American National Bank of Maryland, a $175 million asset institution based in Silver Spring, will pull out of the Federal Reserve system and convert to a state banking charter next week.
The decision to withdraw from the nation's central banking system, approved by stockholders at the bank's annual meeting, comes after a year that American National officers called "the most eventful" in a 33-year history.
Under new management, American National has introduced a Master Charge credit card and other retail banking services, three branch offices were closed, trust operations are being phased out, bad loans have been written off and new procedures adopted to prevent a recurrence of loan problems that plagued the bank in recent years.
G. J. (Bud) Manderfield, who left the Bank of Virginia Co. to become American National's new president a year ago, said the decision to withdraw from the Federal Reserve can be attributed primarily to the loss of revenues associated with a requirement that banks maintain non-interest bearing accounts with the central bank.
Manderfield said the reserve requirement is particularly high for a bank of American National's size and deposits and that management "could no longer justify to its shareholders and customers the competitive disadvantage and the drain on earnings which result from the reserve requirements."
In the case of American National the withdrawal will release for investment more than $5 million currently held in non-interest accounts at the Federal Reserve.
The Silver Spring bank thus joins more than 500 banks which have left the Federal Reserve over the past eight years, mainly for the same reason. After the close of business March 31, the bank plans to change its name to American Bank of Maryland.
The growing number of bank withdrawals from the Federal Reserve is a matter of concern to federal and banking officials. A number of banking groups have urged a change in policy to permit payment of interests to Federal Reserve member banks on the average daily balances they are required to maintain at regional banks.
According to the New Jersey Bankers Association, Federal Reserve of "sterile funds" in the forum of required reserves in cash or Federal Reserve bank balances upon which they earn no income.
Manderfield noted that conversion to a state bank charter will have no effect on deposit insurance. The Federal Deposit Insurance Corporation will continue to insure individual deposits up to $40,000 as before.
As a national bank, American was regulated and audited by the Comptroller of the Currency. As a state bank, it will be regulated and audited by the Maryland Banking Commission and by the FDIC. Maryland has a number of large state-chartered banks, including Suburban Trust Co., Citizens Bank and Trust, Equitable and Union Trust.
In reviewing his bank's operations last year, Manderfield said immediate attention had been focused on credit problems that started to surface during 1974 - largely centered around real estate commercial loans. As of Dec. 31, the volume of loans not being paid off was reduced to less than $60,000 from more than $1.2 million a year earlier.
Profits from operations before securities transactions totalled $111,569 compared with a 1975 loss of $174,752. Bank officers attributed this "modest" profit to "the extraordinarily high loss provision necessitated by the credit problems," start up costs for the MasterCharge operation, expenses associated with branch closings and iitiation of new services.