The bank retains control of the properties and, simultaneous with the sale, entered into long-term operating leases for all of them with ARC. Each lease has a minimum term of 15 years, with options to renew under certain conditions.
Of the $38.2-million net proceeds, Harleysville recorded a gain of approximately $2.3 million or $0.05 per share, which represents a portion of the total gain of $18.9 million. The remaining gain will be deferred and recognized over the 15-year term of the leases. The properties are in Berks, Bucks, Lehigh, Montgomery, Northampton and Carbon counties.
"This strategic initiative enables us to convert a large non-earning asset into an earning asset in the form of loans, providing earnings and increased liquidity," says Paul Geraghty, HNBC's president and CEO, in a statement. In mid-November, HNBC acquired Emmaus-based East Penn Financial Corp. for $85 million, which took its total number of branches to 55.
This marks ARC's first sale-leaseback deal with a financial firm. It follows Jenkintown-based American Financial Realty Trust's release of ARC founder and CEO Nicholas Schorsch's non-compete agreement. Schorsch, a founder and former CEO of AFR, left that firm in August 2006 and subsequently founded ARC. ARC focuses on sale-leasebacks of single-tenant, primarily retail, properties. Schorsch told GlobeSt.com the Harleysville deal is "a perfect diversification under our plan." He also said ARC plans more bank branch deals.
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