Several large banks have talked about it, but a handful of smaller institutions have become the first to return a combined $338 million in government capital received through the ever-evolving Troubled Asset Relief Program.

Signature Bank (SBNY), Old National Bancorp (ONB), Iberiabank Corp. (IBKC) and the Bank of Marin Bancorp (BMRC) this week announced they have returned funds received through the TARP to the U.S. Treasury.

"At the end of the day, we really didn't need the money," said Bob Jones, president and chief executive of Old National.

Speaking at a recent event to donate used suits to the needy, Jones said the first question he was asked if his company's contributions were in any way supported with TARP dollars. "We figured if we don't need it and if our community members and customers don't like us having it, the best thing we can do is return it," he said of the money.

As the public perception of the program has soured, a handful of other banks - Shore Bancshares Inc. (SHBI), TCF Financial Corp. (TCB), Sun Bancorp Inc. (SNBC) and Centra Financial Holdings have announced they too have filed the necessary paperwork to begin repaying Treasury.

Sun Bancorp on Wednesday said it has received approval to return its $89.3 million in TARP funds next week.

The returns come as the government is becoming increasingly involved in the affairs of private-sector firms it has assisted - ousting General Motors (GM) chief Rick Wagoner and taking steps to stringently limit executive compensation and chastise commonplace business practices.

Signature Bank cited a desire to retain "highly talented banking professionals" as its main motivation to return $120 million in funds it received. Iberiabank executives said they felt their TARP money was placing them at a "competitive disadvantage."

Bank of Marin President and CEO Russ Colombo said his bank exited the program because of its dividend restrictions, compensation limits, continuously changing rules and a provision that could have allowed for government officials to sit on the company's board.

"We didn't think that it was appropriate for a federal regulator to be put on a public company's board," he said.

Additionally, penalizing employees by limiting compensation and investors by limiting dividends seemed like punitive actions for a healthy bank to undertake, he said.

Some have expressed fear that a return of government capital could hamper lending, but Colombo said he doesn't expect his bank's lending activity to be suppressed.

In the month after receiving $28 billion in TARP capital, Bank of Marin made $27 million in loans, he said. "We're real focused on communities and markets we serve."

The Treasury, which began funneling capital to banks in October, expects financial institutions will return $25 billion - 10% of the amount originally expected to go toward its bank-recapitalization effort. Treasury this week said it now expects to spend just $218 billion on recapitalizing financial institutions, down from the previous estimate of $250 billion.

While several institutions - including giants like Goldman Sachs Group Inc. (GS) and JPMorgan Chase (JPM) - have indicated they too want to return the government's money, it's unclear how many institutions will ultimately follow through.

"The $25 billion estimate almost certainly has to include one of the larger institutions returning funds," said Rob Klinger, a banking lawyer with Bryan Cave LLP in Atlanta. Otherwise it would take "a whole lot of banks giving back $100 million to get to the $25 billion figure."

Goldman's president and co-chief operating officer Gary Cohn said last week that the return of TARP funds by his institution hadn't yet become a "real topic of conversation" with regulators. Goldman has received $10 billion in direct aid from the Treasury.

Although it has gotten easier for banks to return the government's funds, regulators must still approve the transactions to ensure institutions maintain adequate capital levels. The nation's 19 largest banks must first emerge healthily from government stress tests, due to be completed this month, before they can return funds.

Any funds returned to the Treasury can be used to provide capital for other institutions, however, one congresswoman is pushing for the money to be redirected toward foreclosure-prevention efforts.

"I want to ensure that the federal government devotes as many resources as possible to help the housing crisis," Rep. Doris Matsui, D-Calif., said. "If banks want to voluntarily return TARP funds, then that money should go to help responsible homeowners keep their homes in areas severely affected by the foreclosure crisis."

-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com