Area banks began an expected litany of bad news yesterday with their fourth-quarter results, showing dramatic increases in reserves for problem loans that reflect the real estate downturn.

Two regional banks, Roanoke-based Dominion Bankshares Corp. and the huge Atlanta-based C&S/Sovran Corp., announced that because of real estate problems they had substantially increased their provisions for loan losses.

In addition, several of the nation's largest banks, including Citicorp, Security Pacific Corp., Chemical Banking Corp. and Manufacturers Hanover Corp., reported lower fourth-quarter earnings, most of them citing losses from commercial real estate loans.

Several of the big banks also reported that they would pay lower quarterly dividends to shareholders in light of worsening earnings.

Dominion added $54 million to its reserve for loan losses, bringing it to $233 million in the fourth quarter. Its reserves now cover 90 percent of nonperforming loans, those that are not paying interest.

C&S/Sovran added $237.5 million to its loan-loss reserve in the fourth quarter, bringing its reserves for 1990 to $651.7 million. It attributed the increase, which it predicted a month ago, to the deterioration in the real estate market, particularly in the Washington area.

"We believe 1991 will be another difficult year for our industry and our plans reflect that concern," said Bennett A. Brown, chairman of the bank, which was created by the September merger of Norfolk's Sovran Financial Corp. and Atlanta's Citizens and Southern Corp.

Bank analysts said that the reports are just the beginning of the grave news as banks try to put as many of their problem loans as possible behind them in the fourth quarter of 1990 rather than carrying them into this year.

While analysts said the moves by both banks to set aside reserves for possible loan losses were aggressive and prudent, they added that the amounts were staggering.

Tony Davis, an analyst at Wheat First Securities Inc. in Richmond, said that the numbers reflect a continuing weakness in the Washington area real estate market. Dominion "has half a billion dollars in commercial real estate loans in Northern Virginia. ... If the market is that weak, they need to deal with it.

"The degree of weakness in commercial real estate in Washington is still alarming," Davis added. "There is just no liquidity. Just none. It's in a death spiral."

Arnold Danielson of the bank consulting firm Danielson & Associates in Rockville said the reports for both banks represent "manageable reverses. ... It's not pleasant news, but in view of what's happening in the Northeast, I expect to see a lot worse from other people."

Other banks, such as Riggs National Corp., MNC Financial Corp., Crestar Financial Corp. and Signet Bank, have much more invested in the local real estate economy, Danielson said.

In the case of Dominion, the increase in bad loans wiped out the bank's earnings and resulted in a fourth-quarter loss of $29 million (77 cents per share), compared with earnings of $24 million (62 cents) for the same quarter last year. For the year, its loss was $37 million ($1.02), compared with income of $94 million ($2.45) in 1989.

C&S/Sovran reported earnings of $7 million (1 cent) for the quarter, compared with $132 million (96 cents) in the last quarter of 1989 (using the combined pre-merger results of the two institutions). For the year, the bank holding company reported earnings of $229 million ($1.60), compared with $507 million ($3.67) in 1989.

In other local reports, First Maryland Bancorp, Baltimore-based parent of First National Bank of Maryland, said it earned $1.5 million in the fourth quarter, compared with $22.7 million a year earlier. Earnings for the year were $43.5 million, down from $73.4 million in 1989.

Among the big national banks, Citicorp, the nation's largest banking company, reported a fourth-quarter loss of $382 million and put aside $490 million to cover bad commercial and consumer loans.

For the year, Citicorp reported a profit of $458 million (99 cents), compared with a 1989 profit of $498 million ($1.16). The bank's board of directors also voted to sharply cut its quarterly dividend on common stock 43.8 percent to 25 cents per share.

After setting aside $353 million in the fourth quarter to cover possible loan losses, Manufacturers Hanover Corp. reported a $67 million loss, compared with a 1989 fourth-quarter profit of $62 million. For 1990, it earned $139 million, or $1.27 a share, compared with a 1989 loss of $588 million ($10.21). The bank's board recommended cutting its first-quarter dividend to stockholders by 43 percent to 47 cents per share.