Banks will likely end up taking losses on a large portion or all of the $19.2 million in unsecured and under-secured loans made to long-time Sonoma County real estate investor Clem Carinalli.

Nine of the 14 financial institutions named in the recent U.S. Bankruptcy Court filings have unsecured loans and three are headquartered locally.

Mr. Carinalli was forced into bankruptcy because some creditors were upset about the order in which $165 million in debts were being paid.

The bankruptcy court will structure the repayment schedule. One banking industry veteran said the greatest fear would be a liquidation of all the assets, which would flood an already struggling market with properties.

Experts said the hope is that the assets will be handled in an orderly fashion.

Sonoma Bank, which Mr. Carinalli helped found and is now a division of Sterling Financial Corp. headquartered in Spokane, Wash., has the largest unsecured loan at $5 million.

North Valley Bank, headquartered in Redding with a branch in Santa Rosa, has $3 million unsecured.

Summit State Bank of Santa Rosa is owed $2 million.

North Coast Bank, headquartered in Rancho Cordova with a branch in Santa Rosa, is owed just under $2 million.

Westamerica based in San Rafael and Luther Burbank Savings in Santa Rosa made secured loans. However, as values have dropped on the properties, a portion of those loans is now unsecured.

Luther Burbank Savings’ unsecured portion totals $1.1 million.

Exchange Bank has a secured loan, the amount of which has not been disclosed.

The conservative thing for a bank to do would be to completely charge off the loans, said an industry expert.

This means for a bank that is owed $2 million, that amount will come out of loan loss reserves, a sort of savings account banks have set aside to deal with problem loans. Most banks have in the range of 1.25 to 3 percent of outstanding loans in reserve funds.

Whatever is taken out of the reserve will have to be replenished.

For a small bank, the impact could be great, and the choice as to when to replenish the loan loss reserves will be a more significant decision than to a large bank.

Banking industry executives said there is always a risk of loss when lending against real estate, especially in the current severe downturn.

“We all have our people like him,” one executive said.

Bill Schrader, president of Exchange Bank, said it is important to keep the loans in the perspective of the time period they were made versus market conditions today.

“Banks looked at his assets, his payment history, his reputation and it all combined at that point to make it seem reasonable to extend a line of unsecured credit,” Mr. Schrader said.

And just because a loan is secured does not mean an institution will not incur a loss. Even properties with a strong income stream will be valued much lower today because of the downturn of the market, he said.

Submit items for this column to Jenna V. Loceff at jloceff@busjrnl.com, 707-521-4259 or fax 707-521-5292.