize  any  potential  impact.
This includes  reviewing the possible  effects on the Company arising out of how
third parties manage their transition to 2000. The work  demonstrates that there
are two possible key impacts:

         Internal  - the  change to 2000 could  cause  interruptions,  errors in
         calculations or delays to the Company's critical business processes via
         unexpected system or application malfunctioning.

         External  - the  impact on the  Company's  own  operations  from  third
         parties,  including  customers,  vendors,  suppliers,   regulators  and
         electronic distribution channels which may be impacted by the change to
         2000.  This  includes any  secondary or systemic  impact that may arise
         from the change to 2000 and the risk of  disruption  in the capital and
         secondary mortgage markets on which the Company is dependent.

The Company's  strategy for  addressing  Year 2000 focuses on four teams,  which
together  address  all  aspects  of  the  Company's  business.  The  Information
Technology  team  addresses  all  of  the  Mainframe,   LAN  and  client  server
applications.  The End User  Computing (or Business) team addresses the business
risks within each of the operating departments, including facilities' risk. This
area of the strategy involves the greatest  concentration of embedded chips. The
Enterprise  team  addresses  the  corporate-wide  risks  posed by the Year 2000,
including business  continuity planning to be implemented by individual business
units. Finally, the Year 2000 Program Office coordinates the Company's Year 2000
readiness  efforts and is responsible  for  communications,  vendor  management,
project documentation and reporting.  The Company's Year 2000 Program Office and
overall  Year 2000  Program are managed by a Year 2000  Program  Director  whose
full-time resources and  responsibilities are dedicated to this effort under the
sponsorship  of  the  President  and  Chief  Operating  Officer  and  the  Chief
Information Officer.

Throughout  all phases of the Year 2000  Program the goal of the Year 2000 teams
is to complete  all required  work while  minimizing  disruption  to the current
service  delivery  levels of the Company.  Central  management of the project is
executed  using  fully  dedicated  staff  with  high  levels of  subject  matter
knowledge.  In order to speed the  assessment  and  remediation  aspects  of the
mainframe and client server IT projects,  a factory philosophy was adopted using
Paragon Computer Professionals, Inc. as the primary outsourcer. Contractors were
used internally where subject matter expertise was not required.

State of Readiness.  The Company's  approach to preparing for the change to 2000
includes a standard set of methods and tools,  customized  as applicable to each
team, to coordinate and drive the project to completion.  The approach  consists
of six phases:

1.   Assessment  - Defining  each system and process to  determine  if there are
     date  dependencies  and  how  to  resolve  them.  For  business  continuity
     purposes, assessment includes identifying event and dependency risk.

2.   Remediation - Implementing  the steps  identified in the assessment  phase,
     including code remediation and development of contingency plans.

3.   Testing - Developing and implementing test plans to determine if remediated
     code is correct and assurance testing of business continuity plans.

4.   Implementation  - Moving all approved  changes from testing into production
     and execution of contingency plans as may be required.

5.   Check-Off - Formally  acknowledging  that each process has been implemented
     and is functioning correctly.

6.   Clean  Management  -  Employing  procedures  and  practices  to prevent the
     reintroduction of non-compliant  applications,  products and processes into
     the operating environment, once Check-Off has been completed.

The  Company's  Information  Technology  and Business  Teams'  assessment of the
Company's systems and business  processes for Year 2000  vulnerability  included
substantially all hardware and software systems, embedded systems, buildings and
equipment,  and business processes. The assessment also included a review of the
Company's  dependencies  on third  parties,  including  vendors,  suppliers  and
customers.

The Company  established in its Year 2000 Program  certain key milestones and an
internal  timetable  for  the  change  to 2000 in  line  with  or  ahead  of its
regulator's suggested completion dates for core systems. These were:

o    Assessment  of  substantially  all systems and processes by July 31, 1998 -
     Completed by target date;

o    Remediation and internal  testing of all mission  critical  applications by
     December 31, 1998 - Completed by target date;

o    End-to-end  testing of all mission  critical  systems with  material  third
     parties by March 31, 1999 -  Substantially  completed by July 31, 1999, now
     complete;

o    Remediation  and testing of all  non-mission  critical  systems by June 30,
     1999 - Substantially completed by target date, now complete; and

o    clean  management of all systems through 1999 - implemented  throughout the
     Company.

All End-to-End testing,  with material external parties and others, is complete.
As of March 31, 1999, HomeSide  successfully  completed the mandatory components
of the MBA Year 2000  Readiness  Test,  including  Fannie  Mae,  Freddie Mac and
Ginnie  Mae.  Optional  components  of the MBA Year  2000  Readiness  Test  were
substantially completed by June 30, 1999.

The Company's two most critical  business  applications are its primary mortgage
servicing  software  systems:   MSP  (licensed  from  and  supported  by  Alltel
Information Services, Inc.) and ALSS (a proprietary software system supported by
the  Company).  As to  these  two  systems,  assessment,  remediation,  testing,
implementation  and check-off  are  complete,  the systems have been returned to
production and clean management procedures are in place.

The  Company's  Year 2000  Program  also  addresses  end-user  computing  issues
presented by the Year 2000 change. As to end-user  computing issues (systems and
business  processes  other than  information  technology  systems),  assessment,
remediation,  testing,  implementation  and check-off are now complete and clean
management procedures are in place.

Since September 30, of 1999, the emphasis of the Company's Year 2000 Program has
been on continued  assurance  testing,  finalization,  refinement and testing of
transition  plans,  monitoring of Year 2000  readiness  efforts by the Company's
customers,   vendors  and  other  third   parties  with  whom  the  Company  has
relationships,  and clean management of systems and processes.  Clean management
of systems  involves  developing  and  implementing  procedures and practices to
prevent the reintroduction of non-compliant applications, products and processes
into the operating  environment  once Check-Off has been completed.  The Company
has developed  and  implemented a Clean  Management  Strategy on a  Company-wide
basis.

The Company has  relationships  with vendors,  customers and other third parties
that rely on software  and systems that may not be ready for the change to 2000.
However, it is not possible in all cases to obtain complete, accurate and timely
information  regarding the Year 2000  programs of third  parties.  Further,  the
Company's  ability to direct such third parties efforts or change relations with
such  third  parties  is often  limited.  There can be no  assurance  that third
parties on which the Company  relies will  complete  their Year 2000 programs on
time or that Year 2000  failures by such third  parties will not have a material
adverse effect on the Company's results of operations.

The Company has been conducting  ongoing reviews of the Year 2000 efforts of its
mission  critical  vendors,  customers  and service  providers.  The Company has
identified a number of mission  critical  third  parties whose Year 2000 failure
may  reasonably be expected to have a material  adverse  impact on the Company's
results of  operations.  Examples of such third parties  include:  the Company's
primary software licensor, Alltel Information Services, Inc.; the Company's sole
provider of insurance  processing  services;  the Company's sole provider of tax
payment  services;  and the  Company's  sole provider of  foreclosure  services.
Catastrophic  failure by any of these  parties  would  have a  material  adverse
effect on the Company.  The Company is targeting  these mission  critical  third
parties for particular  scrutiny  regarding their preparations for the change to
2000.  That  process  will  continue  across the date  change and into the first
quarter of 2000.

The Company has been  successful  in  negotiating  Year 2000  amendments  to its
contracts  with several  mission  critical  vendors.  These  amendments  contain
representations  and warranties by the vendors as to their state of readiness to
meet the Year 2000 challenge and  indemnification and other remedies in favor of
the Company in the event the Company  suffers a loss because the vendor does not
successfully manage the change to 2000.

Transition  Planning.  Transition  planning is concerned  with  identifying  and
preparing for specific issues and risks associated with the period of October 1,
1999  through  March 31,  2000.  The  Company  has  developed  a  corporate-wide
Transition  Strategy.  The objective of the Company in transition planning is to
ensure a Company-wide  capability to manage  internal and  externally  generated
events as and when they might arise.  Transition  plans for the century rollover
and beyond were  completed  by  September  30,  1999.  The Company  successfully
conducted  a "dress  rehearsal"  to test its  Transition  capabilities  over the
November 6, 1999 weekend.

As part of the Company's  Transition planning and overall Year 2000 Program, the
Company has established a moratorium period using a scaled  implementation  plan
to restrict the introduction of minor,  significant and major changes to systems
or business  processes.  The  moratorium  period  will not impair the  Company's
ability to conduct its core businesses and meet the needs of its customers.  The
Company's  Year  2000  Program  will  continue  until  the  end of  March  2000.
Activities planned for the first quarter of 2000 include:

o    Monitoring and verification  activities  surrounding  business  information
     systems;

o    Implementation of maintenance  programs  associated with the system changes
     made to manage the date change to 2000;

o    Working with  customers and  suppliers  regarding any impacts they may have
     sustained as a result of the date change to 2000; and

o    Completing a formal  post-implementation review of the Year 2000 Program to
     assess achievements and lessons learned.

Risks.  The  Company's  risk  management  office  is  actively  involved  in the
Company's  Year 2000 Program.  The most  reasonably  likely worst case Year 2000
scenario,   disregarding  the  Company's  remediation  efforts  and  contingency
planning,  is: (i) a failure in its loan servicing  software and/or systems,  or
(ii) a failure by one of the  Company's key third party  providers.  Either such
failure would result in material disruption in the Company's operations possibly
preventing it from  discharging its contractual  obligations to service mortgage
loans in an accurate and timely  fashion.  The  consequences  of such disruption
could  include,  among other things,  revocation  of the Company's  status as an
FHA/VA approved  lender/servicer  or Ginnie Mae/Fannie  Mae/Freddie Mac approved
seller/servicer,  incorrect processing and/or reporting of payments to consumers
and investors,  a material loss of revenue,  and  litigation  with third parties
alleging losses related to servicing failure.

While  working to ensure that the  Company's  primary  objective  of business as
usual  before,  during and through 2000 is  achieved,  there can be no guarantee
that its Year 2000 program will be  successful  in all respects or that the date
change for 1999 to 2000 will not  materially  affect the  Company's  business in
some form.

Contingency Planning. The Company's Year 2000 Program is based on the assumption
that 100% impact coverage is neither feasible nor practical. It is possible that
the  Company or third  parties on which the Company  depends may have  unplanned
system  difficulties  during the transition  through 2000, or that third parties
may not successfully manage the change to 2000;  therefore,  an integral part of
the  Company's  Year 2000 Program is the  development  of  contingency  plans in
anticipation of systems or third party failure.

These contingency plans have been developed for individual applications, systems
and business  processes.  Individual  departments within the Company,  including
information  technology,  acting under the supervision and direction of the Year
2000 Program  Enterprise  team, have (a) identified  applicable Year 2000 events
and threats,  (b) considered  the  likelihood of occurrence,  (c) determined the
severity of impact of such events and threats,  and (d) created  preventive  and
continuity  plans to address such events and threats.  Although the  contingency
plans vary by application,  system and business  process,  each of the Company's
contingency  plans include:  identification  of the Company's  systems and third
party risks that the plan  addresses;  an analysis of  strategies  and available
resources to restore and  continue  operations;  and a recovery  and  continuity
program that  identifies  participants,  processes,  and  significant  resources
required. Contingency plans include: identifying alternate providers and locking
them in  contractually  as  applicable;  securing  redundant  telecommunications
resources;  stockpiling of critical  supplies;  developing  manual procedures to
replace automated  procedures;  altering delivery  schedules for certain reports
and services to avoid the rollover period. Alternate providers are not available
for those key third parties  identified above as the Company's sole providers of
certain services.  As to those providers,  the Company has in each case reviewed
and approved the Year 2000 contingency plans adopted by those third parties.  In
the event of a failure in those third parties' contingency plans, the Company is
prepared,  as an  additional  contingency,  to terminate  its contract  with any
non-compliant provider and take over the performance of those services in-house.
In that regard,  it should be noted that the Company retains control of the data
essential to the provision of these services.

The Company's contingency plans have been reviewed and approved by the Company's
Program Office and executive management and, where possible, tested. Testing and
assurance testing of the Company's continuity plans was substantially  completed
by September  30, 1999.  Given the  potential  scope of Year 2000 events,  it is
possible that despite considerable  planning,  the Company's business continuity
plans for the date change to 2000 may only assist in the reduction of the degree
of disruption rather than its avoidance.

Cost of Year 2000  Efforts.  As  described  above,  the Company has  conducted a
thorough year 2000 program, covering all aspects of its business, to ensure that
it successfully manages the change to 2000. As previously disclosed, the Company
presently estimates these costs to total approximately $13.5 million.

Year 2000 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.  The
Company does not  separately  track the indirect costs incurred in its Year 2000
program.

Through September 30, 1999, the Company had expended approximately $10.4 million
of its total Year 2000 budget.  Through  December 15, 1999, the most recent date
for which  information  is  available  prior to this  filing,  the  Company  had
expended  approximately $12.2 million of its total Year 2000 budget. The Company
has incurred  significant  expenditures in the fourth  calendar  quarter of 1999
associated  with  proactive  communications  to its  customers.  The Company has
allocated  $1.7 million of its total Year 2000 budget to  transition  management
during the period of June 1, 1999 through  January 31, 2000, a majority of which
has been expended through the date of this filing.  The Company will continue to
incur  significant  expenditures  associated  with employee  retention  efforts,
continued  assurance  testing,   clean  management  of  systems  and  processes,
transition  planning and  maintenance  of its Year 2000 Program  Office  through
March 31, 2000.

The Company  expensed  its  remediation  costs as they were  incurred,  with the
exception of new hardware and software  purchases,  which were capitalized.  The
source of funds for Year 2000  remediation  is operating  income of the Company.
The percentage of the Company's  information  technology  budget devoted to Year
2000 efforts in the quarter ended  September 30, 1999, was  approximately  7.0%.
The  Company  is  unable  to  readily  determine  the  cost  of  replacement  of
non-compliant  systems  that  are  being  replaced  in the  ordinary  course  of
business. No significant  information technology projects have been deferred due
to Year 2000 efforts.

The Company's  Year 2000 Program is complex and reliant upon  coordination  with
numerous  third parties.  Accordingly,  the effort and costs in any given period
will depend  upon  progress.  The  Company's  current  Year 2000 budget of $13.5
million is based on the current  status of the Year 2000  Program and is subject
to change.  The budget of $13.5 million does not take into account any potential
losses the Company may suffer as a result of Year 2000  failures,  or any claims
for loss or damage  that may be asserted  against the Company by third  parties,
which may result if the Company or third parties do not successfully  manage the
effect of the Year 2000 date change.

The foregoing  disclosure,  including the  description of a worst case Year 2000
scenario,  is furnished in response to and in  compliance  with the Statement of
the  Commission  Regarding  Disclosure of Year 2000 Issues and  Consequences  by
Public  Companies,  Investment  Advisers,  Investment  Companies,  and Municipal
Securities Issuers, Securities Act Rel. No. 33-7448 (July 30, 1998).

Quantitative and Qualitative Market Risk

Interest  rate risk is the most  significant  market  risk  affecting  HomeSide.
Interest rate risk is the possibility  that changes in interest rates will cause
unfavorable  changes  in net income or in the value of  interest  rate-sensitive
assets, liabilities and commitments. From a corporate perspective, the economics
of the Company's production and servicing lines-of-business can be leveraged, in
part, to mitigate the Company's  exposure to interest rate risk. In addition and
as part  of its  risk  management  programs,  the  Company  purchases  financial
instruments and enters into financial  agreements with off-balance sheet risk in
the normal course of business to manage its exposure to interest rate risk.  The
Company uses  financial  instruments  for the purpose of managing  interest rate
risks to protect  the value of its  mortgage  loans  held for sale and  mortgage
commitment  pipeline.  Additionally,  risk  management  instruments  are used by
HomeSide to manage  interest rate risk associated with the value of its mortgage
servicing rights which have  characteristics  such that they tend to decrease in
value as interest  rates  decline and increase in value as interest  rates rise.
Interest  rate swaps are also used to  effectively  convert  fixed-rate  funding
sources to floating rate.  The Company has no market risk sensitive  instruments
held for trading purposes.

Management  actively  monitors and manages its  exposure to interest  rate risk.
Various valuation tools are employed to perform sensitivity analyses in order to
quantify the financial  impact of changes in interest rates.  These analyses are
performed for various  interest rate scenarios to capture the expected  economic
change in market value of  rate-sensitive  assets,  liabilities and commitments.
Additionally,  the  analyses are  performed  to capture the expected  accounting
impact on future earnings for a specified time frame.

Several modeling techniques are utilized including static shock, option adjusted
spread,  option pricing,  and discounted cash flow models.  A number of key rate
sensitive  assumptions are included in the modeling such as implied  volatility,
prepayment  rates,  and yield  requirements.  Various  analyses of the Company's
exposure to interest  rate risk are reviewed on at least a monthly  basis by the
Company's Asset/Liability Committee, which reports to the Board of Directors.

The  sensitivity   analyses  described  above  were  applied  to  the  Company's
rate-sensitive  assets,  liabilities,  commitments  and  the  Company's  on- and
off-balance  sheet financial  instruments at September 30, 1999. The sensitivity
analyses  reflect that a sudden and  sustained 50 basis point  increase in rates
would  result  in a  positive  variance  to net  income of $6.0  million  over a
simulated  12-month  period.  A sudden and sustained 50 basis point  decrease in
rates would result in a negative  variance to net income of $11.5 million over a
simulated  12-month  period.  Under  neither rate  scenario  would net income be
affected by impairment of  rate-sensitive  assets.  The sensitivity  analyses is
based on planned  product  volumes and margins,  which are regularly  updated to
reflect  the   Company's   latest  views  on  the  business  and  interest  rate
environments.

For  additional  information,  see  "Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of Operations - Risk  Management  Activities",
Note 12,  "Disclosures  About Fair Value of Financial  Instruments" and Note 13,
"Risk  Management and Off-Balance  Sheet Financial  Instruments" in the Notes to
Consolidated Financial Statements in the Company's Annual Report.



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
HomeSide Lending, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  HomeSide
Lending,  Inc. and subsidiaries as of September 30, 1999 and September 30, 1998,
and the related  consolidated  statements  of income,  changes in  stockholder's
equity,  and cash flows for the fiscal  year ended  September  30,  1999 and the
period  from  February  11,  1998 to  September  30,  1998.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  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 consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of HomeSide Lending,
Inc. and  subsidiaries  as of September 30, 1999 and September 30, 1998, and the
results of their  operations  and their  cash  flows for the  fiscal  year ended
September  30, 1999 and the period from  February 11, 1998 to September 30, 1998
in conformity with generally accepted accounting principles.


KPMG LLP
Jacksonville, Florida
October 19, 1999






<PAGE>

<TABLE>
<CAPTION>

                     HOMESIDE LENDING, INC. and SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (Dollars in Thousands, Except Share Data)



                                                                            September 30,  1999         September 30, 1998
                                                                      -------------------------    -----------------------
<S>                                                                   <C>                          <C>
ASSETS
Cash and cash equivalents                                                          $  202,859                 $   35,008
Mortgage loans held for sale, net                                                   1,292,562                  2,048,989
Mortgage servicing rights, net                                                      3,478,835                  1,766,214
Early pool buyout advances                                                            335,059                    759,579
Accounts receivable, net                                                              255,759                    272,005
Premises and equipment, net                                                            67,900                     45,657
Goodwill, net                                                                         648,087                    677,049
Other assets                                                                           82,591                    115,660
                                                                          -----------------------   ------------------------
Total Assets                                                                       $6,363,652                 $5,720,161
                                                                          =======================   ========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities                                           $  666,736                 $  236,940
Notes Payable                                                                       2,899,304                  2,749,000
Long-term debt                                                                      1,184,384                  1,185,926
Deferred income taxes, net                                                            257,089                    192,781
                                                                          -----------------------   ------------------------
Total Liabilities                                                                  $5,007,513                 $4,364,647
                                                                          -----------------------   ------------------------

Commitments and Contingencies

Stockholder's Equity:
  Common stock:
     Common  stock,  $1.00  par  value,  100  shares   authorized,   issued  and
         outstanding, all pledged as second priority collateral on the
         long-term debt of the Parent                                              $    -                     $    -
  Additional paid-in capital                                                        1,323,071                  1,322,387
  Retained earnings                                                                    33,068                     33,127
                                                                          -----------------------   ------------------------
Total Stockholder's Equity                                                          1,356,139                  1,355,514
                                                                          -----------------------   ------------------------
Total Liabilities and Stockholder's Equity                                         $6,363,652                 $5,720,161
                                                                          =======================   ========================
</TABLE>

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


<PAGE>

<TABLE>
<CAPTION>

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




                                                               For the Fiscal            For the Period From
                                                                 Year Ended             February 11, 1998 to
                                                             September 30, 1999          September 30, 1998

<S>                                                        <C>                          <C>
REVENUES:
Mortgage servicing fees                                                 $ 605,995                   $ 312,678
Amortization of mortgage servicing rights                                (407,085)                   (189,881)
                                                           ------------------------    ------------------------
    Net servicing revenue                                                 198,910                     122,797

Interest income                                                           181,173                      99,749
Interest expense                                                         (121,697)                    (62,476)
                                                           ------------------------    ------------------------
    Net interest revenue                                                   59,476                      37,273

Net mortgage origination revenue                                          155,937                      83,706
Other income                                                                5,844                       6,495
                                                           ------------------------    ------------------------
    Total Revenues                                                        420,167                     250,271

EXPENSES:
Salaries and employee benefits                                            132,716                      73,983
Occupancy and equipment                                                    28,319                      13,107
Servicing losses on investor-owned loans
   and foreclosure-related expenses                                        31,749                      21,202
Goodwill amortization                                                      34,965                      22,283
Other expenses                                                             60,077                      39,150
                                                           ------------------------    ------------------------
    Total Expenses                                                        287,826                     169,725

Income before income taxes                                                132,341                      80,546
Income tax expense                                                         63,234                      40,101
                                                           ------------------------    ------------------------

Net Income                                                               $ 69,107                    $ 40,445
                                                           ========================    ========================
</TABLE>

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


<PAGE>

<TABLE>
<CAPTION>

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


                                                                            Additional
                                               Numbers         Common        Paid-in        Retained
                                              of Shares        Stock         Capital        Earnings         Total
                                            ---------------------------------------------------------------------------
<S>                                               <C>       <C>          <C>               <C>             <C>
Balance, February 11, 1998                         100       $     --     $1,322,387        $     --        $1,322,387
  Net Income
                                                                                               40,445           40,445
  Dividends declared and paid to Parent                                                        (7,318)          (7,318)
                                            ---------------------------------------------------------------------------
Balance, September 30, 1998                        100       $     --     $1,322,387        $  33,127       $1,355,514

Net income                                                                                     69,107           69,107
Dividends declared and paid to Parent                                                         (69,166)         (69,166)
Additional paid-in capital associated with
acquisition by the National                                                     684                                684
                                            ---------------------------------------------------------------------------
Balance,  September 30, 1999                       100       $     --     $1,323,071        $  33,068       $1,356,139
                                            ===========================================================================
</TABLE>





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


<PAGE>
<TABLE>
<CAPTION>


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




                                                                   For the Fiscal        For the Period from
                                                                     Year Ended          February 11, 1998 to
                                                                 September 30, 1999       September 30, 1998
                                                               -----------------------  -----------------------
<S>                                                            <C>                       <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income                                                       $        69,107          $        40,445
Adjustments  to reconcile net income to net cash provided
  by (used in) operating activities:
  Amortization of mortgage servicing rights                              407,085                  189,881
  Depreciation and amortization                                           44,416                   24,595
  Servicing losses on investor-owned loans                                 5,523                   10,314
  Change in deferred income tax liability                                 63,234                    7,908
  Mortgage loans originated and purchased for sale                   (22,146,930)             (12,697,763)
  Proceeds and principal repayments of mortgage loans held
    for sale                                                          22,903,357               12,008,178
  Change in accounts receivable                                            5,473                  (11,694)
  Change in other assets and accounts payable and accrued
    liabilities                                                          107,973                   20,172
                                                               -----------------------  -----------------------
    Net cash provided by (used in) operating activities                1,459,238                 (407,964)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of premises and equipment, net                                  (30,561)                 (20,067)
Acquisition of mortgage servicing rights                              (1,221,594)                (392,862)
Net (purchases of) proceeds from risk management contracts              (546,421)                 387,276
Early pool buyout reimbursements (advances)                              424,520                 (385,580)
Acquisition of Banc One Mortgage Corp., net of repayments                   -                    (201,000)
                                                               -----------------------  -----------------------
    Net cash used in investing activities                             (1,374,056)                (612,233)

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net (repayments to) borrowings from banks                             (1,240,498)                 624,044
Issuance of commercial paper, net of repayments                        1,163,903                     -
Issuance of notes payable                                                230,000                  410,000
Payment of debt issue costs                                                 (701)                  (3,262)
Repayment of long-term debt                                                 (869)                    (372)
Dividends paid to the Parent                                             (69,166)                  (7,318)
                                                               -----------------------  -----------------------
    Net cash provided by financing activities                             82,669                1,023,092

Net increase in cash and cash equivalents                                167,851                    2,895
Cash and cash equivalents at beginning of period                          35,008                   32,113
                                                               -----------------------  -----------------------
Cash and cash equivalents at end of period                        $      202,859            $      35,008
                                                               =======================  =======================



Supplemental disclosure of cash flow information:
Interest paid                                                     $      118,450            $      56,094
Income taxes paid                                                 $       14,654            $      28,835

</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" 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.

As discussed in Note 2, on February 10, 1998, National Australia Bank, Ltd. (the
"National")  acquired  all  outstanding  shares of the common  stock of HomeSide
International,  Inc. (the "Parent") and the Company adopted a fiscal year end of
September  30 to  conform  to  the  fiscal  year  of  the  National.  HomeSide's
predecessor ("HomeSide Predecessor") commenced operations and was formed through
the  acquisition of the mortgage  banking  operations of the former  BankBoston,
N.A. ("BBMC  Predecessor" to HomeSide  Predecessor) on March 16, 1996.  HomeSide
Predecessor  subsequently  purchased the mortgage banking  operations of Barnett
Banks,  Inc. Unless  otherwise  designated,  the term  "HomeSide"  refers to the
Company for the periods subsequent to February 10, 1998, to HomeSide Predecessor
for the periods  from March 16,  1996 to February  28, 1997 and March 1, 1997 to
February 10, 1998, and to BBMC  Predecessor for periods prior to March 16, 1996.
The  accompanying  consolidated  financial  statements  of HomeSide  include the
accounts of HomeSide and its  subsidiaries,  after  elimination  of all material
intercompany balances and transactions.  Amounts of acquired companies have been
included from the date of acquisition.  Certain reclassifications have been made
to the financial  statements  for the period from February 11, 1998 to September
30, 1998, to conform to the presentation for the year ended September 30, 1999.

HomeSide is a wholly-owned  subsidiary of HomeSide  Holdings,  Inc.,  which is a
wholly-owned subsidiary of HomeSide International,  Inc. (the "Parent")(see Note
2).  The  Parent  has no  operations  and its only  significant  assets  are its
investments in HomeSide Holdings,  Inc.,  HomeSide 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 is pledged as  collateral on
the debt of the Parent.  The Parent is dependent  upon  dividends  from HomeSide
Holdings,  Inc. and HomeSide for the cash flow necessary to service the Parent's
debt.

The  accompanying  financial  statements  of HomeSide  Lending,  Inc.  have been
prepared for the year ended  September 30, 1999 and for the period from February
10, 1998 to September 30, 1998 to coincide with the  acquisition  of HomeSide by
the National and the subsequent adoption of a September 30 fiscal year end.

2.  ORGANIZATION

On December 11, 1995,  HomeSide 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 . The transaction
closed on March 15, 1996 and HomeSide  began  operations  on March 16, 1996.  In
March 1999,  Fleet Financial  Group,  Inc. and BankBoston,  N.A. entered into an
agreement and plan of merger  providing for the merger of BankBoston,  N.A. with
and into Fleet Financial Group, Inc.

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 .
Barnett  received cash and an ownership  interest in HomeSide . 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 . 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,  now  BankAmerica  Corporation,
acquired all the outstanding common stock of Barnett Banks, Inc.

On February 10, 1998,  National  Australia Bank, Ltd. (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 $719.6  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.  HomeSide also adopted a fiscal year end of September 30 to conform to
the fiscal year of the National.

 3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates

The  preparation of financial  statements  and notes thereto in conformity  with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that  affect the  reported  amounts  of  assets,  liabilities,
revenues and expenses and the disclosed amount of contingent liabilities.  On an
ongoing basis, management reviews its estimates, including those related to risk
management, litigation, contracts, credit losses, and mortgage servicing rights.
Although  the  Company  has  internal  control  systems in place to ensure  that
estimates  can be  reliably  measured,  actual  results  may  differ  from those
estimates. It is not anticipated that such differences would be material.

Risk management of mortgage loan originations

HomeSide  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,  treasury  forwards,  and put and call
option contracts on mortgage-backed securities. 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  mortgage  origination  revenue  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 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 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's policy to mitigate and hedge this
risk through its risk management program.

The risk management  instruments used by HomeSide 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 the value of these hedge  instruments will tend to move
inversely with changes in value of HomeSide's mortgage servicing rights.

Options on U.S.  Treasury  bond and note  futures,  U.S.  Treasury bond and note
futures,  Eurodollar  futures,  and interest rate swaps,  caps and swaptions are
used by  HomeSide  to  manage  interest  rate  risk.  When  purchased,  the risk
management instruments are designated to a specific strata of mortgage servicing
rights.  The risk  management  instrument  contracts  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 the value of HomeSide's  mortgage  servicing  rights is
assessed on a quarterly basis to ensure that high correlation is maintained over
the  term  of  the  hedging  program.  If  management's  ongoing  assessment  of
correlation  indicates that high correlation is not being achieved,  the Company
will  discontinue  the  application of hedge  accounting and recognize a gain or
loss to the extent the hedge results have not been offset by changes in value of
the hedged asset during the hedge period.

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 hedge 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 are
typically sold within three months.

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

Mortgage  servicing  rights are the rights to receive a portion of the  interest
coupon and fees collected from the mortgagor for performing  specified servicing
activities.  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.

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  mortgage  servicing
assets and on discounted  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,  if any, is recognized  through a valuation reserve
for each impaired stratum and is included in amortization of mortgage  servicing
rights.

Cash

Cash and cash  equivalents  include  cash and due from  banks,  interest-bearing
deposits and margin deposits with an original  maturity of three months or less.
Margin  deposits  associated  with  the risk  management  program  for  mortgage
servicing  rights and interest rate swaps for debt  instruments  are  maintained
with brokers in accordance  with the  requirements  of  International  Swap Deal
Agreements.  At September 30, 1999,  margin deposits  amounted to  approximately
$179.5 million.

Accounts receivable

Accounts  receivable  includes  advances,  consisting  primarily of payments for
property  taxes and  insurance  premiums,  accrued  servicing  fees,  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 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 process of
foreclosure  that have been  purchased  from  pools.  The  program  reduces  the
unreimbursed interest expense that HomeSide 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.

On November  30,  1998,  HomeSide  formed a  wholly-owned  subsidiary,  HomeSide
Funding, Inc. ("HomeSide Funding"),  whose sole purpose is to acquire delinquent
loans from  HomeSide's  servicing  portfolio  that are  insured  by the  Federal
Housing  Administration or guaranteed by the Department of Veterans Affairs. The
purchases are funded through sales to a trust.

In  December  1998,  HomeSide  Lending  entered  into a  Pooling  and  Servicing
Agreement with Banc One Trust Company,  N.A., as Trustee,  and HomeSide Funding,
as  Transferor,  pursuant  to which  approximately  $487  million of  delinquent
mortgage  loans were sold to  HomeSide  Funding  during  the  fiscal  year ended
September 30, 1999. Subsequently, these loans were sold to the HomeSide Mortgage
Loan Buyout Trust  1998-A.  At  September  30,  1999,  HomeSide  held a residual
interest in loans sold to HomeSide Funding in the amount of $10.3 million, which
approximated fair value.



Premises and equipment

Premises  and  equipment  are  carried  at cost less  accumulated  depreciation.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful  lives  of  the  assets,  which  range  up  to  thirty  years.  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  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.

The Company capitalizes certain software development and implementation costs in
accordance  with  SOP  98-1,  "Accounting  for the  Costs of  Computer  Software
Developed or Obtained for Internal Use."  Development and  implementation  costs
are expensed until the Company has  determined  that the software will result in
probable  future  economic  benefits and management has committed to funding the
project.  Thereafter,  all direct  external  implementation  costs and  purchase
software costs are capitalized and amortized using the straight-line method over
the remaining estimated useful lives, not exceeding five years.

Goodwill

Goodwill,  representing the excess of the purchase  consideration  over the fair
value of the  identifiable  net assets acquired on the date of  acquisition,  is
recognized as an asset.  Goodwill is amortized  from the date of  acquisition by
systematic  charges on a  straight-line  basis against income over the period in
which  the  benefits  are  expected  to  arise,  but  not  exceeding  20  years.
Accumulated  goodwill  amortization  at  September  30,  1999 and 1998 was $58.8
million  and $22.8  million,  respectively.  The  carrying  value of goodwill is
reviewed at least annually.  If the carrying value of goodwill exceeds the value
of the expected future benefits, the difference is charged against income.

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 over the period of service.

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  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 '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.

New accounting standards

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and  Hedging  Activities."  This  statement   standardizes  the  accounting  for
derivative  instruments  and  hedging  activities  by  requiring  that an entity
recognize  those items as assets or  liabilities  in the  statement of financial
position  and  measure  them at fair  value.  If certain  conditions  are met, a
derivative  instrument  may be  specifically  designated  as (a) a hedge  of the
exposure to changes in the fair value of a recognized asset or liability,  or of
an unrecognized  firm commitment,  (b) a hedge of the exposure to variability in
the cash flows of recognized assets,  liability or forecasted transaction or (c)
a hedge of the foreign currency exposure of an unrecognized firm commitment,  an
available-for-sale  security, a forecasted  transaction or a net investment in a
foreign operation. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial  Accounting Standards No. 137, "Accounting for Derivative
Instruments  and Hedging  Activities  - Deferral of the  Effective  Date of FASB
Statement  No. 133 - an Amendment  of FASB  Statement  No. 133." This  statement
deferred  the  effective  date of FAS 133 to fiscal  quarters  of  fiscal  years
beginning  after June 15, 2000.  Management has not yet determined the impact of
these statements on the financial statements of HomeSide.

In October 1998, the Financial  Accounting  Standards Board issued  Statement of
Financial   Accounting   Standards  No.  134,  "Accounting  for  Mortgage-Backed
Securities  Retained after  Securitization  of Mortgage Loans Held for Sale by a
Mortgage  Banking  Enterprise."  ("SFAS  134")  This  statement  further  amends
Statement No. 65 to require that after the securitization of mortgage loans held
for sale,  an  entity  engaged  in  mortgage  banking  activities  classify  the
resulting  mortgage-backed  securities or other retained  interests based on its
ability  and  intent  to sell or hold  those  investments.  This  statement  was
effective  for the first  fiscal  quarter  beginning  after  December  15, 1998.
Management has determined that no adjustment or reclassification  should be made
to the financial statements of HomeSide pursuant to SFAS 134.

4.  ACQUISITIONS AND STRATEGIC ALLIANCES

Strategic Alliance with Cendant Mortgage Corporation

On June 15, 1999,  HomeSide  announced  that it had formed a strategic  alliance
with Cendant  Mortgage  Corporation.  Cendant  Mortgage has agreed to sell up to
$7.0 billion in mortgage  servicing  rights on a flow basis annually to HomeSide
over a 5 year  period.  For the year ended  September  30,  1999,  HomeSide  has
purchased  and will  service  $8.8  billion  of  Cendant  Mortgage's  portfolio,
representing  approximately 78,000 loans. Cendant Mortgage is one of the largest
retail originators in the United States.

Strategic Alliance with First Chicago NBD Mortgage Company

On March 4, 1999,  HomeSide  agreed to purchase  or  sub-service  the  servicing
portfolio  of  First  Chicago  NBD  Mortgage  Company  ("First  Chicago").  This
transaction  represents a modification and an expansion of HomeSide's  strategic
alliance with Banc One Mortgage  Corporation  ("Banc One"). This resulted in (i)
an increase in HomeSide's servicing portfolio of approximately $18 billion; (ii)
a change in Banc One's  residential  mortgage loan  delivery  method to HomeSide
from a whole loan  basis to a  servicing  rights-only  flow  basis;  and (iii) a
commitment from First Chicago to sell the servicing  rights  associated with its
residential mortgage production to HomeSide on a flow basis.

Acquisition of Banc One Mortgage Corporation

On April 1, 1998,  HomeSide  entered  into an  agreement  with Banc One Mortgage
Corporation to acquire the mortgage  servicing assets of Banc One.  HomeSide and
Banc One have also entered into a Preferred Partner agreement,  whereby Banc One
will sell a significant  portion of its residential  mortgage loan production to
HomeSide  over the next five years on a whole  loan  basis.  The total  purchase
consideration  for the mortgage  servicing  assets was $201.0  million cash. The
mortgage  servicing rights acquired relate to mortgage  servicing loans of $16.6
billion.  The  transaction  closed  on June 5, 1998 and was  accounted  for as a
purchase.  The excess of the aggregate purchase price over the fair value of net
assets acquired is being amortized on a straight-line basis over 20 years.

The  unaudited  condensed  pro forma  statement  of income for the  period  from
February  11, 1998 to  September  30, 1998 and the  HomeSide,  Inc.  Predecessor
period  from March 1, 1997 to  February  10,  1998,  assuming  Banc One had been
acquired as of the beginning of the period is as follows (in millions):
<TABLE>
<CAPTION>


                                             Pro Forma for the Period From       Pro Forma for the Period
                                            February 11, 1998 to September         From March 1, 1997 to
                                                       30, 1998                      February 10, 1998
                                            --------------------------------    ----------------------------
<S>                                                      <C>                               <C>
Net servicing revenue                                    $129.5                            $202.6
Net interest  revenue                                      29.5                               1.2
Net mortgage origination revenue                           81.1                              90.1
Other income                                               11.0                               1.7
                                            --------------------------------    ----------------------------
        Total revenues                                    251.1                             295.6
Expenses                                                 (174.7)                           (162.1)
                                            --------------------------------    ----------------------------
Income before income taxes                                 76.4                             133.5
Income tax expense                                        (38.7)                            (52.1)
                                            --------------------------------    ----------------------------
 Net income                                              $ 37.7                            $ 81.4
                                            ================================    ============================
</TABLE>

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.

Strategic Alliance with People's Bank

On November 23, 1998,  HomeSide agreed to purchase or sub-service  approximately
$5 billion in mortgage servicing from People's Bank, the largest mortgage lender
in  Connecticut.  People's Bank also became a Preferred  Partner,  committing to
sell a significant  portion of the  residential  mortgage loans it originates to
HomeSide for five years.

Acquisition of Loan America

On April 6, 1998,  HomeSide  signed an agreement  with  NationsBank  Corporation
("NationsBank") whereby NationsBank agreed to sell HomeSide a national wholesale
mortgage  loan  network  which was  formerly  owned by Barnett  Banks,  Inc. The
transaction  closed on May 29, 1998. The excess of the aggregate  purchase price
over the fair value of net assets acquired is being amortized on a straight-line
basis over 20 years.

5.  MORTGAGE SERVICING RIGHTS

An analysis of mortgage servicing rights is as follows:
(in thousands)
<TABLE>
<CAPTION>
                                                                    September 30, 1999     September 30, 1998
                                                                   ---------------------- ----------------------
<S>                                                                      <C>                   <C>
Beginning balance                                                        $1,766,214            $1,766,357
Additions                                                                 1,221,594               593,862
Sales of servicing                                                             -                   (9,967)
Net deferred hedge loss (gain), net of amortization                         898,112              (394,157)
Amortization                                                               (407,085)             (189,881)
                                                                   ---------------------- ----------------------
Ending balance                                                           $3,478,835            $1,766,214
                                                                   ====================== ======================
</TABLE>

6. PREMISES AND EQUIPMENT

Premises and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>

                                                  September 30, 1999       September 30, 1998
                                                  ------------------------ ----------------------
<S>                                                   <C>                      <C>
Land                                                  $   3,451                $   3,451
Buildings and building improvements                       9,932                    9,932
Furniture and equipment                                  38,611                   27,643
Software                                                 17,019                    1,684
Leasehold improvements                                   10,375                    6,234
                                                  ------------------------ ----------------------
                                                         79,388                   48,944
Accumulated depreciation and amortization               (11,488)                  (3,287)
                                                  ------------------------ ----------------------
Ending balance                                          $67,900                  $45,657
                                                  ======================== ======================
</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 Fiscal       For the Period February
                                                                       Year Ended         11, 1998 to September
                                                                  September 30, 1999             30, 1998
                                                                ------------------------ -------------------------
<S>                                                                      <C>                        <C>
Beginning                                                                $21,650                    $21,650
Provision for servicing losses on investor-owned loans                     5,523                     10,314
Charge-offs                                                              (11,040)                   (10,341)
Recoveries                                                                   517                         27
                                                                ======================== =========================
Ending balance                                                           $16,650                    $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>
Floating Rate Notes                                           $ 230,000        5.67%                 5.67%
Commercial Paper                                              1,163,903        5.57%                 5.12%
National Australia Bank Unsecured Facility                    1,505,401        5.46%                 5.22%
                                                 -----------------------
  Total, September 30, 1999                                  $2,899,304        5.52%                 5.20%
                                                 =======================


Bank line of credit                                           $ 995,000        5.88%                 5.96%
National Australia Bank Unsecured Facility                    1,754,000        5.66%                 5.67%
                                                 -----------------------
  Total, September 30, 1998                                  $2,749,000        6.00%                 6.04%
                                                 =======================
</TABLE>


On August 16, 1999,  HomeSide  issued $230.0 million in floating rate notes (the
"Floating  Rate  Notes") due August 16, 2000.  Interest is payable  quarterly in
arrears on November 16,  February  16, May 16, and August 16. The Floating  Rate
Notes are  unsecured  obligations  of HomeSide  and rank  equally with all other
unsecured and  unsubordinated  indebtedness of HomeSide.  The per annum interest
rate on the  Floating  Rate  Notes  is  equal to the  three-month  LIBOR,  reset
quarterly, plus twenty basis points, or 0.20%.

On  October  21,  1998,  HomeSide  Lending,  Inc.  established  a  $1.5  billion
commercial paper program. The program is supported by the Company's bank line of
credit and outstanding  commercial paper reduces available  borrowings under the
bank  line of  credit.  At  September  30,  1999,  a total  of $1.2  billion  of
commercial  paper  was  outstanding.  The  weighted  average  interest  rate  on
commercial paper outstanding during the year ended September 30, 1999 was 5.12%.

On June 23, 1998,  HomeSide entered into an agreement for an unsecured revolving
credit  facility with the National.  The agreement was amended on June 22, 1999.
Under the credit  facility,  HomeSide can borrow up to $2.5 billion,  subject to
limits imposed by regulatory  authorities.  As of September 30, 1999, Australian
financial  regulations limited the National's ability to lend funds to HomeSide,
a non-bank affiliate, to approximately $2.1 billion. Borrowings under the credit
facility may be overnight or for periods of 7, 30, 60 or 90 days.  For overnight
borrowings,  the interest rate is determined by HomeSide and the National at the
time of the  borrowing.  For  LIBOR - based  borrowings,  the  interest  rate is
charged at the corresponding LIBOR rate. At September 30, 1999 and September 30,
1998, the amount outstanding under this credit facility totaled $1.5 billion and
$1.8 billion,  respectively.  The weighted  average interest rate on outstanding
borrowings  under this credit  facility during the year ended September 30, 1999
and the period  from  February  11,  1998 to  September  30, 1998 were 5.22% and
5.67%, respectively.

HomeSide borrows funds on a demand basis from an independent  syndicate of banks
under a $2.0 billion credit facility  which, at the request of HomeSide,  may be
increased to $3.0 billion.  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 $760.0
million.  Borrowings  under the bank line of credit  bear  interest at rates per
annum,  based on, at  HomeSide'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 February 14, 2000, the
line of credit will  terminate.  The credit  agreement  contains  covenants that
impose  limitations  and  restrictions  on HomeSide,  including  requirements to
maintain certain net worth and ratio requirements.  Under certain  circumstances
set  forth in the  credit  agreement,  borrowings  under  the  agreement  become
collateralized  by  HomeSide's  assets.  HomeSide  is  in  compliance  with  all
requirements  included in the credit  agreement.  At  September  30,  1999,  the
primary  use  of the  credit  facility  was to  provide  liquidity  back-up  for
HomeSide's  $1.5  billion  commercial  paper  program  and there was no  balance
outstanding under the credit line. At September 30, 1998, the amount outstanding
under the credit line, all of which was under the warehouse credit facility, was
$1.0 billion.  HomeSide entered into a replacement  agreement for a $2.0 billion
credit facility on October 18, 1999. See Note 19.)

9.  LONG-TERM DEBT

Long-term debt,  including the fair value adjustments  resulting from the merger
with the National, consists of the following (in thousands):
                           September 30, 1999             September 30, 1998
                           -----------------------       ----------------------
Medium-term notes                 $   1,160,955                 $   1,161,629
Mortgage note payable                    23,429                        24,297
                           -----------------------       ----------------------
  Total                           $   1,184,384                 $   1,185,926
                           =======================       ======================

Medium-term notes

On August 31, 1999 HomeSide  Lending  registered  an additional  $1.0 billion in
medium-term  notes  under a  registration  statement  on Form S-3  (Registration
Number  333-84179)  filed with the  Securities  and  Exchange  Commission.  This
effectively raised the medium-term note shelf registration to $2.568 billion. As
of September 30, 1999 and 1998, outstanding medium-term notes issued by HomeSide
Lending under this shelf registration statement were as follows (in thousands):

  Issue Date          Outstanding Balance  Coupon Rate    Maturity Date
--------------------  -------------------   ----------  ------------------

May 20, 1997             $   250,000           6.875%    May 15, 2000
June 30, 1997                200,000           6.875%    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           6.750%    August 1, 2004
September 15, 1997            45,000           6.770%    September 17, 2001
March 19, 1998                60,000           5.6875%   March 20, 2000
April 23, 1998               125,000           5.7875%   April, 24, 2001
May 22, 1998                 225,000           6.200%    May 15, 2003
                      -------------------
  Total                   $1,160,000
                      ===================

As of  September  30,  1999,  $850.0  million  of the  outstanding,  fixed  rate
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 year ended  September  30,  1999 and the
period from February 11, 1998 to September 30, 1998  including the effect of the
interest rate swap agreements, were 6.47% and 6.00%, respectively.  Net proceeds
from the issuances were primarily used to reduce the amounts  outstanding  under
the bank credit  agreement  including to fund the  acquisition  of the servicing
rights associated with Bank One's $16.6 billion portfolio.

The balance of the medium-term  notes at September 30, 1999,  including the fair
value adjustment resulting from the merger with the National,  was $1.2 billion,
which included $0.3 billion due within one year.

11.25% Notes of Parent

On May 14, 1996,  the Parent issued $200.0  million of 11.25% notes (the "Parent
Notes") maturing on May 15, 2003, and paying interest semiannually in arrears on
May 15 and  November 15 of each year.  The Parent  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 fixed redemption prices. The indenture contains covenants that impose
limitations and  restrictions,  including  requirements to maintain  certain net
worth and ratio  requirements.  In  addition,  the Parent Notes are secured by a
second  priority  pledge of the common  stock of the  Company.  The Parent is in
compliance with all net worth and ratio  requirements  included in the indenture
relating to the Parent Notes. The Parent used a portion of the proceeds from its
February 5, 1997 offering of common stock to pre-pay $70.0 million of the Parent
Notes at a premium of $7.9 million. The amount outstanding at September 30, 1999
and 1998 was $130.0  million.  The balances of the Parent Notes at September 30,
1999 and 1998,  including the fair value  adjustment  resulting  from the merger
with the National, were $146.9 million and $151.9 million, respectively.

Mortgage note payable

In connection with the acquisition of BancBoston Mortgage Corporation,  HomeSide
assumed a mortgage  note  payable  that is due in 2017 and bears  interest  at a
stated rate of 9.5%.  HomeSide's  main office  building is pledged as collateral
for the mortgage note payable.  The balance of the mortgage payable at September
30, 1999,  including the fair value  adjustments  resulting from the merger with
the National, was $23.4 million.

Principal  payments due on long-term  debt at September  30, 1999 are as follows
(in thousands):

    Fiscal Year
    2000                                            $  310,299
    2001                                               225,329
    2002                                               200,362
    2003                                               355,398
    2004                                                70,437
    Thereafter                                          11,089
    Unamortized purchase accounting premium             11,470
                                                  ---------------
                  Total                            $ 1,184,384
                                                  ===============

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 were as follows (in thousands):

                                   For the Fiscal          For the Period From
                              Year Ended September 30,    February 11, 1998 to
                                        1999               September 30, 1998
                              -------------------------- -----------------------
Current:
     Federal                          $     -                 $ 29,399
     State                                  -                    2,794
                              -------------------------- -----------------------
                                            -                   32,193
Deferred:
     Federal                             56,228                    4,459
     State                                7,006                    3,449
                              -------------------------- -----------------------
                                         63,234                    7,908
                              -------------------------- -----------------------
Total                                  $ 63,234                 $ 40,101
                              ========================== =======================

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 Fiscal         For The Period From
                                       Year Ended           February 11, 1998 to
                                   September 30, 1999        September 30, 1998
                                  ----------------------- ----------------------

Statutory federal income tax rate          35.0%                    35.0%
State income and franchise taxes,
       net of federal tax effect            3.0%                     4.0%
Goodwill                                    9.8%                    10.8%
Other                                        -                        -
                                  ----------------------- ----------------------
      Effective income tax rate            47.8%                    49.8%
                                  ======================= ======================


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):
<TABLE>
<CAPTION>

                                                   September 30, 1999     September 30, 1998
                                                  ---------------------- ----------------------
<S>                                               <C>                     <C>
Deferred tax assets:
   Net operating loss carryforwards                     $ 128,468               $ 11,229
   Alternative minimum tax credit carry forward             2,494
                                                                                    -
   Loss reserves                                           42,106                 19,535
   Hedge activities                                          -                    73,899
   Purchase Accounting Adjustment                          37,404                 32,630
   Other assets
                                                           12,590                   -
                                                  ---------------------- ----------------------
      Total gross deferred tax assets                   $ 223,062              $ 137,293
                                                  ---------------------- ----------------------

Deferred tax liabilities:
   Mortgage servicing fees                              $ 354,728              $ 313,856
   Hedge activities                                        85,822                   -
   Other liabilities                                       39,601                 16,218
                                                  ---------------------- ----------------------
      Total gross deferred tax liabilities                480,151                330,074
                                                  ---------------------- ----------------------
        Net deferred tax liability                      $ 257,089              $ 192,781
                                                  ====================== ======================
</TABLE>

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  September  30, 1999 or  September  30,  1998.  The Company has
consolidated  tax net operating loss  carryforwards at September 30, 1999. These
carryforwards expire in the years 2001 to 2019.

11.  LEASE COMMITMENTS

HomeSide leases office facilities and equipment under noncancelable  leases that
include  renewal options and escalation  clauses which extend into 2010.  Rental
expense for leases of office  facilities and equipment was $8.8 million and $4.0
million for the year ended  September  30, 1999 and the period from February 11,
1998 to  September  30,  1998,  respectively.  HomeSide's  minimum  future lease
commitments are as follows (in thousands):

Fiscal Year
2000                                               $   7,017
2001                                                   6,612
2002                                                   6,360
2003                                                   6,276
2004                                                   4,861
Thereafter                                            21,703
                                                --------------
     Total                                         $  52,829
                                                ==============

12.  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.  Independent market data may not be available to validate those
fair value estimates that are based on internal valuation techniques.  Moreover,
such fair value  estimates  may not be  indicative  of the amounts that could 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 and
     accrued liabilities

Carrying amounts are considered to approximate fair value.

   Risk management contracts

Fair values are  estimated  based on actual market  quotes,  option  models,  or
discounted  cash flow valuation  models.  The carrying  amount relating to these
contracts  is  included  in  accounts  payable  and  accrued  liabilities  as of
September 30, 1999, and in other assets as of September 30, 1998.

   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 and note futures

The fair values of options are estimated based on actual market quotes.

   Interest rate swaps

The fair  values  of  interest  rate  swaps is based  on  discounted  cash  flow
valuation models and is periodically validated against dealer quotes.

Fair Value
The fair  values of the  Company's  financial  instruments  are as  follows  (in
thousands):
<TABLE>
<CAPTION>
                                                             September 30, 1999                 September 30, 1998
                                                     ---------------------------------- ----------------------------------
                                                     Carrying Amount     Fair Value      Carrying Amount       Fair Value
                                                     ----------------- ---------------- ----------------- ----------------
<S>                                                  <C>               <C>               <C>               <C>
ASSETS
Cash and cash equival                                 $  202,859        $  202,859       $   35,008          $   35,008
Mortgage loans held for sale                           1,292,562         1,296,426        2,048,989           2,064,853
Accounts receivable                                      255,759           255,759          272,005             272,005
Early pool buyout advances                               335,059           335,059          759,579             759,579
Risk management contracts for
   mortgage servicing rights                                 --               --            120,211             120,211

LIABILITIES
Notes payable                                          2,899,304         2,899,304        2,749,000           2,749,000
Long-term debt                                         1,184,384         1,177,556        1,185,926           1,161,126
Accounts payable and accrued liabilities                 376,272           376,272          236,940             236,940
Risk management contracts for
    mortgage servicing rights                            290,464           290,464              --                 --

OFF-BALANCE SHEET(1)
Commitments to originate mortgage loans                     --               2,939              --               23,522
Mandatory forward contracts to sell mortgages               --              (8,370)             --              (45,557)
Mandatory forward contracts to sell U.S. treasuries         --                --                --                 (463)
Options on mortgage-backed  securities                     4,747             3,722            6,120               2,864
Options on U.S treasury bond futures                          56                54              113                  57
Interest rate swaps on debt instruments                      --              6,827             --                24,800
------------------------------------------------------
(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 September 30, 1999 and September 30, 1998.  Subsequent  changes
in market interest rates and prepayment  assumptions could significantly  change
the fair value.

13.  RISK MANAGEMENT AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

As discussed in Note 3, HomeSide utilizes risk management financial  instruments
to manage  interest  rate risk  related to the value of its  mortgage  servicing
rights.  A  summary  of  HomeSide  's  position  in  risk  management  financial
instruments at September 30, 1999 and September 30, 1998 is included below.

The fair value of HomeSide's risk  management  contracts on Treasury and options
on  Eurodollar  futures  is based on  quoted  market  prices  of the  underlying
instruments at September 30, 1999 and September 30, 1998.  The notional  amounts
represent the par value of the underlying U.S. Treasury bonds or notes. 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 requirements.

The fair value of HomeSide's risk  management  contracts in Interest Rate Swaps,
Interest Rate Swaps with a Cap, and Options on Interest  Rate Swaps  (Swaptions)
is based on discounted cash flow valuation models and is periodically  validated
against dealer quotes (see Footnote 12). The notional amounts represent only the
balances upon which future interest payments are based. Therefore,  the notional
amounts are not  recognized in the balance sheet and should not be considered as
a measure of credit risk or future cash requirements.

The amount of the risk management  contracts  maintained  depends on a number of
factors  including  the  size of the  mortgage  servicing  portfolio,  projected
convexity of the mortgage  servicing  rights,  interest rates, and interest rate
volatility. HomeSide 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's risk management
financial  instruments  qualify  as  hedges,  and  gains or  losses  on the risk
management  instruments  correlate  with  movements in the value of the mortgage
servicing  rights.  Cap structures are included with certain interest rate swaps
to create the  desired  hedge  profile  and to limit the  Company's  losses in a
rising rate environment.

Cash  requirements  for  HomeSide's  swaps and swaption  contracts  are based on
interest rate movements over time,  with cash receipts based on a  predetermined
fixed rate and cash payments based on a floating  rate.  Cash  requirements  for
option  contracts are limited to premiums paid.  Cash  requirements  for futures
contracts, when held, are managed based on limits established by HomeSide's risk
management committee.

  Risk Management of Mortgage Servicing Rights

The risk  associated  with these  instruments  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 options,  futures,  and
swaption  contracts  generally  require  future  performance  on the part of the
counterparty  upon  exercise  of the  option  contract  by  HomeSide.  The  swap
contracts require regular cash payments between HomeSide and the  counterparties
for the term of the contract.

HomeSide  is  exposed  to  credit  loss in the  event of  nonperformance  by the
counterparties to the various  instruments.  HomeSide 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  's exposure to credit risk in the event of default by the
counterparties  for the risk management  option contracts on mortgage  servicing
rights was $30.1  million at September  30, 1999 and $57.4  million at September
30, 1998.

The amount of credit risk associated  with risk management  interest rate swaps,
interest rate swaps with caps, and interest rate  swaptions  related to mortgage
servicing rights if all counterparties  failed completely was approximately $0.1
million as of September  30, 1999.  The amounts of credit risk  associated  with
interest  rate swaps  related to debt  instruments  as of September 30, 1999 and
September  30,  1998  were   approximately   $6.8  million  and  $24.8  million,
respectively.

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

                                                             September 30, 1999              September 30, 1998
                                                       -------------------------------- ------------------------------
                                                            Notional                       Notional
                                                             Amount     Fair Value (1)      Amount      Fair Value (1)
                                                        ------------- ---------------- ------------- -----------------
<S>                                                     <C>            <C>             <C>           <C>
Purchased commitments to sell mortgage loans:
  Mandatory forward contracts                            $1,942,890     $ (8,370)        $3,281,196       $(45,557)
  Options on mortgage-backed securities                     640,000        3,722          1,845,000          2,864
  Options on U.S. treasury bond futures                      30,000           54            127,000             57
Risk management contracts on mortgage servicing rights:
   Options on U.S. treasury bond futures                  3,552,400       29,206          7,905,900         57,368
   Futures contracts on U.S. treasury bonds/notes              --           --            5,545,500         62,843
   Over the counter  options on U.S. treasury
         bond/notes                                       1,450,000       27,301               --            --
   Options on Eurodollar futures                          4,000,000        2,844               --            --
   Interest rate swaps and
      interest rate swaps with caps                      16,150,000     (384,029)              --            --
  Interest rate swaptions                                 9,450,000       34,214               --            --
Interest rate swaps on debt instruments                   950,000          6,827            950,000         24,800

</TABLE>

(1) Parentheses  denote  liability.  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.

  Risk Management Related to the Acquisition and Sale of Mortgage Loans

As discussed in Note 3, HomeSide 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.

HomeSide  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
does not have matching  commitments  to sell loans,  which  exposes  HomeSide 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'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 $1.7
billion  and $4.1  billion  at  September  30,  1999  and  September  30,  1998,
respectively.

HomeSide's  exposure to credit risk in the event of default by the  counterparty
for mandatory forward  commitments to sell mortgage loans and related options is
the difference  between the contract price and the current market price,  offset
by any available margins retained by HomeSide or an independent  clearing agent,
which  totaled $0.1 million at September  30, 1999 and $0.4 million at September
30, 1998.

The amount of credit risk as of September  30, 1999 and  September  30, 1998, if
all  counterparties  failed  completely and if the margins,  if any, retained by
HomeSide  or an  independent  clearing  agent  were to become  unavailable,  was
approximately  $30.3  million  and  $37.4  million,  respectively,  for all risk
management  instruments related to mortgage servicing rights and the origination
and selling of mortgage loans.

  Mortgage loans sold with recourse

HomeSide 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 $21.6 million and $15.0 million at September 30, 1999 and September
30, 1998, respectively.

  Servicing commitment to investors

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

  Purchase mortgage servicing rights commitments

HomeSide 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  $3.0 billion and $4.3 billion at September 30, 1999 and September
30, 1998, respectively.

  Geographical concentration of credit risk

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

14.  STOCKHOLDER'S EQUITY

On April 1, 1999 and October 1, 1998 the Company paid dividends to the Parent in
the amounts of $31.3 million and $37.8 million, respectively.

15.  CONTINGENCIES

HomeSide,  along  with its  subsidiaries,  is a  defendant  in a number of legal
proceedings arising in the normal course of business.  HomeSide, 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,  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 .

16.  EMPLOYEE BENEFITS

HomeSide  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 $5.2 million and $4.1 million for the fiscal year
ended  September 30, 1999 and the period from February 11, 1998 to September 30,
1998, respectively.


17.      QUARTERLY FINANCIAL DATA (Unaudited)



<PAGE>

<TABLE>
<CAPTION>

(in thousands)              For the Three         For the Three        For the Three         For the Three
                             Months Ended          Months Ended         Months Ended          Months Ended
                           September 30, 1999      June 30, 1999       March 31, 1999      December 31, 1998
                           ------------------  -------------------  -------------------  ---------------------
<S>                            <C>                <C>                 <C>                   <C>
Revenue                        $  99,369          $  106,396          $  107,624            $  106,778
Expenses
                                  63,952              74,363              73,857                75,654
Provision for income taxes
                                  15,755              15,364              16,580                15,535
                           ==================  ===================  ===================  =====================
Net income                     $  19,662          $   16,669          $   17,187             $  15,589
                           ==================  ===================  ===================  =====================
</TABLE>
<TABLE>
<CAPTION>


(in thousands)                     For the Three          For the Three       For the Period From
                                   Months Ended            Months Ended       February 11, 1998 to
                                September 30, 1998        June 30, 1998          March 31, 1998
                               ---------------------- ---------------------- -----------------------
<S>                                 <C>                     <C>                     <C>
Revenue                             $  104,469              $  99,650               $  46,152
Expenses                                                                               31,750
                                        71,249                 66,726
Provision for income taxes
                                        16,347                 16,236                   7,518
                               ---------------------- ---------------------- -----------------------
Net income                           $  16,873              $  16,688               $   6,884
                               ====================== ====================== =======================
</TABLE>

18. OTHER RELATED PARTY TRANSACTIONS

On June 23, 1998,  HomeSide entered into an agreement for an unsecured revolving
credit  facility with the National.  The agreement was amended on June 22, 1999.
Under the credit  facility,  HomeSide can borrow up to $2.5 billion,  subject to
limits  imposed  by  regulatory  authorities.  As of June 30,  1999,  Australian
financial  regulations limited the National's ability to lend funds to HomeSide,
a non-bank affiliate, to approximately $2.1 billion. Borrowings under the credit
facility may be overnight or for periods of 7, 30, 60 or 90 days.  For overnight
borrowings,  the interest rate is determined by HomeSide and the National at the
time of the  borrowing.  For  LIBOR - based  borrowings,  the  interest  rate is
charged at the  corresponding  LIBOR rate. At September  30, 1999 and 1998,  the
amount  outstanding  under this credit  facility  totaled  $1.5 billion and $1.8
billion,  respectively.  The  weighted  average  interest  rate  on  outstanding
borrowings under this credit facility during the fiscal year ended September 30,
1999 and the period from  February 11, 1998 to September 30, 1998 were 5.22% and
5.67%, 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.  In  consideration,  the Company  received $3.0
million cash in June 1998.

19.  SUBSEQUENT EVENT

On October 18,  1999,  HomeSide  entered into a $2.0  billion  revolving  credit
facility  with an  independent  syndicate  of  banks.  This  agreement  replaces
HomeSide's  previous bank credit  facility.  The primary  purpose of this credit
facility is to provide liquidity back-up for HomeSide's $1.5 billion  commercial
paper program.



ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - HOMESIDE PREDECESSOR

The  selected  consolidated  financial  and  operating  information  of HomeSide
Predecessor  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 Predecessor 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 during
  the period)                                                     94,963,812              74,677,171
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 PREDECESSOR-- 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 Predecessor, 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 Predecessor is a
wholly-owned  subsidiary of HomeSide  Holdings,  Inc.,  which is a  wholly-owned
subsidiary of the Parent.  HomeSide  Predecessor's  strategy emphasizes variable
cost mortgage loan originations,  low cost mortgage servicing and effective risk
management.  Headquartered in Jacksonville,  Florida, HomeSide Predecessor 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  Predecessor  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  Predecessor  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.

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  Predecessor 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  Predecessor  eliminates  the fixed costs  associated  with
traditional mortgage branch offices.  Without the burden of high fixed cost loan
origination networks, HomeSide Predecessor is positioned to weather a variety of
interest rate environments.  The following information regarding loan production
activities  for HomeSide  Predecessor is presented to aid in  understanding  the
results of operations and financial  condition of HomeSide  Predecessor  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  Predecessor  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 Predecessor 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  Predecessor  has announced an alliance with a subprime  lender,  which
allows HomeSide Predecessor to offer additional mortgage-related products to the
production  network.  HomeSide  Predecessor  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  Predecessor  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  Predecessor
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  Predecessor  anticipates
its low cost of servicing loans will continue to maximize the bottom-line impact
of its growing servicing  portfolio.  HomeSide  Predecessor'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  Predecessor 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>

<TABLE>

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

(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  Predecessor'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  Predecessor's  future  growth is the  proprietary  servicing  software
purchased from Barnett.  This system will allow  HomeSide  Predecessor to double
the number of loans serviced on a single system. During the period from March 1,
1997 to  February  10,  1998,  HomeSide  Predecessor  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  Predecessor'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  Predecessor'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,  an 11% increase.  As
part of the BMC  acquisition,  Barnett agreed to sell HomeSide  Predecessor  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  Predecessor  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
Predecessor'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  Predecessor's  loan production volumes and the interest rates
HomeSide Predecessor 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 Predecessor'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  Predecessor 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  Predecessor  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
Predecessor'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 Predecessor 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  Predecessor'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 Predecessor'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  Predecessor'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  Predecessor's  historical  loss  experience  on  VA  loans
generally has been consistent with industry experience. Management believes that
HomeSide Predecessor 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   Predecessor's   delinquency  and
foreclosure experience:
                        Servicing Portfolio Delinquencies
                             (percent by loan count)
<TABLE>
<CAPTION>

                                                                                   February 10,           February 28,
                                                                                       1998                   1997
                                                                                       ----                   ----
<S>                                                                              <C>                   <C>
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%
                                                                                 ==================    ===================
</TABLE>

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  Predecessor'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.

Income Tax Expense

HomeSide  Predecessor'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  Predecessor  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  Predecessor  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  Predecessor
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  Predecessor  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 Predecessor'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  Predecessor'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  Predecessor'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  Predecessor  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  Predecessor'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  Predecessor's sources and uses of
cash. See Note 3 of Notes to Consolidated Financial Statements for a description
of HomeSide  Predecessor'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  Predecessor'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 Predecessor 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 Predecessor  Mortgage  Securities,  Inc., a
wholly-owned subsidiary of HomeSide Predecessor,  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  Predecessor'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  Predecessor  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 Predecessor's hedging needs. Except for the Banc
One acquisition (see Note 19), HomeSide  Predecessor 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 Predecessor 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  Predecessor'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  Predecessor'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  Predecessor
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  Predecessor  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 Predecessor'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 Predecessor 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  Predecessor,
software and systems  purchased  from  outside  vendors and software and systems
used by HomeSide  Predecessor's third party providers.  HomeSide Predecessor 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  Predecessor's systems "Year 2000 Compliant." HomeSide
Predecessor  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  Predecessor 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  Predecessor'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 Predecessor's results of operations.



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>
<CAPTION>


                      HOMESIDE PREDECESSOR and SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (Dollars in Thousands, Except Share Data)


                                                                                    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>
<CAPTION>


                      HOMESIDE PREDECESSOR and SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                  (Dollars in Thousands, Except Per Share Data)


                                                           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>
<CAPTION>


                      HOMESIDE PREDECESSOR and SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                    (dollars in thousands, except share data)


                                                                            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>
<CAPTION>

                      HOMESIDE PREDECESSOR and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)


                                                                    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
    sale                                                                  23,540,371              12,572,217
  Change in accounts receivable                                             (82,121)                 (63,378)
  Change in other assets and accounts payable and accrued
    liabilities                                                             (82,036)                 (35,448)
                                                                  ------------------------  -----------------------
    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 PREDECESSOR AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

HomeSide Lending,  Inc.  ("HomeSide  Predecessor" 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 Predecessor include the accounts
of HomeSide Predecessor 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  Predecessor 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  Predecessor 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  Predecessor  is pledged as
collateral  on the debt of the Parent.  The Parent is dependent  upon  dividends
from  HomeSide  Holdings,  Inc.  and  HomeSide  Predecessor  for the  cash  flow
necessary to service the Parent's debt.

The accompanying financial statements of HomeSide Predecessor 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  Predecessor's  acquisition  by National
Australia  Bank Limited  ("the  National").  HomeSide  Predecessor  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  Predecessor  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
Predecessor.  The transaction closed on March 15, 1996 and HomeSide  Predecessor
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
Predecessor.  Barnett  received  cash  and an  ownership  interest  in  HomeSide
Predecessor.  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 Predecessor.  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  Predecessor  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  Predecessor 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  Predecessor 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  Predecessor's  policy to mitigate and hedge this risk through its risk
management program.

The   risk   management   instruments   used  by   HomeSide   Predecessor   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  Predecessor's
mortgage servicing rights.

Options on U.S.  Treasury bond futures and U.S.  Treasury bond futures have been
purchased by HomeSide  Predecessor 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  Predecessor'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  Predecessor.
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  Predecessor'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 Predecessor
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  Predecessor 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  Predecessor'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  Predecessor  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 Predecessor'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 Predecessor 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 Predecessor will be immaterial.


4.  ACQUISITIONS

Acquisition of BancBoston Mortgage Corporation

On March 15, 1996,  HomeSide  Predecessor  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  Predecessor  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  Predecessor  for $107.2  million in cash.
Simultaneously,  BankBoston paid  approximately  $1.0 million in cash for all of
HomeSide  Predecessor's  class C non-voting  common stock. In  consideration  of
services rendered to HomeSide  Predecessor 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  Predecessor.  On May 31,  1996,
HomeSide Predecessor 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  Predecessor 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  Predecessor  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  Predecessor  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  Predecessor.  The  transaction  was  accounted  for using the purchase
method of  accounting  and,  accordingly,  the results of operations of HomeSide
Predecessor include BMC from the date of acquisition. The assets and liabilities
of BMC were recorded by HomeSide  Predecessor 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 revenue                             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.

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):
                                          February 10, 1998    February 28, 1997

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
                                          ==================== =================

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):

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

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
                                  ==============================================

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>                      <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  Predecessor  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  Predecessor,  may be increased to $3.0 billion.  The line of credit is
used to  provide  funds for  HomeSide  Predecessor'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  Predecessor,  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  Predecessor's  assets.  HomeSide Predecessor 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  Predecessor'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  Predecessor  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  Predecessor 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
                            =================               ==================

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
Predecessor,  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%          September 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  Predecessor  assumed a mortgage  note  payable that is due in 2017 and
bears  interest at a stated rate of 9.50%.  HomeSide  Predecessor's  main office
building is pledged as collateral. A purchase accounting premium was recorded in
connection with HomeSide Predecessor 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  Predecessor.  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  Predecessor 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):
<TABLE>
<CAPTION>

                                                                   February 10, 1998      February 28, 1997
<S>                                                               <C>                     <C>
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
                                                                 ====================== ======================
</TABLE>

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  Predecessor 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
Predecessor'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  Predecessor
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  Predecessor 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  Predecessor 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 Predecessor'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
                                                          Amount            Value            Amount            Value
                                                     ----------------- ---------------- ------------------ --------------
<S>                                                  <C>               <C>               <C>                <C>
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                                        --                              (2,805)
   Mandatory forward contracts to sell mortgages                               --                               3,588
   Mandatory forward contracts to sell U.S.
       Treasuries                                                              --                                   7
  Option contracts on mortgage-backed
       securities                                                              --                               1,741
Option contracts on U.S. treasury bond futures                                 --                                (147)
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
Options on mortgage-backed  securities                       3,543            5,890              2,025          1,741
Options 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  Predecessor utilizes risk management financial
instruments  to manage  interest  rate risk related to the value of its mortgage
servicing  rights.  A  summary  of  HomeSide   Predecessor's  position  in  risk
management  financial  instruments at February 10, 1998 and February 28, 1997 is
included below.

The fair value of HomeSide  Predecessor'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  Predecessor  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
Predecessor'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  Predecessor's
option  contracts are limited to premiums paid.  Cash  requirements  for futures
contracts are managed based on limits established by HomeSide Predecessor's risk
management committee.  HomeSide Predecessor'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 Predecessor 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
Predecessor'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
Predecessor.

HomeSide Predecessor is exposed to credit loss in the event of nonperformance by
the counterparties to the various  instruments.  HomeSide  Predecessor  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  Predecessor'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  Predecessor'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  Predecessor  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  Predecessor  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  Predecessor's  notional amounts and fair
values of interest rate products (in thousands):
<TABLE>
<CAPTION>

                                                              February 10, 1998                        February 28, 1997
                                                         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)                --               --
</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.

Commitments to originate mortgage loans

HomeSide Predecessor 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  Predecessor  does not have matching  commitments to sell loans,
which  exposes  HomeSide  Predecessor  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  Predecessor'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 Predecessor 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  Predecessor for any credit losses
related to $101.0 million of loans serviced with recourse.

Servicing commitment to investors

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

15. OTHER RELATED PARTY TRANSACTIONS

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

HomeSide Predecessor  purchases mortgage loans eligible for sale from BankBoston
and Barnett.  For the period March 1, 1997 through  February 10, 1998,  HomeSide
Predecessor 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  Predecessor paid
approximately  $4.7 million and $27.6 million,  respectively,  to BankBoston and
Barnett for the purchase of mortgage servicing rights. HomeSide Predecessor 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  Predecessor  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  Predecessor  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  Predecessor  services  residential mortgage loans held in portfolio by
BankBoston  and Barnett.  The servicing  fees paid by BankBoston  and Barnett to
HomeSide  Predecessor are market-based  fees consistent with the fees charged by
HomeSide  Predecessor  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  Predecessor.  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 Predecessor, along with its subsidiaries, is a defendant in a number of
legal   proceedings   arising  in  the  normal  course  of  business.   HomeSide
Predecessor,  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  Predecessor,
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 Predecessor.

17.  EMPLOYEE BENEFITS

HomeSide  Predecessor 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           For the Three        For the Three
                                     December 1, 1997 to        Months Ended            Months Ended         Months Ended
                                      February 10, 1998       November 30, 1997        August 31, 1997       May 31, 1997
                                   ------------------------ ---------------------- --------------------- -------------------------
(in thousands, except share data)
<S>                                       <C>                 <C>                   <C>                       <C>
Revenue                                   $ 65,264            $    75,619           $    76,330               $    70,727
Expenses                                    35,943                 38,241                39,432                    37,454
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 Three         For the Three           For the Three        For the Period From
                                      Months Ended          Months Ended            Months Ended          March 16, 1996
                                    February 28, 1997     November 30, 1996        August 31, 1996        to May 31, 1997
                                  ---------------------- ---------------------- --------------------- -------------------------
(in thousands, except share data)
data)
<S>                                 <C>                    <C>                    <C>                      <C>
   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  Predecessor entered into an agreement with Banc One
Mortgage  Corporation  ("Banc One") to acquire the mortgage  servicing assets of
Banc One.  HomeSide  Predecessor 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 Predecessor 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  Predecessor 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.



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

Effective April 1, 1998,  Homeside  dismissed its prior certifying  accountants,
Arthur  Andersen,  L.L.P. and retained as its new certifying  accountants,  KPMG
LLP. 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,  Inc.  Predecessor'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 engaged KPMG LLP as its principal accountants.
During the last two fiscal years and the  subsequent  interim period to the date
hereof, HomeSide did not consult KPMG regarding any of the matters or events set
forth in Item 304(a)(2) of Regulation S-K.


                                    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>

        Name                       Age          Position
<S>                                <C>      <C>
Joe K. Pickett.................... 54       Chairman of the Board, Director
Hugh R. Harris.................... 48       Chief Executive Officer; Director
Kevin D. Race..................... 39       President and Chief Operating Officer; Director
W. Blake Wilson................... 33       Executive Vice President and Chief Financial Officer
Robert J. Jacobs.................. 47       Executive Vice President, Secretary and General Counsel; Director
Betty L. Francis.................. 53       Chief Credit Officer and Executive Vice President
Mark F. Johnson................... 45       Executive Vice President - Production
William Glasgow, Jr............... 50       Executive Vice President - Servicing
Daniel T. Scheuble................ 41       Executive Vice President - Technology
Ann R. Mackey..................... 42       Senior Vice President and Director of Finance and Treasury
Philip G. Laren... ................43       Senior Vice President and Director of Risk Management
</TABLE>


The  directors  and officers of the Company are elected each year by vote of the
shareholder  and  directors,  respectively.  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 a Director of HomeSide
Lending since April 1990. Mr. Pickett also served as the Chief Executive Officer
of HomeSide  Lending from April 1990 to April 1999. He has served as Chairman of
the Board and Chief  Executive  Officer of the Parent,  HomeSide  International,
Inc.,  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 Chief  Executive  Officer of  HomeSide  since April
1999 and as President and Chief  Operating  Officer and a Director of the Parent
since  March 1996.  Mr.  Harris also  served as  President  and Chief  Operating
Officer of the Company  from  January  1993 to April 1999.  From January 1988 to
January  1993,  Mr.  Harris  served as Vice  Chairman  of  HomeSide in charge of
production and secondary  marketing.  Mr. Harris serves as a Director of Freedom
Securities, Inc.

Kevin D. Race has served as President  and Chief  Operating  Officer of HomeSide
and  Vice  President  of the  Parent  since  April of  1999.  Prior to  becoming
President  and  Chief  Operating  Officer  Mr.  Race  served as  Executive  Vice
President  and Chief  Financial  Officer of HomeSide 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
HomeSide since February 2, 1996. Mr. Jacobs has served as a Director of HomeSide
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 is a former
President of the Mortgage Bankers Association of Florida.

Betty L.  Francis  has served as Chief  Credit  Officer  and as  Executive  Vice
President of HomeSide  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 HomeSide. 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 NSTAR, a gas and electric utility in Massachusetts.

Mark F. Johnson has served as Executive Vice President of Production of HomeSide
since  April 1,  1992.  From 1988 to 1992,  Mr.  Johnson  served as Senior  Vice
President and Director of Wholesale  Lending for HomeSide.  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 HomeSide 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  currently serves as Global IT and Chief Information  Officer
for  HomeSide.  Mr.  Scheuble has also served as Executive  Vice  President  for
Technology And Loan  Processing  since 1993 and of Consumer  Direct Lending from
1996 to 1998. From 1990 to 1992, Mr. Scheuble served as a Senior  Technology and
Operational Manager at Bank of Boston. Mr. Scheuble has also served as Executive
Vice President of HomeSide Lending since April 10, 1996.

W. Blake Wilson has served as Executive Vice President, Chief Financial Officer,
and  Director of Capital  Markets of the Company  since April 1999.  Mr.  Wilson
served as  Executive  Vice  President  and  Director  of  Capital  Markets  from
September 1997 to April 1999. He previously  served as Senior Vice President and
Director  of Capital  Markets of the  Company  from June  1996.  Before  joining
HomeSide,  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.

Ann R. Mackey has served as Senior  Vice  President  of the  Company  since July
1993. Ms. Mackey has also served as Director of Finance and Treasury since April
1999 and as Finance  Director  of HomeSide  from July 1993 to April  1999.  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.

Philip G. Laren has served as Senior Vice  President of HomeSide  Lending  since
April of 1997. He has served as director of Global Risk Management since July of
1998.  From  1995 to 1997,  he  served as Senior  Vice  President  of  Portfolio
Management  at Fleet  Mortgage  Company in Columbia SC. From 1992 until 1995, he
served as Vice President of  Acquisitions  at Fleet.  Prior to joining Fleet, he
worked at Source One Mogtgage Services in Farmington Hills, Michigan.



<PAGE>



ITEM 11.  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 CEO for all services rendered in
all  capacities  to the Company and its  subsidiaries  for the fiscal year ended
September  30, 1999 and the period from February 11, 1998 to September 30, 1998.
Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                   Long-Term
                                                                              Compensation Awards
                                                                              -------------------
                                                      Annual Compensation         Securities
           Name and Principal             Fiscal    -------------------------     Underlying                 All Other
          HomeSide Lending Position        Year       Salary      Bonus             Options                 Compensation
---------------------------------------  ---------  ------------ ------------ -------------------- --------------------------
<S>                                       <C>      <C>           <C>              <C>                <C>
 Joe K. Pickett .......................   1999     $450,000      $500,000(c)      150,000(d)         $    816,000(j)
                   Chairman               1998(a)   291,000       500,000(c)       50,000(d)            4,781,171(f)(g)(h)
                                          1998(b)   372,000       500,000          45,000                  23,954
                                          1997      312,000       362,000         242,862(e)               16,135(i)
--------------------------------------- --------- ------------ ---------------- ---------------- -----------------------------
  Hugh R. Harris.......................   1999      435,385       470,000(c)      100,000(d)              816,000(j)
                     CEO                  1998(a)   266,000       470,000(c)       45,000(d)            4,748,128(f)(g)(h)
                                          1998(b)   360,000       470,000          45,000                  14,411
                                          1997      300,000       350,000         242,862(e)                7,842(i)
--------------------------------------- --------- ------------ ---------------- --------------- -- ---------------------------
 Kevin D. Race ........................   1999      321,154       300,000(c)       60,000(d)              353,500(j)
                  President &COO          1998(a)   194,000       300,000(c)       35,000(d)            2,374,906(f)(g)(h)
                                          1998(b)   250,000       300,000          45,000                   9,333
                                          1997      250,000(j)    100,000          97,155(e)              419,145(i)(k)
--------------------------------------- --------- ------------ ---------------- ---------------- - ---------------------------
 Mark F. Johnson ......................   1999      240,577       170,000(c)       40,000(d)              378,500(j)
        Executive Vice President          1998(a)   150,000       200,000(c)       30,000(d)            1,738,281(f)(g)(h)
                                          1998(b)   230,000       200,000          30,000                  10,623
                                          1997      200,000       150,000          97,155(e)                6,714(i)
--------------------------------------- --------- ------------ ---------------- ---------------- - ---------------------------
  William Glasgow, Jr. ...............    1999      240,577       170,000(c)       40,000(d)              378,500(j)
           Executive Vice President       1998(a)   150,000       200,000(c)       30,000(d)            1,738,281(f)(g)(h)
                                          1998(b)   230,000       200,000          30,000                  14,299
                                          1997      200,000       150,000          97,155(e)                6,522(i)
--------------------------------------- --------- ------------ ---------------- ---------------- - ---------------------------
</TABLE>

(a)  For the fiscal period from February 11, 1998 to September 30, 1998.

(b)  For the fiscal period from March 1, 1997 to February 10, 1998.

(c)  Bonus amounts relate to the annual bonus under  employment  agreements with
     the National  paid during the year ended  September 30, 1999 and the period
     from February 11, 1998 to September 30, 1998, respectively.

(d)  Options to purchase  common stock of National  Australia  Bank,  Ltd.,  the
     parent.

(e)  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.

(f)  Includes  amounts  received  for  (1)  matching   contributions  under  the
     Company's 401K plan of $6,400 with respect to each  individual,  (2) profit
     sharing  contributions of $9,600 with respect to each  individual,  and (3)
     relocation expenses of $33,043 with respect to Mr. Pickett.

(g)  In consideration of entering into the  Confidentiality  and  Noncompetition
     Agreements with the National,  Messrs.  Pickett,  Harris, Race, Johnson and
     Glasgow  received  a one time cash  payment  in the  amount of  $1,500,000,
     $1,500,000,  $1,000,000, $400,000 and $400,000,  respectively,  immediately
     following the Merger with the National.

(h)  Executive   officers   received  the  following  amounts  with  respect  to
     accelerated  Options  pursuant to the Merger  Agreement:  Joe K.  Pickett -
     $2,380,595,  Hugh R. Harris - $2,380,595,  Kevin D. Race - $1,018,261, Mark
     F. Johnson - $981,636,  and William Glasgow,  Jr. - $981,636.  In addition,
     such individuals  received the following amounts with respect to previously
     vested options pursuant to the Merger Agreement: Joe K. Pickett - $851,533,
     Hugh R.  Harris -  $851,533,  Kevin D.  Race -  $340,645,  Mark F.  Johnson
     $340,645 and William Glasgow, Jr. - $340,645.

(i)  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 of $10,135 with respect to Mr. Pickett, $1,842
     with respect to Mr. Harris, $74 with respect to Mr. Race, $714 with respect
     to Mr. Johnson, and $522 with respect to Mr. Glasgow.

(j)  Includes  amounts  received  for  (1)  matching   contributions  under  the
     Company's 401K plan of $6,400 with respect to each  individual,  (2) profit
     sharing contributions of $9,600 with respect to each individual, and (3) an
     annual  bonus  pursuant  to their  respective  employment  agreements  (See
     "Employment  Contracts  and  Termination  of Employment  Arrangements")  of
     $800,000 with respect to Messrs. Pickett and Harris,  $337,500 with respect
     to Mr. Race, and $362,500 with respect to Messrs. Johnson and Glasgow.

(k)  The salary of Mr.  Race was per annum.  Mr.  Race has been  employed by the
     Company since October  1996.  Includes a bonus of $375,000  received by Mr.
     Race as an  inducement  to join  the  Company  and  $38,071  in  relocation
     expenses.


       Option Grants for the Fiscal Year Ended September 30, 1999 and the
              Period from February 11, 1998 to September 30, 1998

         The following table provides  information on option grants with respect
to common stock of the parent,  National  Australia  Bank,  Ltd., for the fiscal
year ended September 30, 1999 and the period from February 11, 1998 to September
30, 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       % of Total                                          Potential Realizable Value at
                               Securities        Options                                            Assumed Annual Rates of Stock
                               Underlying       Granted to                                          Price Appreciation for Option
                                Options         Employees       Exercise                                    Term (d)
                      Fiscal    Granted          in the          Price           Expiration         ----------------------
    Name               Year       (#)            period          ($/Sh)             Date                5%           10%
--------------------- ------- ------------     ------------    -----------    ------------------    ---------    ---------
<S>                    <C>    <C>                   <C>            <C>            <C>               <C>           <C>
Joe K. Pickett         1999   150,000 (a)           1%             $18.43         03/19/04          $ 37,500      $772,500
                       1998    50,000 (b)          (c)              11.81         02/26/03           160,233       332,211
--------------------- ------- ------------ --- ------------ -- ----------- -- ------------------ -- --------- --
Hugh R. Harris         1999   100,000 (a)          (c)              18.43         03/19/04            25,000       515,000
                       1998    45,000 (b)          (c)              11.81         02/26/03           144,210       298,990
--------------------- ------- ------------ --- ------------ -- ----------- -- ------------------ -- --------- -- ---------
Kevin D. Race          1999    60,000 (a)          (c)              18.43         03/19/04            15,000       309,000
                       1998    35,000 (b)          (c)              11.81         02/26/03           112,163       232,548
--------------------- ------- ------------ --- ------------ -- ----------- -- ------------------ -- --------- -- ---------
Mark F. Johnson        1999    40,000 (a)          (c)              18.43         03/19/04            10,000       206,000
                       1998    30,000 (b)          (c)              11.81         02/26/03            96,140       199,327
--------------------- ------- ------------ --- ------------ -- ----------- -- ------------------ -- --------- -- ---------
William Glasgow, Jr.   1999    40,000 (a)          (c)              18.43         03/19/04            10,000       206,000
                       1998    30,000 (b)          (c)              11.81         02/26/03            96,140       199,327
</TABLE>

(a)  Options granted during the fiscal year ended September 30, 1999 pursuant to
     National  Australia  Bank's Executive Share Option Plan. The options may be
     exercised  during the period  from March 19, 2002 to March 19, 2004 only if
     on any day during this period the total return to shareholders  exceeds 65%
     of the exercise price. The total return includes the value of dividends and
     the share price growth over the relevant period.

(b)  Options  granted  during the period from February 11, 1998 to September 30,
     1998 pursuant to National Australia Bank's Executive Share Option Plan. The
     options  may be  exercised  during the period  from  February  26,  2001 to
     February 26, 2003 only if on any day during this period the total return to
     shareholders  exceeds 65% of the exercise price.  The total return includes
     the value of dividends and the share price growth over the relevant period.

(c)  Represents  less than 1% of the total  options  granted  to the  National's
     employees during the fiscal year ended September 30, 1998.

(d)  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  National's  Common  Stock and in  accordance  with the
     Executive  Share Option Plan.  The market  price of the  National's  common
     stock was $14.64 and $12.10 at September  30, 1999 and  September 30, 1998,
     respectively.



                  Aggregated Option Exercises and Option Values
              for the Fiscal Year Ended September 30, 1999 and the
               Period from February 11, 1998 to September 30, 1998

         The following table provides information on option exercises during the
fiscal year ended  September  30, 1999 and the period from  February 11, 1998 to
September  30, 1998 with  respect to the Common Stock of the National and on the
values of the named  executive  officers'  unexercised  options at September 30,
1999 and September 30, 1998:

<TABLE>
<CAPTION>

                                    Shares                           Number of Securities                 Value of Unexercised
                                   Acquired                        Underlying Unexercised                      In-the-Money
                          Fiscal      on          Value            Options at Year-End (#)                   Options at Year-End
         Name              Year    Exercise     Realized      Exercisable        Unexercisable        Exercisable      Unexercisable
------------------------ --------- ----------   ----------    -------------    -------------------    ------------    --------------
<S>                        <C>         <C>          <C>            <C>              <C>                    <C>         <C>
Joe K. Pickett..........   1999        0            $0             0                150,000                $0              (b)
                           1998        0             0             0                 50,000                 0          $ 14,500 (a)
------------------------ --------- ---------- - ---------- -- ------------- -- ------------------- -- ---------- -- ----------------
Hugh R. Harris..........   1999        0             0             0                100,000                 0              (b)
                           1998        0             0             0                 45,000                 0            13,050 (a)
------------------------ --------- ---------- - ---------- -- ------------- -- ------------------- -- ---------- -- ----------------
Kevin D. Race..........    1999        0             0             0                 60,000                 0              (b)
                           1998        0             0             0                 35,000                 0            10,150 (a)
------------------------ --------- ---------- - ---------- -- ------------- -- ------------------- -- ---------- -- ----------------
Mark F. Johnson.........   1999        0             0             0                 40,000                 0              (b)
                           1998        0             0             0                 30,000                 0             8,700 (a)
------------------------ --------- ---------- - ---------- -- ------------- -- ------------------- -- ---------- -- ----------------
 William Glasgow, Jr.      1999        0             0             0                 40,000                 0              (b)
                           1998        0             0             0                 30,000                 0             8,700 (a)
------------------------ --------- ---------- - ---------- -- ------------- -- ------------------- -- ---------- -- ----------------
</TABLE>

(a)  Value of unexercised  in-the-money  stock options represents the difference
     between the exercise  price of the stock  options and the closing  price of
     the National's Common Stock on September 30, 1998.

(b)  No options  granted  during the fiscal year ended  September  30, 1999 were
     in-the-money at September 30, 1999.

LONG-TERM INCENTIVE PLANS

On November 16, 1999, the Company adopted a Long-Term  Incentive Plan (the "1999
LTIP")  for the  benefit of  designated  members  of senior  management  and key
employees  ("Participants").  The maximum  aggregate  amount of awards under the
1999 LTIP is $15,000,000. The Company's parent, National Australia Bank Limited,
is funding the 1999 LTIP. The Company  adopted the 1999 LTIP in  satisfaction of
commitments  made by National  Australia Bank in connection with its acquisition
of the Company in 1998.  The 1999 LTIP is intended to advance the best interests
of the Company and its subsidiaries by providing annual and long-term incentives
to senior management and key employees who have substantial  responsibility  for
corporate  management  and  growth.  Specifically,  the 1999 LTIP  provides  for
performance-based  cash incentive awards to senior  management and key employees
based on their individual contributions to the Company's achievement of specific
annual net income targets, thereby increasing the personal stake of Participants
in both  the  annual  and  long-term  success  and  growth  of the  Company  and
encouraging  them to remain in the employ of the  Company.  The 1999 LTIP is the
only long-term incentive plan adopted by the Company.

The 1999 LTIP provides for awards to Participants  based on a number of factors,
including the size of the accumulated  pool on the termination  date of the 1999
LTIP, the past and continued performance of the Participant,  the achievement of
specific annual net income goals by the Company,  and the discretion of the Plan
Committee (as defined in the 1999 LTIP).

The following table sets forth an estimate of long-term  incentive  compensation
earned by the Company's  Chief  Executive  Officer and the  Company's  four most
highly  compensated  executive  officers  for the period from October 1, 1998 to
September  30,  1999.  No  long-term  incentive  compensation  was  paid  to any
executive officer or other Participant during fiscal year 1999.


<TABLE>
<CAPTION>
                  LONG-TERM INCENTIVE PLANS
                                                                                   Estimated  Future Payouts under  non-stock
                                                                                   price-based plans (in thousands)
                                                                                 --------------- ---------- ----------------------
                                  Number of
                                  shares,
                                  units or
                                  other         Performance  or other period
   Name of Officer (a)            rights (b)    until  maturation  or payout(c)  Threshold (d)   Target(e)  Maximum (f)
   ------------------------------ ------------- ------------------------------   --------------- ---------- ----------------------
<S>                               <C>           <C>                              <C>             <C>           <C>
   Joe K. Pickett                 NA            March 31, 2001                   0               N/A           $2,500
   ------------------------------ ------------- ------------------------------   --------------- ---------- ----------------------
   Hugh R. Harris                 NA            March 31, 2001                   0               N/A            2,500
   ------------------------------ ------------- ------------------------------   --------------- ---------- ----------------------
   Kevin D. Race                  NA            March 31, 2001                   0               N/A            1,750
   ------------------------------ ------------- ------------------------------   --------------- ---------- ----------------------
   Mark F. Johnson                NA            March 31, 2001                   0               N/A            1,000
   ------------------------------ ------------- ------------------------------   --------------- ---------- ----------------------
   William Glasgow, Jr.           NA            March 31, 2001                   0               N/A            1,000
   ------------------------------ ------------- ------------------------------   --------------- ---------- ----------------------
</TABLE>


(a)  Joe K. Pickett served as Chief Executive Officer of the Company until April
     1999, at which time Hugh R. Harris was named Chief Executive Officer of the
     Company.  Pursuant to Item 402(a)3 of Regulation S-K, disclosure is made as
     to Mr. Harris (CEO as of the end of the last completed fiscal year) and the
     Company's four most highly  compensated  officers other than the CEO, which
     includes Mr. Pickett who also served as CEO during the period reported.

(b)  The 1999 LTIP does not provide for a specified  number of shares,  units or
     other rights on a per  Participant  basis.  Rather,  the Plan Committee has
     full   discretion   to  allocate   incentive   compensation   awards  among
     Participants.

(c)  The 1999 LTIP provides incentive compensation for performance over a 3-year
     Plan Period (as defined in the 1999 LTIP),  with awards  payable at the end
     of the Plan Period.  The Plan Period  commences  March 31, 1998 and ends on
     March 31, 2001,  provided however in the event the total award pool has not
     been  earned by March 31,  2001,  the Plan  Period will extend to March 31,
     2002.  Payments  to  Participants  will be made on or before  May 15,  2001
     (subject to  extension  in  accordance  with the  provisions  of the Plan),
     provided the Participants satisfies the continued employment requirement of
     the 1999 LTIP or the  individual  Participant's  employment  agreement,  as
     applicable.  However,  payments may be made to  Participants  prior to that
     date under certain circumstances,  including death, disability, retirement,
     termination  other than for cause,  resignation  and  transfer,  subject to
     applicable provisions in the employment agreements of certain Participants.

(d)  There is no minimum  award payable  under the 1999 LTIP.  Rather,  the Plan
     Committee  (or, in certain  instances as set forth in the Plan,  individual
     members  of the Plan  Committee)  has full  discretion  to award  incentive
     compensation or not.

(e)  The 1999 LTIP does not provide for  individual  target  goals or  specified
     incentive compensation payable to individual Participants for achieving any
     target.

(f)  The 1999 LTIP does not provide for a maximum incentive  compensation award.
     However,  the table  sets  forth  estimated  maximum  payouts  to the named
     executive officers.

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.

Employment  Agreements with the National and the Company. In connection with the
acquisition  of HomeSide by the National,  the National and the Company  entered
into employment  agreements (the  "Employment  Agreement")  with Joe K. Pickett,
Hugh R.  Harris,  Kevin D.  Race,  W. Blake  Wilson,  Mark F.  Johnson,  William
Glasgow,  Jr., and five other officers of the Company (the  "Executives").  Each
Employment  Agreement  became effective upon the consummation of the merger with
the National  (the  "Merger")  and provides for a three-year  term of employment
commencing upon the  consummation of the Merger.  Mr. Pickett serves as Chairman
of the Company. Mr. Harris serves as Chief Executive Officer of the Company. Mr.
Race serves as President and Chief Operating Officer of the Company.  Mr. Wilson
serves as Executive  Vice  President and Chief  Financial  Officer.  Mr. Johnson
serves as Executive Vice President, Loan Production for the Company. Mr. Glasgow
serves as Executive Vice President, Loan Servicing.

Pursuant to their respective Employment  Agreements,  Messrs.  Pickett,  Harris,
Race,  Wilson,  Johnson and Glasgow  each (i)  receives an annual base salary of
$450,000,  $410,000,  $300,000,  $200,000, $230,000 and $230,000,  respectively,
(ii)  receives  a  guaranteed  annual  bonus of  $800,000,  $800,000,  $337,500,
$200,000,  $362,500 and $362,500 respectively,  payable on each of the first and
second  anniversaries  of the Effective Time,  February 10, 1998, of the Merger,
(iii) is eligible to  participate  in the  Company's  annual bonus plan ("ABP"),
(iv) is eligible to participate in the National's  Executive  Share Option Plan,
and received an initial  grant of options to purchase  50,000,  45,000,  35,000,
30,000,  30,000,  and  30,000  NAB  ordinary  shares,  respectively,  and (v) is
eligible to  participate  in a long-term  incentive plan (funded by the National
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 the National shall
cause  the  entire  long-term  incentive  plan cash  pool to be  distributed  to
eligible  Company  executives.  The  Employment  Agreements  for the five  other
officers provide for annual base salaries aggregating  $920,000,  and guaranteed
annual  bonuses  aggregating  $512,500;  and such  officers  will receive in the
aggregate  initial grants of options to purchase 120,000 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  for 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 Agreemen.

  Deferred Compensation Plan

     The Company has adopted that certain NAB Group - USA Deferred  Compensation
Plan, effective as of February 10, 1998 (the "Plan"), for the benefit of certain
employees of the  Company's  subsidiary,  HomeSide  Lending,  Inc.,  all of whom
constitute  a  select  group  of  management  or  highly  compensated  employees
("Participants").  Pursuant  to the  provisions  of  Section  2.16 of the  Plan,
HomeSide Lending, Inc. was designated a Participating Employer.

     The purpose of the Plan is to provide participants the opportunity to defer
receipt of salary,  bonus,  and other specified cash  compensation.  The Plan is
intended  to  benefit  a  "select  group of  management  or  highly  compensated
employees"  within the  meaning of  Sections  201,  301 and 401 of the  Employee
Retirement  Income  Security  Act  of  1974,  as  amended  ("ERISA"),  and to be
therefore exempt from the requirements of Parts 2, 3 and 4 of Title I of ERISA.

     Payments  from  the  Plan  are  made  to  Participants   upon  termination,
disability,  death, or upon approval of a withdrawal  request based on financial
hardship.  In addition,  the Plan  provides  that,  upon a Change in Control (as
defined in the Plan) of the Company,  each Participant's account balance will be
valued as of the last date of the month in which the Change in  Control  occurs,
and shall be paid to each Participant in accordance with the payment  provisions
of the Plan.

     The Company has the right to withhold  from any payment made under the Plan
(or any amount  deferred into the Plan) any taxes required by law to be withheld
in respect of such  payment (or  deferral).  The  Company,  together  with other
Participating  Employers  (as  defined  in the  Plan),  bears  the  expenses  of
administering the Plan.

     The Deferred  Compensation  Committee (as that term is defined in the Plan)
may at any time  modify,  amend,  or  terminate  the  Plan,  provided  that such
modification,  amendment,  or termination shall not cancel, reduce, or otherwise
adversely affect the amount of benefits of any Participant accrued (and any form
of  payment  elected)  as of the date of any such  modification,  amendment,  or
termination, without the consent of the Participant.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Capital Stock of the Company

     All of the outstanding common stock of HomeSide Lending,  Inc.,  consisting
of 100 shares, is owned by the Parent.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On June 23, 1998,  HomeSide entered into an agreement for an unsecured revolving
credit  facility with the National.  The agreement was amended on June 22, 1999.
Under the credit  facility,  HomeSide can borrow up to $2.5 billion,  subject to
limits imposed by regulatory  authorities.  As of September 30, 1999, Australian
financial  regulations limited the National's ability to lend funds to HomeSide,
a non-bank affiliate, to approximately $2.1 billion. Borrowings under the credit
facility may be overnight or for periods of 7, 30, 60 or 90 days.  For overnight
borrowings,  the interest rate is determined by HomeSide and the National at the
time of the  borrowing.  For  LIBOR - based  borrowings,  the  interest  rate is
charged at the corresponding LIBOR rate. At September 30, 1999 and September 30,
1998, the amount outstanding under this credit facility totaled $1.5 billion and
$1.8 billion,  respectively.  The weighted  average interest rate on outstanding
borrowings  under this credit  facility during the year ended September 30, 1999
and the period  from  February  11,  1998 to  September  30, 1998 were 5.22% and
5.67%, respectively.


                                     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:

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

              Number       Description

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.

10.11Stock 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

10.13Tax Indemnity  Letter  Agreement  dated as of March 4, 1996 between Barnett
     Mortgage Company (currently known as HomeSide  Holdings,  Inc.) and Barnett
     Banks, Inc.

10.14Amended and Restated  Shareholder  Agreement dated as of May 31, 1996 among
     HomeSide, Inc. and the shareholders thereof

10.15Amended and  Restated  Registration  Rights  Agreement  dated as of May 31,
     1996 between HomeSide, Inc. and certain shareholders thereof

10.16Marketing  Agreement  dated as of May 31, 1996 between  HomeSide,  Inc. and
     Barnett Banks, Inc.

10.17Transitional  Services  Agreement  dated as of may 31, 1996 between Barnett
     Banks,   Inc.,  Barnett  Mortgage  Company  (currently  known  as  HomeSide
     Holdings, Inc.) and HomeSide, Inc.

10.18Operating  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.

10.21Correspondent  Agreement dated May 16, 1996 between HomeSide Lending,  Inc.
     and Barnett Banks, Inc.

10.22Delegated  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

10.27Registration  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

10.38Class B Non-Voting  Common Stock Issuance  Agreement  dated as of March 14,
     1996 between HomeSide, Inc. and Smith Barney Inc.

10.39Transitional  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.)

10.40Transitional  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.)

10.41Management  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

10.45Management  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.

10.63 HomeSide Lending, Inc. Long Term Incentive Plan.

10.64 NAB Group - USA Deferred Compensation Plan, effective February 10, 1998.

10.65 Revolving  Credit  Agreement  among  HomeSide Lending,  Inc.,  the Lenders
     parties thereto, and The Chase Manhattan Bank as Administrative Agent

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

             ----------------
         * 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  filed no reports on form 8-K  during the three  months  ended
September 30, 1999.



                                   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:   _____________________
                                                    Joe K. Pickett
                                                      Chairman of the Board


    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.

<TABLE>
<CAPTION>

         Signature                           Title                                           Date

<S>                              <C>                                                         <C>
/s/_____________________         Chairman of the Board
    Joe K. Pickett                                                                           December 23, 1999

/s/_____________________         Chief Executive Officer and Director                        December 23, 1999
     Hugh R. Harris

/s/_____________________         President, Chief Operating Officer, and Director            December 23,1999
     Kevin D. Race


/s/______________________        Executive Vice President and Chief Financial Officer        December 23, 1999
   W. Blake Wilson

_________________________        Executive Vice President and Secretary, General Counsel
     Robert J. Jacobs
</TABLE>