Citizens Bancorp, First American Bank of Virginia and Washington Bancorporation yesterday all reported increases in earnings of between 16 and 32 percent in 1985. Some of the banks attributed the increases to a better environment for business expansion stimulated by lower interest rates.

The Student Loan Marketing Association, based in Washington and known as Sallie Mae, also reported increased annual earnings of 24.3 percent over last year.

*Citizens Bancorp, the Riverdale, Md., holding company operating 94 branch offices of Citizens Bank & Trust Co. of Maryland, said earnings increased 16 percent to $22.4 million ($10.80 a share) from $19.2 million ($9.28) last year. Total assets grew 15 percent to $1.3 billion. Deposits grew by 11 percent to $1.03 billion.

Richard A. Jennison, assistant vice president at the bank, said, "The way we manage our business is on a conservative note, which translates to the bottom line." The bank has no foreign high-risk loans outstanding and has an "excellent" asset portfolio, he said.

*First American Bank of Virginia, based in McLean, said earnings increased 23.8 percent to $21.2 million ($4.48 a share) from $17.3 million ($3.67) last year. Total assets grew 18 percent to $2.37 billion. Total deposits were up 17.9 percent. Chairman and President Milton L. Drewer Jr. attributed much of the growth to the state's success in attracting new business development. Lower interest rates also stimulated business expansion.

*Washington Bancorporation, parent company of National Bank of Washington, said earnings increased 32 percent over 1984, to $10.7 million ($7.74 a share) from $8.2 million ($5.93) last year. Fourth-quarter earnings in 1984 rebounded to $3.7 million ($2.68) from $216,000 (16 cents). Earnings in the fourth quarter of 1984 had been affected by a significant addition to the loan loss reserve. Total assets were $1.4 billion compared with $1.3 billion a year ago. Total deposits were $1.2 billion compared with $1 billion last year.

Luther H. Hodges Jr., chairman of the board of Washington Bancorporation and the National Bank of Washington said, "Much of the dramatic improvement is . . . a function of a return to normal operations after certain problem loans." The National Bank of Washington had been stung in recent years by several bad loans, including more than $9 million to Columbia Data Products Inc., a failed computer company, and some overexposure in international lending, analysts have said. Hodges said the company also had extraordinary income with which to build up reserves from a change in investor ownership in NBW and the sale of some nonfinancial assets.

*Student Loan Marketing Association said earnings for the year were up 24.3 percent to $123.3 million ($2.45 a share) from $99.3 million ($1.91) in 1984. Loan assets grew 25.3 percent to $3.6 billion.

Edward A. Fox, president of Sallie Mae, said, "Sallie Mae's strong performance in 1985 resulted from continued healthy growth in loan assets." The company's student-loan portfolio was $6.8 billion, 22 percent higher than the $5.6 billion outstanding at the end of 1984.

Fox said continued expansion of a number of new products such as an automated student-loan origination and management system for loan originators, purchases of student loans after repayment has begun and taxable financings for state agencies contributed to asset growth.