Joining a parade of banks and thrifts stung by rising interest rates, Boston Bancorp reported $22.1 million in unrealized securities losses for its fiscal year ended Oct. 31.

Boston Bancorp's Securities Shock

Fiscal years 1993 and 1994 (ended Oct. 31) 1993 1994Unrealized gains (losses) on $54.3 million ($22.1 million) securities available for sale Tier 1 Capital (dollars) $193.3 million $123.5 million Tier 1 Capital ratio 6.41% 6.61% Book value $35 $24 Securities * $1.1 billion in * $955 million in portfolio mortgage-backed mortgage-backed available government securities government securities for sale * $264 million in * $344 million in U.S. agency securities U.S. agency securities * $371 million in * $272 million in corporate bonds corporate bonds

Source: Company's fiscal yearend report

The paper loss marks a rare setback for Boston Bancorp's investment strategy. Over the past six years the company's securities portfolio has posted net realized gains of $65.1 million.

The unrealized losses, which followed sizeable unrealized gains last year, contributed to a 38% decline in shareholders' equity to $123.5 million.

Book value also dropped to $24 a share, from almost $35 at the end of the last fiscal year.

But Boston Bancorp still reported net income of $26.8 million, down from last year's earnings of $35.3 million. And despite the hit to capital, the company's Tier 1 capital ratio stood at 6.61%, up from 6.41% last year. The thrift is considered "well capitalized" by regulators.

All of Boston Bancorp's securities are listed in the available-for-sale category. Under new accounting rules, securities listed as available for sale must be marked to their current market value and reported publicly, with any gains or losses charged to the institution's capital. Actual losses, however, are not reported unless the institution sells the securities.

With interest rates soaring, many institutions' securities portfolios have plummeted, resulting in losses to capital.

"What we're seeing is exactly what we'd expect to see under FAS 115," said James R. Causey, managing director of Kaplan Associates Inc. in Washington. "I don't see it having a material impact on the banking or thrift industry at all."

Also, Mr. Causey said, the losses represent "the typical type of cyclical behavior in bond prices that one would expect to see."

Boston Bancorp, the $2 billion-asset holding company for South Boston Savings Bank, has a long history of maintaining a large investment portfolio, which helped it to weather the storm of credit problems in New England during the last few years, noted bank analyst Gerard Cassidy of Tucker Anthony's Hancock Institutional Equity Services.

As of Oct. 31, the company had $387 million of loan originations, while its securities portfolio stood at $1.6 billion. The net unrealized losses represented less than 1.4% of the principal value of the investment portfolio.

"It shouldn't surprise investors that an institution that has historically taken significant profits in bond trading incurred losses in the last six months due to the way the bond market has behaved," Mr. Cassidy said.

Boston's investment losses did not come from risky derviatives, but from government-backed mortgage securities, U.S. Treasury bonds, and some "high-quality" corporate bonds, said thrift spokesman Edward Nebb.

About $955 million of the portfolio was invested in mortgage-backed securities and $344 million in U.S. Treasury and other government bonds, while the remainder is in corporate bonds.

"They are not in a boat terribly different from any other interest-sensitive institution in this market," said Mr. Nebb. "This is not a bank that's realized losses. They are very conservative investors."

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