Aug. 29--In banking, bad news arrives in the form of a real estate appraisal -- the official word that property securing a loan is shedding value.

The worst appraisals reveal that the borrower is now underwater, owing the bank more money than his subdivision of unsold homes, office building or retail center is worth.

Though that creates problems for the borrower, it can damage the bank immediately.

"The moment that appraisal comes in, we are required to write the loan down," said Brian Roby, chief executive officer of First National Bank of Olathe, "and there's an immediate charge to our earnings."

Essentially every one of the 124 banks operating in the Kansas City area has some exposure to ugly appraisals. But the problem has grown large at 10 area banks and thrifts, an early review of midyear financial reports showed. At these banks, including one of the smallest in the area as well as a $4 billion lender, problem loans and foreclosed properties exceeded the institutions' equity capital.

Six of the 10 banks were not in that condition just three months earlier, a sign that the pressure from property loans continued to mount.

Nationally, banks are suffering more from residential loan problems but face greater pressures next year from commercial real estate loans, according to Sheila Bair, chairwoman of the Federal Deposit Insurance Corp.

The FDIC on Thursday reported that the industry lost $3.7 billion in the second quarter amid the surge in bad loans made to builders, developers and midsize businesses.

Area bankers who have begun to extricate their banks from real estate problems are not counting the battle won.

"This is the time to survive," said Bill Ellwood, CEO of Town and Country Bank in Leawood, which has cut its problems to less than its equity at midyear. "This economy is not out of the woods yet."

Cleanup work

Bankers with greater exposure to the troubled real estate market say they are battling back on two fronts -- reducing problems and boosting capital.

They press more aggressively to collect payments. They push borrowers to pledge more collateral. They pursue personal guarantees on loans.

Bankers admit they are willing to let customers take their loans elsewhere if they can.

"Some are choosing to move it. We let them go," said Mike Balsbaugh, CEO of 1st Financial Bank in Overland Park.

At the same time, savvy borrowers are watching property values, too.

And some are willing to use the banks' difficulty as leverage to negotiate a discounted payoff of loans.