Winchester Bancorp, Inc./MD/ Income Taxes Disclosure
Allocation of federal and state income taxes between current and deferred portions is as follows:
|
|
Years Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Current tax provision: |
|
|
|
|
|
|
||
Federal |
|
$ |
525 |
|
|
$ |
94 |
|
State |
|
|
61 |
|
|
|
33 |
|
|
|
|
586 |
|
|
|
127 |
|
Deferred tax benefit: |
|
|
|
|
|
|
||
Federal |
|
|
(888 |
) |
|
|
(94 |
) |
State |
|
|
(354 |
) |
|
|
(65 |
) |
|
|
|
(1,242 |
) |
|
|
(159 |
) |
Total benefit for income taxes |
|
$ |
(656 |
) |
|
$ |
(32 |
) |
The reasons for the differences between the statutory corporate federal income tax rate and the Bank’s effective tax rate are summarized as follows:
|
|
Years Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Statutory federal income tax at 21% |
|
$ |
(321 |
) |
|
$ |
158 |
|
Increase (decrease) resulting from: |
|
|
|
|
|
|
||
State taxes, net of federal tax benefit |
|
|
(231 |
) |
|
|
(26 |
) |
Municipal income |
|
|
(10 |
) |
|
|
(16 |
) |
Bank owned life insurance income |
|
|
(98 |
) |
|
|
(66 |
) |
Dividends received deduction |
|
|
(5 |
) |
|
|
(5 |
) |
Other, net |
|
|
9 |
|
|
|
(77 |
) |
Effective tax rate |
|
$ |
(656 |
) |
|
$ |
(32 |
) |
The tax effects of each item that give rise to deferred taxes are as follows:
|
|
June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
||
Allowance for credit losses |
|
$ |
1,500 |
|
|
$ |
1,304 |
|
Employee benefit plan liabilities recorded in |
|
|
300 |
|
|
|
24 |
|
Net unrealized loss on securities available for sale |
|
|
259 |
|
|
|
495 |
|
Impairment loss on marketable equity securities |
|
|
— |
|
|
|
8 |
|
Non-accrual interest |
|
|
234 |
|
|
|
234 |
|
Depreciation and amortization |
|
|
105 |
|
|
|
5 |
|
Accrued expenses |
|
|
277 |
|
|
|
205 |
|
Charitable Contribution |
|
|
599 |
|
|
|
— |
|
Other |
|
|
13 |
|
|
|
18 |
|
|
|
|
3,287 |
|
|
|
2,293 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Other employee benefit plan assets |
|
|
(2,075 |
) |
|
|
(2,123 |
) |
Unrealized gain on marketable equity securities |
|
|
— |
|
|
|
(240 |
) |
|
|
|
(2,075 |
) |
|
|
(2,363 |
) |
Net deferred tax asset (liability) |
|
$ |
1,212 |
|
|
$ |
(70 |
) |
A summary of the change in the net deferred tax asset (liability) is as follows:
|
|
Years Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Balance at beginning of year |
|
$ |
(70 |
) |
|
$ |
665 |
|
Deferred tax benefit |
|
|
1,242 |
|
|
|
160 |
|
Deferred tax effect on net unrealized gain/loss on |
|
|
(236 |
) |
|
|
(160 |
) |
Adoption of ASU 2016-13 |
|
|
|
|
|
(391 |
) |
|
Deferred tax effects of pension and post-retirement |
|
|
276 |
|
|
|
(344 |
) |
Balance at end of year |
|
$ |
1,212 |
|
|
$ |
(70 |
) |
At June 30, 2025, the Company had a charitable contribution carryover of $2,062,000 for federal tax purposes and $2,329,000 for state tax purposes, which expire on June 30, 2030.
The federal income tax reserve for loan losses at the Bank’s base year amounted to $3,889,000. If any portion of the reserve is used for purposes other than to absorb loan losses, approximately 150% of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the fiscal year in which used. As the Bank intends to use the reserve to only absorb loan losses, a deferred income tax liability of $1,093,000 has not been provided.
The Bank’s income tax returns are subject to review and examination by federal and state taxing authorities. The Bank is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended June 30, 2022 through 2025. The years open to examination by state taxing authorities vary by jurisdiction; no years prior to 2022 are open.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.