Two Minnesota bank holding companies have deferred payments to Uncle Sam, as a growing number of small banks struggle to repay federal bailout money to taxpayers.
Duke Financial Group Inc. of Minneapolis and St. Paul-based Alliance Financial Services Inc. both missed scheduled interest payments on debt they received from the U.S. Treasury under its Troubled Asset Relief Program (TARP), according to data released this week. The banks together received $24 million last year under TARP.
Duke is the parent company of State Bank of New Prague and Peoples Bank of Commerce in Cambridge, while Alliance is the parent of Alliance Bank of Lake City. They did not respond to multiple telephone calls Thursday.
Many of the smaller institutions that took money from the U.S. Treasury have seen their profits and much of their capital wiped out by souring commercial real estate loans.
An analysis by Charlottesville, Va.-based SNL Financial found that 111 of 707 institutions that received TARP funds have missed at least one quarterly payment. Some banks have missed four or five payments.
As a result, taxpayers may be stuck with stakes in banks that can't raise additional capital, analysts said.
"It's a sign of weakness," said Steve Erdall, a consultant and former bank CEO in Edina. "The federal government is not going to crash down on these banks for missing a payment, because the point of TARP was to help them. But these are still tough times for community banks."
It remains unclear why the two Minnesota companies deferred payments. They each received $12 million in subordinated debt under TARP, and each missed its February and May quarterly payments.
