Going beyond the call of duty in dealing with the year-2000 problem, Amsouth Bancorp. said it has set aside $9.5 million as part of its loan- loss provision.

The move is a stark indication of how banks might come to terms with the computer software deficiency in ways that go beyond the costs and consequences of internal system upgrades.

Officials at Amsouth, which has $20 billion of assets, said they took the step in the second quarter. It is apparently the first banking company to make such a public and explicit financial acknowledgement that the software problem could cause borrowers to default.

At least three other sizable banking companies are also establishing year-2000-related reserves, said Lou Marcoccio, a Gartner Group research director and expert on the technology. He would not reveal the companies' names or the amounts reserved ahead of the normal disclosures.

Regulators have required banks to assess their business customers' year- 2000 compliance by the end of this quarter. But there has been no order to add to loss reserves.

"If customers are not year-2000 ready, it could impair their ability to repay loans," said Frank Hartigan, year-2000 project manager for the Federal Deposit Insurance Corp.

Mr. Marcoccio advised bankers to prepare to cover their major exposures. "Even a small number of large defaults could cause large problems," he said.

Michael Mayo, a bank analyst at Credit Suisse First Boston, said, "It's not life-threatening, and generally the industry has enough to cover, but the most prudent move would be to allocate some portion of the reserve to year-2000."

He said banks need to do thorough reviews of borrowers' businesses and year-2000 preparations to quantify exposure accurately.

Amsouth's year-2000 set-aside would equal about 0.10% of the loan portfolio, said Jim Underwood, senior vice president of the Birmingham, Ala., company.

"We hope our credit customers will not be detrimentally harmed," he said, "but we feel it is prudent to have this reserve."

The company started contacting borrowers in April to make sure they were aware of the problem and were taking steps to fix it.

Amsouth has held 30 seminars in four states for customers and Chambers of Commerce to discuss the millennium computer bug, which causes problems for software of an earlier generation that uses only two digits-99 for 1999, 00 for 1900-to signify the year in date fields. More than 1,000 customers have attended seminars so far.

Other banking companies are still deciding what provisions, if any, they will take.

BankBoston Corp. has reviewed customers representing 90% of its $67 billion loan exposure, and 93% have a credible plan, said year-2000 spokesman Steven P. McManus.

BankBoston's business-relationship managers went through a three-hour risk assessment course in February and March to help them judge clients' readiness and the likelihood of meeting year-2000 deadlines.

"They all saw it was a risk issue and understood it right away," Mr. McManus said.

Huntington Bancshares of Columbus, Ohio, has not decided what provision it would take. It probably would add to existing reserves rather than create a separate category, said William Serpico, year-2000 communications manager.

Since February, Huntington's people have met with clients that have borrowed more than $1 million-about 7% of its customer base. The $28 billion-asset company also selectively contacted smaller customers and published a brochure to help customers identify risk.

By June 30, banks were to have devised customer-assessment plans, which should have included singling out large customers, evaluating their preparedness, assessing their year-2000 risks to the financial institution, and taking appropriate measures to manage and mitigate the risk.

Regulators do not know exactly how many banks have drawn up these plans, said Mr. Hartigan of the FDIC.

The regulators acknowledge that banks cannot do full technical evaluations of all major customers. They suggest that banks give a rating to the likely impact of the glitch on customers' operations.

Banks should review a customer's credit files, see how dependent the business is on other vendors, and ask officers what they are doing about the year-2000 problem, Mr. Hartigan said. There is no set formula for calculating dollar amounts needed to cover possible defaults.

That determination is "made on a bank-by-bank basis, depending on its risk and the customer's risk," Mr. Hartigan said.

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