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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
AMENDMENT NO. )
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[X] Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12
GOLDEN ISLES FINANCIAL HOLDINGS, INC.
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(Name of Registrant as Specified In Its Charter)
Gregory S. Junkin, Paul D. Lockyer, Scott A. Junkin
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(Name of Person(s) Filing Proxy Statement)
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TO: My Fellow Shareholders
DATE: November 14, 1996
By now you should have received Mr. J. Thomas Whelchel's letter of October
25, 1996 regarding the removal of Mr. Paul D. Lockyer and me as the senior
management of Golden Isles Financial Holdings, Inc. (the "Company").
It is necessary to respond to Mr. Whelchel's letter for at least two
reasons. First, Mr. Whelchel's letter creates the impression that Mr. Lockyer
and I have done something illegal or improper in managing the affairs of the
Company. This impression is false and misleading, without any foundation
whatsoever. Through my attorneys, I have informed Mr. Whelchel that I consider
his letter libelous and I have demanded a written apology and that a retraction
be sent to all shareholders. Mr. Whelchel has not yet responded.
Second, Mr. Whelchel is proposing in his letter to make a very significant
change in the Company's goals and operations, a change that I believe could
reduce the Company's prospects for growth, increase the riskiness of its
operations, and ultimately jeopardize its profitability. Every shareholder
should be aware of the business implications of Mr. Whelchel's letter.
Specifically, Mr. Whelchel is proposing to limit the Company's mission to
providing banking and financial services in local communities, presumably in the
Glynn County area. Although Mr. Whelchel has been a director almost since the
inception of the Company, he seems unaware that the Company's mission was never
to be solely a community bank. As stated in our 1994 prospectus (the basis on
which many of you invested), the Company was formed with the purpose of becoming
a diversified financial services company operating in Georgia, other sections of
the Southeast, and in other geographic areas offering attractive opportunities.
The Company's business plan has always been to establish a commercial banking
business and then expand into other financial services businesses that are less
intensively regulated and potentially more profitable than banking, and that add
income streams and cross-selling opportunities to the Company.
If the Company abandons this business plan (which has served the Company
well, as reflected in Mr. Whelchel's discussion of the Company's good overall
financial position) and focuses only on local communities, the Company will be
foregoing the opportunity to grow and diversify its operations beyond the
expected needs of Glynn County. Without greater geographic scope, the Company
will be more vulnerable to adverse economic developments in its home area. Such
a limited scope may also force the Company to limit the range of services it
might otherwise offer, which would increase its exposure to its core business of
community banking.
While under management by Paul Lockyer and me, the Company sought to avoid
these risks through a plan of geographic and product expansion, including the
start-up of mortgage banking and consumer finance subsidiaries. In the course of
implementing the Company's long-standing business plan, Mr. Lockyer and I
oversaw the Company's growth from total assets of only $13.1 million on December
31, 1990 to total assets of $108 million on August 31, 1996, representing an
eight-fold increase in just five and one-half years. The consumer finance unit
appears to be achieving our forecasts of the past year, which called for it to
be operating profitably by the fourth quarter of 1996. Mr. Whelchel has
acknowledged the improving performance of this unit. Although the mortgage
banking unit has incurred some losses, the unit appeared to be at the point of
operating profitably as of October 17, 1996 (the date of the Board's action
concerning Paul and me). Overall, the Company is in a good position to realize
on its investment in the start-up costs of the consumer finance and mortgage
banking units. This opportunity may be greatly diminished if the Company adopts
Mr. Whelchel's plan for a more limited, community-based focus, or if the
professional management recruited to the Company over the past year, at
considerable Company expense and time, choose to resign because of their lack of
confidence in the interim management.
Mr. Whelchel attempts to defend his proposal for a fundamental change in
the Company's business plan by saying it is a return to the Company's "original
mission." This is incorrect, as noted above. Mr. Whelchel also contends that the
Company must change its direction because there are excessive losses in the
mortgage
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banking unit that need to be "examined", and there are excessive costs at the
holding company level. I believe Mr. Whelchel is wrong on both counts.
Mr. Whelchel's letter fails to describe the full circumstances surrounding
the mortgage banking unit. First, Mr. Whelchel has greatly overstated the amount
of losses incurred with respect to mortgage banking during 1996. The $400,000
operating loss cited by Mr. Whelchel completely ignores the fact that the
mortgage banking unit also generated approximately $300,000 in net interest
income for our Bank. This income reduces the 1996 loss through August to
approximately $100,000, on a consolidated basis. Second, Mr. Whelchel has failed
to disclose that, prior to October 17, the problems in the mortgage banking unit
had already been "examined" -- by the previous management team -- and decisive
action had already been taken -- again by the previous management team -- to
correct those problems.
In fact, Paul Lockyer and I recognized the losses in the mortgage banking
unit months ago. We proposed and obtained unanimous Board approval for a
restructuring plan in September and immediately thereafter cut costs, reduced
personnel and terminated the warehouse lending operation, which was a major
source of the problem. In September, we projected that the mortgage banking unit
would begin operating profitably (exclusive of restructuring costs) in the
fourth quarter of 1996. As noted above, the information available to me confirms
that this was indeed happening. By the time of the Board's action on October 17,
the unit's production volume met the projections set forth in the restructuring
plan and the unit seemed likely to meet our projections for the fourth quarter.
However, as a result of the recent turmoil, it is difficult to expect
employees and customers to continue to respond in the positive fashion we were
experiencing prior to October 17. It is my opinion that as a result of the
precipitous action of the Board on that date, we can anticipate the mortgage
banking unit's losing money in the fourth quarter, rather than breaking even or
making a profit. Employee morale is extremely low, with employees fearful that
the mortgage banking unit will be eliminated altogether and they will lose their
jobs. In addition, I understand that the Company has begun to lose business as
competitors suggest to customers and prospects that our mortgage banking unit is
going out of business.
As for costs at the holding company level, Mr. Whelchel again has not
described the full circumstances. A large percentage of the $960,000 in
annualized costs for 1996 consists of interest expense incurred by the holding
company to help finance the operating units. The operating units reimburse the
holding company for a portion of this expense, providing the holding company
with interest income. Based on unaudited numbers through August 31, 1996, the
holding company can expect annualized interest income for 1996 of approximately
$265,000. This interest income offsets approximately 27.5% of the holding
company expenses identified by Mr. Whelchel. If the annualized interest income
to the holding company is deducted from Mr. Whelchel's 1996 annualized figures,
then the net annualized expenses for 1996 are only $695,000. While it is correct
that non-interest expenses at the holding company increased significantly during
the twelve months ending August 31, 1996 (by approximately 31%), the Company's
assets grew during the same period from approximately $70.9 million to $108
million -- a growth of about 52%.
The growth in non-interest expense at the holding company level has come in
large part from additions to personnel. In criticizing the growth of these
expenses, Mr. Whelchel ignores the fact that a business is not as likely to grow
successfully unless it attracts and retains first quality professional staff. To
service the needs of our three growing subsidiaries, the previous management
team felt it prudent to add a professional staff member in each of the following
areas where we previously did not have a single dedicated staff member at any
level in the organization: human resources, information systems, internal audit
and compliance. Such personnel were hired at the holding company level because
that was obviously more cost-effective than hiring staff in each of these areas
for each subsidiary. Mr. Whelchel's implicit complaint about these personnel
expenses seems to suggest that either he would prefer the Company to take the
less cost-effective approach and hire professional staff at each subsidiary, or
he would have the Company do without management expertise in these areas
altogether. Neither approach makes sense to me. Mr. Whelchel's failure to
recognize these considerations is disturbing, and has apparently led him to the
conclusion that costs must be cut by reducing management personnel -- to the
point that I am concerned the Company could be left without the
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experienced industry professionals needed to guide it. This would be a dangerous
state of affairs for the Company.
As many of you know, I am one of the Company's founders, the second largest
shareholder and continue to be a director. I personally raised a large portion
of the Company's capital. There can be no doubt that I have a significant
continuing stake in the Company's welfare. I believe Mr. Whelchel's plan to
limit the Company to a community focus is riskier and offers less growth and
profit potential than continued pursuit of a full service regional financial
services business. Mr. Whelchel's letter of October 25 suggests to me that he
does not fully appreciate the complexities of the Company's business,
notwithstanding the frequent Board meetings (25 days of meetings in the last 24
months alone) at which previous management kept the Board fully informed about
the Company's activities and position. Mr. Whelchel's letter has not been
totally candid about the situation at the mortgage banking unit, nor about the
level of holding company expenses. In my view, his plan merely to "evaluate" the
situation for an unspecified period of time threatens to disrupt the Company's
relationships with its customers, employees and financing sources. If the
Company adopts Mr. Whelchel's proposal, it will abandon a promising strategy for
maximizing long term shareholder value. Every shareholder should be deeply
concerned about such a prospect.
For the reasons outlined above, as well as many others not mentioned in
this letter, I feel a very strong obligation to make my views known regarding
this potentially disastrous situation. If you share my concerns, you may wish to
contact the Board directly. I am presently considering what additional action I
may take. On the advice of counsel, I am also filing with the U.S. Securities
and Exchange Commission certain forms that may be required under the federal
securities laws, specifically a Schedule 13D and certain information required
under Regulation 14A, regarding, among other things, my current intentions in
this matter.
Sincerely,
Gregory S. Junkin
cc: Bruce N. Hawthorne, Esq.
M. Robert Thornton, Esq.
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NOTICE
This communication has been provided by Gregory S. Junkin, a director of
the Company and a beneficial owner (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of 105,653 shares of Common Stock
of the Company (including shares that may be acquired pursuant to warrants or
options).
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