Dive Brief:

• Easthampton, Massachusetts-based Hometown Financial Group, the holding company for bankESB, bankHometown and TruNorth Bank, has entered into a merger agreement to acquire Bedford, New Hampshire-based Primary Bank for $160 million, the banks said Monday.
• The acquisition is set to add four branches to Hometown’s 55-branch footprint and $743 million in assets to Hometown’s $6.9 billion, according to a news release. “This is a low-margin business that requires scale,” Matt Sosik, Hometown’s CEO and chairman, said in an interview. In the “densely populated banking world up here in New England, M&A has to necessarily play a part in achieving that scale.”
• Hometown’s board also adopted a plan to convert its mutual holding company structure to a stock holding company structure. The mutual-to-stock conversion and acquisition are both expected to be completed in the first quarter of 2027.

Dive Insight:

The Primary acquisition is the ninth merger in the past decade for Hometown, with its most recent purchase being CFSB Bancorp last November, according to an investor presentation.

Hometown has already said it plans to merge its three banks into a single charter under the TruNorth Bank name, a move that’s set for August. The company also operates Hometown Mortgage. 

In absorbing Primary, Hometown will have a total of 59 TruNorth Bank locations across Massachusetts, southern New Hampshire, and northeast Connecticut. Primary's branches in Bedford, Derry, Manchester and Nashua, New Hampshire, will operate under the TruNorth Bank name, the banks said.

Sosik, who will also become CEO and chairman of the to-be-unified TruNorth Bank, said Primary is a “really sensible addition to the family,” pointing to the lender’s commercial business strategy and presence in the southern New Hampshire market.

The acquisition allows the lenders to offer customers “the best of both banking worlds: a community bank deeply rooted in the neighborhoods we call home and an institution with the size and scale to deliver a full array of innovative products, services, and technology,” Sosik said in the release. 

Primary, founded in 2015, has $644.6 million in loans and $621.5 million in deposits, according to the investor presentation. 

The commercial bank is largely focused on small business, Small Business Administration and commercial real estate lending. Primary has a 15.7% tangible common equity to tangible assets ratio and a 16.4% tier 1 capital ratio. 

“Primary Bank has achieved tremendous success since opening as a de novo bank, and this partnership represents the next logical step in ensuring our long-term success while continuing to meet customers' evolving needs,” Primary Bank Chairman William Greiner said in the release. “Primary Bank's Board of Directors knew that this day would come and one of the most important decisions was making sure that our merger partner would have the same vision, mission, and culture; we could not have picked a better partner than Hometown Financial.” 

While Hometown has used debt to grow in the past, “achieving scale requires capital,” Sosik said. The mutual-to-stock conversion allows Hometown to acquire Primary at a reasonable price while offering the lender some of the “natural upside” from an initial public offering, he said.

The move “was really one of the key features in us being able to very quickly and efficiently negotiate a deal with the folks at Primary,” he said. 

Under the terms of the deal, for each Primary Bank share, stockholders will receive either $33 in cash or $31 in shares of stock issued by Hometown Financial Group, a newly formed Maryland corporation. Half of the outstanding shares of Primary stock will be converted into the cash consideration and half into the stock consideration, according to the release.

Post-acquisition, Michael Wheeler, current president and CEO of TruNorth Bank, will retain the president title. A few other leadership roles are to be decided, but Sosik noted about two-thirds of Primary’s senior leaders are at retirement age. 

At least one Primary board member will join the combined bank’s board, he said. Primary has about 70 employees and Hometown has about 725 employees; Sosik anticipates some overlap across employee bases, but expects Hometown will be able to offer affected employees other roles where there is redundancy. 

After an acquisitive 10 years for Hometown, Sosik doesn’t anticipate striking another deal in 2027. But there are “obvious opportunities” to fill in coverage gaps in the bank’s New England market, he said, adding, “I'd be lying if I said we don't covet filling in some of those gaps over time.”

It’s something of a seller’s market, and scarcity of core deposits is driving demand higher, Sosik said.  

“There is a lot of demand, and that demand stresses out pricing, so it makes it hard for disciplined prospective buyers,” he said.