Winchester Bancorp, Inc./MD/

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements of Winchester Savings Bank (the "Bank") have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim information. Accordingly, they do not include all the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and result of operations for the periods have been included.

For additional information and disclosures required under U.S. GAAP, refer to the Bank's Consolidated Financial Statements for the year ended June 30, 2024.

Certain previously reported amounts have been reclassified to conform with current period's presentation.

Basis of consolidation and presentation

The consolidated financial statements include the accounts of the Bank and its wholly owned subsidiaries, Sachem Holdings, Inc., Aberjona Holdings, Inc., 1871 Company, LLC, and Wedgemere Holdings, LLC. Sachem Holdings, Inc. and Aberjona Holdings, Inc. function as Massachusetts security corporations. 1871 Company, LLC's principal activity is holding of bank premises. Wedgemere Holdings, LLC's principal activity is the holding of properties acquired in settlement of loans. All significant intercompany balances and transactions have been eliminated in consolidation. 611 Main Street Corporation, a previously inactive subsidiary, has been dissolved.

Business

The Bank provides a variety of financial services to individuals and small businesses through its offices in Winchester, Woburn, Danvers and Arlington, Massachusetts. Its primary deposit products are checking, savings and term certificate accounts and its primary lending products are residential and commercial real estate loans.

Reorganization

On December 4, 2024, The Board of Trustees of the Bank adopted a plan of reorganization from a Mutual Savings Bank to a Mutual Holding Company and Plan of Stock Issuance (the "Plan"). The Plan is subject to the approval of the Federal Deposit Insurance Corporation and the Massachusetts Division of Banks, and the reorganization must also be approved by the Board of Governors of the Federal Reserve System. Pursuant to the Plan, the Bank proposes to reorganize into a mutual holding company form of ownership. The Bank will become a stock savings bank and issue all its outstanding stock to a new holding company, which will be named Winchester Bancorp, Inc. Pursuant to the Plan, the new holding company will sell stock to the public, with the total offering value and number of shares of common stock based on an independent appraiser's valuation. Winchester Bancorp, Inc. will be organized as a corporation under the laws of the State of Maryland and will offer 45% of its common stock to be outstanding to the Bank's eligible depositors, the Bank's employee stock ownership plan being formed in connection with the organization, a charitable foundation and certain other persons. Winchester Bancorp, MHC will be organized as a mutual holding company under the laws of the Commonwealth of Massachusetts and will own 55% of the common stock of Winchester Bancorp, Inc. to be outstanding upon completion of the reorganization and stock issuance.

The cost of reorganization and stock issuance will be deferred and deducted from the sales proceeds of the offering. As of March 31, 2025, $1.4 million of reorganization costs had been incurred.

On April 30, 2025, the Bank completed the transactions contemplated by the Plan, including the sale of 3,997,012 shares of common stock in the stock offering at a per share price of $10.00 per share. As a result of the reorganization, the Company has 9,295,376 shares of common stock outstanding.

Use of estimates

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and post-retirement benefit liabilities.

Fair value hierarchy

The Bank groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Defined benefit pension plan investments in hedge funds are measured using the net asset value per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.

Accrued Interest Receivable

The Bank elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Bank believes the collection of interest is doubtful. The Bank has concluded that this policy results in the timely reversal of uncollectible interest.

Allowance for Credit Losses-Loans

Prior to July 1, 2023, the allowance for loan losses was based on an incurred loss methodology and represented the estimate of the risk of loss inherent in the loan portfolio as of the balance sheet date. Effective July 1, 2023, the allowance for credit losses is based on the Current Expected Credit Loss (CECL) methodology.

The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Such allowance is based on losses expected to arise over the life of the asset (contractual term). The allowance for credit losses on loans is established through a provision for credit losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for credit losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Collectively evaluated loans

The Bank measures the allowance for credit losses using the Scaled CECL Allowance for Losses Estimator (“SCALE”) method, which is a simple, spreadsheet-based method developed by the Federal Reserve to assist community banks in calculating a CECL compliant allowance for credit losses using proxy expected lifetime loss rates. The SCALE tool is a template designed for smaller community banks with total assets of less than $1 billion. It uses publicly available data from Schedule RI-C of the Call Report to derive the initial proxy lifetime loss rates. Management used judgment to further adjust theproxy expected lifetime loss rates with qualitative factors to reflect the facts and circumstances of the Bank’s internal loss history and credit risk factors for each loan segment. The allowance for credit losses is measured on a collective (pool) basis when similar characteristics exist. The Bank segmented its loan portfolio to correspond to call report classification to make peer data more useful.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate – The Bank generally does not originate loans with a loan-to-value ratio greater than 80% at origination and does not generally grant loans that would be classified as subprime upon origination. The Bank generally has 1 st and 2 nd liens on property securing equity lines of credit. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Commercial real estate – Loans in this segment are primarily income-producing properties. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, could have an effect on the credit quality in this segment. Management obtains rent rolls annually and continually monitors the cash flows of these loans.

Commercial – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, could have an effect on the credit quality in this segment.

Construction – Loans in this segment include both owner-occupied and speculative real estate development loans for which payment is derived from sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Consumer – Loans in this segment include loans secured by personal property or savings and unsecured loans. Repayment is dependent on the credit quality of the individual borrower.

Individually Evaluated Loans

Loans that do not share risk characteristics are evaluated on an individual loan basis. Loans evaluated individually are not also included in the collective evaluation. For loans that are collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Unallocated component

An unallocated component may be maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated portion of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating collectively and individually evaluated loans in the portfolio.

Allowance for Credit Losses- Off-Balance Sheet Credit Exposures

The Bank has off-balance sheet financial instruments, which include commitments to extend credit, standby letters of credit and commercial letters of credit. The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Bank.

The Bank’s allowance for credit losses on off-balance sheet credit exposures is recognized as a liability in accrued expenses and other liabilities on the consolidated balance sheets, with adjustments to the reserve recognized in the provision for credit losses in the consolidated statements of operations. The estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments, for the risk of loss, and current conditions and expectations. Management periodically reviews and updates the assumptions.

Recent accounting pronouncements

Management has not identified any Accounting Standards Updates that have been issued but are not yet effective and could have a significant impact on the Bank’s financial reporting or disclosure requirements.

RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

From time to time, the Bank is required to maintain average balances on hand or with the Federal Reserve Bank. There wereno required reserve balances at March 31, 2025 and June 30, 2024.

SECURITIES

The amortized cost and fair value of available for sale and held to maturity securities, at March 31, 2025 and June 30, 2024, with gross unrealized gains and losses, follows:

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2025 are shown as follows. Expected maturities may differ from contractual maturities because the issuers, in certain instances, have the right to call or prepay obligations with or without call or prepayment penalties.

There wereno realized losses on securities for the three ornine months ended March 31, 2025, and for the three months ended March 31, 2024. During the nine months ended March 31, 2024, the Bank realized $33,000 of losses on sales of securities available for sale.

Allowance for Credit Losses-Securities

Availablefor sale (AFS) and held to maturity (HTM) securities, which are issued by the United States Treasury or are guaranteed by government agencies do not currently have an allowance for credit loss as the Bank determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Bank’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Bank’s investments. The Bank will evaluate this position no less than annually, however, certain items which may cause the Bank to change this methodology include legislative changes that reduce or eliminate the U.S. government’s implicit guarantee on such securities. Any expected credit losses would be presented as an allowance for credit loss. For corporate and municipal bonds, whether they are AFS or HTM, a probability of default and a loss given default analysis is performed to determine whether an allowance for credit losses is needed. There wasno allowance for credit losses established on AFS or HTM securities during thenine months ended March 31, 2025.

Information pertaining to securities with gross unrealized losses at March 31, 2025 and June 30, 2024, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

The Bank monitors the credit quality of securities through the use of credit ratings. Management evaluates debt securities for impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation.

At March 31, 2025,139 debt securities have unrealized losses with aggregate depreciation of 5.28% of the Bank’s amortized cost basis. The decline in market value is attributable to changes in interest rates and not to credit quality, and the Bank currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of the investments. Therefore, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the Bank does not intend to sell the securities and it is not “more likely than not” that the Bank will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Bank does not consider these securities to be impaired at March 31, 2025.

Accrued Interest Receivable

There wereno write offs during thenine months ended March 31, 2025 and the year ended June 30, 2024. The balance of accrued interest receivable on investments was $695,000 and $813,000 at March 31, 2025 and June 30, 2024, respectively.

Marketable equity securities

At March 31, 2025, marketable equity securities include common stock securities in industry sectors related to technology, consumer staples, financial services, aerospace and other. Net realized and unrealized gains (losses) recognized in earnings during the three months ended March 31, 2025 and 2024 were ($71,000) and $219,000, respectively. Net realized and unrealized gains recognized in earnings during thenine months ended March 31, 2025 and 2024 were $152,000 and $292,000, respectively. As of March 31, 2025 and June 30, 2024, the net unrealized gain on marketable equity securities was $1.2 million and $1.1 million, respectively.

LOANS

A summary of the balances of loans follows:

The Bank has sold mortgage loans in the secondary mortgage market and has retained the servicing responsibility and receives fees for the services provided. Total loans serviced for others at March 31, 2025 and June 30, 2024 amounted to $22.8 million and $24.8 million, respectively, and are not included on the accompanying consolidated balance sheets.

Activity in the allowance for credit losses, by segment, for thethree months ended March 31, 2025 follows:

Activity in the allowance for credit losses for the nine months ended March 31, 2025 follows:

The increase in the allowance for credit losses during the nine months ended March 31, 2025 was due to overall growth in the loan portfolio and charge offs.

The allowance for credit losses, by loan segment, at March 31, 2025 and June 30, 2024 follows:

Activity in the allowance for credit losses, by segment, for the three months ended March 31, 2024 follows:

Activity in the allowance for credit losses for the nine months ended March 31, 2024 follows:

The decrease in the allowance for credit losses on loans during the nine months ended March 31, 2024 was primarily due to the adoption of ASU 201-13. The increase in the allowance for credit losses on off balance sheet credit exposures was primarily due to the adoption of ASU 2016-13.

The following is a summary of past due and non-accrual loans at March 31, 2025 and June 30, 2024:

There areno loans greater than 90 days past due and still accruing at March 31, 2025 and June 30, 2024. The balance of accrued interest receivable on loans was $2.4 million at each of March 31, 2025 and June 30, 2024. There was $30,000 of accrued interest reversed on non-accrual loans during thenine months ended March 31, 2025. There wasno accrued interest reversed during thenine months ended March 31, 2024.

No additional funds are committed to be advanced in connection with the individually evaluated loans. There were no loan modifications to borrowers experiencing financial difficulty during the nine months ended March 31, 2025 and year ended June 30, 2024.

Credit quality information

The Bank has a ten-grade internal loan rating system for commercial real estate, multi-family, commercial, and construction loans as follows:

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Loans rated in the first six grades 1-6 are considered “pass” rated loans with low to average risk.

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Loans rated 7 are considered “watch.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

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Loans rated 8 are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected.

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Loans rated 9 are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable.

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Loans rated 10 are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

On a periodic basis, management formally reviews the ratings on all commercial real estate, multi-family, commercial, and construction loans. Annually, the Bank engages an independent third party to review a significant portion of the loans within these segments. Management uses the results of these reviews as part of its internal review process.

Credit quality for residential real estate, home equity loans and lines-of-credit, and consumer loans is determined by monitoring delinquency reports and loan payment history, and through on-going communication with customers.

The following table presents the Bank’s risk rated loans by year of origination and gross write-offs for thenine months ended March 31, 2025:

The following table presents the Bank’s risk rated loans by year of origination and gross write-offs for June 30, 2024:

5. MINIMUM REGULATORY CAPITAL REQUIREMENTS

Effective January 1, 2020, the Bank elected to comply with the community bank leverage ratio framework issued by the federal banking agencies. The framework provides for a simple measure of capital adequacy, calculated as Tier 1 capital divided by average total consolidated assets, which is consistent with how the Bank currently calculates its leverage ratio. Under this framework, a bank that maintains a community bank leverage ratio of greater than 9% is considered to have satisfied the risk-based and leverage capital ratios. As of March 31, 2025 and June 30, 2024, the Bank met the minimum requirement with a community bank leverage ratio of 9.06% and 9.92%, respectively. Management believes that the Bank’s leverage capital ratio will remain above the minimum required community bank leverage ratio.

6. FAIR VALUES OF ASSETS AND LIABILITIES

Determination of fair value

The Bank uses fair value measurements to record fair value adjustments to certain assets. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in some instances, quoted market prices may not be available. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques, including collateral value. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the assets.

Assets measured at fair value on a recurring basis

Assets measured at fair value on a recurring basis are summarized below. There areno liabilities measured at fair value on recurring basis at March 31, 2025 or June 30, 2024.

The following methods and assumptions were used by the Bank in estimating fair value:

Securities available for sale and marketable equity securities – All fair value measurements are obtained from a third-party pricing service and are not adjusted by management. The marketable equity securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. Debt securities available for sale are measured at fair value in Level 2 based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

Assets measured at fair value on a non-recurring basis

The Bank may also be required, from time to time, to measure certain other assets and liabilities at fair value on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. There wereno assets or liabilities measured at fair value on a non-recurring basis at March 31, 2025 or June 30, 2024.

Summary of Fair Values of Financial Instruments

The estimated fair values, and related carrying amounts, of the Bank’s financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein do not represent the underlying fair value of the Bank.