UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
Commission File No. 1-12655
HomeSide, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
59-3387041
(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 issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class September 24, 1997
----- ------------------
Common stock $0.01 par value 43,375,430
Class C non-voting common stock $1.00 par value 97,138
1
<PAGE>
FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
HOMESIDE, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, Except Share Data)
<CAPTION>
(Unaudited)
August 31, 1997 February 28, 1997
--------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 31 $ 52,691
Mortgage loans held for sale, net 1,029,620 805,274
Mortgage servicing rights, net 1,822,433 1,614,307
Accounts receivable, net 184,590 157,518
Early pool buyout advances 368,406 --
Premises and equipment, net 32,109 29,515
Other assets 127,670 92,877
--------------- -----------------
Total Assets 3,564,859 2,752,182
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 1,868,329 $ 1,818,503
Accounts payable and accrued liabilities 137,466 140,304
Deferred income taxes 152,652 129,951
Long-term debt 855,825 151,128
--------------- -----------------
Total Liabilities 3,014,272 2,239,886
--------------- -----------------
Common stock:
Common stock, $.01 par value, 119,610,000 shares authorized and
43,375,430 shares issued and outstanding 434 434
Class C non-voting common stock, $1.00 par value, 195,000 shares
authorized, and 97,138 shares issued and outstanding 97 97
Additional paid-in capital 476,646 476,646
Retained earnings 75,240 36,969
--------------- -----------------
552,417 514,146
Less: Notes received in payment for capital stock (1,830) (1,850)
--------------- -----------------
Total Stockholders' Equity 550,587 512,296
--------------- -----------------
Total Liabilities and Stockholders' Equity $ 3,564,859 $ 2,752,182
=============== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
HOMESIDE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands, Except Share Data)
<CAPTION>
For the Three For the Three For the Six For the Period from
Months Ended Months Ended Months Ended March 16, 1996 to
August 31, 1997 August 31, 1996 August 31, 1997 August 31, 1996
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Mortgage servicing fees $ 103,645 $ 83,349 $ 203,469 $ 124,834
Amortization of mortgage servicing rights (54,535) (40,464) (102,741) (56,906)
---------------- ---------------- ---------------- -----------------
Net servicing revenue 49,110 42,885 100,728 67,928
Interest income 26,642 22,270 45,884 34,989
Interest expense (23,850) (23,920) (45,954) (38,882)
---------------- ---------------- ---------------- -----------------
Net interest revenue 2,792 (1,650) (70) (3,893)
Net mortgage origination revenue 20,584 16,273 38,510 27,083
Other income 260 355 1,036 462
---------------- ---------------- ---------------- -----------------
Total Revenues 72,746 57,863 140,204 91,580
EXPENSES:
Salaries and employee benefits 19,546 21,177 39,282 32,657
Occupancy and equipment 3,821 3,084 7,627 4,930
Servicing losses on investor-owned loans
and foreclosure-related expenses 5,757 4,058 10,509 7,996
Other expenses 10,609 12,523 20,046 17,868
---------------- ---------------- ---------------- -----------------
Total Expenses 39,733 40,842 77,464 63,451
Income before income taxes 33,013 17,021 62,740 28,129
Income tax expense 12,875 6,954 24,469 11,508
---------------- ---------------- ---------------- -----------------
Net Income $ 20,138 $ 10,067 $ 38,271 $ 16,621
================ ================ ================ =================
Net income per share $ 0.46 $ 0.29 $ 0.87 $ 0.61
================ ================ ================ =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
HOMESIDE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
For the Period
For the Three For the Three For the Six from March 16,
Months Ended Months Ended Months Ended 1996 to
August 31, 1997 August 31, 1996 August 31, 1997 August 31, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income $20,138 $10,067 $38,271 $16,621
Adjustments to reconcile net income to net cash used in
operating activities:
Amortization of mortgage servicing rights 54,535 40,464 102,741 56,906
Depreciation and amortization 2,794 3,158 5,402 4,389
Servicing losses on investor-owned loans expenses 3,382 4,058 6,565 7,996
Deferred income tax expense 12,875 6,954 24,469 11,508
Capitalized excess servicing rights -- (6,526) -- (9,240)
Mortgage loans originated and purchased for sale (7,150,009) (3,238,600) (12,522,481) 5,554,807)
Proceeds and principal repayments of mortgage loans held
for sale 6,926,778 2,909,492 12,298,135 5,136,890
Change in accounts receivable 12,598 (17,638) (33,637) (19,106)
Change in other assets and accounts payable and accrued
liabilities (1,862) 77,402 (7,677) 9,692
--------------- --------------- --------------- ---------------
Net cash used in operating activities (118,771) (211,169) (88,212) (339,151)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of premises and equipment, net (1,452) (920) (5,215) (2,758)
Acquisition of mortgage servicing rights (138,246) 166,615) (258,306) (247,649)
Net purchases of risk management contracts (51,268) (37,902) (80,913) (78,889)
Early pool buyout advances (368,406) -- (368,406) --
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 (559,372) (205,437) (712,840) (568,932)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net borrowings from banks 210,995 186,753 49,826 603,899
Issuance of notes payable 455,000 -- 705,000 200,000
Payment of debt issue costs (4,444) (522) (6,131) (20,321)
Repayment of long term debt (152) (148) (303) (269)
Proceeds from issuance of common stock -- 100 -- 152,765
Issuance of bridge financing -- -- -- 90,000
Repayment of bridge financing -- -- -- (90,000)
--------------- --------------- --------------- ---------------
Net cash provided by financing activities 661,399 186,183 748,392 936,074
Net (decrease) increase in cash and cash equivalents (16,744) (230,423) (52,660) 27,991
Cash and cash equivalents at beginning of period 16,775 258,414 52,691 --
--------------- --------------- --------------- ---------------
Cash and cash equivalents at end of period $31 $27,991 $31 $27,991
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
HOMESIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended August 31, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ending February 28, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report which is incorporated by reference in the Form 10-K for the fiscal year
ended February 28, 1997 of HomeSide, Inc. ("HomeSide" or the "Company").
HomeSide, through its wholly-owned operating subsidiary HomeSide Lending,
Inc., 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 ("Bank of Boston"), and Barnett Banks, Inc. ("Barnett").
2. MORTGAGE SERVICING RIGHTS
The rollforward of mortgage servicing rights is as follows (in thousands):
Balance, February 28, 1997 $1,614,307
Additions 258,306
Deferred hedge loss 52,561
Amortization (102,741)
---------------
Balance, August 31, 1997 $1,822,433
===============
3. NOTES PAYABLE
HomeSide borrows funds on a demand basis from an independent syndicate of
banks under a $2.5 billion credit facility. Under certain circumstances set
forth in the credit agreement, borrowings under the agreement become
collateralized by substantially all of HomeSide's assets. The line of credit is
used to provide funds for HomeSide'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. At August 31, 1997, $1.9 billion is outstanding under the credit line.
On February 14, 2000, the line of credit will terminate. The credit agreement
contains covenants that impose limitations and restrictions on HomeSide,
including the maintenance of certain net worth and ratio requirements. HomeSide
is in compliance with all requirements included in the credit agreement. Amounts
outstanding at August 31, 1997 under the bank line of credit are comprised of a
warehouse credit facility of $1.0 billion and a servicing-related credit
facility of $0.9 billion. The amount of the unused bank line of credit was $0.6
billion as of August 31, 1997.
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) a eurodollar rate. At August 31, 1997, the weighted average interest rate
on the amounts borrowed under the bank credit facility was 5.98%, and the
weighted average interest rate during the three months ended August 31, 1997 was
6.06%.
4. LONG-TERM DEBT
On May 14, 1996, HomeSide 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, commencing on November 15, 1996.
The Parent Notes are redeemable at the option of HomeSide, in whole or in part,
at any time on or after May 15, 2001, at certain fixed redemption prices. The
5
<PAGE>
indenture contains covenants that impose limitations and restrictions, including
the maintenance of certain net worth and ratio requirements. In addition, the
Parent Notes are secured by a second priority pledge of the common stock of
HomeSide Lending, Inc. HomeSide is in compliance with all net worth and ratio
requirements included in the indenture relating to the Parent Notes. HomeSide
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 August 31, 1997 is $ 130.0 million.
As of August 31, 1997, outstanding medium-term notes issued by HomeSide
Lending, Inc., under a shelf registration statement filed with the Securities
and Exchange Commission (SEC) were as follows (in thousands):
Issue Date Outstanding Balance 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
---------
Total $705,000
=========
As of August 31, 1997, $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 note borrowings for
the three and six month periods ended August 31, 1997, including the effect of
the interest rate swap agreements, were 6.184%, and 5.983%, respectively. Net
proceeds from the issuances were primarily used to reduce the amounts
outstanding under the bank credit agreement. As of August 31, 1997, $295.0
million was available for future issuances under the Shelf Registration
Statement.
5. EARLY POOL BUYOUT ADVANCES
HomeSide initiated an early pool buyout program during the three months
ended August 31, 1997, which involves the purchase of delinquent government
loans from pools early in the foreclosure process, thereby reducing the
unreimbursed interest expense that HomeSide incurs. Scheduled interest payments
made to the investor for delinquent loans are recorded as early pool buyout
advances with a reserve for advances which will not ultimately be collected. The
funding of the purchases of these delinquent loans for the early pool buyout
program is recorded as interest expense, and interest income earned from the
guarantor agency during the foreclosure process is accrued to match the funding
expense incurred.
6. COMMITMENTS AND CONTINGENCIES
HomeSide announced in August an agreement with a wholly owned subsidiary of
Barnett, whereby Barnett intends to transfer its broker origination operations
outside of Florida and Georgia, which operate under the name Loan America, to
HomeSide in exchange for the exclusive right to refinance mortgages and sell
mortgage-related products to its Florida and Georgia customers serviced by
HomeSide. If this agreement is consummated, management believes that the impact
on HomeSide will be immaterial.
On August 29, 1997, NationsBank Corporation and Barnett Banks, Inc.
announced a definitive agreement for NationsBank to merge the two companies.
HomeSide's management has not determined what impact, if any, this merger will
have on HomeSide.
7. SUBSEQUENT EVENTS
On September 15, 1997, an additional $45.0 million of 6.77% medium term
notes maturing on September 17, 2001 were issued by HomeSide Lending, Inc. under
the Shelf Registration Statement. Interest is payable semiannually in arrears on
June 30 and December 30 of each year, commencing on December 30, 1997. Net
proceeds were used for working capital and general corporate purposes.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
HomeSide, Inc., through its wholly-owned operating subsidiary HomeSide
Lending, Inc., 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 ("Bank of Boston"), and Barnett Banks, Inc. ("Barnett").
HomeSide's strategy emphasizes variable cost mortgage origination and low cost
servicing. Headquartered in Jacksonville, Florida, HomeSide ranks as the 5th
largest originator and the 7th largest servicer in the United States for
calendar 1996 based on data published by National Mortgage News.
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 of Boston and Barnett arrangements.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Quarterly Report on Form
10-Q 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
indicated 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 depends on its ability to
obtain additional financing in the future for originating loans, investment in
servicing rights, working capital, capital expenditure and general corporate
purposes, (2) economic downturns 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 ("SEC").
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. By focusing on production channels with a variable cost
structure, HomeSide eliminates the fixed costs associated with traditional
mortgage branch offices. Without the burden of high fixed cost origination
overhead, HomeSide is well positioned to weather a variety of interest rate
environments.
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 three months ended August 31, 1997, the
three months ended August 31, 1996, and for the six months ended August 31, 1997
and the period from March 16, 1996 to August 31, 1996 (in millions):
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Period from
Months Ended Months Ended Months Ended March 16, 1996 to
August 31, 1997 August 31, 1996 August 31, 1997 August 31, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Correspondent $3,802 $2,950 $7,024 $4,843
Co-issue 1,486 2,208 2,677 3,627
Broker 307 155 696 375
-------- --------- --------- ---------
Total wholesale 5,595 5,313 10,397 8,845
Direct 75 179 144 427
-------- --------- --------- ---------
Total production 5,670 5,492 10,541 9,272
Bulk acquisitions 1,480 4,073 1,981 4,073
======== ========= ========= =========
Total production and acquisitions $7,150 $9,565 $12,522 $13,345
======== ========= ========= =========
</TABLE>
7
<PAGE>
Total loan production, excluding bulk acquisitions, was $5.7 billion for
the three months ended August 31, 1997 compared to $5.5 billion for the three
months ended August 31, 1996. Loan production for the six months ended August
31, 1997, excluding bulk acquisitions, increased $1.2 billion to $10.5 billion
from $9.3 billion for the period from March 16, 1996 to August 31, 1996. The
increases were primarily due to growth in HomeSide's correspondent lending
channel, which increased 29% to $3.8 billion for the three months ended August
31, 1997 from $3.0 billion for the three months ended August 31, 1996, and
increased 45% to $7.0 billion for the six months ended August 31, 1997 from $4.8
billion for the period from March 16, 1996 to August 31, 1996. In addition, the
May 31, 1996 acquisition of Barnett Mortgage Company, a wholly owned subsidiary
of Barnett ("BMC") and the preferred partnership agreement with Barnett under
which all loans originated by Barnett are sold to HomeSide contributed to the
growth in production for the six month period ended August 31, 1997 compared to
the period from March 16, 1996 to August 31, 1996. HomeSide also made bulk
servicing acquisitions of $1.5 billion during the three months ended August 31,
1997 and $4.1 billion during the three months ended August 31, 1996.
HomeSide continues to examine a number of ways to diversify and grow
revenue sources from its existing and new customer base. HomeSide is nearing
completion of an alliance with a sub-prime mortgage lender to create a B&C
mortgage product line for HomeSide's production network.
Servicing Portfolio
Management believes that HomeSide is one of the most efficient mortgage
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 over $96 billion, HomeSide services the loans of over one
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. Following a national
and seasonal trend, delinquencies and foreclosure expenses increased during the
three months ended August 31, 1997; however, the direct servicing cost-per-loan
continued to decline during this period.
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 three months ended August 31, 1997, the three
months ended August 31, 1996, and for the six months ended August 31, 1997 and
the period from March 16, 1996 to August 31, 1996 (in millions):
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Period from
Months Ended Months Ended Months Ended March 16, 1996 to
August 31, 1997 August 31, 1996 August 31, 1997 August 31, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at beginning of period $92,637 $78,391 $90,192 $42,907
Acquisition of BMC -- -- -- 33,082
Other additions 7,150 9,842 12,522 13,944
------------ ------------ ------------ ------------
Total additions 7,150 9,842 12,522 47,026
------------ ------------ ------------ ------------
Scheduled amortization 534 494 1,065 729
Prepayments 2,550 1,702 4,694 3,023
Foreclosures 141 137 312 267
Sales of servicing 8 65 89 79
------------ ------------ ------------ ------------
Total reductions 3,233 2,398 6,160 4,098
============ ============ ============ ============
Balance at end of period $96,554 $85,835 $96,554 $85,835
============ ============ ============ ============
</TABLE>
The number of loans serviced at August 31, 1997 was 1,156,914, compared to
1,059,000 at August 31, 1996. 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
HomeSide's future growth is the proprietary servicing software purchased from
Barnett. This system will allow HomeSide to double its current servicing
capacity on a single system. During the next quarter, HomeSide expects to
transfer approximately one-third of the loans to its proprietary servicing
software. Once the initial transfer is complete, over half of the servicing
portfolio will be serviced on the proprietary system.
8
<PAGE>
Results of Operations
Three months ended August 31, 1997 compared to three months ended August 31,
1996
Summary
HomeSide's net income increased approximately 100% to $20.1 million for
the three months ended August 31, 1997 from $10.1 million for the three months
ended August 31, 1996. Total revenues for the three months ended August 31, 1997
increased 26% to $72.7 million from $57.9 million for the three months ended
August 31, 1996. The increases in net income and revenues for the three months
ended August 31, 1997 compared to the three months ended August 31, 1996 were
primarily attributable to increases of $6.2 million in net servicing revenue,
$4.3 million in net mortgage origination revenue, and $4.5 million in net
interest revenue, while total expenses decreased by $1.1 million. The increase
in net servicing revenue was mainly a result of a $10.8 billion increase in the
servicing portfolio to $96.6 billion at August 31, 1997 from $85.8 billion at
August 31, 1996. Net mortgage origination revenue increased due to loan
production volume increases while mortgage origination expenses decreased mainly
as a result of the integration of BMC mortgage servicing operations acquired on
May 31, 1996. Net interest revenue increased primarily as a result of reduced
borrowing costs from the bank line of credit from improved credit ratings and
the issuance of medium-term notes which expanded borrowing capacity.
Net Servicing Revenue
Net servicing revenue was $49.1 million for the three months ended August
31, 1997 compared to $42.9 million for the three months ended August 31, 1996.
Net servicing revenue is comprised of mortgage servicing fees, ancillary
servicing revenue, and amortization of mortgage servicing rights.
Mortgage servicing fees increased 24% to $103.6 million for the three
months ended August 31, 1997 from $83.3 million for the three months ended
August 31, 1996, primarily as a result of growth of the servicing portfolio
through loan production channels and bulk servicing acquisitions. The servicing
portfolio increased to $96.6 billion at August 31, 1997 compared to $85.8
billion at August 31, 1996, a 13% increase. HomeSide's weighted average interest
rate of the mortgage loans in the servicing portfolio was 7.89% at August 31,
1997 and 7.92% at August 31, 1996. The weighted average servicing fee, including
ancillary income, for the servicing portfolio was 0.436% and 0.405% for the
three months ended August 31, 1997 and the three months ended August 31, 1996,
respectively. The increase in the weighted average servicing fee from the three
months ended August 31, 1997 to the three months ended August 31, 1996 was due
to growth of ancillary revenues including late fees and other mortgage-related
products and higher proportions of government loans serviced which typically
have a higher servicing fee. During the three months ended August 31, 1997,
HomeSide entered into an agreement with First USA Bank, one of the nation's
leading credit card issuers, which permits first USA to market a HomeSide Visa
card to HomeSide customers for a non-refundable fee. Amortization expense
increased to $54.5 million for the three months ended August 31, 1997 from $40.5
million for the three months ended August 31, 1996 mainly as a result of a
higher average balance of mortgage servicing rights and a decrease of 56 basis
points in average mortgage interest rates from the three months ended August 31,
1996 to the three months ended August 31, 1997.
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'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 from interest 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.
9
<PAGE>
Net interest revenue increased $4.5 million to $2.8 million for the three
months ended August 31, 1997 from $(1.7) million for the three months ended
August 31, 1996, 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 three months ended August 31, 1997,
HomeSide's primary operating subsidiary, HomeSide Lending, Inc. issued $455
million of medium-term notes to the public market at an average cost of 5.932%
as of August 31, 1997. The proceeds were used to pay down existing bank debt,
increasing HomeSide'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 incurs.
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 $20.6 million for the three months
ended August 31, 1997 compared to $16.3 million for the three months ended
August 31, 1996, a 26% increase. The increase in net mortgage origination
revenue during the three months ended August 31, 1997 as compared to the three
months ended August 31, 1996 reflects an increase in loan production volumes,
primarily through HomeSide's correspondent lending channel, and an increase in
gains from secondary marketing activities.
Salaries and Employee Benefits
Salaries and employee benefits expense was $19.5 million for the three
months ended August 31, 1997 compared to $21.2 million for the three months
ended August 31, 1996 due to the continuing integration of BMC mortgage
servicing operations acquired on May 31, 1996. The average number of full-time
equivalent employees decreased to 1,734 for the three months ended August 31,
1997 from 1,879 for the three months ended August 31, 1996.
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 three
months ended August 31, 1997 was $3.8 million compared to $3.1 million for the
three months ended August 31, 1996. The increase in expense was mainly due to
the increase in information systems costs 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 the final disposition of loans,
non-recoverable foreclosure costs, accrued interest for which payment has been
curtailed and estimates for potential losses based on HomeSide's experience as a
servicer of government loans.
During the three months ended August 31, 1997, the servicing losses on
investor-owned loans and foreclosure-related expenses totaled $5.8 million
compared to $4.1 million for the three months ended August 31, 1996. The
increase was largely attributable to the growth of the servicing portfolio
resulting from loan production and increased foreclosure losses, which are
likely to continue at this level as the servicing portfolio ages.
Included in the balance of accounts payable and accrued liabilities at
August 31, 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's historical loss experience on VA loans generally has been
consistent with industry experience. 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.
10
<PAGE>
The following table sets forth HomeSide's delinquency and foreclosure
experience:
Servicing Portfolio Delinquencies
(percent by loan count)
For the Three For the Period From
Months Ended March 31, 1996 to
August 31, 1997 August 31, 1996
--------------- ---------------
Servicing Portfolio Delinquencies,
excluding bankruptcies
(at end of period)
30 days 3.45% 3.08%
60 days 0.73% 0.64%
90+ days 0.55% 0.48%
=============== ===============
Total past due 4.73% 4.20%
=============== ===============
Foreclosures pending 0.70% 0.66%
=============== ===============
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's mortgage servicing portfolio and loan production
volumes.
Other expenses during the three months ended August 31, 1997 were $10.6
million compared to $12.5 million for the three months ended August 31, 1996,
primarily due to the continuing integration of the BMC mortgage servicing
operations acquired on May 31, 1996.
Income Tax Expense
HomeSide's income tax expense was $12.9 million for the three months ended
August 31, 1997 and $7.0 million for the three months ended August 31, 1996. The
effective income tax rates for the three months ended August 31, 1997 and the
three months ended August 31, 1996 were approximately 39% and 41%, respectively.
Results of Operations
Six months ended August 31, 1997 compared to period from March 16, 1996 to
August 31, 1996
Summary
HomeSide's net income increased 130% to $38.3 million for the six months
ended August 31, 1997 from $16.6 million for the period from March 16, 1996 to
August 31, 1996. Total revenues for the six months ended August 31, 1997
increased 53% to $140.2 million from $91.6 million for the period from March 16,
1996 to August 31, 1996. The increases in net income and revenues for the six
months ended August 31, 1997 compared to the period from March 16, 1996 to
August 31, 1996 were primarily attributable to the acquisition of BMC on May 31,
1996 and increases of $32.8 million in net servicing revenue, $11.4 million in
net mortgage origination revenue, and $3.8 million in net interest revenue. The
BMC servicing portfolio was $33.1 billion at May 31, 1996 and its acquisition
increased HomeSide's servicing portfolio by 75% on that date, which 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 $96.6 billion at August 31, 1997
from $85.8 billion at August 31, 1996, a 13% increase. As part of the BMC
acquisition, Barnett agreed to sell HomeSide 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 as a
result of reduced borrowing costs from the bank line of credit from improved
credit ratings and the issuance of medium-term notes which expanded borrowing
capacity.
Net Servicing Revenue
Net servicing revenue was $100.7 million for the six months ended August
31, 1997 compared to $67.9 million for the period from March 16, 1996 to August
31, 1996. Net servicing revenue is comprised of mortgage servicing fees,
ancillary servicing revenue, and amortization of mortgage servicing rights
expense.
11
<PAGE>
Mortgage servicing fees increased 63% to $203.5 million for the six months
ended August 31, 1997 from $124.8 million for the period from March 16, 1996 to
August 31, 1996, 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 $96.6 billion at August 31,
1997 compared to $85.8 billion at August 31, 1996. HomeSide's weighted average
interest rate of the mortgage loans in the servicing portfolio was 7.89% at
August 31, 1997 and 7.92% at August 31, 1996. The weighted average servicing
fee, including ancillary income, for the servicing portfolio was 0.436% and
0.429% for the six months ended August 31, 1997 and the period from March 16,
1996 to August 31, 1996, respectively. The increase in the weighted average
servicing fee for the six months ended August 31, 1997 from the period from
March 16, 1996 to August 31, 1996 was due to growth of ancillary revenues
including late fees and revenues from other mortgage-related products, and
higher proportions of government loans serviced which typically have a higher
servicing fee. Amortization expense increased to $102.7 million for the six
months ended August 31, 1997 from $56.9 million for the period from March 16,
1996 to August 31, 1996 mainly as a result of a higher average balance of
mortgage servicing rights and a decrease of 26 basis points in average mortgage
interest rates from the period from March 16, 1996 to August 31, 1996 to the six
months ended August 31, 1997.
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'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 from interest 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 increased $3.8 million for the six months ended
August 31, 1997 to $(0.1) from $(3.9) million for the period from March 16, 1996
to August 31, 1996, 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 six months ended August 31, 1997,
HomeSide's primary operating subsidiary, HomeSide Lending, Inc. issued $705
million of medium-term notes to the public market at an average cost of 5.953%
as of August 31, 1997. The proceeds were used to pay down existing bank debt,
increasing HomeSide'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 incurs.
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 $38.5 million for the six months
ended August 31, 1997 compared to $27.1 million for the period from March 16,
1996 to August 31, 1996, a 42% increase. The increase in net mortgage
origination revenue during the six months ended August 31, 1997 as compared to
the period from March 16, 1996 to August 31, 1996 is due in part to increased
production resulting from the preferred seller relationship with Barnett
established as part of the BMC acquisition. Barnett agreed to sell HomeSide
loans produced by the loan production networks retained by Barnett. The increase
also reflects an increase in loan production volumes primarily through
HomeSide's correspondent lending channel and an increase in gains from secondary
marketing activities.
Salaries and Employee Benefits
Salaries and employee benefits expense was $39.3 million for the six
months ended August 31, 1997 compared to $32.7 million for the period from March
16, 1996 to August 31, 1996 due to the purchase of the BMC mortgage servicing
operations acquired on May 31, 1996. The average number of full-time equivalent
employees decreased to 1,734 for the six months ended August 31, 1997 from 1,879
for the period from March 16, 1996 to August 31, 1996.
12
<PAGE>
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 six
months ended August 31, 1997 was $7.6 million compared to $4.9 million for the
period from March 16, 1996 to August 31, 1996. The increase in expense was
mainly due to the premises and equipment acquired in the BMC acquisition and an
increase in information systems costs 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's experience as a servicer of
government loans.
During the six months ended August 31, 1997, the servicing losses on
investor-owned loans and foreclosure-related expenses totaled $10.5 million
compared to $8.0 million for the period from March 16, 1996 to August 31, 1996.
The increase was largely attributable to the growth of the servicing portfolio
resulting from loan production and increased foreclosure losses, which are
likely to continue at this level as the servicing portfolio ages.
Included in the balance of accounts payable and accrued liabilities at
August 31, 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's historical loss experience on VA loans generally has been
consistent with industry experience. 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.
The following table sets forth HomeSide's delinquency and foreclosure
experience:
Servicing Portfolio Delinquencies
(percent by loan count)
For the Six For the Period from
Months Ended March 16, 1996 to
August 31, 1997 August 31, 1996
--------------- ---------------
Servicing Portfolio Delinquencies,
excluding bankruptcies
(at end of period)
30 days 3.45% 3.08%
60 days 0.73% 0.64%
90+ days 0.55% 0.48%
--------------- ---------------
Total past due 4.73% 4.20%
=============== ===============
Foreclosures pending 0.70% 0.66%
=============== ===============
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's mortgage servicing portfolio and loan production
volumes.
Other expenses during the six months ended August 31, 1997 were $20.0
million compared to $17.9 million for the period from March 16, 1996 to August
31, 1996, primarily due to the acquisition of the BMC mortgage servicing
operations on May 31, 1996.
13
<PAGE>
Income Tax Expense
HomeSide's income tax expense was $24.5 million for the six months ended
August 31, 1997 and $11.5 million for the period from March 16, 1996 to August
31, 1996. The increases were attributable to increases in net income. The
effective income tax rates for the six months ended August 31, 1997 and the
period from March 16, 1996 to August 31, 1996 were approximately 39% and 41%,
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 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 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 loans and therefore, the value of the servicing
portfolio declines as prepayments increase.
Since its formation, HomeSide has purchased options on 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 option contracts used by
HomeSide have characteristics such that they tend to increase in value as
interest rates decline. Conversely, these option contracts tend to decline in
value as interest rates rise. Accordingly, changes in value of these securities
will tend to move inversely with changes in value of HomeSide's mortgage
servicing rights.
These option contracts 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 option contracts are
marked-to-market with changes in market value deferred as an adjustment to the
carrying value of the related mortgage servicing right asset being hedged.
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 options 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. During each of the periods presented, HomeSide has
experienced a high measure of correlation between changes in the value of
mortgage servicing rights and the option contracts. However, in periods of
rising interest rates, the increase in value of mortgage servicing rights may
outpace the decline in value of the option contracts because the loss on the
options is limited to the premium paid.
The option-based hedge strategy designed to protect the value of the
servicing asset continued to perform as expected during the three months ended
August 31, 1997 and proved especially effective as long-term rates reached their
lowest level since November of 1996. For the three months ended August 31, 1997,
the value of the hedge was largely unchanged as HomeSide incurred losses on risk
management contracts of $0.2 million. During the three months ended August 31,
1996, the loss on risk management contracts was $42.1 million. For the six
months ended August 31, 1997 and the period from March 16, 1996 to August 31,
1996, HomeSide incurred losses of $52.6 million and $74.7 million, respectively.
The increase in the estimated fair value of the mortgage servicing rights
approximated the net losses on risk management contracts for these periods.
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 August 31, 1997 was $73.6 million, which was equal to
their carrying amount because the options are marked-to-market at each reporting
date.
Liquidity and Capital Resources
The Company's principal financing needs are the financing of loan
origination activities and the investment in 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. 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 Lending, Inc., may issue mortgage backed
securities.
Operations
Net cash used in operations was $88.2 million for the six months ended
August 31, 1997. Proceeds from the issuance of medium-term notes were used to
fund loan originations. 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. Higher cash demands to meet increased loan production
levels are primarily met through borrowings and loan sales.
14
<PAGE>
Investing
Net cash used in investing activities was $712.8 million for the six
months ended August 31, 1997. Cash used in investing activities was for the
purchase and origination of mortgage servicing rights, the purchase of options
of U.S. Treasury bond futures as part of HomeSide's hedging program, and for
funding the early pool buyout program. 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 $748.4 million for the six
months ended August 31, 1997. The primary source of cash from financing
activities during the period was $705.0 million from the issuance of medium-term
notes and net borrowings from HomeSide's line of credit. Cash used in financing
activities was used for the payment of debt issue costs.
During the six months ended August 31, 1997, net cash used in operations
was $88.2 million, net cash used in investing activities was 712.8 million and
net cash provided by financing activities was $748.4 million, resulting in a net
decrease in cash of $52.7 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.
PART II - OTHER INFORMATION
ITEM 1. 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 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
Number Description
11 Statement Regarding Computation of Earnings per share
27 Financial Data Schedule
(b) Reports on form 8-K
HomeSide filed no reports on form 8-K during the three months ended
August 31, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements 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, Inc.
--------------
(Registrant)
Date: October 10, 1997 By: /s/Joe K. Pickett
-----------------
Joe K. Pickett
Chairman of the Board, Chief Executive Officer
and Director (Principal Executive Officer)
Date: October 10, 1997 By: /s/Kevin D. Race
----------------
Kevin D. Race
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
16
<PAGE>
Exhibit 11
HOMESIDE, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(dollar amounts in thousands except per share data)
<TABLE>
PRIMARY AND FULLY DILUTED
<CAPTION>
For the Three For the Six
Months Ended Months Ended
August 31, 1997 August 31, 1997
--------------- ---------------
<S> <C> <C>
Net earnings applicable to common stock $ 20,138,000 $ 38,271,000
=============== ===============
Average shares outstanding 43,472,568 43,472,568
Net effect of dilutive stock options (based
on treasury stock method using
average market price) 660,071 577,757
--------------- ---------------
Total average shares 44,132,639 44,050,325
=============== ===============
Per share amount $ 0.46 $ 0.87
=============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001016628
<NAME> HOMESIDE, INC.
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 184,590
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,523,750
<PP&E> 32,109
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,564,859
<CURRENT-LIABILITIES> 2,158,447
<BONDS> 855,825
0
0
<COMMON> 531
<OTHER-SE> 550,056
<TOTAL-LIABILITY-AND-EQUITY> 3,564,859
<SALES> 0
<TOTAL-REVENUES> 72,746
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 39,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,013
<INCOME-TAX> 12,875
<INCOME-CONTINUING> 20,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,138
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0
</TABLE>
