Starting what is expected to be a steady stream of bad news from local banking firms, Riggs National Corp. reported yesterday that troubles in commercial real estate had eroded its earnings by more than 70 percent in the second quarter of the year.

Riggs -- the biggest bank based in the District -- would have lost money for the quarter were it not for an unusual transaction in which it earned a multimillion-dollar profit by buying back some of its bonds for less than it had sold them.

Riggs's sharp drop in earnings was neither a surprise nor an isolated instance, but a reflection of the weakness in the local real estate market that is affecting both banks and savings and loan associations.

The real estate troubles are hurting not only their profits but also the value of their stockholders' investment. In the last week, the stocks of every one of the 10 largest local banking companies have dropped. Hardest hit were Signet and Crestar, which earlier this week disclosed real estate problems.

Even with the big increases in troubled real estate loans, however, Washington-area banks as a group remain among the healthiest in the nation. On average, more than 98 percent of their loans are being paid on time, compared with 14 states with more than 4 percent bad loans and another dozen with troubles in the 2 percent to 3 percent range.

But the local banks' loan problems are growing rapidly because lending money to real estate developers is one of their chief businesses. Developers of office buildings are having trouble finding tenants for their buildings and as a result are unable to keep up payments on their mortgages.

Banks generally are reluctant to foreclose on developers, not only because they do not want to acknowledge having made bad loans, but also because they do not want to be stuck with the costly and difficult job of managing the property themselves.

As a result of the experience with thrifts, banking regulators now are pushing banks and thrifts to move promptly when real estate markets start to soften. Delays in acknowledging real estate losses is one of the chief reasons the S&L crisis grew into a $300 billion financial scandal.

Riggs, the first to issue its quarterly report, said that after the $7.7 million gain on its bond deal, it showed a profit of just over $3 million, or 22 cents for every share of common stock outstanding, down from $10.6 million (77 cents a share) in the year-ago quarter.

The sharp decline came because Riggs set aside $10.6 million as a reserve against possible losses on real estate loans. The bank now has $69 million in loans on which payments are not being made on time -- more than 10 times as much as a year ago. Riggs also has repossessed $38.2 million worth of property from borrowers who could not pay, more than double the $17.7 million in real estate it was carrying a year ago.

In the first half of the year, Riggs also had to write off $4.4 million in loan losses and lost another $1.4 million on the cost of managing its repossessed real estate.

Citing "significant weakness in the commercial real estate market," Riggs warned of "the possibility of further deterioration in commercial real estate."

"Additional provisions {for loan losses} and writedowns beyond normal levels could continue to be necessary and the level of nonperforming assets could continue to rise," the bank's announcement said.

Riggs stock has dropped $1 a share in the last week, to $14.50 from $15.50. The sharpest stock declines were Crestar, to $20.12 1/2 from $23, and Signet, to $19.75 from $23.

.........................JUNE 29......YESTERDAY'S.........52-WEEK HIGH*

...................CLOSING PRICE....CLOSING PRICE

MNC Financial.............$12.75.........$11.50...............$29.31 1/4

Sovran Financial...........29.00..........26.50................43.25

Signet Banking.............23.00..........19.75................43.25

Crestar Financial..........23.00..........20.12 1/2...............34.12 1/2

Dominion Bankshares........14.50..........13.12 1/2...............26.12 1/2

Riggs National.............15.50..........14.50................28.00

Perpetual Financial.........2.18 3/4..........2.00................11.12 1/2

Central Fidelity Banks.....29.50..........27.75................34.62 1/2

First Virginia Banks.......26.00..........25.00................35.62 1/2

Mercantile Bankshares......22.00..........20.25................27.62 1/2

* As of Thursday.