American Security Corp., the owner of Washington's second-biggest bank, reported a 42 percent decline in third-quarter profits as loan losses ate away at earnings for the second consecutive quarter.

The bank company said third-quarter profits were $4.9 million (43 cents a share) compared with $8.4 million (75 cents) in the third quarter of 1983.

The 1983 profits were a record.

Chairman W. Jarvis Moody said that the bank holds to the projection it made at the end of the second quarter that the loan problems will be over by the end of the year and that profits will resume growth in 1985.

Until this year, American Security's loan losses had been among the lowest in the banking industry. But a spate of problem loans, many of them in shipping and energy, ruined that record.

American Security had $3.8 billion in assets at the end of September.

The bank wrote off as uncollectable $7.4 million of loans in the third quarter.

In the third quarter of 1983, the bank wrote off only $1.3 million of bad loans.

It added $9.3 million to its loan loss reserves in the third quarter, compared with a provision of $1.7 million a year ago.

The addition to the loan loss reserve is deducted from the bank's income. The bad loan write-offs are subtracted from the bank's loan loss reserves. The loan loss reserve, after the third-quarter write-offs, stood at $29.1 million.

Problem loans -- those that are not being repaid on their original terms -- totaled $93.4 million on Sept. 30, compared with $95.1 million on the same date a year ago.

Moody said that while income for all of 1984 will be down compared with 1983, "we anticipate that the fourth quarter will show improvement over the second and third quarters."

Third-quarter profits of $4.9 million were slightly higher than the $4.6 million American Security reported in the second quarter.