Annual Report for Fiscal Year Ending June 30, 2025 (Form 10-K)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the consolidated financial statements, which appear elsewhere in this Annual Report.

Overview

Total assets increased $96.4 million, or 11.3%, to $949.4 million at June 30, 2025, from $853.0 million at June 30, 2024. The increase was primarily due to increases in loans, investments and cash and cash equivalents. Net loss for the year ended June 30, 2025 was $874,000, a decrease of $1.7 million, compared to net income of $786,000 for the year ended June 30, 2024. The decrease was due to a one-time donation of $400,000 in cash and 185,907 shares of common stock to the Winchester Savings Bank Charitable Foundation at a total market value of $2.3 million, resulting in an after-tax charge of $1.6 million in connection with the reorganization and stock offering.

Selected Financial Data (dollars in thousands except per share data)

Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policy discussed below to be a critical accounting policy. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an "emerging growth company," we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represents our critical accounting policy.

Allowance for Credit Losses on Loans. The allowance for credit losses on loans 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.

We measure the allowance for credit losses on loans using the SCALE method, which is a simple, spreadsheet-based method developed by the Federal Reserve Board 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 to derive the initial proxy lifetime loss rates. Management uses judgment to further adjust the proxy expected lifetime loss rates with qualitative factors to reflect the facts and circumstances of our internal loss history and credit risk factors for each loan segment. The allowance for credit losses on loans is measured on a collective (pool) basis when similar characteristics exist. We segment our loan portfolio to correspond to call report classification to make peer data more useful.

The allowance for credit losses on loans 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. For example, an increase of 25 basis points as to our lifetime loss rate for qualitative factors for all loan categories at June 30, 2025 would have increased our allowance for credit losses on collectively evaluated loans at that date to $5.4 million from $3.9 million.

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.

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.

Although we believe that we use the best information available to establish the allowance for credit losses on loans, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Massachusetts Commissioner of Banks and the FDIC, as an integral part of their examination process, periodically review our allowance for credit losses on loans, and as a result of such reviews, we may have to adjust our allowance for credit losses on loans. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

Effective on July 1, 2025, the Company has changed the methodology to calculate the allowance for credit losses on loans and off-balance sheet credit exposures to a discounted cash flow method from the SCALE method as the SCALE method is not applicable for institutions with assets greater than $1 billion. The Company does not expect the resulting

methodology change to have a significant impact on the total allowance for credit losses as a result of this methodology change.

For more information on our critical accounting policies, see Note 2 of the notes to our consolidated financial statements.

Comparison of Financial Condition at June 30, 2025 and June 30, 2024

Total Assets. Total assets increased $96.4 million, or 11.3%, to $949.4 million at June 30, 2025, from $853.0 million at June 30, 2024. The increase was primarily due to increases in loans, securities and cash and cash equivalents.

Cash and Cash Equivalents. Cash and cash equivalents increased $11.1 million, or 25.2%, to $55.2 million at June 30, 2025 from $44.1 million at June 30, 2024. The increase represents cash proceeds from our initial public offering.

Investment Securities. Investment securities, comprised of both available for sale and held to maturity securities, aggregated $104.5 million at June 30, 2025 compared to $86.6 million at June 30, 2024, as excess cash from the stock offering was invested in securities.

Gross Loans. Loans increased $69.7 million, or 10.2%, to $754.1 million at June 30, 2025 compared to $684.4 million at June 30, 2024. The primary increases were in multi-family real estate loans, which increased by $41.8 million, or 33.5%, one- to four-family residential real estate loans which increased by $18.8 million, or 5.6% and commercial real estate loans which increased by $16.9 million, or 19.8%. Partially offsetting those increases was a decrease of $5.5 million or 5.4% in the construction loan portfolio. The aforementioned increase in the loan portfolios reflects our strategy to continue to diversify into higher yielding multi-family and commercial real estate loans to improve portfolio yields and manage interest rate risk. In addition, we will continue to originate single-family residential real estate loans to support local homebuyers. The recent increase in one- to four-family residential real estate loans was mostly due to our establishing new broker relationships. The allowance for credit losses on loans was $4.2 million at June 30, 2025 and $3.5 million at June 30, 2024, which represented 0.55% and 0.50% of total loans at June 30, 2025 and June 30, 2024, respectively. The allowance for credit losses for off balance sheet commitments was $1.2 million at June 30, 2025 and June 30, 2024.

Total nonaccrual loans were $2.2 million at June 30, 2025, compared to $1.4 million at June 30, 2024. The increase was primarily due to a $622,000 increase in residential real estate loans and a $270,000 increase in commercial loans. Total loans past due 30 days or greater were $1.8 million at June 30, 2025 compared to $1.3 million at June 30, 2024. The increase was primarily due to a $340,00 increase in residential real estate loans and a $270,000 increase in commercial loans. The allowance for credit losses on loans to nonaccrual loans was 187.6% at June 30, 2025 compared to 245.5% at June 30, 2024.

Deposits. Deposits increased $43.8 million, or 6.9%, to $679.2 million at June 30, 2025 from $635.4 million at June 30, 2024. The increase was due primarily to an increase in money market accounts, which increased $34.0 million, or 39.3%, to $120.6 million at June 30, 2025 from $86.6 million at June 30, 2024, as customers continued to hold deposit products with higher interest rates. The increase in deposits was also due to a $21.0 million or 8.0% increase in certificates of deposits to $283.2 million at June 30, 2025 from $262.2 million at June 30, 2024, which was primarily due to a $13.1 million increase in brokered deposits. This increase consisted of an increase of $23.7 million, or 14.7%, in certificates of deposit in amounts of less than $250,000, and a decrease of $2.7 million, or 2.7%, in certificates of deposit in amounts of $250,000 or greater (the limit for federal deposit insurance). Offsetting the increases is an $7.1 million or 4.2% decrease in savings accounts. All of our deposits are fully insured under the DIF.

Borrowings. Borrowings, which consisted solely of Federal Home Loan Bank of Boston advances, increased $17.5 million, or 13.5%, to $147.0 million at June 30, 2025, compared to $129.5 million from June 30, 2024, as funds were used to supplement loan growth.

Total stockholders' equity. Total stockholders' equity increased $35.1 million, and was $115.4 million at June 30, 2025 and $80.3 million at June 30, 2024. The increase in total stockholders' equity was mostly due to the stock offering proceeds of $37.8 million, partially offset by a decreased of $1.4 million in retained earnings for the year ended June 30, 2025.

Comparison of Operating Results for the years ended June 30, 2025 and 2024

General.We recorded net loss of $874,000 and net income of $786,000 for the years ended June 30, 2025 and 2024. The decrease in net income was due primarily to increases in non-interest expense due to a one-time contribution of $2.3

million to the Winchester Savings Bank Charitable foundation and an increase of $1.6 million in the provision for credit losses, partially offset by a $3.1 million increase in net interest income and an increase in the income tax benefit.

Interest and Dividend Income.Interest and dividend income increased $7.9 million, or 22.5%, to $42.7 million for the year ended June 30, 2025, from $34.9 million for the year ended June 30, 2024. Interest and fees on loans, which is our primary source of interest income, increased $6.9 million, or 22.5%, to $37.5 million for the year ended June 30, 2025, from $30.6 million for the year ended June 30, 2024.

The average balance of loans increased by $80.9 million, or 12.6%, to $725.6 million for the year ended June 30, 2025, over the average balance for the year ended June 30, 2024, while the average yield on loans increased by 42 basis points to 5.17% for the year ended June 30, 2025, from 4.75% for the year ended June 30, 2024. The increase in the average yield was due to increases in market interest rates as well as changes in the composition of our loan portfolio to include a higher percentage of higher-yielding construction and commercial real estate loans, and multi-family residential real estate loans. The increase in average balance was due to our continuing to pursue new commercial relationships.

Interest Expense.Total interest expense increased $4.7 million, or 23.0%, to $25.2 million for the year ended June 30, 2025, compared to $20.5 million for the year ended June 30, 2024. Interest expense on deposits increased $3.2 million, or 19.9%, to $19.1 million for the year ended June 30, 2025, from $15.9 million for the year ended June 30, 2024. Our average balance of interest-bearing deposits increased $58.1 million, or 10.7%, to $603.4 million, while our average cost of deposits increased 25 basis points to 3.17% for the year ended June 30, 2025, from 2.92% for the year ended June 30, 2024. The increase in the average cost of deposits was due to increases in market interest rates as well as a higher percentage of our deposits consisting of certificates of deposit, and money market accounts, which bear higher rates than other deposit categories.

Interest expense on Federal Home Loan Bank advances increased $1.5 million, or 33.7%, to $6.1 million for the year ended June 30, 2025, from $4.5 million for the year ended June 30, 2024. The increase was due to increases in our average balance of Federal Home Loan Bank advances ($35.9 million, or 34.8%), offset by a decrease in the average cost of borrowings (four basis points to 4.36% for the year ended June 30, 2025, from 4.40% for the year ended June 30, 2024). We increased Federal Home Loan Bank borrowings in recent periods primarily to fund loan growth.

Net Interest Income. Net interest income was $17.5 million for the year ended June 30, 2025, compared to $14.4 million for the year ended June 30, 2024, as our interest income increased faster than our interest expense. Our interest rate spread increased to 1.60% for the year ended June 30, 2025 from 1.45% for the year ended June 30, 2024, as well as our net interest margin to 2.05% for the year ended June 30, 2025 from 1.90% for the year ended June 30, 2024. The interest rate spread and net interest margin were both positively impacted by the addition of new higher yielding loans and investments.

Provision for Credit Losses.Based on an analysis of the factors described in "Critical Accounting Policies-Allowance for Credit Losses," we recorded a provision for credit losses of $2.1 million for the year ended June 30, 2025, compared to a provision of $514,000 for the year ended June 30, 2024. The provision for credit losses on loans was $2.1 million while a benefit of $2,000 was recorded for off balance sheet commitments. The increase in the provision for credit losses on loans for the year ended June 30, 2025 was primarily due to our charging off and fully reserving on a $1.6 million commercial loan due to the borrower's filing for bankruptcy protection and terminating operations of the underlying business.

Our estimates and assumptions used in the determination of the adequacy of the allowance could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Any such increase in future provisions that may be required may adversely impact our financial condition and results of operations.

Other Income. Other income information is as follows.

The increase in income on bank owned life insurance was due to the purchase of $4.0 million of additional policies during the 2024 fiscal year. Gain on sale of fixed assets during the 2024 period was related to the sale of a bank branch.

Operating Expense.Operating expense information is as follows.

The increase in other expense was due to a one-time contribution of $2.3 million to the Winchester Savings Bank Charitable Foundation. Additional increases include higher deposit insurance expense which was due to an increase in FDIC insurance rates and our higher deposit levels. The increase in salaries and employee benefits was due to the addition of key staff in finance and other areas, while the increase in data processing expense was due to our implementing a new program for electronic communications and online account opening.

Income Taxes. Income taxes decreased by $624,000 to a benefit of $656,000 for the year ended June 30, 2025, compared to a benefit of $32,000 for the year ended June 30, 2024. The decrease in the income tax provision was due primarily to a net loss for the 2025 period.

Average Balances and Yields

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances, and the average balance of loans includes non-accrual loans. The yields set forth below include the effect of deferred fees/costs, discounts, and premiums that are amortized or accreted to interest income. Deferred loan fees for the years ended June 30, 2025 and 2024 were not material.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage the impact of changes in market interest rates on net interest income and capital. We have an Asset/Liability Committee that is responsible for evaluating the interest rate risk in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The committee establishes and monitors the amount, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

As part of our ongoing asset-liability management, we use the following strategies to manage our interest rate risk:

We do not engage in hedging activities, such as engaging in futures, options or interest rate swap transactions, nor invest in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by up to 300 basis points, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 2% to 3% would mean, for example, a 100 basis point increase in the "Change in Interest Rates" column below.

The tables below sets forth, as of June 30, 2025 and June 30, 2024, the calculation of the estimated changes in our net interest income that would result from the designated instantaneous changes in the United States Treasury yield curve.

The tables above indicate that at June 30, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 14.3% decrease in net interest income, and in the event of an instantaneous parallel 200 basis point decrease in interest rates, we would have experienced a 1.7% increase in net interest income and at June 30, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 22.8% decrease in net interest income, and in the event of an instantaneous parallel 200 basis point decrease in interest rates, we would have experienced an 8.9% increase in net interest income.

Economic Value of Equity.We also compute amounts by which the net present value of our assets and liabilities (economic value of equity, or "EVE") would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by up to 300 basis points, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The tables below sets forth, as of June 30, 2025 and June 30, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

The tables above indicate that at June 30, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 22.0% decrease in EVE, and in the event of an instantaneous parallel 200 basis point decrease in interest rates, we would have experienced a 7.1% increase in EVE, and at June 30, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 33.5% decrease in EVE, and in the event of an instantaneous parallel 200 basis point decrease in interest rates, we would have experienced a 9.6% increase in EVE.

At June 30, 2025, all estimated changes described above with respect to net interest income and EVE with respect to potential increases in market interest rates were not in compliance with the current policy limits established by the board of directors. We have determined that selling assets to comply with our internal policies would result in a significant loss that would deplete capital and, as a result, restrict future growth, while providing limited benefit during a period of declining

market interest rates, as began in the latter half of 2024, and, therefore, the committee voted to permit the exceptions to policy.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the changes in net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remain constant over the period being measured and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. In the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the tables.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.

Liquidity and Capital Resources

Liquidity is our ability to meet current and future financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from maturities and calls of securities. We also have the ability to borrow from the Federal Home Loan Bank of Boston. At June 30, 2025, we had $147.0 million outstanding in advances from the Federal Home Loan Bank of Boston. At June 30, 2025, we had the ability to borrow $100.2 million in additional Federal Home Loan Bank of Boston advances. At June 30, 2025, we had a $5.3 million line of credit with the Federal Home Loan Bank of Boston, which was not drawn at June 30, 2025. Additionally, at June 30, 2025, we had a $67.0 million secured line of credit through the Federal Reserve Borrower in Custody program. At that date, there were no amounts outstanding.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending, and investing activities during any given period.

We test the level of our liquidity monthly and quarterly. Our monthly liquidity test is the ratio of basic surplus (deficit) divided by total assets, with basic surplus/deficit consisting of liquid assets (cash and due from banks, federal funds sold, securities available for sale, loans held for sale, total equities and securities maturities and payment) divided by investment commitments (loan commitments, 10% of certificates of deposit maturing within 30 days and 5% of non-maturing deposits). Our key quarterly test is the Primary Liquidity ratio, is total liquid assets (cash and due from banks, federal funds sold and all securities that are not pledged to secure borrowing) as a percentage of total assets.

We seek to maintain a minimum monthly liquidity ratio of 4% to 6% of assets, and a minimum quarterly Primary Liquidity ratio of 15%. At June 30, 2025 and June 30, 2024, we were in compliance with both of these guidelines.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $2.5 million and $231,000 for the years ended June 30, 2025 and 2024, respectively. Net cash used by investing activities, which consists primarily of disbursements for loan originations and the purchase of investment securities, offset by principal collections on loans and proceeds from maturing securities and pay downs on securities, was $86.7 million and $105.2 million for the years ended June 30, 2025 and 2024, respectively. Net cash provided by financing activities was $95.4 million and $96.9 million for the years ended June 30, 2025 and 2024, respectively.

We are committed to maintaining a strong liquidity position. We consistently monitor our liquidity position. We anticipate that we will have sufficient funds to meet our current funding commitments based on our current strategy to increase loans with an increase in core deposits and the continued use of Federal Home Loan Bank of Boston advances, as needed.

At June 30, 2025, Winchester Savings Bank exceeded its applicable regulatory capital requirement, and was considered "well capitalized" under regulatory guidelines.

The net proceeds from the offering significantly increased our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net offering proceeds are used for general corporate purposes, including funding loans. Our financial condition and results of operations will be enhanced by the net proceeds from the offering, which will increase our net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds, as well as other factors associated with the offering, our return on equity will be lowered immediately following the offering.

Recent Accounting Pronouncements

There are no recent accounting pronouncements issued, but not yet adopted, that are expected to have a significant impact on our financial statements. As an emerging growth company, we have elected to use the extended transition period to delay the adoption of new or re-issued accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution's performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.