YORK WATER CO (YORW)

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 eleven 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 2024 compared to 2023 primarily due to the residual effects of a rate increase effective March 1, 2023, an increase in the number of customers, and higher revenues from the distribution system improvement charge, or DSIC.

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 2024, 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 entered into agreements with municipalities to provide billing and collection services.  The Company also has a service line protection
program on a targeted basis.  The Company continues to review and consider opportunities to expand both initiatives 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 2024 was strong under the above measures.  Operating revenues increased in 2024 compared to 2023 primarily due to the
residual effects of a rate increase effective March 1, 2023, 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 contribution to the pension plans.  The overall effect was a decrease in net income in 2024 over 2023 of 14.4% and a return on year end
common equity of 8.8%.  The return on year end common equity was lower than the 2023 result and the five year historical average return on year end common equity of 10.7%.  The Company expects to file a rate increase request in 2025 which may 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 31.1%.  In 2024, the ratio was lower than the average at 27.1% 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.

2024 Compared with 2023

Net income for 2024 was $20,325, a decrease of $3,432, or 14.4%, from net income of $23,757 for the same period of 2023.  The primary contributing
factors to the decrease were higher operating expenses, a lower allowance for funds used during construction, and higher interest on debt, which were partially offset by higher operating revenues and lower pension costs.

Operating revenues for 2024 increased $3,928, or 5.5%, from $71,031 for 2023 to $74,959 for 2024.  The primary reason for the increase was a rate increase
effective March 1, 2023.  Growth in the customer base also added to revenues.  The average number of water customers served in 2024 increased as compared to 2023 by 999 customers, from 71,416 to 72,415 customers.  The average number of wastewater
customers served in 2024 increased as compared to 2023 by 522 customers, from 5,999 to 6,521 customers, primarily due to acquisitions.  There was increased revenues from the DSIC allowed by the PPUC of $137.  The DSIC allows the Company to add a
charge to customers’ water bills for qualified replacement costs of certain infrastructure without submitting a rate filing.  The DSIC reset to zero on March 1, 2023 when the new rate order took effect and began again in June 2024 for bills
rendered after July 1, 2024.  Total per capita consumption for 2024 was approximately 0.8% lower than the same period of last year.  In 2025, the Company expects revenues to show a modest increase due to revenues from the DSIC and an 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 2024 increased $5,418, or 13.1%, from $41,500 for 2023 to $46,918 for 2024.  The increase was primarily due to higher expenses of
approximately $1,216 for depreciation and amortization, $1,007 for wages and benefits, $992 for distribution system maintenance, $534 for an increased allowance for uncollectible accounts, $504 for wastewater treatment, $268 for purchased power,
$226 for insurance, $200 for outside services, $163 for water treatment, and $92 for billing and revenue collection services.  Other operating expenses increased by a net of $415.  The increase was partially offset by reduced fuel expenses of $199
for the prior year pumping of raw water from the Susquehanna River, not repeated in 2024.  In 2025, 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 system, continue to rise.  Weather patterns could further increase operating expenses.

Interest on debt for 2024 increased $1,857, or 26.4%, from $7,047 for 2023 to $8,904 for 2024.  The increase was primarily due to an increase in
long-term debt outstanding and higher interest rates upon issuance of the 5.67% Senior Notes.  The average debt outstanding under the line of credit was $10,087 in 2024 and $16,316 in 2023.  The weighted average interest rate on the line of credit
was 5.23% during 2024 and 5.36% during 2023.  Interest expense for 2025 is expected to increase due to the increase in long-term debt outstanding.

Allowance for funds used during construction decreased $2,101, from $4,153 in 2023 to $2,052 in 2024 due to a higher volume of eligible construction in
2023.  Allowance for funds used during construction in 2025 is expected to decrease based on a projected decrease in the amount of eligible construction.

Other pension costs reflect decreased expense of $1,606 in 2024 due to a lower contribution to the pension plans.  In 2025, other pension costs is
expected to be similar to 2024.

Other income (expenses), net for 2024 reflects decreased expenses of $483 as compared to 2023.  The decrease was primarily due to lower retirement
expenses of approximately $315, higher earnings on life insurance policies of approximately $113, and lower charitable contributions of approximately $112.  Other expenses increased by a net of $57.  In 2025, 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 2024 increased $73 as compared to 2023 due to lower deductions for the Internal Revenue Service, or IRS, tangible property
regulations, or TPR.  The Company’s effective tax rate was 6.2% for 2024 and 5.1% for 2023.  The Company’s effective tax rate for 2025 will be largely determined by the level of eligible asset improvements expensed for tax purposes under the IRS
TPR each period.

Rate Matters

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

Effective January 1, 2025, the Company’s tariff included a DSIC on revenues of 2.20%.

The Company expects to file a rate increase request in 2025.

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 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 half of 2025 at which time the Company will add approximately 140 water
customers.

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On June 27, 2024, the Company signed an agreement to purchase the wastewater collection and treatment assets of CMV Sewage Co., Inc. in Chanceford
Township, York County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2025 at which time the Company will add approximately 280
wastewater 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 second half of 2025 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 its business.

Capital Expenditures

During 2024, the Company invested $48,226 in construction expenditures for armoring and replacing the spillway of the Lake Williams dam, wastewater
treatment plant construction as well as various replacements and improvements to infrastructure and routine items.  In addition, the Company invested $783 in the acquisition of water and wastewater systems.  The Company replaced approximately
50,200 feet of water main in 2024.  The Company was able to fund construction expenditures using internally-generated funds, line of credit borrowings, proceeds from its stock purchase plans and customer advances and contributions from developers,
municipalities, customers, or builders.  See Notes 1, 4 and 5 to the Company’s financial statements included herein.

The Company anticipates construction and acquisition expenditures for 2025 and 2026 of approximately $46,000 and $48,500, respectively, exclusive of any
acquisitions not yet approved.  In addition to routine transmission and distribution projects, a portion of the anticipated 2025 and 2026 expenditures will be for additional main extensions, water tank replacement, wastewater treatment plant
construction, an upgrade to the enterprise software system, and various replacements of infrastructure.  The Company intends to use primarily internally-generated funds for its anticipated 2025 and 2026 construction and fund the remainder through
line of credit borrowings, potential debt and equity offerings, proceeds from its stock purchase plans and customer advances and contributions (see Note 1 to the Company’s financial statements included herein).  Customer advances and contributions
are expected to account for between 5% and 10% of funding requirements in 2025 and 2026.  The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2025 and 2026, to fund anticipated
construction and acquisition expenditures.

Liquidity and Capital Resources

Cash

The Company manages its cash through a cash management account that is directly connected to its line of credit.  Excess cash generated automatically pays
down outstanding borrowings under the line of credit arrangement.  If there are no outstanding borrowings, the cash is used as an earnings credit to reduce banking fees.  Likewise, if additional funds are needed beyond what is generated internally
for payroll, to pay suppliers, to fund capital expenditures, or to pay debt service, funds are automatically borrowed under the line of credit.  As of December 31, 2024, the Company borrowed $15,808 under its line of credit and incurred a cash
overdraft on its cash management account of $2,428, which was recorded in accounts payable.  The cash management facility connected to the line of credit is expected to provide the necessary liquidity and funding for the Company’s operations,
capital expenditures, and acquisitions for the foreseeable future.

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Accounts Receivable

The accounts receivable balance tends to follow the change in revenues but is also affected by the timeliness of payments by customers and the level of
the reserve for doubtful accounts.  In 2024, higher revenue levels as compared to 2023 resulted in an increase in accounts receivable – customers.  A reserve is maintained at a level considered adequate to provide for expected credit losses.
Expected credit losses are based on historical write-offs combined with an evaluation of current conditions and reasonable and supportable forecasts including inactive accounts with outstanding balances, the aging of balances in payment agreements,
adverse situations that may affect a customer’s ability to pay, economic conditions, and other relevant factors applied to the current aging of receivables.  Customer accounts are written off when collection efforts have been exhausted.  If the
status of the evaluated factors deteriorate, the Company may incur additional expenses for uncollectible accounts and experience a reduction in its internally-generated funds.

Internally-generated Funds

The amount of internally-generated funds available for operations and construction depends on the Company’s ability to obtain timely and adequate rate
relief, changes in regulations, customers’ water usage, weather conditions, customer growth and controlled expenses.  In 2024, the Company generated $30,559 internally as compared to $31,908 in 2023.  The decrease from 2023 was primarily due to
higher interest and income taxes paid.

Common Stock

Common stockholders’ equity as a percent of the total capitalization was 52.6% as of December 31, 2024, compared with 54.8% as of December 31, 2023.  The
ratio decreased in 2024 due to higher debt primarily from capital expenditures.  The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward until it approaches fifty percent before
considering additional equity.  It is the Company’s general intent to target equity between fifty and fifty-five percent of total capitalization.

The Company has an effective “shelf” Registration Statement on Form S-3 on file with the Securities and Exchange Commission, pursuant to which the
Company may offer an aggregate remaining amount of up to $60,000 of its common stock or debt securities subject to market conditions at the time of any such offering.

Credit Line

Historically, the Company has borrowed under its lines of credit before refinancing with long-term debt or equity capital.  As of December 31, 2024, the
Company maintained a $50,000, unsecured, committed line of credit at an interest rate of the Secured Overnight Financing Rate, or SOFR, plus 1.17% with an unused commitment fee and an interest rate floor.  The Company had $15,808 in outstanding
borrowings under its line of credit as of December 31, 2024.  The interest rate on line of credit borrowings as of December 31, 2024 was 5.72%.  In the third quarter of 2024, the Company renewed its committed line of credit and extended the
maturity date to September 2026.  No other terms or conditions of the line of credit agreement were modified.  On January 1, 2023, the interest rate changed from LIBOR plus 1.05% to a successor rate of the SOFR plus 1.17% in advance of the
discontinuation of LIBOR in 2023.  The Company expects to renew this line of credit as it matures under similar terms and conditions.

The Company has taken steps to manage the risk of reduced credit availability.  It has established a committed line of credit with a 2-year revolving
maturity that cannot be called on demand.  There is no guarantee that the Company will be able to obtain sufficient lines of credit with favorable terms in the future.  If the Company is unable to obtain sufficient lines of credit or to refinance
its line of credit borrowings with long-term debt or equity, when necessary, it may have to eliminate or postpone capital expenditures.  Management believes the Company will have adequate capacity under its current line of credit to meet financing
needs throughout 2025.

Long-term Debt

The Company’s loan agreements contain various covenants and restrictions.  Management believes it is currently in compliance with all of these
restrictions.  See Note 6 to the Company’s financial statements included herein for additional information regarding these restrictions.

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On February 27, 2024, the Company entered into a note purchase agreement with certain institutional investors relating to the private placement of
$40,000 aggregate principal amount of the Company’s senior notes.  The senior notes bear interest at 5.67% per annum payable semiannually and mature on February 27, 2054.  The senior notes are unsecured and unsubordinated obligations of the
Company.  The Company received net proceeds, after deducting issuance costs, of approximately $39,833.  The net proceeds were used to refinance line of credit borrowings incurred by the Company as interim financing for various capital projects of
the Company.

The Company’s total long-term debt as a percentage of the total capitalization, defined as total common stockholders’ equity plus total long-term debt,
was 47.4% as of December 31, 2024, compared with 45.2% as of December 31, 2023.  The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward.  A debt to total capitalization ratio between
forty-five and fifty percent has historically been acceptable to the PPUC in rate filings.  See Note 6 to the Company’s financial statements included herein for the details of its long-term debt outstanding as of December 31, 2024.

Income Taxes, Deferred Income Taxes and Uncertain Tax Positions

Under the IRS TPR, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for
tax purposes as an expense on its income tax return.  This ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently payable.  It also
results in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.  The Company expects to continue to expense these asset improvements in the future.

The Company’s effective tax rate will largely be determined by income before income taxes and the level of eligible asset improvements expensed for tax
purposes that would have been capitalized for tax purposes prior to the implementation of the TPR.

On July 8, 2022, the Pennsylvania budget for the fiscal year ending June 30, 2023 was signed into law.  A provision within the tax code bill included
with the budget provides for an annual phase-down of the Pennsylvania corporate net income tax rate of one percentage point in the first year beginning January 1, 2023 from 9.99% to 8.99%, and a one-half percentage point each year thereafter until
it reaches 4.99% beginning January 1, 2031.  The Company has remeasured the state portion of the Company’s deferred income taxes.  The effect, net of the federal benefit recognized in income for the years ended December 31, 2024 and 2023, was
immaterial.  Deferred income taxes for differences that are recognized for ratemaking purposes on a cash or flow-through basis were remeasured with offsetting changes to regulatory assets and liabilities on the balance sheet as of December 31, 2024
and 2023.  The Company expects any savings in its Pennsylvania current income taxes to be returned to its customers through the rate making process or as a future negative surcharge on their bills.

The Company has a substantial deferred income tax asset primarily due to the excess accumulated deferred income taxes on accelerated depreciation from
the Tax Cuts and Jobs Act of 2017 and the differences between the book and tax balances of the customers’ advances for construction and contributions in aid of construction, and deferred compensation plans.  The Company does not believe a valuation
allowance is required due to the expected generation of future taxable income during the periods in which those temporary differences become deductible.

The Company has seen an increase in its deferred income tax liability amounts primarily as a result of the accelerated depreciation deduction available
for federal tax purposes which creates differences between book and tax depreciation expense.  The Company expects this trend to continue as it makes significant investments in capital expenditures subject to accelerated depreciation or TPR.

The Company has determined there are no uncertain tax positions that require recognition as of December 31, 2024.  See Note 14 to the Company’s financial
statements included herein for additional details regarding income taxes.

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Credit Rating

On August 6, 2024, Standard & Poor’s affirmed the Company’s credit rating at A-, with a stable outlook and adequate liquidity.  The Company’s ability
to maintain its credit rating depends, among other things, on adequate and timely rate relief, which it has been successful in obtaining, its ability to fund capital expenditures in a balanced manner using both debt and equity and its ability to
generate cash flow.  In 2025, the Company’s objectives are to continue to maximize its funds provided by operations and maintain a strong capital structure in order to be able to attract capital.

Physical and Cyber Security

The Company maintains security measures at its facilities, and collaborates with federal, state, and local authorities, and industry trade associations
regarding information on possible threats and security measures for water and wastewater utility operations.  The costs incurred are expected to be recoverable in water and wastewater rates and are not expected to have a material impact on its
business, financial condition, or results of operations.

The Company relies on information technology systems in connection with the operation of the business, especially with respect to customer service,
billing, accounting, and in some cases, the monitoring and operation of treatment, storage, and pumping facilities.  In addition, the Company relies on these systems to track utility assets and to manage maintenance and construction projects,
materials and supplies, and human resource functions.  The information technology systems may be vulnerable to damage or interruption from cyber security attacks or other cyber-related events, including, but not limited to, power loss, computer
systems failures, internet, telecommunications or data network failures, physical and electronic loss of data, computer viruses, intentional security breaches, hacking, denial of service actions, misappropriation of data, and similar events.  In
some cases, administration of certain functions may be outsourced to third-party service providers that could also be targets of cyber security attacks.  A loss of these systems, or major problems with the operation of these systems, could harm the
business, financial condition, and results of operations of the Company through the loss or compromise of customer, financial, employee, or operational data, disruption of billing, collections or normal field service activities, disruption of
electronic monitoring and control of operational systems, and delays in financial reporting and other normal management functions.

Possible impacts associated with a cyber security attack or other events may include remediation costs related to lost, stolen, or compromised data,
repairs to data processing systems, increased cyber security protection costs, adverse effects on the Company’s compliance with regulatory and environmental laws and regulation, including standards for drinking water, litigation, and reputational
damage.

The Company has implemented processes, procedures, and controls to prevent or limit the effect of these possible events and maintains insurance to help
defray costs associated with cyber security attacks.  The Company has not experienced a material impact on business or operations from these attacks.  Although the Company does not believe its systems are at a materially greater risk of cyber
security attacks than other similar organizations and despite the implementation of robust security measures, the Company cannot provide assurance that the insurance will fully cover the costs of a cyber security event, and its robust security
measures do not guarantee that reputation and financial results will not be adversely affected by such an incident.

Environmental Matters

The Company was granted approval by the 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 date of 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 $1,961 and $1,762 through December 31, 2024 and 2023, respectively, and is included as a regulatory asset.  Based on
its experience, the Company estimates that lead customer-owned service lines replacements will cost $2,000.  This estimate is subject to adjustment as more facts become available.

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Drought

On November 1, 2024, Pennsylvania state officials declared a drought watch for 33 counties in Pennsylvania, including all four counties in the Company’s
service territory.  The watch calls for a voluntary reduction in nonessential water use of 5 to 10 percent.  The watch conditions could potentially impact future revenues and net income depending on the length and severity of the dry conditions.

Dividends

During 2024, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 60.2% and 39.6%,
respectively.  During 2023, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 49.3% and 36.3%, respectively.  During the fourth quarter of 2024, the Board increased the dividend by 4.00%
from $0.2108 per share to $0.2192 per share per quarter.

The Company’s Board declared a dividend in the amount of $0.2192 per share at its January 2025 meeting.  The dividend is payable on April 15, 2025 to
shareholders of record as of February 28, 2025.  While the Company expects to maintain this dividend amount in 2025, future dividends will be dependent upon the Company’s earnings, financial condition, capital demands and other factors and will be
determined by the Company’s Board.  See Note 6 to the Company’s financial statements included herein for restrictions on dividend payments.

Inflation

The Company is affected by inflation, most notably by the continually increasing costs incurred to maintain and expand its service capacity.  The
cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flows.  The ability of the Company to recover this increased investment in facilities is dependent upon future rate
increases, which are subject to approval by the PPUC.  The Company can provide no assurances that its rate increases will be approved by the PPUC; and, if approved, the Company cannot guarantee that these rate increases will be granted in a timely
or sufficient manner to cover the investments and expenses for which the rate increase was sought.

Critical Accounting Estimates

The methods, estimates, and judgments the Company used in applying its accounting policies have a significant impact on the results reported in its
financial statements. The Company’s accounting policies require management to make subjective judgments because of the need to make estimates of matters that are inherently uncertain.  The Company’s most critical accounting estimates include:
revenue recognition and accounting for its pension plans.

Pension Accounting

Accounting for defined benefit pension plans requires estimates of future compensation increases, mortality, the discount rate, and expected return on
plan assets as well as other variables.  These variables are reviewed annually with the Company’s pension actuary.  The Company used compensation increases of 2.5% to 3.0% in 2023 and 2024.

The Company adopted a new mortality table in 2019, the Pri-2012, using the white collar table for the administrative and general plan and the blue collar
table for the union plan.  In 2021, the Company adopted the MP-2021 mortality improvement scale, which slightly increased the life expectancy of pension plan participants, resulting in a slight increase to the pension benefit obligation, and
ultimately, a decrease in the Company’s funded status of the plans.

The Company selected its December 31, 2024 and 2023 discount rates based on the FTSE Pension Liability Index.  This index uses spot rates for durations out
to 30 years and matches them to expected disbursements from the plan over the long term.  The Company believes this index most appropriately matches its pension obligations.  The present values of the Company’s future pension obligations were
determined using a discount rate of 5.45% at December 31, 2024 and 4.75% at December 31, 2023.

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Adopting a new mortality table that represents a change in life expectancy and choosing a different discount rate normally changes the amount of pension
expense and the corresponding liability.  In the case of the Company, these items change its liability, but do not have an impact on its pension expense.  The PPUC, in a previous rate settlement, agreed to grant recovery of the Company’s
contribution to the pension plans in customer rates.  As a result, under the accounting standards regarding rate-regulated activities, expense in excess of the Company’s pension plan contribution can be deferred as a regulatory asset and expensed
as contributions are made to the plans and are recovered in customer rates.  Therefore, these changes affect regulatory assets rather than pension expense.

In 2023, the Company modified its investment policy statements.  The Company’s estimate of the expected return on plan assets is primarily based on the
historic returns and projected future returns of the asset classes represented in its plans.  The target allocation of pension assets is 70% to 90% fixed income securities, 10% to 30% equity securities, and 0% to 10% cash reserves.  The Company
used 5.00% as its expected rate of return in 2023 and 2024, a decrease from the 6.50% used in 2022 based on the modified investment policy statements.  A decrease in the expected pension return would normally cause an increase in pension expense;
however due to the aforementioned rate settlement, the Company’s expense would continue to be equal to its contributions to the plans.  The change would instead be recorded in regulatory assets.

Lower discount rates and underperformance of assets could cause future required contributions and expense to increase substantially.  If this were to
happen, the Company would have to consider changes to its pension plan benefits and possibly request additional recovery of expenses through increased rates charged to customers.  See Note 11 to the Company’s financial statements included herein
for additional details regarding the pension plans.

Off-Balance Sheet Transactions

The Company does not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial
condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.  The Company does not use securitization of receivables or unconsolidated entities. For risk management
purposes, the Company uses a derivative financial instrument, an interest rate swap agreement discussed in Note 7 to the financial statements included herein.  The Company does not engage in trading or other risk management activities, does not use
other derivative financial instruments for any purpose, has no material lease obligations, no guarantees and does not have material transactions involving related parties.

Impact of Recent Accounting Pronouncements

There are currently no recent accounting pronouncements that are expected to have a material impact to the Company’s financial statements.

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 ten 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
2023 compared to 2022 primarily due to a rate increase effective March 1, 2023 and an increase in the number of customers, which was partially offset by lower revenues from the distribution system improvement charge, or DSIC.

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 2023, 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 entered into agreements with municipalities to provide billing and collection services.  The Company also has a service line protection
program on a targeted basis.  The Company continues to review and consider opportunities to expand both initiatives 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, as well as taking advantage of the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, and the Internal Revenue Service, or IRS, tangible property
regulations, or TPR, 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 2023 was strong under the above measures.  Operating revenues increased in 2023 compared to 2022 primarily due to a rate
increase effective March 1, 2023 and an increase in the number of customers, which was partially offset by the lower revenues from the DSIC.  The increase in operating revenues offset the increases in operating expenses.  The Company incurred
higher income taxes primarily due to higher income before income taxes.  The overall effect was an increase in net income in 2023 over 2022 of 21.3% and a return on year end common equity of 10.7%.  The return on year end common equity was strong
and higher than the 2022 result of 9.5% which included an increase in common equity from an underwritten public stock offering completed in 2022.  The 2023 results were in line with the five year historical average return on year end common equity
of 10.7%.

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 30.0%.  In 2023, the ratio was higher than the average at 33.4% due primarily to the increase in operating revenues and lower income taxes than are included in the historical average.  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.

2023 Compared with 2022

Net income for 2023 was $23,757, an increase of $4,177, or 21.3%, from net income of $19,580 for 2022.  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 2023 increased $10,970, or 18.3%, from $60,061 for 2022 to $71,031 for 2023.  The primary reason for the increase was a rate
increase effective March 1, 2023.  Growth in the customer base also added to revenues.  The average number of water customers served in 2023 increased as compared to 2022 by 996 customers, from 70,420 to 71,416 customers.  The average number of
wastewater customers served in 2023 increased as compared to 2022 by 390 customers, from 5,609 to 5,999 customers, primarily due to acquisitions.  Total per capita consumption for 2023 was approximately 0.3% higher than last year.  The increased
revenues were partially offset by a $1,994 decrease from a lower DSIC allowed by the PPUC.  The DSIC reset to zero on March 1, 2023 when the rate order took effect.  In 2024, the Company expects revenues to show a modest increase over 2023 due to a
full year at the new rates and an increase in the number of water and wastewater customers from acquisitions and growth within the Company’s service territory.  Other regulatory actions, drought warnings or restrictions, weather patterns, and
economic conditions could impact results.

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Operating expenses for 2023 increased $5,922, or 16.6%, from $35,578 for 2022 to $41,500 for 2023.  The increase was primarily due to higher expenses of
approximately $1,607 for depreciation and amortization, $975 for water treatment, $713 for wages, $683 for wastewater treatment as the prior year included a one-time reimbursement not repeated in the current year, $362 for insurance, $282 for
distribution system maintenance, $281 for outside services, $213 for billing and revenue collection services, $202 for fuel to pump raw water from the Susquehanna River, $189 for reduced capitalized overhead, $106 for an increased allowance for
uncollectible accounts, and $89 for source maintenance.  Other operating expenses increased by a net of $220.  In 2024, 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 system, continue to rise.  Drought conditions and weather patterns could further increase operating expenses.

Interest on debt for 2023 increased $1,933, or 37.8%, from $5,114 for 2022 to $7,047 for 2023.  The increase was primarily due to an increase in
long-term debt outstanding and higher interest rates.  The average debt outstanding under the lines of credit was $16,316 for 2023 and $13,428 for 2022.  The weighted average interest rate on the lines of credit was 5.36% for 2023 and 2.11% for
2022.  Interest expense for 2024 is expected to be higher due to continued borrowings and continued higher interest rates.

Allowance for funds used during construction increased $2,652, from $1,501 in 2022 to $4,153 in 2023 due to a higher volume of eligible construction.
Allowance for funds used during construction in 2024 is expected to decrease based on the completion of the Lake Williams Dam project and a projected decrease in the amount of eligible construction.

Other income (expenses), net for 2023 reflects increased expenses of $521 as compared to 2022.  Higher retirement expenses of approximately $843 were the
primary reason for the increase.  Lower charitable contributions of approximately $288 partially offset the increase.  Other expenses decreased by a net of $34.
In 2024, 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 2023 increased $1,262 compared to 2022 primarily due to higher income before income taxes partially offset by higher deductions
from the IRS TPR.  The Company’s effective tax rate was 5.1% for 2023 and 0.1% for 2022.  The Company’s effective tax rate for 2024 will be largely determined by income before income taxes and the level of eligible asset improvements expensed for
tax purposes under TPR each period.

Rate Matters

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

The Company does not expect to file a rate increase request in 2024.

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 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 2025 at which time the Company will add approximately 65 wastewater
customers.

On July 17, 2023, the Company signed an agreement to purchase the wastewater collection and treatment assets of York Haven Sewer Authority in York Haven
Borough, York County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the third quarter of 2024 at which time the Company will add approximately
230 wastewater customers.

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On June 1, 2023, the Company signed an agreement to purchase the water assets of Longstown Mobile Estates in Windsor Township, York County,
Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the first quarter of 2024 at which time the Company will add approximately 90 water customers.  The
water customers are currently served by the Company through a single customer connection to the mobile home park.

On May 23, 2023, the Company signed an agreement to purchase the Brookhaven Mobile Home Park water assets of ATG Properties, LLC in Hellam Township, York
County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2024 at which time the Company will add approximately 150 water
customers.

On May 18, 2023, the Company signed an agreement to purchase the water assets of Houston Run Community Water System, LLC in Salisbury Township, Lancaster
County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second quarter of 2024 at which time the Company will add approximately 15 water
customers.

On March 27, 2023, the Company signed an agreement to purchase the water 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 half of 2024 at which time the Company will add approximately 100 water customers.

On November 9, 2022, the Company signed an agreement to purchase the wastewater collection and treatment assets of CMV Sewage Co., Inc. in Chanceford
Township, York County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2024 at which time the Company will add approximately 280
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 its business.

On May 10, 2017, the Company signed an emergency interconnect agreement with Dallastown-Yoe Water Authority.  The effectiveness of this agreement is
contingent upon receiving approval from all required regulatory authorities.  Approval is expected to be granted in 2024 at which time the Company will begin construction of a water main extension to a single point of interconnection and either
supply a minimum agreed upon amount of water to the authority, receive a payment in lieu of water, or provide water during an emergency, at current tariff rates.

Capital Expenditures

During 2023, the Company invested $64,640 in construction expenditures for armoring and replacing the spillway of the Lake Williams dam, wastewater
treatment plant construction as well as various replacements and improvements to infrastructure and routine items.  In addition, the Company invested $625 in the acquisition of water and wastewater systems.  The Company replaced approximately
50,200 feet of water main and 500 feet of wastewater main in 2023.  The Company was able to fund construction expenditures using internally-generated funds, line of credit borrowings, proceeds from its stock purchase plans and customer advances and
contributions from developers, municipalities, customers, or builders.  See Notes 1, 4 and 5 to the Company’s financial statements included herein.

The Company anticipates construction and acquisition expenditures for 2024 and 2025 of approximately $42,200 and $46,100, respectively, exclusive of any
acquisitions not yet approved.  In addition to routine transmission and distribution projects, a portion of the anticipated 2024 and 2025 expenditures will be for additional main extensions, completion of armoring and replacing the spillway of the
Lake Williams dam, wastewater treatment plant construction, an upgrade to the enterprise software system, and various replacements of infrastructure.  The Company intends to use primarily internally-generated funds for its anticipated 2024 and 2025
construction and fund the remainder through line of credit borrowings, potential debt and equity offerings, proceeds from its stock purchase plans and customer advances and contributions (see Note 1 to the Company’s financial statements included
herein).  Customer advances and contributions are expected to account for between 5% and 10% of funding requirements in 2024 and 2025.  The Company believes it will have adequate credit facilities and access to the capital markets, if necessary,
during 2024 and 2025, to fund anticipated construction and acquisition expenditures.

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Liquidity and Capital Resources

Cash

The Company manages its cash through a cash management account that is directly connected to its line of credit.  Excess cash generated automatically
pays down outstanding borrowings under the line of credit arrangement.  If there are no outstanding borrowings, the cash is used as an earnings credit to reduce banking fees.  Likewise, if additional funds are needed beyond what is generated
internally for payroll, to pay suppliers, to fund capital expenditures, or to pay debt service, funds are automatically borrowed under the line of credit.  As of December 31, 2023, the Company borrowed $30,273 under its line of credit and incurred
a cash overdraft on its cash management account of $1,547, which was recorded in accounts payable.  The cash management facility connected to the line of credit is expected to provide the necessary liquidity and funding for the Company’s
operations, capital expenditures, and acquisitions for the foreseeable future.

Accounts Receivable

The accounts receivable balance tends to follow the change in revenues but is also affected by the timeliness of payments by customers and the level of
the reserve for doubtful accounts.  In 2023, higher revenue levels as compared to 2022 resulted in an increase in accounts receivable – customers.  A reserve is maintained at a level considered adequate to provide for expected credit losses.
Expected credit losses are based on historical write-offs combined with an evaluation of current conditions and reasonable and supportable forecasts including inactive accounts with outstanding balances, the aging of balances in payment agreements,
adverse situations that may affect a customer’s ability to pay, economic conditions, and other relevant factors applied to the current aging of receivables.  Customer accounts are written off when collection efforts have been exhausted.  If the
status of the evaluated factors deteriorate, the Company may incur additional expenses for uncollectible accounts and experience a reduction in its internally-generated funds.

Internally-generated Funds

The amount of internally-generated funds available for operations and construction depends on the Company’s ability to obtain timely and adequate rate
relief, changes in regulations, customers’ water usage, weather conditions, customer growth and controlled expenses.  In 2023, the Company generated $31,908 internally as compared to $22,018 in 2022.  The increase from 2022 was primarily due to the
increase in net income and the increase in depreciation and amortization, a non-cash expense.

Common Stock

Common stockholders’ equity as a percent of the total capitalization was 54.8% as of December 31, 2023, compared with 59.3% as of December 31, 2022.  The
ratio decreased in 2023 due to higher debt primarily from increased capital expenditures.  The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward until it approaches fifty percent
before considering additional equity.  It is the Company’s general intent to target equity between fifty and fifty-five percent of total capitalization.

The Company has the ability to issue approximately $4,000 of additional shares of its common stock or debt securities remaining under an effective
“shelf” Registration Statement on Form S-3 on file with the Securities and Exchange Commission subject to market conditions at the time of any such offering.

Credit Line

Historically, the Company has borrowed under its lines of credit before refinancing with long-term debt or equity capital.  As of December 31, 2023, the
Company maintained a $50,000, unsecured, committed line of credit at an interest rate of the Secured Overnight Financing Rate, or SOFR, plus 1.17% with an unused commitment fee and an interest rate floor.  The Company had $30,273 in outstanding
borrowings under its line of credit as of December 31, 2023.  The interest rate on line of credit borrowings as of December 31, 2023 was 6.51%.  In the third quarter of 2023, the Company renewed its committed line of credit and extended the
maturity date to September 2025.  No other terms or conditions of the line of credit agreement were modified.  On January 1, 2023, the interest rate changed from LIBOR plus 1.05% to a successor rate of the SOFR plus 1.17% in advance of the
discontinuation of LIBOR in 2023.  The Company expects to renew this line of credit as it matures under similar terms and conditions.

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The Company has taken steps to manage the risk of reduced credit availability.  It has established a committed line of credit with a 2-year revolving
maturity that cannot be called on demand.  There is no guarantee that the Company will be able to obtain sufficient lines of credit with favorable terms in the future.  If the Company is unable to obtain sufficient lines of credit or to refinance
its line of credit borrowings with long-term debt or equity, when necessary, it may have to eliminate or postpone capital expenditures.  Management believes the Company will have adequate capacity under its current line of credit to meet financing
needs throughout 2024.

Long-term Debt

The Company’s loan agreements contain various covenants and restrictions.  Management believes it is currently in compliance with all of these
restrictions.  See Note 6 to the Company’s financial statements included herein for additional information regarding these restrictions.

On February 24, 2023, the Company entered into a note purchase agreement with certain institutional investors relating to the private placement of
$40,000 aggregate principal amount of the Company’s senior notes.  The senior notes bear interest at 5.50% per annum payable semiannually and mature on February 24, 2053.  The senior notes are unsecured and unsubordinated obligations of the
Company.  The Company received net proceeds, after deducting issuance costs, of approximately $39,829.  The net proceeds were used to refinance line of credit borrowings incurred by the Company as interim financing for various capital projects of
the Company.

The Company’s total long-term debt as a percentage of the total capitalization, defined as total common stockholders’ equity plus total long-term debt,
was 45.2% as of December 31, 2023, compared with 40.7% as of December 31, 2022.  The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward.  A debt to total capitalization ratio between
forty-five and fifty percent has historically been acceptable to the PPUC in rate filings.  See Note 6 to the Company’s financial statements included herein for the details of its long-term debt outstanding as of December 31, 2023.

Income Taxes, Deferred Income Taxes and Uncertain Tax Positions

Under the IRS TPR, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for
tax purposes as an expense on its income tax return.  This ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently payable.  It also
results in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.  The Company expects to continue to expense these asset improvements in the future.

The Company’s effective tax rate will largely be determined by income before income taxes and the level of eligible asset improvements expensed for tax
purposes that would have been capitalized for tax purposes prior to the implementation of the TPR.

On July 8, 2022, the Pennsylvania budget for the fiscal year ending June 30, 2023 was signed into law.  A provision within the tax code bill included
with the budget provides for an annual phase-down of the Pennsylvania corporate net income tax rate of one percentage point in the first year beginning January 1, 2023 from 9.99% to 8.99%, and a one-half percentage point each year thereafter until
it reaches 4.99% beginning January 1, 2031.  The Company has remeasured the state portion of the Company’s deferred income taxes.  The effect, net of the federal benefit recognized in income for the years ended December 31, 2023 and 2022, was
immaterial.  Deferred income taxes for differences that are recognized for ratemaking purposes on a cash or flow-through basis were remeasured with offsetting changes to regulatory assets and liabilities on the balance sheet as of December 31, 2023
and 2022.  The Company expects any savings in its Pennsylvania current income taxes to be returned to its customers through the rate making process or as a future negative surcharge on their bills.

The Company has a substantial deferred income tax asset primarily due to the excess accumulated deferred income taxes on accelerated depreciation from
the 2017 Tax Act and the differences between the book and tax balances of the customers’ advances for construction and contributions in aid of construction and deferred compensation plans.  The Company does not believe a valuation allowance is
required due to the expected generation of future taxable income during the periods in which those temporary differences become deductible.

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The Company has seen an increase in its deferred income tax liability amounts primarily as a result of the accelerated depreciation deduction available
for federal tax purposes which creates differences between book and tax depreciation expense.  The Company expects this trend to continue as it makes significant investments in capital expenditures subject to accelerated depreciation or TPR.

The Company has determined there are no uncertain tax positions that require recognition as of December 31, 2023.  See Note 14 to the Company’s financial
statements included herein for additional details regarding income taxes.

Credit Rating

On July 26, 2023, Standard & Poor’s affirmed the Company’s credit rating at A-, with a stable outlook and adequate liquidity.  The Company’s ability
to maintain its credit rating depends, among other things, on adequate and timely rate relief, which it has been successful in obtaining, its ability to fund capital expenditures in a balanced manner using both debt and equity and its ability to
generate cash flow.  In 2024, the Company’s objectives are to continue to maximize its funds provided by operations and maintain a strong capital structure in order to be able to attract capital.

Physical and Cyber Security

The Company maintains security measures at its facilities, and collaborates with federal, state, and local authorities, and industry trade associations
regarding information on possible threats and security measures for water and wastewater utility operations.  The costs incurred are expected to be recoverable in water and wastewater rates and are not expected to have a material impact on its
business, financial condition, or results of operations.

The Company relies on information technology systems in connection with the operation of the business, especially with respect to customer service,
billing, accounting, and in some cases, the monitoring and operation of treatment, storage, and pumping facilities.  In addition, the Company relies on these systems to track utility assets and to manage maintenance and construction projects,
materials and supplies, and human resource functions.  The information technology systems may be vulnerable to damage or interruption from cyber security attacks or other cyber-related events, including, but not limited to, power loss, computer
systems failures, internet, telecommunications or data network failures, physical and electronic loss of data, computer viruses, intentional security breaches, hacking, denial of service actions, misappropriation of data, and similar events.  In
some cases, administration of certain functions may be outsourced to third-party service providers that could also be targets of cyber security attacks.  A loss of these systems, or major problems with the operation of these systems, could harm the
business, financial condition, and results of operations of the Company through the loss or compromise of customer, financial, employee, or operational data, disruption of billing, collections or normal field service activities, disruption of
electronic monitoring and control of operational systems, and delays in financial reporting and other normal management functions.

Possible impacts associated with a cyber security attack or other events may include remediation costs related to lost, stolen, or compromised data,
repairs to data processing systems, increased cyber security protection costs, adverse effects on the Company’s compliance with regulatory and environmental laws and regulation, including standards for drinking water, litigation, and reputational
damage.

The Company has implemented processes, procedures, and controls to prevent or limit the effect of these possible events and maintains insurance to help
defray costs associated with cyber security attacks.  The Company has not experienced a material impact on business or operations from these attacks.  Although the Company does not believe its systems are at a materially greater risk of cyber
security attacks than other similar organizations and despite the implementation of robust security measures, the Company cannot provide assurance that the insurance will fully cover the costs of a cyber security event, and its robust security
measures do not guarantee that reputation and financial results will not be adversely affected by such an incident.

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Environmental Matters

The Company was granted approval by the 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 date of 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 $1,762 and $1,518 through December 31, 2023 and 2022, respectively, and is included as a regulatory asset.  Based on
its experience, the Company estimates that lead customer-owned service lines replacements will cost $1,900.  This estimate is subject to adjustment as more facts become available.

Drought

On January 26, 2024, Pennsylvania state officials moved York County to a drought watch, moved Lancaster County to normal status, and continued the
drought watch for Adams County and the drought warning for Franklin County.  The warning calls for a voluntary reduction in nonessential water use of 10 to 15 percent and the watch calls for a voluntary reduction in nonessential water use of 5 to
10 percent.  In addition, the Company has implemented a voluntary restriction on nonessential water use within its service territory.  These measures could potentially impact future revenues, operating expenses, and net income depending on the
length and severity of the dry conditions.

Dividends

During 2023, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 49.3% and 36.3%,
respectively.  During 2022, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 56.2% and 48.5%, respectively.  During the fourth quarter of 2023, the Board increased the dividend by 4.00%
from $0.2027 per share to $0.2108 per share per quarter.

The Company’s Board declared a dividend in the amount of $0.2108 per share at its January 2024 meeting.  The dividend is payable on April 15, 2024 to
shareholders of record as of February 29, 2024.  While the Company expects to maintain this dividend amount in 2024, future dividends will be dependent upon the Company’s earnings, financial condition, capital demands and other factors and will be
determined by the Company’s Board.  See Note 6 to the Company’s financial statements included herein for restrictions on dividend payments.

Inflation

The Company is affected by inflation, most notably by the continually increasing costs incurred to maintain and expand its service capacity.  The
cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flows.  The ability of the Company to recover this increased investment in facilities is dependent upon future rate
increases, which are subject to approval by the PPUC.  The Company can provide no assurances that its rate increases will be approved by the PPUC; and, if approved, the Company cannot guarantee that these rate increases will be granted in a timely
or sufficient manner to cover the investments and expenses for which the rate increase was sought.

Critical Accounting Estimates

The methods, estimates, and judgments the Company used in applying its accounting policies have a significant impact on the results reported in its
financial statements. The Company’s accounting policies require management to make subjective judgments because of the need to make estimates of matters that are inherently uncertain.  The Company’s most critical accounting estimates include:
revenue recognition and accounting for its pension plans.

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Revenue Recognition

Operating revenues include amounts billed to metered water and certain wastewater customers on a cycle basis and unbilled amounts based on both actual
and estimated usage from the latest meter reading to the end of the accounting period.  Estimates are based on average daily usage for those particular customers.  The unbilled revenue amount is recorded as a current asset on the balance sheet.
Actual results could differ from these estimates and would result in operating revenues being adjusted in the period in which the actual usage is known.  Based on historical experience, the Company believes its estimate of unbilled revenues is
reasonable.

Pension Accounting

Accounting for defined benefit pension plans requires estimates of future compensation increases, mortality, the discount rate, and expected return on
plan assets as well as other variables.  These variables are reviewed annually with the Company’s pension actuary.  The Company used compensation increases of 2.5% to 3.0% in 2022 and 2023.

The Company adopted a new mortality table in 2019, the Pri-2012, using the white collar table for the administrative and general plan and the blue collar
table for the union plan.  In 2021, the Company adopted the MP-2021 mortality improvement scale, which slightly increased the life expectancy of pension plan participants, resulting in a slight increase to the pension benefit obligation, and
ultimately, a decrease in the Company’s funded status of the plans.

The Company selected its December 31, 2023 and 2022 discount rates based on the FTSE Pension Liability Index.  This index uses spot rates for durations
out to 30 years and matches them to expected disbursements from the plan over the long term.  The Company believes this index most appropriately matches its pension obligations.  The present values of the Company’s future pension obligations were
determined using a discount rate of 4.75% at December 31, 2023 and 5.00% at December 31, 2022.

Adopting a new mortality table that represents a change in life expectancy and choosing a different discount rate normally changes the amount of pension
expense and the corresponding liability.  In the case of the Company, these items change its liability, but do not have an impact on its pension expense.  The PPUC, in a previous rate settlement, agreed to grant recovery of the Company’s
contribution to the pension plans in customer rates.  As a result, under the accounting standards regarding rate-regulated activities, expense in excess of the Company’s pension plan contribution can be deferred as a regulatory asset and expensed
as contributions are made to the plans and are recovered in customer rates.  Therefore, these changes affect regulatory assets rather than pension expense.

In 2023, the Company modified its investment policy statements.  The Company’s estimate of the expected return on plan assets is primarily based on the
historic returns and projected future returns of the asset classes represented in its plans.  The target allocation of pension assets is 70% to 90% fixed income securities, 10% to 30% equity securities, and 0% to 10% cash reserves.  The Company
used 5.00% as its expected rate of return in 2023, a decrease from the 6.50% used in 2022 based on the modified investment policy statements.  A decrease in the expected pension return would normally cause an increase in pension expense; however
due to the aforementioned rate settlement, the Company’s expense would continue to be equal to its contributions to the plans.  The change would instead be recorded in regulatory assets.

Lower discount rates and underperformance of assets could cause future required contributions and expense to increase substantially.  If this were to
happen, the Company would have to consider changes to its pension plan benefits and possibly request additional recovery of expenses through increased rates charged to customers.  See Note 11 to the Company’s financial statements included herein
for additional details regarding the pension plans.

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Off-Balance Sheet Transactions

The Company does not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial
condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.  The Company does not use securitization of receivables or unconsolidated entities. For risk management
purposes, the Company uses a derivative financial instrument, an interest rate swap agreement discussed in Note 7 to the financial statements included herein.  The Company does not engage in trading or other risk management activities, does not use
other derivative financial instruments for any purpose, has no material lease obligations, no guarantees and does not have material transactions involving related parties.

Impact of Recent Accounting Pronouncements

There are currently no recent accounting pronouncements that are expected to have a material impact to the Company’s financial statements.

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 eight 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 2022
compared to 2021 primarily due to an increase in the number of customers and revenues from the distribution system improvement charge, or DSIC.

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 2022, operating revenue was derived from the following sources and in the following percentages: residential, 65%; commercial and industrial, 27%; and other, 8%, 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 through increases in the number of customers served, 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.  The Company’s wastewater business provides additional opportunities to expand.

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The Company has entered into agreements with municipalities to provide billing and collection services.  The Company also has a service line protection program on a
targeted basis.  The Company continues to review and consider opportunities to expand both initiatives 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, as well as taking advantage of the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, and the Internal Revenue Service, or IRS, tangible property regulations,
or TPR, are examples of the Company’s recent efforts to minimize costs.

Impact of COVID-19

On March 11, 2020, the World Health Organization characterized an outbreak of a novel strain of coronavirus (“COVID-19”) as a pandemic.  The Company has taken steps,
consistent with directions from federal, state, and local authorities, to mitigate known risks with the health and safety of its employees and customers as its first priority.

The Company is an essential, life-sustaining business and has continued normal operations.  Although most restrictions have been lifted, the Company continues to
monitor guidance from federal, state, and local authorities.  Any new restrictions are not expected to materially impede the Company’s ability to complete its planned capital expenditures or acquisitions.  The Company has not experienced any
material supply chain disruptions.  The Company has been informed of longer lead times for some items, although this does not impact daily operating supplies.  The Company maintains an adequate inventory of critical repair parts which are available
as needed.  The Company continues to maintain relationships with its vendors to identify issues in a timely manner while also seeking out additional vendor relationships to diversify its supply chain.  The Company has addressed the longer lead
times by placing orders proactively with its vendors to align with current lead times.  If the delays increase materially or if certain materials and supplies become unavailable, the Company may re-prioritize some of its capital projects or
experience higher operating expenses or capital costs.  The Company believes it has sufficient liquidity and access to the capital markets if needed.

To date, there has been no material impact on the Company’s workforce, operations, financial performance, liquidity, or supply chain as a result of COVID-19.  However,
the ultimate duration and severity of the pandemic or its effects on the economy, the capital and credit markets, or the Company’s workforce, customers, and suppliers, as well as governmental and regulatory responses, are uncertain.

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 2022 was strong under the above measures.  Operating revenues increased in 2022 compared to 2021 primarily due to an increase in the
number of customers and revenues from the DSIC.  The increase in operating revenues offset the increases in operating expenses.  The Company incurred lower income taxes primarily due to a higher deduction for the tax benefit under the IRS TPR.  The
overall effect was an increase in net income in 2022 over 2021 of 15.3% and a return on year end common equity of 9.5%.  The return on year end common equity was strong but lower than the 2021 result of 11.1% and the five-year historical average of
11.0% due to an increase in common equity from an underwritten public stock offering completed in 2022.

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 28.8%.  In 2022, the ratio was higher than the average at 32.6% due primarily to lower income taxes than are included in the historical average.  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.

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2022 Compared with 2021

Net income for 2022 was $19,580, an increase of $2,596, or 15.3%, from net income of $16,984 for 2021.  The primary contributing factors to the increase were higher
operating revenues and lower income taxes, which were partially offset by higher expenses.

Operating revenues for 2022 increased $4,942, or 9.0%, from $55,119 for 2021 to $60,061 for 2022.  The increase was primarily due to growth in the customer base and
revenues from the DSIC of $2,243.  The average number of wastewater customers served in 2022 increased as compared to 2021 by 2,284 customers, from 3,325 to 5,609 customers, primarily due to the West Manheim Township acquisition.  The average
number of water customers served in 2022 increased as compared to 2021 by 798 customers, from 69,622 to 70,420 customers.  Total per capita consumption for 2022 was approximately 1.2% higher than the same period of last year.  The Company expects
revenues for 2023 to increase due to an increase in rates effective March 1, 2023, and the continued increase in the number of water and wastewater customers from acquisitions and growth within the Company’s service territory.  Any slowdown
resulting from COVID-19 or economic factors or changes in consumption patterns could impact results.  Other regulatory actions and weather patterns could also impact results.

Operating expenses for 2022 increased $3,855, or 12.2%, from $31,723 for 2021 to $35,578 for the corresponding 2022 period.  The increase was primarily due to higher
expenses of approximately $1,280 for depreciation, $732 for wastewater treatment, $522 for wages, $499 for water treatment, $442 for distribution system maintenance, and $222 for billing and revenue collection services.  Other expenses increased by
a net of $272.  The increased expenses were partially offset by $114 for lower pension administration expenses.  In 2023, the Company expects depreciation 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 system, continue to rise.

Interest on debt for 2022 increased $188 or 3.8%, from $4,926 for 2021 to $5,114 for 2022.  The increase was primarily due to an increase in interest rates and
long-term debt outstanding.  The average debt outstanding under the lines of credit was $13,428 for 2022 and $11,487 for 2021.  The weighted average interest rate on the lines of credit was 2.11% for 2022 and 1.30% for 2021.  Interest expense for
2023 is expected to be higher due to continued borrowings and expected increases in interest rates.

Allowance for funds used during construction increased $280, from $1,221 in 2021 to $1,501 in 2022 due to a higher volume of eligible construction.  Allowance for
funds used during construction in 2023 is expected to increase based on a projected increase in the amount of eligible construction.

Other income (expenses), net for 2022 reflects decreased expenses of $373 as compared to 2021.  Lower retirement expenses of approximately $660 due mostly to an
increase in the discount rate, were the primary reason for the decrease.  Lower earnings on life insurance policies of $145 and higher charitable contributions of $58 partially offset the decrease.  Other expenses increased by a net of $84.  In
2023, other income (expenses) will be largely determined by the change in market returns and discount rates for retirement programs and related assets.

Income taxes for 2022 decreased $1,105, or 98.7%, compared to 2021 primarily due to higher deductions from the IRS TPR.  The Company’s effective tax rate was 0.1% for
2022 and 6.2% for 2021.  The Company’s effective tax rate for 2023 will be largely determined by the level of eligible asset improvements expensed for tax purposes under TPR each period.

Rate Matters

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

Effective January 1, 2023, the Company’s tariff included a DSIC on revenues of 4.91%.  The DSIC reset to zero when new rates took effect on March 1,
2023.

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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 November 9, 2022, the Company signed an agreement to purchase the wastewater collection and treatment assets of CMV Sewage Co., Inc. in Chanceford Township, York
County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2023 at which time the Company will add approximately 280 wastewater
customers.

On June 9, 2022, the Company signed an agreement to purchase the wastewater collection and treatment assets of MESCO, Inc. in Monaghan Township, York County,
Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2023 at which time the Company will add approximately 180 wastewater customers.

On April 28, 2022, the Company signed an agreement to purchase the water assets and wastewater collection and treatment assets of Conewago Industrial Park Water &
Sewer Company in Donegal Township, Lancaster County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second half of 2023 at which time the
Company will add approximately 30 commercial and industrial water and 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 its business.

On May 10, 2017, the Company signed an emergency interconnect agreement with Dallastown-Yoe Water Authority.  The effectiveness of this agreement is contingent upon
receiving approval from all required regulatory authorities.  Approval is expected to be granted in 2023 at which time the Company will begin construction of a water main extension to a single point of interconnection and either supply a minimum
agreed upon amount of water to the authority, receive a payment in lieu of water, or provide water during an emergency, at current tariff rates.

Capital Expenditures

During 2022, the Company invested $50,532 in construction expenditures for routine items, armoring and replacing the spillway of the Lake Williams dam, and wastewater
treatment plant construction as well as various replacements and improvements to infrastructure.  In addition, the Company invested $3,388 in the acquisition of multiple water and wastewater systems.  The Company replaced approximately 61,000 feet
of main in 2022.  The Company was able to fund construction expenditures using internally-generated funds, line of credit borrowings, cash generated from the underwritten common stock offering, proceeds from its stock purchase plans and customer
advances and contributions from developers, municipalities, customers, or builders.  See Notes 1, 4 and 5 to the Company’s financial statements included herein.

The Company anticipates construction and acquisition expenditures for 2023 and 2024 of approximately $60,600 and $47,100, respectively, exclusive of any acquisitions
not yet approved.  In addition to routine transmission and distribution projects, a portion of the anticipated 2023 and 2024 expenditures will be for additional main extensions, armoring and replacing the spillway of the Lake Williams dam,
wastewater treatment plant construction, water treatment plant upgrades, and various replacements of infrastructure.  The Company intends to use primarily internally-generated funds for its anticipated 2023 and 2024 construction and fund the
remainder through line of credit borrowings, potential debt and equity offerings, proceeds from its stock purchase plans and customer advances and contributions (see Note 1 to the Company’s financial statements included herein).  Customer advances
and contributions are expected to account for between 5% and 10% of funding requirements in 2023 and 2024.  The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2023 and 2024, to fund
anticipated construction and acquisition expenditures.

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Liquidity and Capital Resources

Cash

The Company manages its cash through a cash management account that is directly connected to its line of credit.  Excess cash generated automatically pays down
outstanding borrowings under the line of credit arrangement.  If there are no outstanding borrowings, the cash is used as an earnings credit to reduce banking fees.  Likewise, if additional funds are needed beyond what is generated internally for
payroll, to pay suppliers, to fund capital expenditures, or to pay debt service, funds are automatically borrowed under the line of credit.  As of December 31, 2022, the Company borrowed $29,740 under its line of credit and incurred a cash
overdraft on its cash management account of $3,175, which was recorded in accounts payable.  The cash management facility connected to the line of credit is expected to provide the necessary liquidity and funding for the Company’s operations,
capital expenditures, and acquisitions for the foreseeable future.

Restricted Cash

At December 31, 2020, the Company held $5,000 in restricted cash which was the bid deposit for a potential acquisition which became unrestricted in the first quarter
of 2021.

Accounts Receivable

The accounts receivable balance tends to follow the change in revenues but is also affected by the timeliness of payments by customers and the level of the reserve for
doubtful accounts.  In 2022, higher revenue levels as compared to 2021 and a slight weakening in the timeliness of payments resulted in an increase in accounts receivable – customers.  A reserve is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated based on inactive accounts with outstanding balances.  Management periodically evaluates the adequacy of the reserve based on past experience, agings of the receivables, adverse situations that
may affect a customer’s ability to pay, current economic conditions, and other relevant factors.  During 2022, management’s assessment included consideration of the COVID-19 pandemic along with past trends during times of economic instability and
regulations from the PPUC regarding customer collections, including the aging of balances in payment agreements, and determined its allowance for doubtful accounts should remain elevated compared to historical norms.  If the status of these factors
deteriorates, the Company may incur additional expenses for uncollectible accounts and experience a reduction in its internally-generated funds.

Internally-generated Funds

The amount of internally-generated funds available for operations and construction depends on the Company’s ability to obtain timely and adequate rate relief, changes
in regulations, customers’ water usage, weather conditions, customer growth and controlled expenses.  In 2022, the Company generated $22,018 internally as compared to $22,959 in 2021.  The decrease from 2021 was primarily due to the increase in
accounts receivable – customers partially offset by higher net income and lower income taxes paid.

Common Stock

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.

Common stockholders’ equity as a percent of the total capitalization was 59.3% as of December 31, 2022, compared with 50.6% as of December 31, 2021.  Based on the
equity percentage falling to fifty percent, the Company completed the underwritten common stock offering, increasing equity as a percentage of total capitalization.  The Company expects to use long-term debt for its future financing needs and allow
the debt percentage to trend upward until it approaches fifty percent before considering additional equity.  It is the Company’s general intent to target equity between fifty and fifty-five percent of total capitalization.

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The Company has the ability to issue approximately $4,000 of additional shares of its common stock or debt securities remaining under an effective
“shelf” Registration Statement on Form S-3 on file with the Securities and Exchange Commission subject to market conditions at the time of any such offering.

Credit Line

Historically, the Company has borrowed under its lines of credit before refinancing with long-term debt or equity capital.  As of December 31, 2022, the Company
maintained an unsecured line of credit in the amount of $50,000 at an interest rate of LIBOR plus 1.05% with an unused commitment fee and an interest rate floor which matures September 2024.  The Company had $29,740 in outstanding borrowings under
its line of credit as of December 31, 2022.  The interest rate on line of credit borrowings as of December 31, 2022 was 5.17%.  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 changed 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.  The Company expects to renew this line of credit as it matures under similar terms and conditions.

The Company has taken steps to manage the risk of reduced credit availability.  It has established a committed line of credit with a 2-year revolving maturity that
cannot be called on demand.  There is no guarantee that the Company will be able to obtain sufficient lines of credit with favorable terms in the future.  If the Company is unable to obtain sufficient lines of credit or to refinance its line of
credit borrowings with long-term debt or equity, when necessary, it may have to eliminate or postpone capital expenditures.  Management believes the Company will have adequate capacity under its current line of credit to meet financing needs
throughout 2023.

Long-term Debt

The Company’s loan agreements contain various covenants and restrictions.  Management believes it is currently in compliance with all of these restrictions.  See Note
6 to the Company’s financial statements included herein for additional information regarding these restrictions.

The 8.43% Senior Notes, Series D had a maturity date of December 18, 2022.  The Company retired the $7,500 notes using funds available under its line of credit.

The Company’s total long-term debt as a percentage of the total capitalization, defined as total common stockholders’ equity plus total long-term debt, was 40.7% as of
December 31, 2022, compared with 49.4% as of December 31, 2021.  Based on the debt percentage reaching fifty percent, the Company completed an underwritten common stock offering in April 2022 and repaid its line of credit, decreasing long-term debt
as a percentage of total capitalization.  The Company expects to use long-term debt for its future financing needs and allow the debt percentage to trend upward.  A debt to total capitalization ratio between forty-five and fifty percent has
historically been acceptable to the PPUC in rate filings.  See Note 6 to the Company’s financial statements included herein for the details of its long-term debt outstanding as of December 31, 2022.

The variable rate line of credit and the interest rate swap of the Company use the London Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the rates.
The United Kingdom’s Financial Conduct Authority (UK FCA), which regulates LIBOR, has previously announced that it intends to stop encouraging or compelling banks to submit rates for the calculation of LIBOR rates after 2021.  On January 4, 2022,
the UK FCA announced that certain dollar-denominated LIBOR settings, including the 1-month setting used by the Company’s variable line of credit and interest rate swap, would be calculated through June 30, 2023. This indicates that the continuation
of LIBOR on the current basis is not guaranteed after that date and, based on the foregoing, it appears likely that LIBOR will be discontinued or modified.  As part of the renewal of its line of credit in the third quarter of 2022, the agreement
was amended to change the reference rate from LIBOR to SOFR on January 1, 2023.  In the fourth quarter of 2022, the interest rate swap agreement was amended to change the reference rate from LIBOR to SOFR effective with the discontinuance of
LIBOR.  The margin for both agreements were established at the historical spread between LIBOR and SOFR to minimize the impact on the Company’s financial position, results of operations and cash flows upon this change.  The Company is not aware of
any additional modifications that need to be made to existing agreements before the discontinuance of LIBOR.

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Income Taxes, Deferred Income Taxes and Uncertain Tax Positions

Under the Internal Revenue Service TPR, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and
depreciated for tax purposes as an expense on its income tax return.  This ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently
payable.  It also results in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.  The Company expects to continue to expense these asset improvements in the
future.

The Company’s effective tax rate will largely be determined by the level of eligible asset improvements expensed for tax purposes that would have been capitalized for
tax purposes prior to the implementation of the TPR.

On July 8, 2022, the Pennsylvania budget for the fiscal year ending June 30, 2023 was signed into law.  A provision within the tax code bill included with the budget
provides for an annual phase-down of the Pennsylvania corporate net income tax rate of one percentage point in the first year beginning January 1, 2023 from 9.99% to 8.99%, and a one-half percentage point each year thereafter until it reaches 4.99%
beginning January 1, 2031.  The Company has remeasured the state portion of the Company’s deferred income taxes.  The effect, net of the federal benefit, of $3 was recognized in income for the year ended December 31, 2022.  Deferred income taxes
for differences that are recognized for ratemaking purposes on a cash or flow-through basis were remeasured with offsetting changes to regulatory assets and liabilities on the balance sheet as of December 31, 2022.  The Company expects any savings
in its Pennsylvania current income taxes to be returned to its customers through the rate making process or as a future negative surcharge on their bills.

The Company has a substantial deferred income tax asset primarily due to the excess accumulated deferred income taxes on accelerated depreciation from the 2017 Tax Act
and the differences between the book and tax balances of the customers’ advances for construction and contributions in aid of construction and deferred compensation plans.  The Company does not believe a valuation allowance is required due to the
expected generation of future taxable income during the periods in which those temporary differences become deductible.

The Company has seen an increase in its deferred income tax liability amounts primarily as a result of the accelerated depreciation deduction available for federal tax
purposes which creates differences between book and tax depreciation expense.  The Company expects this trend to continue as it makes significant investments in capital expenditures subject to accelerated depreciation or TPR.

The Company has determined there are no uncertain tax positions that require recognition as of December 31, 2022.  See Note 14 to the Company’s financial statements
included herein for additional details regarding income taxes.

Credit Rating

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 ability to maintain
its credit rating depends, among other things, on adequate and timely rate relief, which it has been successful in obtaining, its ability to fund capital expenditures in a balanced manner using both debt and equity and its ability to generate cash
flow.  In 2023, the Company’s objectives are to continue to maximize its funds provided by operations and maintain a strong capital structure in order to be able to attract capital.

Physical and Cyber Security

The Company maintains security measures at its facilities, and collaborates with federal, state, and local authorities, and industry trade associations
regarding information on possible threats and security measures for water and wastewater utility operations.  The costs incurred are expected to be recoverable in water and wastewater rates and are not expected to have a material impact on its
business, financial condition, or results of operations.

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The Company relies on information technology systems in connection with the operation of the business, especially with respect to customer service,
billing, accounting, and in some cases, the monitoring and operation of treatment, storage, and pumping facilities.  In addition, the Company relies on these systems to track utility assets and to manage maintenance and construction projects,
materials and supplies, and human resource functions.  The information technology systems may be vulnerable to damage or interruption from cyber security attacks or other cyber-related events, including, but not limited to, power loss, computer
systems failures, internet, telecommunications or data network failures, physical and electronic loss of data, computer viruses, intentional security breaches, hacking, denial of service actions, misappropriation of data, and similar events.  In
some cases, administration of certain functions may be outsourced to third-party service providers that could also be targets of cyber security attacks.  A loss of these systems, or major problems with the operation of these systems, could harm the
business, financial condition, and results of operations of the Company through the loss or compromise of customer, financial, employee, or operational data, disruption of billing, collections or normal field service activities, disruption of
electronic monitoring and control of operational systems, and delays in financial reporting and other normal management functions.

Possible impacts associated with a cyber security attack or other events may include remediation costs related to lost, stolen, or compromised data,
repairs to data processing systems, increased cyber security protection costs, adverse effects on our compliance with regulatory and environmental laws and regulation, including standards for drinking water, litigation, and reputational damage.

The Company has implemented processes, procedures, and controls to prevent or limit the effect of these possible events and maintains insurance to help
defray costs associated with cyber security attacks.  The Company has not experienced a material impact on business or operations from these attacks.  Although the Company does not believe its systems are at a materially greater risk of cyber
security attacks than other similar organizations and despite the implementation of robust security measures, the Company cannot provide assurance that the insurance will fully cover the costs of a cyber security event, and its robust security
measures do not guarantee that reputation and financial results will not be adversely affected by such an incident.

Environmental Matters

The Company was granted approval by the 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 $1,518 and $1,351 through December 31, 2022 and 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.

Dividends

During 2022, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 56.2% and 48.5%, respectively.  During
2021, the Company’s dividend payout ratios relative to net income and net cash provided by operating activities were 58.3% and 42.7%, respectively.  During the fourth quarter of 2022, the Board of Directors increased the dividend by 4.00% from
$0.1949 per share to $0.2027 per share per quarter.

The Company’s Board of Directors declared a dividend in the amount of $0.2027 per share at its February 2023 meeting.  The dividend is payable on April 14, 2023 to
shareholders of record as of February 28, 2023.  While the Company expects to maintain this dividend amount in 2023, future dividends will be dependent upon the Company’s earnings, financial condition, capital demands and other factors and will be
determined by the Company’s Board of Directors.  See Note 6 to the Company’s financial statements included herein for restrictions on dividend payments.

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Inflation

The Company is affected by inflation, most notably by the continually increasing costs incurred to maintain and expand its service capacity.  The cumulative effect of
inflation results in significantly higher facility replacement costs which must be recovered from future cash flows.  The ability of the Company to recover this increased investment in facilities is dependent upon future rate increases, which are
subject to approval by the PPUC.  The Company can provide no assurances that its rate increases will be approved by the PPUC; and, if approved, the Company cannot guarantee that these rate increases will be granted in a timely or sufficient manner
to cover the investments and expenses for which the rate increase was sought.

Critical Accounting Estimates

The methods, estimates, and judgments the Company used in applying its accounting policies have a significant impact on the results reported in its financial
statements. The Company’s accounting policies require management to make subjective judgments because of the need to make estimates of matters that are inherently uncertain.  The Company’s most critical accounting estimates include: revenue
recognition and accounting for its pension plans.

Revenue Recognition

Operating revenues include amounts billed to metered water and certain wastewater customers on a cycle basis and unbilled amounts based on both actual and estimated
usage from the latest meter reading to the end of the accounting period.  Estimates are based on average daily usage for those particular customers.  The unbilled revenue amount is recorded as a current asset on the balance sheet.  Actual results
could differ from these estimates and would result in operating revenues being adjusted in the period in which the actual usage is known.  Based on historical experience, the Company believes its estimate of unbilled revenues is reasonable.

Pension Accounting

Accounting for defined benefit pension plans requires estimates of future compensation increases, mortality, the discount rate, and expected return on plan assets as
well as other variables.  These variables are reviewed annually with the Company’s pension actuary.  The Company used compensation increases of 2.5% to 3.0% in 2021 and 2022.

The Company adopted a new mortality table in 2019, the Pri-2012, using the white collar table for the administrative and general plan and the blue collar table for the
union plan.  In 2021, the Company adopted the MP-2021 mortality improvement scale, which slightly increased the life expectancy of pension plan participants, resulting in a slight increase to the pension benefit obligation, and ultimately, a
decrease in the Company’s funded status of the plans.

The Company selected its December 31, 2022 and 2021 discount rates based on the FTSE Pension Liability Index.  This index uses spot rates for durations out to 30 years
and matches them to expected disbursements from the plan over the long term.  The Company believes this index most appropriately matches its pension obligations.  The present values of the Company’s future pension obligations were determined using
a discount rate of 5.00% at December 31, 2022 and 2.65% at December 31, 2021.

Adopting a new mortality table that represents a change in life expectancy and choosing a different discount rate normally changes the amount of pension expense and
the corresponding liability.  In the case of the Company, these items change its liability, but do not have an impact on its pension expense.  The PPUC, in a previous rate settlement, agreed to grant recovery of the Company’s contribution to the
pension plans in customer rates.  As a result, under the accounting standards regarding rate-regulated activities, expense in excess of the Company’s pension plan contribution can be deferred as a regulatory asset and expensed as contributions are
made to the plans and are recovered in customer rates.  Therefore, these changes affect regulatory assets rather than pension expense.

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The Company’s estimate of the expected return on plan assets is primarily based on the historic returns and projected future returns of the asset classes represented
in its plans.  The target allocation of pension assets is 50% to 70% equity securities, 30% to 50% fixed income securities, and 0% to 10% cash reserves.  The Company used 6.50% as its expected rate of return in 2021 and 2022.  A decrease in the
expected pension return would normally cause an increase in pension expense; however due to the aforementioned rate settlement, the Company’s expense would continue to be equal to its contributions to the plans.  The change would instead be
recorded in regulatory assets.

Lower discount rates and underperformance of assets could cause future required contributions and expense to increase substantially.  If this were to happen, the
Company would have to consider changes to its pension plan benefits and possibly request additional recovery of expenses through increased rates charged to customers.  See Note 11 to the Company’s financial statements included herein for additional
details regarding the pension plans.

Off-Balance Sheet Transactions

The Company does not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial condition, results
of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.  The Company does not use securitization of receivables or unconsolidated entities. For risk management purposes, the Company uses
a derivative financial instrument, an interest rate swap agreement discussed in Note 7 to the financial statements included herein.  The Company does not engage in trading or other risk management activities, does not use other derivative financial
instruments for any purpose, has no material lease obligations, no guarantees and does not have material transactions involving related parties.

Impact of Recent Accounting Pronouncements

There are currently no recent accounting pronouncements that are expected to have a material impact to the Company’s financial statements.

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 five 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 rainfall, economic, and market conditions can have an adverse effect on revenues.  The Company experienced increased revenues in
2021 compared to 2020 primarily due to an increase in the number of customers and revenues from the distribution system improvement charge, or DSIC.

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 2021, operating revenue was derived from the following sources and in the following percentages: residential, 65%; commercial and industrial, 27%; and other, 8%, 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 through increases in the number of customers served, 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.  The Company’s wastewater business provides additional opportunities to expand.

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The Company has entered into agreements with municipalities to provide sewer billing and collection services.  The Company also has a service line
protection program on a targeted basis.  The Company continues to review and consider opportunities to expand both initiatives 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, as well as taking advantage of the Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, and the Internal Revenue Service, or IRS, tangible property
regulations, or TPR, are examples of the Company’s recent efforts to minimize costs.

Impact of COVID-19

In December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) was reported and was later characterized by the World Health Organization as
a pandemic.  On March 6, 2020, Governor Tom Wolf signed an emergency disaster declaration for the Commonwealth of Pennsylvania which was extended for an additional ninety days five times, most recently on May 19, 2021.  This emergency declaration
was ended on June 16, 2021, by joint resolution of the Pennsylvania legislature.  However, developments in this area continue at the local, state, and national levels and the Company continues to stay abreast of these developments.  The Company has
taken steps, consistent with directions from local, state, and federal authorities, to mitigate known risks with the health and safety of its employees and customers as its first priority.

The Company is an essential, life-sustaining business and has continued normal operations.  The Company continues to monitor guidance from state and
local authorities and, although most restrictions have been lifted, has made some modifications to its operations in order to comply with Pennsylvania’s guidelines.  This includes implementing enhanced safety procedures in its lobby and other
measures such as holding virtual meetings and maintaining social distancing practices, when appropriate.  These restrictions are not expected to materially impede the Company’s ability to complete its planned capital expenditures or acquisitions.
The Company has not experienced any material supply chain disruptions.  The Company has been informed of longer lead times for some items, although this has not impacted daily operating supplies.  The Company maintains an adequate inventory of
critical repair parts which are available as needed.  The Company continues to maintain relationships with its vendors to identify issues in a timely manner while also seeking out additional vendor relationships to diversify its supply chain.  The
Company has addressed the longer lead times by placing orders proactively with its vendors to align with current lead times.  If the delays increase materially or if certain materials and supplies become unavailable, the Company may re-prioritize
some of its capital projects or experience higher operating expenses or capital costs.  The Company believes it has sufficient liquidity and access to the capital markets if needed.

As a water and wastewater utility, it is the Company’s mission to provide uninterrupted water and wastewater service.  Due to the effect of COVID-19 on
the general public, in compliance with an order from the PPUC, the Company paused shut-off procedures for delinquent customers on March 13, 2020.  In addition, the Company stopped billing late payment charges.  These customers were billed at normal
tariff rates for the water they used, and wastewater service provided.  As allowed by the PPUC, the Company resumed normal shut-off procedures and began billing late payment charges for most customers in January 2021.  Most remaining PPUC required
customer protections specific to the COVID-19 pandemic fully expired on April 1, 2021 with the exception of the requirement to offer extended term payment agreements to certain “protected customers” as defined by PPUC order, which expired on
September 30, 2021.  Certain customers are eligible to receive utility assistance made available through federal relief funds through organizations not related to the Company.

The Company has begun to see demand by customer class revert back to close to pre-pandemic levels.  However, the Company may continue to experience
changes in demand as the response to this pandemic continues.  The duration and magnitude of these changes is currently unknown and difficult to predict.

To date, there has been no material impact on the Company’s workforce, operations, financial performance, liquidity, or supply chain as a result of
COVID-19.  However, the ultimate duration and severity of the pandemic or its effects on the economy, the capital and credit markets, or the Company’s workforce, customers, and suppliers, as well as governmental and regulatory responses, are
uncertain.

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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 2021 was strong under the above measures.  Operating revenues increased in 2021 compared to 2020 primarily due to an
increase in the number of customers and revenues from the DSIC.  The increase in operating expenses was higher than the increase in operating revenues, but other net expenses decreased primarily due to increased allowance for funds used during
construction which offset a prior year non-recurring gain on life insurance, and the Company incurred lower income taxes primarily due to a higher deduction for the tax benefit under the IRS TPR.  The overall effect was an increase in net income in
2021 over 2020 of 2.3% and a return on year end common equity of 11.1%, comparable with the 2020 result of 11.6% and the five-year historical average of 10.8%.

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 27.6%.  In 2021, the ratio was higher than the average at 30.8% due primarily to lower income taxes than are included in the historical average.  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.

2021 Compared with 2020

Net income for 2021 was $16,984, an increase of $386, or 2.3%, from net income of $16,598 for 2020.  The primary contributing factors to the increase
were higher operating revenues and lower income taxes, which were partially offset by higher expenses and a prior year gain on life insurance, not repeated this year.

Operating revenues for 2021 increased $1,267, or 2.4%, from $53,852 for 2020 to $55,119 for 2021.  The increase was primarily due to growth in the
customer base and revenues from the DSIC of $627.  The average number of water customers served in 2021 increased as compared to 2020 by 703 customers, from 68,919 to 69,622 customers.  The average number of wastewater customers served in 2021
increased as compared to 2020 by 246 customers, from 3,079 to 3,325 customers, due to acquisitions during 2020.  Total per capita consumption for 2021 was approximately 1.2% higher than the same period of last year, but residential demand
decreased.  Additional billing and revenue collection services also added to revenues.  In 2022, the Company expects revenues to show a modest increase due to the revenues from the DSIC.  An increase in the number of water and wastewater customers
from acquisitions and growth within the Company’s service territory are also expected to add to revenues.  The duration and severity of the COVID-19 pandemic including any resulting economic slowdown or changes in consumption patterns could impact
results.  Other regulatory actions and weather patterns could also impact results.

Operating expenses for 2021 increased $2,302, or 7.8%, from $29,421 for 2020 to $31,723 for 2021.  The increase was primarily due to higher expenses of
approximately $682 for depreciation, $543 for insurance, $526 for wastewater treatment, $402 for wages, and $241 for water treatment and distribution system maintenance.  Other expenses increased by a net of $265.  The increased expenses were
partially offset by $236 for a lower provision for uncollectible accounts and reduced expenses of $121 for purchased power.  In 2022, the Company expects depreciation expense to continue to rise due to additional investment in utility plant, and
other expenses to increase at a moderate rate as costs to treat water and wastewater, and to maintain and extend the distribution system, continue to rise.

Interest on debt for 2021 increased $219 or 4.7%, from $4,707 for 2020 to $4,926 for 2021.  The increase was primarily due to an increase in long-term
debt outstanding.  The average debt outstanding under the lines of credit was $11,487 for 2021 and $7,467 for 2020.  The weighted average interest rate on the lines of credit was 1.30% for 2021 and 1.59% for 2020.  Interest expense for 2022 is
expected to be slightly higher due to continued borrowings under the line of credit and expected increases in short term interest rates.  A potential equity offering to pay down the line of credit borrowings may offset the expected increase.

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Allowance for funds used during construction increased $691, from $530 in 2020 to $1,221 in 2021 due to a higher volume of eligible construction.
Allowance for funds used during construction in 2022 is expected to increase based on a projected increase in the amount of eligible construction.

A non-recurring gain on life insurance of $515 was recorded in 2020 as a result of a death benefit from a life insurance policy.  No similar gains are
anticipated at this time.

Other income (expenses), net for 2021 reflects decreased expenses of $418 as compared to 2020.  Lower retirement expenses of approximately $382 and
higher earnings on life insurance policies of approximately $72 were the primary reasons for the decrease.  Other expenses increased by a net of $36.  In 2022, other income (expenses) will be largely determined by the change in market returns and
discount rates for retirement programs and related assets.

Income taxes for 2021 decreased $898, or 44.5%, compared to 2020 primarily due to higher deductions from the IRS TPR.  The Company’s effective tax rate
was 6.2% for 2021 and 10.8% for 2020.  The Company's effective tax rate for 2022 will largely be determined by the level of eligible asset improvements expensed for tax purposes under TPR.

Rate Matters

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

Effective January 1, 2022, the Company's tariff included a distribution system improvement charge on revenues of 3.19%.

The Company expects to file a rate increase request in 2022.

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 July 30, 2021, the Company signed an agreement to purchase the water assets of Scott Water Company in Greene Township, Franklin County, Pennsylvania.
Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the third quarter of 2022 at which time the Company will add approximately 25 water customers.

On April 22, 2021, the Company signed an agreement to purchase the water assets and wastewater collection and treatment assets jointly owned by
Letterkenny Industrial Development Authority and Franklin County General Authority in Letterkenny and Greene Townships, Franklin County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory
authorities.  Closing is expected in the second quarter of 2022 at which time the Company will add approximately 90 water and wastewater customers.

On May 27, 2020, the Company signed an agreement to purchase the water assets and wastewater collection and treatment assets of Country View Manor
Community, LLC in Washington Township, York County, Pennsylvania.  Completion of the acquisition is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second quarter of 2022 at which time the
Company will add approximately 50 water and wastewater customers.

On October 8, 2013, the Company signed an agreement to purchase the wastewater collection and treatment assets of SYC WWTP, L.P. in Shrewsbury and
Springfield Townships, York County, Pennsylvania.  On July 1, 2020, the Company signed an agreement to purchase the Albright Trailer Park water assets and wastewater collection assets of R.T. Barclay, Inc. in Springfield Township, York County,
Pennsylvania.  Completion of the acquisitions is contingent upon receiving approval from all required regulatory authorities.  Closing is expected in the second quarter of 2022, at which time the Company will add approximately 90 combined
wastewater customers and approximately 60 water customers through an interconnection with its current water distribution system.  The wastewater customers of the
Albright Trailer Park are currently served by SYC WWTP, L.P. and the water customers are currently served by the Company, each through a single customer connection to the park.

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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 its business.

On May 10, 2017, the Company signed an emergency interconnect agreement with Dallastown-Yoe Water Authority.  The effectiveness of this agreement is
contingent upon receiving approval from all required regulatory authorities.  Approval is expected to be granted in 2022 at which time the Company will begin construction of a water main extension to a single point of interconnection and either
supply a minimum agreed upon amount of water to the authority, receive a payment in lieu of water, or provide water during an emergency, at current tariff rates.

Capital Expenditures

During 2021, the Company invested $34,409 in construction expenditures for routine items, an upgrade to the enterprise software system, and an elevated
water tank, as well as various replacements and improvements to infrastructure.  In addition, the Company invested $11,991 in the acquisition of one wastewater system.  The Company replaced approximately 61,000 feet of main in 2021.  The Company
was able to fund construction expenditures using internally-generated funds, line of credit borrowings, proceeds from its stock purchase plans, and customer advances and contributions from developers, municipalities, customers, or builders.  See
Notes 1, 4 and 5 to the Company’s financial statements included herein.

The Company anticipates construction and acquisition expenditures for 2022 and 2023 of approximately $44,000 and $50,000, respectively, exclusive of any
acquisitions not yet approved.  In addition to routine transmission and distribution projects, a portion of the anticipated 2022 and 2023 expenditures will be for additional main extensions, dam improvements, an elevated water tank, water treatment
plant construction, and various replacements of infrastructure.  The Company intends to use primarily internally-generated funds for its anticipated 2022 and 2023 construction and fund the remainder through line of credit borrowings, debt and
equity offerings, proceeds from its stock purchase plans and customer advances and contributions (see Note 1 to the Company’s financial statements included herein).  Customer advances and contributions are expected to account for between 5% and 10%
of funding requirements in 2022 and 2023.  The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2022 and 2023, to fund anticipated construction and acquisition expenditures.

Liquidity and Capital Resources

Cash

The Company manages its cash through a cash management account that is directly connected to its line of credit.  Excess cash generated automatically
pays down outstanding borrowings under the line of credit arrangement.  If there are no outstanding borrowings, the cash is used as an earnings credit to reduce banking fees.  Likewise, if additional funds are needed beyond what is generated
internally for payroll, to pay suppliers, to fund capital expenditures, or to pay debt service, funds are automatically borrowed under the line of credit.  As of December 31, 2021, the Company borrowed $29,320 under its line of credit and incurred
a cash overdraft on its cash management account of $1,746, which was recorded in accounts payable.  The cash management facility connected to the line of credit is expected to provide the necessary liquidity and funding for the Company’s
operations, capital expenditures, and acquisitions.

Restricted Cash

At December 31, 2020, the Company held $5,000 in restricted cash which was the bid deposit for a potential acquisition which became unrestricted in the
first quarter of 2021.

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Accounts Receivable

The accounts receivable balance tends to follow the change in revenues but is also affected by the timeliness of payments by customers and the level of
the reserve for doubtful accounts.  In 2021, a strengthening in the timeliness of payments resulted in a decrease in accounts receivable – customers.  A reserve is maintained at a level considered adequate to provide for losses that can be
reasonably anticipated based on inactive accounts with outstanding balances.  Management periodically evaluates the adequacy of the reserve based on past experience, agings of the receivables, adverse situations that may affect a customer’s ability
to pay, current economic conditions, and other relevant factors.  During 2021, management’s assessment included consideration of the COVID-19 pandemic along with past trends during times of economic instability and regulations from the PPUC
regarding customer collections, including the aging of balances in payment agreements, and determined an increase in its allowance for doubtful accounts was warranted.  If the status of these factors deteriorates, the Company may incur additional
expenses for uncollectible accounts and experience a reduction in its internally-generated funds.

Internally-generated Funds

The amount of internally-generated funds available for operations and construction depends on the Company’s ability to obtain timely and adequate rate
relief, changes in regulations, customers’ water usage, weather conditions, customer growth and controlled expenses.  In 2021, the Company generated $22,959 internally as compared to $20,235 in 2020.  The increase from 2020 was primarily due to
higher net income and lower income taxes paid.

Credit Lines

Historically, the Company has borrowed under its lines of credit before refinancing with long-term debt or equity capital.  As of December 31, 2021, the
Company maintained an unsecured line of credit in the amount of $50,000 at an interest rate of LIBOR plus 1.05% with an unused commitment fee and an interest rate floor which matures September 2023.  The Company had $29,320 in outstanding
borrowings under its line of credit as of December 31, 2021.  The interest rate on line of credit borrowings as of December 31, 2021 was 1.30%.  The Company expects to renew this line of credit as it matures under similar terms and conditions.

The Company has taken steps to manage the risk of reduced credit availability.  It has established a committed line of credit with a 2-year revolving
maturity that cannot be called on demand.  There is no guarantee that the Company will be able to obtain sufficient lines of credit with favorable terms in the future.  If the Company is unable to obtain sufficient lines of credit or to refinance
its line of credit borrowings with long-term debt or equity, when necessary, it may have to eliminate or postpone capital expenditures.  Management believes the Company will have adequate capacity under its current line of credit to meet financing
needs throughout 2022.

Long-term Debt

The Company’s loan agreements contain various covenants and restrictions.  Management believes it is currently in compliance with all of these
restrictions.  See Note 6 to the Company’s financial statements included herein for additional information regarding these restrictions.

The Company’s total long-term debt as a percentage of the total capitalization, defined as total common stockholders’ equity plus total long-term debt,
was 49.4% as of December 31, 2021, compared with 46.9% as of December 31, 2020.  Based on the debt percentage approaching fifty percent, the Company is considering issuing additional equity in 2022.  A debt to total capitalization ratio between
forty-six and fifty percent has historically been acceptable to the PPUC in rate filings.  See Note 6 to the Company’s financial statements included herein for the details of its long-term debt outstanding as of December 31, 2021.

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The variable rate line of credit and the interest rate swap of the Company use the London Interbank Offering Rate (“LIBOR”) as a benchmark for
establishing the rates.  The United Kingdom’s Financial Conduct Authority (UK FCA), which regulates LIBOR, has previously announced that it intends to stop encouraging or compelling banks to submit rates for the calculation of LIBOR rates after
2021.  On January 4, 2022, the UK FCA announced that certain dollar-denominated LIBOR settings, including the 1-month setting used by the Company’s variable line of credit and interest rate swap, would be calculated through June 30, 2023. This
indicates that the continuation of LIBOR on the current basis is not guaranteed after that date and, based on the foregoing, it appears likely that LIBOR will be discontinued or modified.  The Company’s line of credit agreement explicitly states
that another index may be used if LIBOR is discontinued or otherwise unavailable.  The Company believes that it is implicit in its other agreements that a successor rate to LIBOR may be used.  The Company is not yet aware what successor rate will
be used and therefore cannot estimate the impact to the Company’s financial position, results of operations and cash flows, but it could include an increase in the cost of the variable rate indebtedness.

Income Taxes, Deferred Income Taxes and Uncertain Tax Positions

The 2017 Tax Act, among other things, reduces the federal statutory corporate tax rate for tax years beginning in 2018 from 34% to 21%, treats customers’
advances for construction and contributions in aid of construction as taxable income, eliminates certain deductions, and eliminates bonus depreciation on qualified water and wastewater property. In November 2021, the Infrastructure Investment and
Jobs Act of 2021, or 2021 Infrastructure Act, repealed the tax treatment of customers’ advances for construction and contributions in aid of construction made after December 31, 2020.

The Company filed for a change in accounting method under the IRS TPR effective in 2014.  Under the change in accounting method, the Company is permitted
to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for tax purposes as an expense on its income tax return.  As a result of the ongoing deduction, the net income tax benefits of $2,361 and
$1,720 for the years ended December 31, 2021 and 2020, respectively, reduced income tax expense and flowed through to net income.  The ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense,
and a reduction in the amount of income taxes currently payable.  It also results in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.  The Company expects
to continue to expense these asset improvements in the future.  The Company was permitted to make this deduction for prior years.  As a result of the catch-up deduction, income tax benefits of $3,887 were deferred as a regulatory liability.  After
receiving approval from the PPUC in its most recent rate order, the Company began to recognize the catch-up deduction, recorded as a regulatory liability, over 15 years beginning March 1, 2019.  As a result, the Company recognized $259 in income
taxes during each of the years ended December 31, 2021 and 2020, respectively.

The Company’s effective tax rate will largely be determined by the level of eligible asset improvements expensed for tax purposes that would have been
capitalized for tax purposes prior to the implementation of the TPR.

The Company has a substantial deferred income tax asset primarily due to the excess accumulated deferred income taxes on accelerated depreciation from
the 2017 Tax Act and the differences between the book and tax balances of the customers’ advances for construction and contributions in aid of construction and deferred compensation plans.  The Company does not believe a valuation allowance is
required due to the expected generation of future taxable income during the periods in which those temporary differences become deductible.

The Company has seen an increase in its deferred income tax liability amounts primarily as a result of the accelerated depreciation deduction available
for federal tax purposes which creates differences between book and tax depreciation expense.  The Company expects this trend to continue as it makes significant investments in capital expenditures subject to accelerated depreciation or TPR.

The Company has determined there are no uncertain tax positions that require recognition as of December 31, 2021.  See Note 14 to the Company’s financial
statements included herein for additional details regarding income taxes.

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Common Stock

Common stockholders’ equity as a percent of the total capitalization was 50.6% as of December 31, 2021, compared with 53.1% as of December 31, 2020.  The
ratio decreased in 2021 due to higher debt primarily from a wastewater system acquisition and increased capital expenditures.  It is the Company’s intent to target a ratio between fifty and fifty-four percent.  Based on the percentage approaching
fifty percent, the Company is considering issuing additional equity in 2022.

The Company has an effective “shelf” Registration Statement on Form S-3 on file with the Securities and Exchange Commission, pursuant to which the
Company may offer an aggregate remaining amount of up to $50,000 of its common stock or debt securities subject to market conditions at the time of any such offering.

Credit Rating

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
ability to maintain its credit rating depends, among other things, on adequate and timely rate relief, which it has been successful in obtaining, its ability to fund capital expenditures in a balanced manner using both debt and equity and its
ability to generate cash flow.  In 2022, the Company’s objectives are to continue to maximize its funds provided by operations and maintain a strong capital structure in order to be able to attract capital.

Physical and Cyber Security

The Company maintains security measures at its facilities, and collaborates with federal, state, and local authorities, and industry trade associations
regarding information on possible threats and security measures for water and wastewater utility operations.  The costs incurred are expected to be recoverable in water and wastewater rates and are not expected to have a material impact on its
business, financial condition, or results of operations.

The Company relies on information technology systems in connection with the operation of the business, especially with respect to customer service,
billing, accounting, and in some cases, the monitoring and operation of treatment, storage, and pumping facilities.  In addition, the Company relies on these systems to track utility assets and to manage maintenance and construction projects,
materials and supplies, and human resource functions.  The information technology systems may be vulnerable to damage or interruption from cyber security attacks or other cyber-related events, including, but not limited to, power loss, computer
systems failures, internet, telecommunications or data network failures, physical and electronic loss of data, computer viruses, intentional security breaches, hacking, denial of service actions, misappropriation of data, and similar events.  In
some cases, administration of certain functions may be outsourced to third-party service providers that could also be targets of cyber security attacks.  A loss of these systems, or major problems with the operation of these systems, could harm the
business, financial condition, and results of operations of the Company through the loss or compromise of customer, financial, employee, or operational data, disruption of billing, collections or normal field service activities, disruption of
electronic monitoring and control of operational systems, and delays in financial reporting and other normal management functions.

Possible impacts associated with a cyber security attack or other events may include remediation costs related to lost, stolen, or compromised data,
repairs to data processing systems, increased cyber security protection costs, adverse effects on our compliance with regulatory and environmental laws and regulation, including standards for drinking water, litigation, and reputational damage.

The Company has implemented processes, procedures, and controls to prevent or limit the effect of these possible events and maintains insurance to help
defray costs associated with cyber security attacks.  The Company has not experienced a material impact on business or operations from these attacks.  Although the Company does not believe its systems are at a materially greater risk of cyber
security attacks than other similar organizations and despite the implementation of robust security measures, the Company cannot provide assurance that the insurance will fully cover the costs of a cyber security event, and its robust security
measures do not guarantee that reputation and financial results will not be adversely affected by such an incident.

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Environmental Matters

The Company entered into a consent order agreement with the Pennsylvania
Department of Environmental Protection 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.  Under the agreement, the Company 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.  Any additional company-owned lead service lines that are discovered will be replaced and included in utility plant but are not
expected to have a material impact on the financial position of the Company.

The Company was granted approval by the 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 $1,351 and $1,204 through December 31, 2021 and 2020, respectively, and is included as a regulatory asset.  Based on its
experience, the Company estimates that lead customer-owned service lines replacements will cost $1,400.  This estimate is subject to adjustment as more facts become available.

Dividends

During 2021, the Company's dividend payout ratios relative to net income and net cash provided by operating activities were 58.3% and 42.7%,
respectively.  During 2020, the Company's dividend payout ratios relative to net income and net cash provided by operating activities were 57.2% and 46.4%, respectively.  During the fourth quarter of 2021, the Board of Directors increased the
dividend by 4.00% from $0.1874 per share to $0.1949 per share per quarter.

The Company’s Board of Directors declared a dividend in the amount of $0.1949 per share at its January 2022 meeting.  The dividend is payable on April
14, 2022 to shareholders of record as of February 28, 2022.  While the Company expects to maintain this dividend amount in 2022, future dividends will be dependent upon the Company’s earnings, financial condition, capital demands and other factors
and will be determined by the Company’s Board of Directors.  See Note 6 to the Company’s financial statements included herein for restrictions on dividend payments.

Inflation

The Company is affected by inflation, most notably by the continually increasing costs incurred to maintain and expand its service capacity.  The
cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flows.  The ability of the Company to recover this increased investment in facilities is dependent upon future rate
increases, which are subject to approval by the PPUC.  The Company can provide no assurances that its rate increases will be approved by the PPUC; and, if approved, the Company cannot guarantee that these rate increases will be granted in a timely
or sufficient manner to cover the investments and expenses for which the rate increase was sought.

Critical Accounting Estimates

The methods, estimates, and judgments the Company used in applying its accounting policies have a significant impact on the results reported in its
financial statements. The Company’s accounting policies require management to make subjective judgments because of the need to make estimates of matters that are inherently uncertain.  The Company’s most critical accounting estimates include:
regulatory assets and liabilities, revenue recognition, accounting for its pension plans, and income taxes.

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Regulatory Assets and Liabilities

Generally accepted accounting principles define accounting standards for companies whose rates are established by or are subject to approval by an
independent third-party regulator.  In accordance with the accounting standards, the Company defers costs and credits on its balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in
the rate-making process in a period different from when the costs and credits were incurred.  These deferred amounts are then recognized in the statement of income in the period in which they are reflected in customer rates.  If the Company later
finds that these assets and liabilities cannot be included in rate-making, they are adjusted appropriately.  See Note 1 for additional details regarding regulatory assets and liabilities.

Revenue Recognition

Operating revenues include amounts billed to metered water and certain wastewater customers on a cycle basis and unbilled amounts based on both actual
and estimated usage from the latest meter reading to the end of the accounting period.  Estimates are based on average daily usage for those particular customers.  The unbilled revenue amount is recorded as a current asset on the balance sheet.
Actual results could differ from these estimates and would result in operating revenues being adjusted in the period in which the actual usage is known.  Based on historical experience, the Company believes its estimate of unbilled revenues is
reasonable.

Pension Accounting

Accounting for defined benefit pension plans requires estimates of future compensation increases, mortality, the discount rate, and expected return on
plan assets as well as other variables.  These variables are reviewed annually with the Company’s pension actuary.  The Company used compensation increases of 2.5% to 3.0% in 2020 and 2021.

The Company adopted a new mortality table in 2019, the Pri-2012, using the white collar table for the administrative and general plan and the blue collar
table for the union plan.  In 2021, the Company adopted the MP-2021 mortality improvement scale, which slightly increased the life expectancy of pension plan participants, resulting in a slight increase to the pension benefit obligation, and
ultimately, a decrease in the Company’s funded status of the plans.

The Company selected its December 31, 2021 and 2020 discount rates based on the FTSE Pension Liability Index.  This index uses spot rates for durations
out to 30 years and matches them to expected disbursements from the plan over the long term.  The Company believes this index most appropriately matches its pension obligations.  The present values of the Company’s future pension obligations were
determined using a discount rate of 2.65% at December 31, 2021 and 2.30% at December 31, 2020.

Adopting a new mortality table that represents a change in life expectancy and choosing a different discount rate normally changes the amount of pension
expense and the corresponding liability.  In the case of the Company, these items change its liability, but do not have an impact on its pension expense.  The PPUC, in a previous rate settlement, agreed to grant recovery of the Company’s
contribution to the pension plans in customer rates.  As a result, under the accounting standards regarding rate-regulated activities, expense in excess of the Company’s pension plan contribution can be deferred as a regulatory asset and expensed
as contributions are made to the plans and are recovered in customer rates.  Therefore, these changes affect regulatory assets rather than pension expense.

The Company’s estimate of the expected return on plan assets is primarily based on the historic returns and projected future returns of the asset classes
represented in its plans.  The target allocation of pension assets is 50% to 70% equity securities, 30% to 50% fixed income securities, and 0% to 10% cash reserves.  The Company used 6.50% as its expected rate of return in 2020 and 2021.  A
decrease in the expected pension return would normally cause an increase in pension expense; however due to the aforementioned rate settlement, the Company’s expense would continue to be equal to its contributions to the plans.  The change would
instead be recorded in regulatory assets.

Lower discount rates and underperformance of assets could cause future required contributions and expense to increase substantially.  If this were to
happen, the Company would have to consider changes to its pension plan benefits and possibly request additional recovery of expenses through increased rates charged to customers.  See Note 11 to the Company’s financial statements included herein
for additional details regarding the pension plans.

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Income Taxes

The Company estimates the amount of income tax payable or refundable for the current year and the deferred income tax liabilities and assets that results
from estimating temporary differences resulting from the treatment of certain items, such as depreciation, for tax and financial statement reporting.  Generally, these differences result in the recognition of a deferred tax asset or liability on
the balance sheet and require the Company to make judgments regarding the probability of the ultimate tax impact of the various transactions entered into.  Based on these judgments, it may require tax reserves or valuation allowances on deferred
tax assets to reflect the expected realization of future tax benefits.  The Company believes its determination of what qualifies as a repair expense tax deduction versus a capital cost as it relates to the IRS TPR ongoing and catch-up deductions is
consistent with the regulations.  The Company also believes it has appropriately applied the provisions of the 2017 Tax Act and the 2021 Infrastructure Act including properly applying the accounting standards related to these acts.  Actual income
taxes could vary from these estimates and changes in these estimates could increase income tax expense in the period that these changes in estimates occur.

Off-Balance Sheet Transactions

The Company does not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial
condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.  The Company does not use securitization of receivables or unconsolidated entities. For risk management
purposes, the Company uses a derivative financial instrument, an interest rate swap agreement discussed in Note 7 to the financial statements included herein.  The Company does not engage in trading or other risk management activities, does not use
other derivative financial instruments for any purpose, has no material lease obligations, no guarantees and does not have material transactions involving related parties.

Impact of Recent Accounting Pronouncements

There are currently no recent accounting pronouncements that are expected to have a material impact to the Company’s financial statements.