The planned merger of two North Carolina community banks is on hold while authorities investigate stock purchases by one bank's former leader.

Carolina First Bancshares, based in Lincolnton, said last spring it would buy Community Bank and Trust in Marion for $32 million. But the Federal Reserve Board has delayed the purchase while it looks into a charge that D. Mark Boyd 3d, Carolina First's former chairman, began buying Community Bank and Trust shares five months before the deal was announced.

A state grand jury indicted Mr. Boyd in September on securities fraud charges. State investigators said the value of Community Bank and Trust stock tripled when the deal was announced in June after six months of negotiations.

The merger agreement, which was originally set to expire at the end of November, gained state regulatory approval Nov. 12. The Fed has postponed approval until its investigation is complete.

Meanwhile, the two banks have agreed to extend their agreement through yearend.

Though acknowledging he bought shares of $103 million-asset Community Bank and Trust while negotiating to buy the whole bank, Mr. Boyd has said repeatedly that he was assured by attorneys the purchases were legal.

Still, he stepped down from his role at the bank this month.

James E. Burt 3d, who succeeded Mr. Boyd as chairman of $563 million- asset Carolina First, said he is hopeful that the Fed will complete its investigation and allow the deal to close this year. If not, the two banks could further extend their agreement, he added.

Mr. Burt declined to speculate on whether the bank would be held accountable for Mr. Boyd's actions.

Despite the controversy, Community Bank and Trust president Ronnie D. Blanton said he is optimistic that the deal will close.

"We still believe this is an excellent deal for our shareholders," said Mr. Blanton, who would remain with Carolina First as head of a separate Community Bank and Trust subsidiary.

"They get a nice premium and shares of a strong financial company in return."

Separately, Mr. Boyd settled a dispute with North Carolina Gov. Jim Hunt last week by resigning from the state banking commission.

The governor demanded his resignation shortly after the securities fraud charges became public, but Mr. Boyd had insisted he would stay on the commission until he got a chance to clear himself.

Mr. Boyd, who is still a major shareholder of Carolina First, did not return calls made to his other business, a Lincolnton oil company.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.