UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-34245

THE YORK WATER COMPANY

(Exact name of registrant as specified in its charter)

Pennsylvania	23-1242500
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

130 East Market Street, York, Pennsylvania	17401
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code (717) 845-3601

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, No par value	YORW	The Nasdaq Global Select Market
(Title of Class)	(Trading Symbol)	(Name of Each Exchange on Which Registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

⌧ Yes

☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

⌧ Yes

☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐	Accelerated filer ☐		Non-accelerated filer ⌧

Smaller reporting company ☒		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes		⌧ No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common stock, No par value	14,266,728 Shares outstanding as of August 4, 2022

TABLE OF CONTENTS

PART I	Financial Information

Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II	Other Information

Item 6.	Exhibits	27

Signatures		28

Page 2

THE YORK WATER COMPANY

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

Balance Sheets (Unaudited)

(In thousands of dollars, except per share amounts)

	Jun. 30, 2022			Dec. 31, 2021
ASSETS
UTILITY PLANT, at original cost	$	508,342		$	485,750
Plant acquisition adjustments		(3,603	)		(3,637	)
Accumulated depreciation		(102,870	)		(99,204	)
Net utility plant		401,869			382,909

OTHER PHYSICAL PROPERTY, net of accumulated depreciation of $495 in 2022 and $483 in 2021		711			717

CURRENT ASSETS:
Cash and cash equivalents		2,644			1
Accounts receivable, net of reserves of $824 in 2022 and $855 in 2021		5,270			4,634
Unbilled revenues		3,014			2,784
Recoverable income taxes		895			894
Materials and supplies inventories, at cost		2,337			1,917
Prepaid expenses		1,446			1,032
Total current assets		15,606			11,262

OTHER LONG-TERM ASSETS:
Prepaid pension cost		16,139			14,054
Note receivable		255			255
Deferred regulatory assets		47,910			45,280
Other assets		4,493			4,376
Total other long-term assets		68,797			63,965

Total Assets	$	486,983		$	458,853

The accompanying notes are an integral part of these statements.

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Page 3

THE YORK WATER COMPANY

Balance Sheets (Unaudited)

(In thousands of dollars, except per share amounts)

	Jun. 30, 2022		Dec. 31, 2021
STOCKHOLDERS' EQUITY AND LIABILITIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized 46,500,000 shares, issued and outstanding 14,264,763 shares in 2022 and 13,112,948 shares in 2021	$	133,239	$	88,230
Retained earnings		67,945		64,392
Total common stockholders' equity		201,184		152,622

PREFERRED STOCK, authorized 500,000 shares, no shares issued		–		–

LONG-TERM DEBT, excluding current portion		109,637		138,869

COMMITMENTS		–		–

CURRENT LIABILITIES:
Current portion of long-term debt		7,500		7,500
Accounts payable		9,138		6,712
Dividends payable		2,522		2,293
Accrued compensation and benefits		1,531		1,575
Accrued interest		966		959
Deferred regulatory liabilities		594		607
Other accrued expenses		382		440
Total current liabilities		22,633		20,086

DEFERRED CREDITS:
Customers' advances for construction		14,777		12,820
Deferred income taxes		53,158		49,590
Deferred employee benefits		4,575		4,530
Deferred regulatory liabilities		38,010		36,374
Other deferred credits		1,135		2,086
Total deferred credits		111,655		105,400

Contributions in aid of construction		41,874		41,876

Total Stockholders' Equity and Liabilities	$	486,983	$	458,853

The accompanying notes are an integral part of these statements.

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Page 4

THE YORK WATER COMPANY

Statements of Income (Unaudited)

(In thousands of dollars, except per share amounts)

	Three Months Ended June 30						Six Months Ended June 30
	2022			2021			2022			2021

OPERATING REVENUES:	$	14,899		$	13,801		$	29,139		$	26,882

OPERATING EXPENSES:
Operation and maintenance		2,915			2,949			6,366			5,755
Administrative and general		2,579			2,441			5,236			4,852
Depreciation and amortization		2,493			2,198			4,973			4,372
Taxes other than income taxes		338			311			692			647
		8,325			7,899			17,267			15,626

Operating income		6,574			5,902			11,872			11,256

OTHER INCOME (EXPENSES):
Interest on debt		(1,205	)		(1,222	)		(2,502	)		(2,436	)
Allowance for funds used during construction		225			311			520			573
Other pension costs		(319	)		(303	)		(638	)		(607	)
Other income (expenses), net		(80	)		(44	)		(429	)		(145	)
		(1,379	)		(1,258	)		(3,049	)		(2,615	)

Income before income taxes		5,195			4,644			8,823			8,641

Income taxes		166			160			(65)			452

Net Income	$	5,029		$	4,484		$	8,888		$	8,189

Basic Earnings Per Share	$	0.36		$	0.35		$	0.65		$	0.63

Diluted Earnings Per Share	$	0.36		$	0.35		$	0.65		$	0.63

The accompanying notes are an integral part of these statements.

Page 5

THE YORK WATER COMPANY

Statements of Common Stockholders' Equity (Unaudited)

(In thousands of dollars, except per share amounts)

For the Periods Ended June 30, 2022 and 2021

	Common Stock Shares		Common Stock Amount		Retained Earnings			Total

Balance, March 31, 2022		13,123,619	$	88,725	$	65,695		$	154,420
Net income		–		–		5,029			5,029
Cash dividends declared, $0.1949 per share		–		–		(2,779	)		(2,779	)
Issuance of common stock		1,121,940		43,970		–			43,970
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		11,185		431		–			431
Stock-based compensation		8,019		113		–			113
Balance, June 30, 2022		14,264,763	$	133,239	$	67,945		$	201,184

Balance, December 31, 2021		13,112,948	$	88,230	$	64,392		$	152,622
Net income		–		–		8,888			8,888
Cash dividends declared, $0.3898 per share		–		–		(5,335	)		(5,335	)
Issuance of common stock		1,121,940		43,970		–			43,970
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		21,856		881		–			881
Stock-based compensation		8,019		158		–			158
Balance, June 30, 2022		14,264,763	$	133,239	$	67,945		$	201,184

	Common Stock Shares		Common Stock Amount		Retained Earnings			Total

Balance, March 31, 2021		13,071,733	$	86,436	$	58,574		$	145,010
Net income		–		–		4,484			4,484
Cash dividends declared, $0.1874 per share		–		–		(2,452	)		(2,452	)
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		12,152		571		–			571
Stock-based compensation		6,170		93		–			93
Balance, June 30, 2021		13,090,055	$	87,100	$	60,606		$	147,706

Balance, December 31, 2020		13,060,817	$	85,935	$	57,317		$	143,252
Net income		–		–		8,189			8,189
Cash dividends declared, $0.3748 per share		–		–		(4,900	)		(4,900	)
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		23,068		1,044		–			1,044
Stock-based compensation		6,170		121		–			121
Balance, June 30, 2021		13,090,055	$	87,100	$	60,606		$	147,706

The accompanying notes are an integral part of these statements.

Page 6

THE YORK WATER COMPANY

Statements of Cash Flows (Unaudited)

(In thousands of dollars, except per share amounts)

	Six Months Ended June 30
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,888		$	8,189
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,973			4,372
Stock-based compensation		158			121
Decrease in deferred income taxes		(64	)		(72	)
Other		62			38
Changes in assets and liabilities:
(Increase) decrease in accounts receivable and unbilled revenues		(1,069	)		443
(Increase) decrease in recoverable income taxes		(1	)		68
Increase in materials and supplies, prepaid expenses, prepaid pension cost, regulatory and other assets		(5,993	)		(4,471	)
Increase in accounts payable, accrued compensation and benefits, accrued expenses, deferred employee benefits, regulatory liabilities, and other deferred credits		4,052			3,415
Increase (decrease) in accrued interest		7			(1	)
Net cash provided by operating activities		11,013			12,102

CASH FLOWS FROM INVESTING ACTIVITIES:
Utility plant additions, including debt portion of allowance for funds used during construction of $291 in 2022 and $320 in 2021		(19,004	)		(16,043	)
Net cash used in investing activities		(19,004	)		(16,043	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Customers' advances for construction and contributions in aid of construction		2,590			1,204
Repayments of customer advances		(635	)		(476	)
Proceeds of long-term debt issues		13,674			23,910
Repayments of long-term debt		(42,994	)		(20,575	)
Changes in cash overdraft position		(1,746	)		(1,263	)
Issuance of common stock		44,851			1,044
Dividends paid		(5,106	)		(4,899	)
Net cash provided by (used in) financing activities		10,634			(1,055	)

Net change in cash, cash equivalents, and restricted cash		2,643			(4,996	)
Cash, cash equivalents, and restricted cash at beginning of period		1			5,002
Cash and cash equivalents at end of period	$	2,644		$	6

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	2,132		$	2,016
Income taxes		–			217

Supplemental disclosure of non-cash investing and financing activities: Accounts payable includes $5,796 in 2022 and $5,166 in 2021 for the construction of utility plant.

The accompanying notes are an integral part of these statements.

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Page 7

THE YORK WATER COMPANY

Notes to Interim Financial Statements

(In thousands of dollars, except per share amounts)

1. Basis of Presentation

The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of results for such periods. Because the financial statements cover an interim period, they do not include all disclosures and notes normally provided in annual financial statements, and therefore, should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. Additionally, based on the duration and severity of the novel coronavirus ("COVID-19") pandemic, the Company is uncertain of the ultimate impact it could have on the business.

2. Accounts Receivable and Contract Assets

Accounts receivable and contract assets are summarized in the following table:

	As of Jun. 30, 2022			As of Dec. 31, 2021			Change

Accounts receivable – customers	$	5,742		$	5,034		$	708
Other receivables		352			455			(103	)
		6,094			5,489			605
Less: allowance for doubtful accounts		(824	)		(855	)		31
Accounts receivable, net	$	5,270		$	4,634		$	636

Unbilled revenue	$	3,014		$	2,784		$	230

Differences in timing of revenue recognition, billings, and cash collections result in receivables and contract assets. Generally, billing occurs subsequent to revenue recognition, resulting in a contract asset reported as unbilled revenue on the balance sheet. The Company does not receive advances or deposits from customers before revenue is recognized so no contract liabilities are reported. Accounts receivable are recorded when the right to consideration becomes unconditional and are presented separately on the balance sheet. The changes in accounts receivable – customers and in unbilled revenue were primarily due to normal timing difference between performance and the customer’s payments.

3. Common Stock and Earnings Per Share

Net income of $5,029 and $4,484 for the three months ended June 30, 2022 and 2021, respectively, and $8,888 and $8,189 for the six months ended June 30, 2022 and 2021, respectively, is used to calculate both basic and diluted earnings per share. Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding plus potentially dilutive shares. The dilutive effect of employee stock-based compensation is included in the computation of diluted earnings per share and is calculated using the treasury stock method and expected proceeds upon exercise or issuance of the stock-based compensation.

Page 8

The following table summarizes the shares used in computing basic and diluted earnings per share:

	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021

Weighted average common shares, basic		14,188,579		13,068,806		13,650,118		13,062,374
Effect of dilutive securities:
Employee stock-based compensation		1,123		1,435		1,060		1,088
Weighted average common shares, diluted		14,189,702		13,070,241		13,651,178		13,063,462

On April 5, 2022, the Company closed an underwritten public offering of 975,600 shares of its common stock, with an offering price of $41 per share. On April 7, 2022, the Company closed on the full exercise of the underwriter’s option to purchase an additional 146,340 shares of its common stock at the same price. Janney Montgomery Scott LLC was the underwriter in the offering. The Company received net proceeds in the offering, after deducting offering expenses and underwriters’ discounts and commissions, of $43,970. The net proceeds were used to repay the Company’s borrowings under its line of credit agreement incurred to fund capital expenditures and acquisitions, and for general corporate purposes.

On March 11, 2013, the Board of Directors, or the Board, authorized a share repurchase program granting the Company authority to repurchase up to 1,200,000 shares of the Company's common stock from time to time. The stock repurchase program has no specific end date and the Company may repurchase shares in the open market or through privately negotiated transactions. The Company may suspend or discontinue the repurchase program at any time. No shares were repurchased during the three or six months ended June 30, 2022 and 2021. As of June 30, 2022, 618,004 shares remain authorized for repurchase.

4. Debt

For the six months ended June 30, 2022, the Company did not enter into any new long-term debt arrangements or modify its outstanding long-term debt, which is summarized in the table below.

	As of Jun. 30, 2022			As of Dec. 31, 2021

8.43% Senior Notes, Series D, due 2022	$	7,500		$	7,500
Variable Rate Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Refunding Bonds, Series 2008A, due 2029		12,000			12,000
3.00% Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Refunding Bonds, Series A of 2019, due 2036		10,500			10,500
3.10% Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Refunding Bonds, Series B of 2019, due 2038		14,870			14,870
3.23% Senior Notes, due 2040		15,000			15,000
4.00% - 4.50% York County Industrial Development Authority Exempt Facilities Revenue Bonds, Series 2015, due 2029 - 2045		10,000			10,000
4.54% Senior Notes, due 2049		20,000			20,000
3.24% Senior Notes, due 2050		30,000			30,000
Committed Line of Credit, due September 2023		–			29,320
Total long-term debt		119,870			149,190
Less discount on issuance of long-term debt		(164	)		(169	)
Less unamortized debt issuance costs		(2,569	)		(2,652	)
Less current maturities		(7,500	)		(7,500	)
Long-term portion	$	109,637		$	138,869

Page 9

5. Interest Rate Swap Agreement

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. The Company utilizes an interest rate swap agreement to effectively convert the Company's $12,000 variable-rate debt issue to a fixed rate. Interest rate swaps are contracts in which a series of interest rate cash flows are exchanged over a prescribed period. The notional amount on which the interest payments are based ($12,000) is not exchanged. The interest rate swap provides that the Company pays the counterparty a fixed interest rate of 3.16% on the notional amount of $12,000. In exchange, the counterparty pays the Company a variable interest rate based on 59% of the U.S. Dollar one-month LIBOR rate on the notional amount. The intent is for the variable rate received from the swap counterparty to approximate the variable rate the Company pays to bondholders on its variable rate debt issue, resulting in a fixed rate being paid to the swap counterparty and reducing the Company's interest rate risk. The Company’s net payment rate on the swap was 2.60% and 3.09% for the three months ended June 30, 2022 and 2021, respectively, and 2.75% and 3.02% for the six months ended June 30, 2022 and 2021, respectively.

The interest rate swap agreement is classified as a financial derivative used for non-trading activities. The accounting standards regarding accounting for derivatives and hedging activities require companies to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. In accordance with the standards, the interest rate swap is recorded on the balance sheet in other deferred credits at fair value (see Note 6).

The Company uses regulatory accounting treatment rather than hedge accounting to defer the unrealized gains and losses on its interest rate swap. These unrealized gains and losses are recorded as a regulatory asset. Based on current ratemaking treatment, the Company expects the unrealized gains and losses to be recognized in rates as a component of interest expense as the swap settlements occur. Swap settlements are recorded in the income statement with the hedged item as interest expense. Swap settlements resulted in the reclassification from regulatory assets to interest expense of $78 and $93 for the three months ended June 30, 2022 and 2021, respectively, and $168 and $184 for the six months ended June 30, 2022 and 2021, respectively. The overall swap result was a (gain) loss of $(281) and $212 for the three months ended June 30, 2022 and 2021, respectively, and $(775) and $(219) for the six months ended June 30, 2022 and 2021, respectively. The Company expects to reclassify $154 from regulatory assets to interest expense as a result of swap settlements over the next 12 months.

The interest rate swap agreement contains provisions that require the Company to maintain a credit rating of at least BBB- with Standard & Poor's. If the Company's rating were to fall below this rating, it would be in violation of these provisions, and the counterparty to the derivative could request immediate payment if the derivative was in a liability position. On October 8, 2021, Standard & Poor's affirmed the Company's credit rating at A-, with a stable outlook and adequate liquidity. The Company's interest rate swap was in a liability position as of June 30, 2022. If a violation due to credit rating, or some other default provision, were triggered on June 30, 2022, the Company would have been required to pay the counterparty approximately $1,173.

The interest rate swap will expire on October 1, 2029. Other than the interest rate swap, the Company has no other derivative instruments.

6. Fair Value of Financial Instruments

The accounting standards regarding fair value measurements establish a fair value hierarchy which indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability.

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The Company has recorded its interest rate swap liability at fair value in accordance with the standards. The liability is recorded under the caption “Other deferred credits” on the balance sheet. The table below illustrates the fair value of the interest rate swap as of the end of the reporting period.

Description		June 30, 2022		Fair Value Measurements at Reporting Date Using Significant Other Observable Inputs (Level 2)
Interest Rate Swap		$1,135		$1,135

Fair values are measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curve as of the date of the valuation. These inputs to this calculation are deemed to be Level 2 inputs. The balance sheet carrying value reflects the Company's credit quality as of June 30, 2022. The rate used in discounting all prospective cash flows anticipated to be made under this swap reflects a representation of the yield to maturity for 30-year debt on utilities rated A- as of June 30, 2022. The use of the Company's credit rating resulted in a reduction in the fair value of the swap liability of $38 as of June 30, 2022. The fair value of the swap reflecting the Company's credit quality as of December 31, 2021 is shown in the table below.

Description		December 31, 2021		Fair Value Measurements at Reporting Date Using Significant Other Observable Inputs (Level 2)
Interest Rate Swap		$2,086		$2,086

The carrying amount of current assets and liabilities that are considered financial instruments approximates fair value as of the dates presented. The Company's total long-term debt, with a carrying value of $119,870 at June 30, 2022, and $149,190 at December 31, 2021, had an estimated fair value of approximately $108,000 and $168,000 respectively. The estimated fair value of debt was calculated using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration and risk profile. These inputs to this calculation are deemed to be Level 2 inputs. The Company recognized its credit rating in determining the yield curve and did not factor in third-party credit enhancements including the letter of credit on the 2008 Pennsylvania Economic Development Financing Authority Series A issue.

Customers' advances for construction and note receivable had carrying values at June 30, 2022 of $14,777 and $255, respectively. At December 31, 2021, customers' advances for construction and note receivable had carrying values of $12,820 and $255, respectively. The relative fair values of these amounts cannot be accurately estimated since the timing of future payment streams is dependent upon several factors, including new customer connections, customer consumption levels and future rate increases.

7. Commitments

The Company has committed to capital expenditures of approximately $39,205 to armor and replace the spillway of the Lake Williams dam, of which $35,066 remains to be incurred as of June 30, 2022. The Company may make additional commitments for this project in the future.

The Company entered into a consent order agreement with the Pennsylvania Department of Environmental Protection, or DEP, in December 2016 after the Company determined it exceeded the action level for lead as established by the Lead and Copper Rule, or LCR, issued by the U.S. Environmental Protection Agency. The Company did not have an exceedance in any subsequent compliance test and successfully completed its commitment to exceed the LCR replacement schedule by replacing all the known company-owned lead service lines within four years from the agreement. In June 2022, DEP determined the Company had completed all requirements and terminated the consent order agreement.

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The Company was granted approval by the Pennsylvania Public Utility Commission, or PPUC, to modify its tariff to include the cost of the annual replacement of up to 400 lead customer-owned service lines over nine years from the agreement. The tariff modification allows the Company to replace customer-owned service lines at its own initial cost. The Company will record the costs as a regulatory asset to be recovered in future base rates to customers, over a four-year period. The cost for the customer-owned lead service line replacements was approximately $1,482 and $1,351 through June 30, 2022 and December 31, 2021, respectively, and is included as a regulatory asset. Based on its experience, the Company estimates that lead customer-owned service lines replacements will cost $1,700. This estimate is subject to adjustment as more facts become available.

8. Revenue

The following table shows the Company’s revenues disaggregated by service and customer type.

	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021
Water utility service:
Residential	$	8,819	$	8,543	$	17,266	$	16,688
Commercial and industrial		3,896		3,629		7,484		6,939
Fire protection		836		795		1,672		1,601
Wastewater utility service:
Residential		925		474		1,854

SEC Form 10-Q filed by York Water Company