Three executive defections, one angry investor at New York bank
What a difference a few months makes.
Hanover Bancorp in Mineola, N.Y., bought Chinatown Federal Savings Bank in New York last summer. The $862 million-asset company seemed to be in great shape to conduct a long-awaited initial public offering.
Instead, Hanover is embroiled in a bitter dispute with a longtime investor, who recently accused Chairman, President and CEO Michael Puorro of insider dealing and stacking the deck against legitimate management challenges.
Hanover is also engaged in a caustic fight with First Central Savings Bank after filing a lawsuit in Nassau County Supreme Court against three former executives who quit to join the Glen Cove, N.Y., competitor in October. Hanover alleges the trio took proprietary information with them when they left.
Hanover is also trying to remove John Sapanski, the father of one of the three defectors, from its board. Kenneth Sapanski had been Hanover's chief credit officer.
Bankers quitting to join rival institutions is a common occurrence in the industry. Earlier this month, the $2.6 billion-asset Sierra Bancorp in Porterville, Calif., announced that it had hired two teams from neighboring banks.
Liftouts seldom produce this level of acrimony, and Hanover’s disputes threaten to overshadow record profit and plans for an IPO.
A large amount of the angst is tied to the executives' departures.
Joseph Pistilli, First Central's chairman, said the Hanover bankers left because of problems at the bank. The exodus "reflects the ongoing hemorrhaging of top-flight talent from Hanover which has occurred over the past several years,” Pistilli said in a statement.
Pistilli labeled Hanover’s lawsuit “meritless,” and said Puorro “has unnecessarily wasted hundreds of thousands of dollars of his shareholders’ money on expensive attorneys fees in his desperate attempt to hide his responsibility for the flight of these talented professionals and the harm he has done and is doing to his institution.”
Hanover's issues date back to at least June 2018, when Paul Hagan, the company's chief financial officer from 2011 and 2017, called on Hanover to separate the roles of chairman and CEO. Hagan joined the $595 million-asset First Central last June as president and chief operating officer.
Now, Brian Pun, a developer who has been a Hanover shareholder since December 2013, is seeking three seats on Hanover’s board.
“The status quo at Hanover is unacceptable and change at the board level is urgently needed to stop further erosion of shareholder value,” Pun wrote in a letter he sent to Hanover shareholders Monday.
Pun referenced the departed executives as part of a claim that Puorro “is unable to retain talent.” Pun also complained that Puorro received stock options totaling nearly 41,000 shares in both 2018 and 2019, calling the awards “an unprecedented, excessive, and unconscionable amount of equity compensation, particularly given the fact that the shareholders have never received a dividend.”
Puorro responded on Wednesday, noting in a shareholder letter that Pun’s real estate firms have reaped fee income totaling hundreds of thousands of dollars from clients referred by Hanover. Pun and his son “are indebted to the bank for millions” in loans, the letter added.
“Make no mistake, Mr. Pun’s efforts risk the value of your investment and may ultimately deny shareholders a long-awaited" IPO, Puorro added.
Hanover is asking shareholders to re-elect three incumbent directors.
The response ignores Hanover’s corporate governance shortcomings and a lack of coherent strategy, a spokesman for Pun said. He said the comments about Pun's borrower status are "akin to General Motors criticizing one of its shareholders for owning a Chevrolet."
Pun won a small legel victory that forced Hanover to move its annual meeting date from Jan. 30 to Feb. 21.
“Instead of simply ... giving me the right to nominate and let shareholders decide ... I was forced to go to court and litigate the issue,” Pun wrote in his letter.
Hanover is hinging much of its defense on its growth trajectory under Puorro's leadership. The bank had one branch and $54 million in assets when Puorro became CEO in 2012. At the end of 2019, the company had $732 million in loans. Its tangible book value has more than doubled in the last eight years, to $17.48 a share at Dec. 31.
Hanover's earnings jumped in 2018, reflecting aggressive growth in adjustable-rate mortgages.
“Management is focused on positioning Hanover to access the capital markets for the benefit of all shareholders and will not allow false allegations made by those with questionable motives derail Hanover from this course,” Hanover spokeswoman Brandy Bergman said.
Puorro has indicated that Hanover needs to reach $1 billion in assets to successfully pursue an IPO, a threshold that doesn't seem too far off given the company's recent growth spurt.
"We are working hard each and every day to position Hanover for a potential initial public offering," Puorro wrote in his letter.