YORK WATER CO (YORW)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (In thousands of dollars, except per share amounts)

Forward-looking Statements

Certain statements contained in this report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933.  Words such as “may,” “should,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “objective” and similar expressions are intended to identify forward-looking statements.  These forward-looking statements include certain information relating to the Company’s business strategy and future prospects; including, but not limited to:

The forward-looking statements in this report reflect what the Company currently anticipates will happen.  What actually happens could differ materially from what it currently anticipates and you should not place undue reliance upon such statements, which are based only on information currently available to the Company and speak only as of the date hereof.  The Company does not intend to make a public announcement when forward-looking statements in this report are no longer accurate, whether as a result of new information, what actually happens in the future or for any other reason.  Important matters that may affect what will actually happen include, but are not limited to:

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General Information

The primary business of the Company is to impound, purify to meet or exceed safe drinking water standards and distribute water.  The Company also owns and operates three wastewater collection systems and thirteen wastewater collection and treatment systems.  The Company operates within its franchised water and wastewater territory, which covers portions of 58 municipalities within four counties in south-central Pennsylvania.  The Company is regulated by the Pennsylvania Public Utility Commission, or PPUC, for both water and wastewater in the areas of billing, payment procedures, dispute processing, terminations, service territory, debt and equity financing and rate setting.  The Company must obtain PPUC approval before changing any practices associated with the aforementioned areas.

Water service is supplied through the Company’s own distribution system.  The Company obtains the bulk of its water supply for its primary system for York and Adams Counties from both the South Branch and East Branch of the Codorus Creek, which together have an average daily flow of approximately 73.0 million gallons from a combined watershed area of approximately 117 square miles.  The Company has two reservoirs on this primary system, Lake Williams and Lake Redman, which together hold up to approximately 2.5 billion gallons of water.  The Company supplements these reservoirs with a 15-mile pipeline from the Susquehanna River to Lake Redman which provides access to an additional supply of 12.0 million gallons of untreated water per day.  The Company obtains its water supply for its system for Franklin County from the Roxbury Dam on the Conodoguinet Creek, which has an average daily flow of approximately 26.0 million gallons from a watershed area of approximately 33 square miles.  The Company has a reservoir on this system which holds up to approximately 330 million gallons of water.  The Company also owns fifteen wells which are capable of providing a safe yield of approximately 923,000 gallons per day to supply water to the customers of its groundwater satellite systems in York, Adams, and Lancaster Counties.  As of June 30, 2026, the Company’s average daily availability was 41.1 million gallons, and average daily consumption was approximately 23.2 million gallons.  The Company’s service territory had an estimated population of 214,000 as of December 31, 2025.  Industry within the Company’s service territory is diversified, manufacturing such items as fixtures and furniture, electrical machinery, food products, paper, ordnance units, textile products, air conditioning systems, laundry detergent, barbells, and motorcycles.

The Company’s water business is somewhat dependent on weather conditions, particularly the amount and timing of precipitation.  Revenues are particularly vulnerable to weather conditions in the summer months.  Prolonged periods of hot and dry weather generally cause increased water usage for watering lawns, washing cars, and keeping golf courses and sports fields irrigated.  Conversely, prolonged periods of dry weather could lead to drought restrictions from governmental authorities.  Despite the Company’s adequate water supply, customers may be required to cut back water usage under such drought restrictions which would negatively impact revenues.  The Company has addressed some of this vulnerability by instituting minimum customer charges which are intended to cover fixed costs of operations under all likely weather conditions.

The Company’s business does not require large amounts of working capital and is not dependent on any single customer or a very few customers for a material portion of its business.  Increases in revenues are generally dependent on the Company’s ability to obtain rate increases from the PPUC in a timely manner and in adequate amounts and to increase volumes of water sold through increased consumption and increases in the number of customers served.  The Company continuously looks for water and wastewater acquisition and expansion opportunities both within and outside its current service territory as well as additional opportunities to enter into bulk water contracts with municipalities and other entities to supply water.

The Company has agreements with several municipalities to provide billing and collection services.  The Company continues to review and consider opportunities to expand this initiative to further diversify the business.

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Results of Operations

Three Months Ended June 30, 2026 Compared

With Three Months Ended June 30, 2025

Net income for the second quarter of 2026 was $7,615, an increase of $2,563, or 50.7%, from net income of $5,052 for the same period of 2025. The primary contributing factors to the increase were higher operating revenues, which were partially offset by higher operating expenses and income taxes.

Operating revenues for the second quarter of 2026 increased $4,316, or 22.5%, from $19,199 for the second quarter of 2025 to $23,515 for the corresponding 2026 period. The primary reason for the increase was a rate increase effective March 1, 2026. Growth in the customer base also added to revenues. The average number of water customers served in 2026 increased as compared to 2025 by 876 customers, from 73,459 to 74,335 customers. The average number of wastewater customers served in 2026 increased as compared to 2025 by 643 customers, from 7,017 to 7,660 customers, primarily due to acquisitions. The increased revenues were partially offset by a $531 decrease from a lower distribution system improvement charge, or DSIC, allowed by the PPUC. The DSIC reset to zero on March 1, 2026 when the rate order took effect.  Total per capita consumption for 2026 was approximately 2.7% lower than the same period of last year.

Operating expenses for the second quarter of 2026 increased $1,594, or 13.2%, from $12,113 for the second quarter of 2025 to $13,707 for the corresponding 2026 period. The increase was primarily due to higher expenses of approximately $529 for distribution system maintenance, $386 for wages and benefits, $249 for wastewater treatment, $154 for purchased power, $148 for depreciation and amortization, and $137 for the provision for uncollectible accounts. Other operating expenses decreased by a net of $9.

Interest on debt for the second quarter of 2026 decreased $239, or 9.5%, from $2,521 for the second quarter of 2025 to $2,282 for the corresponding 2026 period. The decrease was primarily due to a decrease in short-term and long-term debt outstanding. Upon the completion of the underwritten common stock offering in April 2026, the Company repaid its term loan and line of credit.  The average debt outstanding under the short-term borrowings and line of credit was $9,326 for the second quarter of 2026 and $25,762 for the second quarter of 2025. The weighted average interest rate on the line of credit and short-term borrowings was 3.92% for the quarter ended June 30, 2026 and 5.49% for the quarter ended June 30, 2025.

Allowance for funds used during construction increased $142, from $191 in the second quarter of 2025 to $333 in the corresponding 2026 period due to a higher volume of eligible construction.

Income tax expense for the second quarter of 2026 increased $533 as compared to the same period of 2025 due to higher taxable income.  The Company’s effective tax rate was 2.1% for the second quarter of 2026 and (7.8)% for the second quarter of 2025.

Six Months Ended June 30, 2026 Compared

With Six Months Ended June 30, 2025

Net income for the first six months of 2026 was $12,429, an increase of $3,739, or 43.0%, from net income of $8,690 for the same period of 2025.  The primary contributing factors to the increase were higher operating revenues and lower income taxes, which were partially offset by higher operating expenses.

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Operating revenues for the first six months of 2026 increased $5,934, or 15.8%, from $37,655 for the six months ended June 30, 2025 to $43,589 for the corresponding 2026 period.  The primary reason for the increase was a rate increase effective March 1, 2026. Growth in the customer base also added to revenues. The average number of water customers served in 2026 increased as compared to 2025 by 938 customers, from 73,322 to 74,260 customers. The average number of wastewater customers served in 2026 increased as compared to 2025 by 631 customers, from 6,865 to 7,496 customers, primarily due to acquisitions. The increased revenues were partially offset by

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

(All dollar amounts are stated in thousands of dollars.)

Overview

The York Water Company (the “Company”) is the oldest investor-owned water utility in the United States, operated continuously since 1816. The Company
also owns and operates three wastewater collection systems and twelve wastewater collection and treatment systems.  The Company is a purely regulated water and wastewater utility.  Profitability is largely dependent on water revenues.  Due to the
size of the Company and the limited geographic diversity of its service territory, weather conditions, particularly precipitation, economic, and market conditions can have an adverse effect on revenues.  The Company experienced increased revenues
in 2025 compared to 2024 primarily due to an increase in the number of customers and higher revenues from the distribution system improvement charge, or DSIC.  The DSIC allows the Company to add a charge to customers’ bills for qualified
replacement costs of certain infrastructure without submitting a rate filing.

The Company’s business does not require large amounts of working capital and is not dependent on any single customer or a very few customers for a
material portion of its business.  In 2025, operating revenue was derived from the following sources and in the following percentages: residential, 64%; commercial and industrial, 29%; and other, 7%, which is primarily from the provision for fire
service, but includes other water and wastewater service-related income.  The diverse customer mix helps to reduce volatility in consumption.

The Company seeks to grow revenues by increasing the volume of water sold and wastewater service provided through increases in the number of customers,
making timely and prudent investments in infrastructure replacements, expansion and improvements, and timely filing for rate increases.  The Company continuously looks for acquisition and expansion opportunities both within and outside its current
service territory as well as through contractual services and bulk water supply.

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The Company has agreements with several municipalities to provide billing and collection services.  The Company continues to review and consider
opportunities to expand this initiative to further diversify the business.

In addition to increasing revenue, the Company consistently focuses on minimizing costs without sacrificing water quality or customer service.  Paperless
billing, expanding online services, negotiation of favorable electric, banking, and other costs, and reduced pension contributions are examples of the Company’s recent efforts to minimize costs.

Performance Measures

Company management uses financial measures including operating revenues, net income, earnings per share and return on equity to evaluate its financial
performance.  Additional statistical measures including number of customers, customer complaint rate, annual customer rates and the efficiency ratio are used to evaluate performance quality.  These measures are calculated on a regular basis and
compared with historical information, budget and the other publicly-traded water and wastewater companies.

The Company’s performance in 2025 was strong under the above measures.  Operating revenues increased in 2025 compared to 2024 primarily due to an
increase in the number of customers and higher revenues from the DSIC.  The increase in operating expenses offset the increase in operating revenues.  The Company incurred higher interest expense and lower allowance for funds used during
construction.  The Company did benefit from a lower income taxes and a gain on life insurance.  The overall effect was a decrease in net income in 2025 over 2024 of 1.3% and a return on year end common equity of 8.3%.  The return on year end common
equity was lower than the 2024 result and the five year historical average return on year end common equity of 10.3%.  The Company’s recently implemented rate increase
should increase its opportunity to earn a higher return on year end common equity in the future.

The efficiency ratio, which is calculated as net income divided by revenues, is used by management to evaluate its ability to control expenses.  Over the
five previous years, the Company’s ratio averaged 31.0%.  In 2025, the ratio was lower than the average at 25.9% due primarily to the increase in operating expenses, higher interest expense, and lower allowance for funds used during construction.
Management is confident that its ratio will compare favorably to that of its peers.  Management continues to look for ways to decrease expenses and increase efficiency as well as to file for rate increases promptly when needed.

2025 Compared with 2024

Net income for 2025 was $20,058, a decrease of $267, or 1.3%, from net income of $20,325 for 2024.  The primary contributing factors to the decrease were
higher operating expenses, higher interest on debt, and a lower allowance for funds used during construction, which were partially offset by higher operating revenues, lower income taxes, and a gain on life insurance.

Operating revenues for 2025 increased $2,529, or 3.4%, from $74,959 for 2024 to $77,488 for 2025.  The increase was primarily due to growth in the
customer base and revenues from the DSIC of $1,986.  The average number of water customers served in 2025 increased as compared to 2024 by 1,165 customers, from 72,415 to 73,580 customers.  The average number of wastewater customers served in 2025
increased as compared to 2024 by 490 customers, from 6,521 to 7,011 customers, primarily due to acquisitions.  Total per capita consumption for 2025 was approximately 1.6% lower than 2024.  The Company expects revenues for 2026 to increase due to
an increase in rates effective March 1, 2026, and the continued increase in the number of water and wastewater customers from acquisitions and growth within the Company’s service territory.  Other regulatory actions, weather patterns, and economic
conditions could impact results.

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Operating expenses for 2025 increased $2,865, or 6.1%, from $46,918 for 2024 to $49,783 for 2025.  The increase was primarily due to higher expenses of
approximately $1,279 for depreciation and amortization, $931 for wages and benefits, $424 for distribution system maintenance, $161 for technology upgrades, $93 for reduced capitalized overhead, $89 for water treatment, and $59 for purchased
power.  Other operating expenses increased by a net of $358.  The increase was partially offset by reduced expenses of $339 for the provision for uncollectible accounts, $118 for outside services, and $72 for wastewater treatment.  In 2026, the
Company expects depreciation and amortization expense to continue to rise due to additional investment in utility plant, and other expenses to increase as costs to treat water and wastewater, and to maintain and extend the distribution and
collection systems, continue to rise.  Weather patterns could further increase operating expenses.

Interest on debt for 2025 increased $1,358, or 15.3%, from $8,904 for 2024 to $10,262 for 2025.  The increase was primarily due to an increase in
long-term debt outstanding and higher interest rates.  The average debt outstanding under the line of credit and short-term borrowings was $29,857 for 2025 and $10,087 for 2024.  The weighted average interest rate on the line of credit and
short-term borrowings was 5.41% during 2025 and 5.23% during 2024.  Interest expense for 2026 is expected to increase due to an increase in long-term debt outstanding.  A potential equity offering to pay down the line of credit and short-term
borrowings may offset the expected increase.

Allowance for funds used during construction decreased $1,232, from $2,052 in 2024 to $820 in 2025 due to a lower volume of eligible construction.
Allowance for funds used during construction in 2026 is expected to remain consistent based on the projected amount of eligible construction.

A non-recurring gain on life insurance of $831 was recorded in 2025 as a result of death benefits from life insurance policies.  No similar gains are
anticipated in 2026.

Other income (expenses), net for 2025 reflects increased expenses of $344 as compared to 2024.  The increase was primarily due to higher retirement
expenses of approximately $310 and higher charitable contributions of $114.  Other expenses decreased by a net of $80.  In 2026, other income (expenses) will be largely determined by the change in market returns and discount rates for retirement
programs and related assets.

Income tax expense for 2025 decreased $2,166 as compared to 2024 due to higher deductions for the Internal Revenue Service, or IRS, tangible property
regulations, or TPR.  The Company’s effective tax rate was (4.2)% for 2025 and 6.2% for 2024.  The Company’s effective tax rate for 2026 will be largely determined by the level of eligible asset improvements expensed for tax purposes under IRS
TPR.  The Company expects the level to be lower in 2026, increasing the effective tax rate as compared to 2025.

Rate Matters

See Note 10 to the Company’s financial statements included herein for a discussion of its rate matters.

Effective January 1, 2026, the Company’s tariff included a DSIC on revenues of 4.89%.  The DSIC reset to zero when new rates took effect on March 1,
2026.

Acquisitions and Growth

See Note 2 to the Company’s financial statements included herein for a discussion of completed acquisitions included in financial results.

On December 23, 2025, the Company signed an agreement to purchase the water
assets of Lenwood Management, LLC in Southampton Township, Franklin County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the fourth quarter of
2026 at which time the Company will add approximately 90 water customers.

On December 11, 2025, the Company signed an agreement to purchase the water
assets of Mt. Rock Manor Management, LLC in Southampton Township, Franklin County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the fourth
quarter of 2026 at which time the Company will add approximately 140 water customers.

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On June 13, 2025, the Company signed an agreement to purchase the wastewater collection and treatment assets of Pine Run Retirement Community in Hamilton
Township, Adams County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second quarter of 2026 at which time the Company will add approximately
100 wastewater customers.

On January 24, 2025, the Company signed an agreement to purchase the water assets of Eagle View Manufactured Housing Community in Berwick Township, Adams
County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second quarter of 2026 at which time the Company will add approximately 140 water
customers.

On February 7, 2024, the Company signed an agreement to purchase the wastewater collection assets of Margaretta Mobile Home Park in Lower Windsor
Township, York County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the fourth quarter of 2026 at which time the Company will add approximately
65 wastewater customers.

In total, these acquisitions are expected to be immaterial to Company results.  The Company is also pursuing other bulk water contracts and acquisitions
in and around its service territory to help offset any potential declines in per capita water consumption and to grow i

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