Problem loans have risen sharply at Riggs, Maryland National, Virginia National and Bank of Virginia. Profits are flat at Maryland National and down in the first quarter at National Bank of Washington, Equitable, First National of Maryland and United Virginia.

Three years of sky-high interest rates and two years of recession have been hard on many area banks.

Bankers and analysts are quick to point out that unlike the savings and loan business, the banking business here and nationwide is fundamentally healthy. The 13 big area banks surveyed by The Washington Post are sound and profitable, even if not all are as profitable as they were a year ago.

But many bigger area banks have had difficulties in getting loan-interest income to increase as fast as the costs of deposits because of their heavily consumer-oriented, fixed-rate loan portfolio. As a result, several are switching the emphasis in their lending from consumer loans to commercial loans on which interest charges vary with the cost of obtaining funds.

Although bankers want interest rates to continue to fall so customers will have less difficulty paying their loans, the declines in short-term rates during the first three months of the year hurt investment income at several banks.

Some banks, such as Financial General, that invested heavily in short-term securities saw their profits soar in 1981, because interest rates on those investments rose more quickly than rates the banks paid for deposits. But in the first three months of 1982, when short-term rates declined, those same banks saw their investment income fall more swiftly than the cost of deposits.

A look at the regional banking landscape reveals both blighted and bright spots. Problem loans will continue to increase in the months ahead, as more and more companies feel the effects of the recession. Bankers say problem loans generally grow for several months after a recession ends.

A number of area banks have difficulties, although none of them appear life-threatening.

The new management at National Bank of Washington still is trying to dig its way out of a mess it inherited from previous managements: a load of low-yielding mortgages, a heavy portfolio of low-return municipal bonds and several large bad loans. Profits have been declining for several years.

Equitable Bancorp. of Baltimore continues to struggle to rid itself of some bad loans it made several years ago as it attempted to increase its commercial lending.

Maryland National Corp., which owns the area's biggest bank, reported no earnings increase in the first three months of the year and its nonperforming assets (loans that are either past-due, have been renegotiated because the borrower can't meet the original terms or foreclosed) have zoomed, mainly because of a big real estate deal that went bust.

Riggs National Corp. too has faced a big increase in problem loans and increased its provision for potential loan losses so much last year that it had no profit growth between 1980 and 1981. Nonperforming assets rose to $64.4 million last year from $19.8 million at the end of 1980. Nonperforming assets grew another $5 million during the first quarter. Still, Riggs reported a 14 percent increase in profits during the first quarter.

Even during a recession, not all tales are woeful.

Suburban Corp., the Rockville bank holding company, has whittled down its nonperforming assets from $12.1 million on March 31, 1981, to $6.8 million at the end of last March.

American Security Corp., although boosting its provision for possible loan losses by $2.8 million and raising the amount of assets it classifies as nonperforming, reported that it wrote off as uncollectible a net of only $400,000 in loans during the first quarter. For all of 1981, American Security had net loan losses of $700,000, about 0.05 percent of its total loans, one of the best records in the nation.

First & Merchants Corp. reported a 41 percent gain in first-quarter earnings as the bank seems to be recovering from a bad first quarter in 1981 and, as one bank analyst said, "a history of below average performance."

Several big banks in Maryland and Virginia, like First & Merchants, are adding to their commercial lending portolio. In the District, the big banks years ago moved heavily into nonconsumer lending because federal banking laws restrict a bank's deposit-gathering to the state in which it is domiciled. So District banks that wanted to grow were forced into "money-center" banking--buying deposits from corporations with spare cash. The cost of these deposits is much less stable, and often more expensive, than consumer deposits.

As a result, Riggs and American Security--and to a lesser extent, National Bank of Washington--had to find loans that were as sensitive to interest rate changes as were their deposits. The big District banks, despite a large retail presence, have been lending to big companies and foreign countries for years.

In Maryland and Virginia, however, the markets were bigger. As the suburbs grew away from the District of Columbia, the major banks in the two states were able to grow by attracting consumer deposits and making consumer-type loans: installment loans, home mortgage loans and bank credit card loans. In the last few years, however, consumers have been demanding and getting more for their deposits and shifting funds from banks (and savings and loan associations) to money market mutual funds.

Checking accounts, on which a bank pays no interest, are shrinking. Savings desposits, which used to be almost totally low-yielding passbook accounts, are being converted to expensive certificates. Banks are having to "buy" an increasing percentage of their deposits: often from money market mutual funds. Deposits are more expensive to gather and hold than they used to be.

With consumer deposit costs rising--and with consumers becoming as savvy as corporate treasurers about the rate of return on their savings--the fixed-rate consumer loan became less attractive and less profitable and many consumer banks have been trying to readjust their portfolios to include more variable rate commercial loans.

Virginia National Bank, for example, had $412 million in commercial loans at the end of 1980. By the end of 1981, the commercial portion of its loan portfolio had increased to $579 million. Commercial loans at First & Merchants grew from $432.2 million on Dec. 31, 1980 to $545.6 million a year later.

But in the rush to adjust the loan portfolio to make it more sensitive to changes in interest rates, Equitable of Baltimore picked up a bigger-than-normal amount of higher-risk loans. Equitable has held down the growth of its assets and between the end of 1980 and the end of 1981, its nonperforming loans fell slightly, from $33.9 million to $33.1 million. Nevertheless, it had $2.49 in nonperforming assets for each $100 of loans in its portfolio at the end of last year, according to Keefe, Bruyette & Woods, a Wall Street firm that specializes in analyzing banks. Of the 13 banks surveyed by The Post, only Riggs (at $3.73) and National Bank of Washington (at $2.67) had a worse ratio.

For every $100 in loan balances last year, Equitable wrote off $1.09 as uncollectible, the worst record of any bank in the survey. But in the first quarter, Equitable charged off only $500,000, down from $2.5 million in the first three months of 1981.

Following is a brief look at 13 of the biggest banks in the Washington area:

District of Columbia

Riggs National Corp. The holding company that controls the biggest bank in the District of Columbia sharply increased its total of nonperforming assets from $19.8 million to $64.3 million. Past-due foreign loans increased from about $1.1 million to $21.4 million. Foreign lending is a growing part of Riggs' business. Problem loans to real estate developers grew from less than $1 million to nearly $31 million. Historically, international lending has been reasonably safe and loan losses are lower than for domestic lending--although growing economic difficulties in South America, where Riggs is a major lender, and Eastern Europe are making banking experts edgy. At the end of the year, foreign loans accounted for nearly a quarter of Riggs' total loans. Besides the big increase in provision for potential loan losses (which comes out of income), Riggs also has a sizeable portfolio of fixed-rate loans such as mortgages and consumer loans that held down profits last year, according to Daniel Collins, vice president of Wheat, First Securities, the Richmond-based brokerage firm. Despite a 10 percent increase in the loan-loss provision in the first quarter, Riggs had a 14 percent increase in earnings. Chairman Vincent Burke said the worst earnings results are over and expects a good year, unless the economy worsens sharply.

American Security Corp. American Security, the District's second largest bank, is its most profitable. American Security earned $7.3 million in the first quarter, compared with $6.3 million at Riggs. American Security has been pursuing commercial loans intensively while Riggs has been pursuing foreign lending. The bank has followed a strategy of specializing in lending to certain industries such as cable television, commuter airlines, energy and health care, according to Chairman Jarvis Moody. At the same time, the bank has been shedding consumer loans. About half the American Security's loans are commercial (another 12 percent are to real estate developers). Despite its good history on loan losses, the recession is being felt. American Security's nonperforming assets grew from $16.8 million to $27.6 million between Dec. 31, 1980, and the end of last year, and were $29.2 million on March 31.

National Bank of Washington. National Bank of Washington reported a 33 percent earnings decline in the first three months of the year and a 35 percent earnings decline in 1981. Chairman Luther Hodges Jr., former undersecretary of Commerce in the Carter administration, took over in 1980 after a scandal of insider dealings rocked the institution. NBW was saddled with a big pool of nonperforming assets and a loan portfolio that was one-third low-rate mortgages. The bank is whittling down its mortgage portfolio and selling at a loss a huge investment in low-yielding municipal securities. The bank is more sensitive than most to high-cost deposits because most of its loans are fixed-rate. Hodges said he hopes to work off most of the bank's difficult loans by the middle of next year.

Financial General Bankshares Inc. Financial General controls about a dozen banks around the country, including the First American Banks in Washington, Maryland and Virginia. After a 22 percent profit increase last year, Financial General profits were up only 3 percent in the first quarter. It suffered in part because the first-quarter decline in short-term interest rates lowered its investment income much more quickly than the cost of its deposits, according to Vice President and Treasurer A. Vincent Scoffone. Last year, when rates rose quickly, the bank profited because the interest on its investments rose faster than the cost of its deposits. The company also had a big jump in nonperforming assets because of its heavy commitment to residential builders, who are having difficulty selling their projects. Scoffone said that if rates come down further, the bank will face some more "squeeze," because of its heavy investment in short-term securities. Over the longer run, however, lower rates will be a blessing for Financial General's big mortgage and consumer loan portfolio, which accounts for more than 60 percent of the bank's total loans. More than a third of the bank's assets are securities.

Maryland

Maryland National Corp. While most Maryland banks were heavily consumer-oriented, Maryland National, the region's biggest bank, has been diversifying its loans for some time, according to Richard Stillinger of Keefe, Bruyette & Woods. Management "is conservative to the point it ought to be but doesn't err on the part of stodginess," Stillinger said. Nevertheless, Maryland National reported flat earnings in the first quarter after a 23 percent earnings growth last year. Treasurer M. Scot Kaufman said the 1982 first quarter suffers in part by comparison to the first three months of 1981 because last year the spread between the bank's cost of funds and its interest income was "abnormally" wide. Kaufman said the bank is shedding its fixed-rate mortgages and has been paying increased attention to matching its assets and its liabilities. It opened a loan production office in the District last year and will open one soon in the Virginia suburbs. It has moved its credit card operations to Delaware, where it can charge an annual fee and higher rates than in Maryland. Other Maryland banks are expected to follow suit.

First Maryland Bancorp., which controls Maryland's second biggest bank, First National, reported a 2 percent decline in earnings after securities losses in the first quarter. The biggest portion of the bank's loan portfolio is commercial loans. Its nonperforming assets totalled $39.3 million on March 31, about $2.20 for every $100 of outstanding loans. The bank has a large credit-card operation that it is moving to Delaware.

Equitable Bancorp. Equitable's loan losses in 1980 and 1981 were higher than the industry norm "and were primarily attributable to the commercial loan portfolio," the bank noted in its 1981 annual report. The bank said it is emphasizing credit-training and loan review standards as well as taking a hard-nosed approach to charging off loans (writing them off earlier rather than later). According to one analyst, Equitable made too many risky loans trying to increase its commercial loan portfolio. "It was essentially a consumer bank" that moved too quickly into corporate lending, the analyst said. The bank appears to have had some success in controlling problem loans: nonperforming assets did not increase between March 31, 1981, and March 31, 1982. Profits were off 8 percent before securities losses, but when a one-time gain in 1981 is factored out, profits would have risen 8 percent. The bank sold many municipal bonds at a loss in the first quarter. As a result, net income fell 32 percent.

Suburban Bancorp. Suburban, despite recent attempts to increase its commercial lending, remains essentially a consumer bank. Mortgages make up the biggest portion of its loan portfolio and consumer loans are next. But only its commercial loans have grown significantly during the last year and installment loans have declined. "In this economy we're making no auto and boat loans," according to chief financial officer Dennis Hanson, who added that the bank has "no desire" to expand its consumer portfolio. He said Suburban Bancorp.'s aim is to get "into more interest-sensitive assets," such as commercial loans. Despite the increase in commercial loans from $166 million on March 31, 1981, to $192 million at the end of last March, commercial loans make up 23 percent of the bank's total loans, while mortgages and consumer loans account for 70 percent. Nonperforming assets were nearly halved and profits rose 15 percent in the first quarter.

Virginia

United Virginia Bankshares. With $4 billion in assets, United Virginia is the biggest banking organization in the state and the second-biggest in the area. Its income before gains or losses on securities transactions rose 7 percent, but it took $1 million in losses on sales of securities. Its net income fell 2 percent. During the last five years, United Virginia has had the best growth of the major Virginia banks, according to Collins of Wheat, First Securities. It has the most diversified loan portfolio of the major banks. About 47 percent (nearly $1.4 billion) of its loans are commercial, 26 percent are installment and 21 percent are residential mortgages. The rest of its loans are to developers and foreign countries. The bank's net chargeoffs increased in the first quarter to $2.4 million from $1.6 million during the first three months of 1981.

Virginia National Bancorp. Virginia National is heavily consumer-oriented and like Financial General had many of its assets invested in short-term securities. When rates rose in 1981, so did Virginia National's income. When they fell this year, income suffered. Net income increased 4 percent in the first quarter, compared with 35 percent in all of 1981. Like other banks that have been heavily consumer-oriented, Virginia National has restructured itself to "expand the wholesale commercial side," according to James Kirkpatrick, head of investor relations. The bank's nonperforming assets rose from $12 million a year ago to $19 million at the end of the first quarter.

Bank of Virginia. The bank has made major strides to increase its commercial loan portfolio. Commercial loans rose from $402 million on March 31, 1981, to $491 million last March. However, its nonperforming assets took a big leap too, from $14 million last year to $28 million this year. Actual charge-offs, however, rose from $2.3 million to $2.5 million. Net income before securities transactions rose 60 percent in the first quarter, following a 24 percent increase for all of last year. But the bank has been selling low-yielding municipal bonds--taking a substantial loss to reinvest the proceeds in higher-yielding securities. The bank lost $1.4 million on securities sales in the first quarter and its net income rose only 11 percent.

First & Merchants Corp. The commercial loan portfolio at First & Mechants has skyrocketed in the last year. On March 31, 1981, the bank had $390 million of commercial loans (27 percent of its total). By the end of last March, commercial loans grew 42 percent to $556 million (32 percent). Its nonperforming assets, however, grew only 3 percent, to $23.5 million from $22.98 million.

First Virginia Banks Inc. Unlike the other Virginia bank holding companies in the survey, First Virginia has not consolidated its many little banks into one major statewide institution. First Virginia operates 21 banks in Northern Virginia and around the state. It is primarily a consumer bank. More than 56 percent of its loans are installment loans and another 23 percent are mortgage loans. The bank's net income rose 15 percent in the first quarter following a 23 percent increase last year. Its chargeoffs declined in the first quarter to $600,000 from $700,000. Nonperforming assets rose 7 percent, from $7.1 million to $7.6 million.