Banks based in North Carolina have accepted more money from the Treasury Department’s rescue package than financial institutions in any state except New York, the nation’s financial capital.

With President Barack Obama promising to reshape the $700 billion Troubled Assets Relief Program before distributing the second half of the funding, details are emerging about how North Carolina banks are using the money received in the first round of payouts.

Since the program’s creation last fall, 20 North Carolina-based banks have accepted a total of $48.6 billion through TARP. The vast majority — $45 billion — went to Bank of America in Charlotte, the nation’s largest bank. The remaining funds went to institutions across North Carolina.

The TARP program was designed to loosen frozen credit markets that made it difficult for consumers and businesses to obtain loans.

Some North Carolina banking executives said in interviews this week they used the funds to increase lending. Others also funded acquisitions of other banks or used the extra cash to shore up capital reserves, uses that were not specifically prohibited by Treasury and in some cases were encouraged by Bush administration officials.

Republican and Democratic members of Congress and Obama have criticized the way the Bush administration handled the program. Obama has promised major changes when the $350 billion left under the program is distributed.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services committee, and other critics have complained about the low level of disclosure required of banks on how they use the money.

And he and others have accused Bush administration Treasury officials and some banks that received TARP funds of “distorting” the intent of the legislation by using the government money to buy other banks, pay out lavish bonuses and buy private jets — any use other than making loans.

Several North Carolina CEOs said that despite the push by the government to increase lending, the poor economy makes it difficult to find people and businesses who want to risk their current financial status for loans. The smaller pool of potential borrowers also was less likely to meet more rigorous lending standards that have came about over the last year.

“Not as many people are borrowing right now. They’re drawing back in and waiting for a turn in optimism before going forward with their plans,” said Scott Bauer, the chairman and chief executive of Southern Community Financial Corp. in Winston-Salem.

The bank received $42.8 million in December. Bauer said he plans to leverage it — borrow against it to bring in more capital — to make more loans. He said the bank has not ruled out using the money to “assume the assets of banks that might not make it.”

“We feel we have a fiduciary responsibility to use these funds prudently,” Bauer said.

Yadkin Valley Financial Corp. CEO Bill Long said that the bank is putting half the $36 million it received in January toward its $92 million cash and stock purchase of American Community Bancshares Inc. of Charlotte, a deal announced in September.

Long said the move made financial sense because it meant the Elkin bank would not have to borrow as much to finance the deal.

As for the rest, “Our goal with the money is to use it for growth in the communities we serve, such as loan growth,” he said. “It’s hard to determine where each dollar of that capital purchase is going since we just received the money on Jan. 23.”

Ted Ashby, CEO of Surrey Bank & Trust in Mount Airy, said his bank’s loan volume has increased over the last three months. He attributed the spike in part to new customers since the demise of some specialty lenders — those that focused on the trucking industry, for example. The bank received $2 million in January.

Ashby said tight credit markets have made it difficult to sell some loans to larger lenders. That forced the bank to keep more loans on its books, which requires larger capital reserves.

Like other North Carolina TARP beneficiaries, his bank was well capitalized before the government money arrived, Ashby said.

“In tough times like this, I’m not sure you can have too much capital,” Ashby said.

Other community banks said they had seen a spike in lending demand as interest rates have fallen, especially mortgage refinancing.

Roger Dick, president and CEO of Uwharrie Capital Corp. in Albemarle, said he expects to close over 125 single-family home loans in January, almost triple the volume in an average month. The company, which operates community banks in several counties, received $10 million in December. Dick said the bank could leverage it to make 10 times that amount in loans.

“The Catch 22 is that there’s not always good loan demand out there. People say, `loan this money right away.’ My response is to say, ‘be patient and let us do it in a prudent way.’ If not, it could cause more problems,” Dick said.

But, he said, “We’re doing what I think we’re supposed to be doing with the money, loaning it back to our community.”

Several large banks have been criticized for paying hefty bonuses to executives while staying silent about their lending activities.

When asking Congress to release the rest of the TARP funds, the Obama economic team indicated it would force greater disclosure about lending activities, limit purchases of other banks by recipients and impose stricter limits on executive compensation. The coming changes prompted some executives who received funding under the old rules to step up lending disclosure.

Bank of America said Wednesday that it would begin publishing tracking reports on its lending activities.

The Breakdown

State …………………..Sum received from Troubled Assets Relief Program

NY …………………$145.16 Billion

NC …………………… 48.55 Billion

CA …………………..27.37 Billion

MI …………………..21.18 Billion

PA ……………………. 8.77 Billion

OH ……………………..7.72 Billion

MN ……………………….7.00 Billion

GA ……………………..6.14 Billion

VA ……………………..4.04 Billion

AL ……………………..3.63 Billion

Source: Media General analysis of U.S. Treasury Department data