UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 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	14,276,321 Shares outstanding as of November 3, 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	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II	Other Information

Item 6.	Exhibits	28

Signatures		29

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)

	Sep. 30, 2022			Dec. 31, 2021
ASSETS
UTILITY PLANT, at original cost	$	526,229		$	485,750
Plant acquisition adjustments		(3,586	)		(3,637	)
Accumulated depreciation		(104,816	)		(99,204	)
Net utility plant		417,827			382,909

OTHER PHYSICAL PROPERTY, net of accumulated depreciation of $493 in 2022 and $483 in 2021		733			717

CURRENT ASSETS:
Cash and cash equivalents		1			1
Accounts receivable, net of reserves of $834 in 2022 and $855 in 2021		5,461			4,634
Unbilled revenues		3,084			2,784
Recoverable income taxes		870			894
Materials and supplies inventories, at cost		2,347			1,917
Prepaid expenses		1,557			1,032
Total current assets		13,320			11,262

OTHER LONG-TERM ASSETS:
Prepaid pension cost		17,182			14,054
Note receivable		255			255
Deferred regulatory assets		39,821			45,280
Other assets		4,517			4,376
Total other long-term assets		61,775			63,965

Total Assets	$	493,655		$	458,853

The accompanying notes are an integral part of these statements.

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THE YORK WATER COMPANY

Balance Sheets (Unaudited)

(In thousands of dollars, except per share amounts)

	Sep. 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 14,275,456 shares in 2022 and 13,112,948 shares in 2021	$	133,730	$	88,230
Retained earnings		70,846		64,392
Total common stockholders' equity		204,576		152,622

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

LONG-TERM DEBT, excluding current portion		116,788		138,869

COMMITMENTS		–		–

CURRENT LIABILITIES:
Current portion of long-term debt		7,500		7,500
Accounts payable		12,076		6,712
Dividends payable		2,523		2,293
Accrued compensation and benefits		1,585		1,575
Accrued interest		1,084		959
Deferred regulatory liabilities		588		607
Other accrued expenses		400		440
Total current liabilities		25,756		20,086

DEFERRED CREDITS:
Customers' advances for construction		15,331		12,820
Deferred income taxes		46,317		49,590
Deferred employee benefits		4,597		4,530
Deferred regulatory liabilities		37,699		36,374
Other deferred credits		717		2,086
Total deferred credits		104,661		105,400

Contributions in aid of construction		41,874		41,876

Total Stockholders' Equity and Liabilities	$	493,655	$	458,853

The accompanying notes are an integral part of these statements.

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THE YORK WATER COMPANY

Statements of Income (Unaudited)

(In thousands of dollars, except per share amounts)

	Three Months Ended September 30						Nine Months Ended September 30
	2022			2021			2022			2021

OPERATING REVENUES	$	15,811		$	14,503		$	44,950		$	41,385

OPERATING EXPENSES:
Operation and maintenance		3,746			2,997			10,112			8,752
Administrative and general		2,328			2,292			7,564			7,144
Depreciation and amortization		2,572			2,223			7,545			6,595
Taxes other than income taxes		309			307			1,001			954
		8,955			7,819			26,222			23,445

Operating income		6,856			6,684			18,728			17,940

OTHER INCOME (EXPENSES):
Interest on debt		(1,204	)		(1,237	)		(3,706	)		(3,673	)
Allowance for funds used during construction		382			310			902			883
Other pension costs		(318	)		(304	)		(956	)		(911	)
Other income (expenses), net		(117	)		(34	)		(546	)		(179	)
		(1,257	)		(1,265	)		(4,306	)		(3,880	)

Income before income taxes		5,599			5,419			14,422			14,060

Income taxes		(82	)		625			(147	)		1,077

Net Income	$	5,681		$	4,794		$	14,569		$	12,983

Basic Earnings Per Share	$	0.40		$	0.36		$	1.05		$	0.99

Diluted Earnings Per Share	$	0.40		$	0.36		$	1.05		$	0.99

The accompanying notes are an integral part of these statements.

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THE YORK WATER COMPANY

Statements of Common Stockholders' Equity (Unaudited)

(In thousands of dollars, except per share amounts)

For the Periods Ended September 30, 2022 and 2021

	Common Stock Shares			Common Stock Amount		Retained Earnings			Total

Balance, June 30, 2022		14,264,763		$	133,239	$	67,945		$	201,184
Net income		–			–		5,681			5,681
Cash dividends declared, $0.1949 per share		–			–		(2,780	)		(2,780	)
Issuance of common stock		–			–		–			–
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		11,160			441		–			441
Stock-based compensation		(467	)		50		–			50
Balance, September 30, 2022		14,275,456		$	133,730	$	70,846		$	204,576

Balance, December 31, 2021		13,112,948		$	88,230	$	64,392		$	152,622
Net income		–			–		14,569			14,569
Cash dividends declared, $0.5847 per share		–			–		(8,115	)		(8,115	)
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		33,016			1,322		–			1,322
Stock-based compensation		7,552			208		–			208
Balance, September 30, 2022		14,275,456		$	133,730	$	70,846		$	204,576

	Common Stock Shares		Common Stock Amount		Retained Earnings			Total

Balance, June 30, 2021		13,090,055	$	87,100	$	60,606		$	147,706
Net income		–		–		4,794			4,794
Cash dividends declared, $0.1874 per share		–		–		(2,454	)		(2,454	)
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		12,869		568		–			568
Stock-based compensation		–		46		–			46
Balance, September 30, 2021		13,102,924	$	87,714	$	62,946		$	150,660

Balance, December 31, 2020		13,060,817	$	85,935	$	57,317		$	143,252
Net income		–		–		12,983			12,983
Cash dividends declared, $0.5622 per share		–		–		(7,354	)		(7,354	)
Issuance of common stock under dividend reinvestment, direct stock and employee stock purchase plans		35,937		1,612		–			1,612
Stock-based compensation		6,170		167		–			167
Balance, September 30, 2021		13,102,924	$	87,714	$	62,946		$	150,660

The accompanying notes are an integral part of these statements.

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THE YORK WATER COMPANY

Statements of Cash Flows (Unaudited)

(In thousands of dollars, except per share amounts)

	Nine Months Ended September 30
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,569		$	12,983
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,545			6,595
Stock-based compensation		208			167
Increase (decrease) in deferred income taxes		(170	)		53
Other		38			46
Changes in assets and liabilities:
(Increase) decrease in accounts receivable and unbilled revenues		(1,431	)		745
Decrease in recoverable income taxes		24			700
(Increase) decrease in materials and supplies, prepaid expenses, prepaid pension cost, regulatory and other assets		771			(6,911	)
Increase (decrease) in accounts payable, accrued compensation and benefits, accrued expenses, deferred employee benefits, regulatory liabilities, and other deferred credits		(4,368	)		3,989
Increase in accrued interest		125			109
Net cash provided by operating activities		17,311			18,476

CASH FLOWS FROM INVESTING ACTIVITIES:
Utility plant additions, including debt portion of allowance for funds used during construction of $504 in 2022 and $493 in 2021		(34,050	)		(27,434	)
Acquisitions of water and wastewater systems		(2,826	)		–
Net cash used in investing activities		(36,876	)		(27,434	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Customers' advances for construction and contributions in aid of construction		3,281			1,955
Repayments of customer advances		(772	)		(772	)
Proceeds of long-term debt issues		26,000			37,452
Repayments of long-term debt		(48,213	)		(28,960	)
Changes in cash overdraft position		1,862			14
Issuance of common stock		45,292			1,612
Dividends paid		(7,885	)		(7,344	)
Net cash provided by financing activities		19,565			3,957

Net change in cash, cash equivalents, and restricted cash		–			(5,001	)
Cash, cash equivalents, and restricted cash at beginning of period		1			5,002
Cash and cash equivalents at end of period	$	1		$	1

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	2,976		$	2,936
Income taxes		–			217

Supplemental disclosure of non-cash investing and financing activities: Accounts payable includes $5,536 in 2022 and $3,562 in 2021 for the construction of utility plant.

The accompanying notes are an integral part of these statements.

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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 nine months ended September 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. Acquisitions

On August 11, 2022, the Company completed the acquisition of the water assets and wastewater collection and treatment assets of Country View Manor Community, LLC in York County, Pennsylvania. The Company began operating the existing water assets and wastewater collection and treatment assets on August 15, 2022. The acquisition resulted in the addition of approximately 50 water and wastewater customers with purchase price and acquisition costs of approximately $39. This acquisition is immaterial to Company results.

On August 25, 2022, the Company completed the acquisition of the water assets and wastewater collection and treatment assets jointly owned by Letterkenny Industrial Development Authority and Franklin County General Authority in Franklin County, Pennsylvania. The Company began operating the existing water assets and wastewater collection and treatment assets on August 29, 2022. The acquisition resulted in the addition of approximately 90 water and wastewater customers with purchase price and acquisition costs of approximately $2,787. This acquisition is immaterial to Company results.

3. Accounts Receivable and Contract Assets

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

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

Accounts receivable – customers	$	5,873		$	5,034		$	839
Other receivables		422			455			(33	)
		6,295			5,489			806
Less: allowance for doubtful accounts		(834	)		(855	)		21
Accounts receivable, net	$	5,461		$	4,634		$	827

Unbilled revenue	$	3,084		$	2,784		$	300

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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.

4. Common Stock and Earnings Per Share

Net income of $5,681 and $4,794 for the three months ended September 30, 2022 and 2021, respectively, and $14,569 and $12,983 for the nine months ended September 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.

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

	Three Months Ended September 30				Nine Months Ended September 30
	2022		2021		2022		2021

Weighted average common shares, basic		14,254,570		13,083,762		13,853,816		13,069,582
Effect of dilutive securities:
Employee stock-based compensation		703		563		407		347
Weighted average common shares, diluted		14,255,273		13,084,325		13,854,223		13,069,929

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 nine months ended September 30, 2022 and 2021. As of September 30, 2022, 618,004 shares remain authorized for repurchase.

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5. Debt

	As of Sep. 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 2024		7,107			29,320
Total long-term debt		126,977			149,190
Less discount on issuance of long-term debt		(161	)		(169	)
Less unamortized debt issuance costs		(2,528	)		(2,652	)
Less current maturities		(7,500	)		(7,500	)
Long-term portion	$	116,788		$	138,869

In the third quarter of 2022, the Company renewed its committed line of credit and extended the maturity date to September 2024. As part of the renewal, the interest rate will change from LIBOR plus 1.05% to a successor rate of the Secured Overnight Financing Rate, or SOFR, plus 1.17% on January 1, 2023, in advance of the likely discontinuation of LIBOR in 2023. No other terms or conditions of the line of credit agreement were modified.

6. 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 1.78% and 3.13% for the three months ended September 30, 2022 and 2021, respectively, and 2.43% and 3.06% for the nine months ended September 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 7).

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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 $52 and $94 for the three months ended September 30, 2022 and 2021, respectively, and $220 and $278 for the nine months ended September 30, 2022 and 2021, respectively. The overall swap result was a gain of $357 and $31 for the three months ended September 30, 2022 and 2021, respectively, and $1,132 and $250 for the nine months ended September 30, 2022 and 2021, respectively. The Company expects to reclassify $70 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 August 9, 2022, 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 September 30, 2022. If a violation due to credit rating, or some other default provision, were triggered on September 30, 2022, the Company would have been required to pay the counterparty approximately $701.

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

7. 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.

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		September 30, 2022		Fair Value Measurements at Reporting Date Using Significant Other Observable Inputs (Level 2)
Interest Rate Swap		$717		$717

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 September 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 September 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

SEC Form 10-Q filed by York Water Company