Metro Bancorp in Harrisburg, Pa., which has been working to improve profitability in the face of investors' calls for a sale of the company, will have to plow ahead in coming months without its leader.
Gary Nalbandian, the $3 billion-asset company's chairman, president and chief executive, will step aside on March 1 to have coronary bypass surgery. An executive committee will run the bank until Nalbandian, 71, returns during the third quarter.
The veteran banker told employees in a letter included in a Feb. 9 regulatory filing that a blockage was discovered during a routine checkup. "Though I have not felt symptoms and I feel healthy, my physician has advised me that I will need to undergo surgery to resolve the blockage," he wrote.
The reason for the leave is understandable, but the sudden departure comes at a potentially tricky time for Metro. The company, under pressure from three activist investors, launched several initiatives last fall to cut costs and boost returns.
Metro's leadership team led by Chief Financial Officer Mark Zody will be responsible for staying the course, though Nalbandian wrote in his letter that he will regularly consult with the board and management during his recovery. "I want to emphasize that the focus of the entire Metro organization remains on executing our strategies and serving our customers," he said.
Nalbandian's absence shouldn't change the company's outlook, as long as he returns in a reasonable time frame, said Casey Orr, an analyst at Sandler O'Neill.
"It seems pretty clear that management has the full intention of carrying out the plan they laid out last year," Orr said. "Another scenario could play out in the event [Nalbandian] didn't fully return but for now they seem to be sticking with what they'd been planning to do."
The activist investors Basswood Management, Clover Partners and PL Capital have been upset about underperforming metrics such as return on assets and efficiency, expressing a preference that Metro cash out rather than pursue internal improvements.
Management unveiled an efficiency effort in October, delaying branch openings while announcing plans to redeem trust-preferred securities and repurchase stock. Metro also added three independent directors.
Metro's efficiency ratio improved to 67.5% at Dec. 31 from 72.7% a year earlier. Its return on average assets was relatively stable in 2014, ending the year at 0.74%. (Overall profit rose 22% last year compared to 2013, to $21.1 million.)
Still, PL Capital, an aggressive and prolific activist investor that owns 8.8% of Metro's stock, is waging a proxy battle to place two directors on Metro's board. The company typically holds its annual meeting in late May, which would coincide with Nalbandian's leave.
Representatives for PL declined to comment. Basswood Capital did not return a call for comment.
Johnny Guerry, a partner at Clover Partners, said in an interview Tuesday that he was sending his well wishes to Nalbandian, whom he called a "nice guy," though he said Metro's already challenging plan to fix itself could become harder to execute without its leader.
"I'm disheartened to hear about his surgery and wish him nothing but good health and a speedy recovery," he said.
"One of the key players of [Metro's turnaround] is going on medical leave," added Guerry, who has expressed a belief that the company could sell for up to $30 a share, a 16% premium of its Tuesday closing price. "I think it calls into question the ability to successfully execute on that strategy."