The owner of the bank is designated as an executive officer and has borrowed money (over $500,000)in the holding companies name and secured it with a personal guarantee.

I am being told that we have a reg o violation, but could resolve this if the personal guarantee is removed?

Can the bank extend credit over the $100,000 to this individual when the loan is set-up in the described manner?

You have two issues. First, the guaranty makes the loan an indirect extension of credit to the EO personally. Second, even without the guaranty you need to be concerned that the proceeds of the loan might be considered as being used for the "tangible economic benefit" of the EO under 12 CFR 215.3(f).

Is this loan unsecured? If so, you have a 23A problem also. See Reg W, 223.14