In her role as the chairman of the Independent Community Bankers of America, Cynthia Blankenship has been pressing the Treasury Department for months to come up with a plan quickly to allow community banks structured as S corporations to receive direct injections of government capital.

But now that the Treasury has released the term sheet for S Corp participation in the Troubled Asset Relief Program, the Texas banker says she is not so sure accepting government funds would be in the best interests of her company, Greater Southwest Bancshares Inc. in Grapevine.

The board will "really have to give it hard thought," said Ms. Blankenship, the vice chairman at the $250 million-asset Greater Southwest. "I don't think we need it — we haven't had any kind of extraordinary event that would give us a reason to take it. But we don't know what the economy is going to do."

The Treasury unveiled the term sheet for S Corps late Wednesday, nearly three months after it began buying preferred bank shares to stabilize the financial markets.

S Corps were excluded at first, because they cannot issue preferred shares. In their case, the Treasury plans to buy senior debt securities, with each note valued at $1,000. The securities will pay a dividend of 7.7% each of the first five years, with the rate jumping to 13.8% afterward. That is higher than the 5% other participants must pay on the preferred shares for the first five years — and 9% after that — but the Treasury said the pricing is comparable on an after-tax basis.

The Treasury would also receive warrants worth 5% of the investment from S Corps, and it plans to exercise them immediately.

Eligible banks have 30 days to apply.

Hundreds of S Corps have filed applications, and many more are likely to do so over the next month. Still, even those that have applied or intend to do so are wary of accepting the capital. They say that it is relatively expensive, and that leveraging it into new loans could be challenge in the current economic climate.

Ms. Blankenship said that S Corps are "thankful to the Treasury and the Congress" for recognizing them, but they are worried about the cost of the capital and the potential strings attached.

For example, Tarp recipients could be required to produce quarterly reports demonstrating how they have used the money.

Bankers are also concerned that Congress could step in and add requirements. A bill House Financial Services Committee Chairman Barney Frank introduced last week could limit the ways they could use the capital, such as banning them from buying healthy institutions.

There are roughly 2,500 S Corps in the United States, or roughly 30% of all banks. With the inclusion of S Corps, 93% of banks now have access to Tarp funds; mutuals are the only ones still without terms. To date the Treasury has doled out $192 billion.

Bankers and other industry experts say the S Corps mostly likely to take the money are those that have an immediately use for it or are in dire need of it. Otherwise, the terms and the cost do not make much sense.

"We wouldn't take it just to take it. There would have to be a compelling reason," John Madden, the president of the $450 million-asset FNBC of La Grange Inc., a two-bank holding company in Illinois, said in an interview Monday. "I think to take them, we would need something like an acquisition opportunity looming, and there is nothing on the horizon right now.

"That would be a reason to do it if [loan] demand was there," he said. "But right now we are not out seeking loans."

Still, Mr. Madden said, his company applied for the Tarp funds last month "to preserve our ability to take the funds in the event we had a use for them."

Another sticking point on the term sheet is the treatment of the 275 S Corp banks that lack a holding company. For them, the capital infusion would be treated as Tier 2 capital, rather than Tier 1, as all other Treasury investments are treated.

Paul Merski, chief economist with the ICBA, said that getting Tarp capital could make it easier for banks to attract investors, and that regulators could create rules that would give that capital better treatment.

"It is an issue, but not an insurmountable obstacle," Mr. Merski said. "We are very confident that the banking regulators are aware of it and will be accommodating in their treatment."

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