York Water Co: Form 10-Q for the period ended Jun 30, 2026

Forward-looking Statements

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

• the amount and timing of rate changes and other regulatory matters including the recovery of costs recorded as regulatory assets;
• expected profitability and results of operations;
• trends;
• goals, priorities and plans for, and cost of, growth and expansion;
• strategic initiatives;
• availability of water supply;
• water usage by customers; and
• the ability to pay dividends on our common stock and the rate of those dividends.

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

• changes in weather or climate, including drought conditions or extended periods of heavy precipitation;
• natural disasters, including pandemics and the effectiveness of the Company’s pandemic response;
• levels of rate relief granted;
• the level of commercial and industrial business activity within the Company’s service territory;
• construction of new housing within the Company’s service territory and increases in population;
• changes in government policies or regulations, including the tax code, and the impact of government shutdowns;
• the ability to obtain permits for expansion projects;
• material changes in demand from customers, including the impact of conservation efforts which may impact the demand of customers for water;
• changes in economic and business conditions, including interest rates;
• loss of customers;
• changes in, or unanticipated, capital requirements, including requirements relating to compliance with increasing environmental and safety regulations;
• the impact of acquisitions;
• changes in accounting pronouncements;
• changes in the Company’s credit rating or the market price of its common stock; and
• the ability to obtain financing.

17

General Information

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

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

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

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

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

Results of Operations

Three Months Ended June 30, 2026 Compared

With Three Months Ended June 30, 2025

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

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

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

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

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

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

Six Months Ended June 30, 2026 Compared

With Six Months Ended June 30, 2025

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

Operating revenues for the first six months of 2026 increased $5,934, or 15.8%, from $37,655 for the six months ended June 30, 2025 to $43,589 for the corresponding 2026 period. The primary reason for the increase was a rate increase effective March 1, 2026. Growth in the customer base also added to revenues. The average number of water customers served in 2026 increased as compared to 2025 by 938 customers, from 73,322 to 74,260 customers. The average number of wastewater customers served in 2026 increased as compared to 2025 by 631 customers, from 6,865 to 7,496 customers, primarily due to acquisitions. The increased revenues were partially offset by a $638 decrease from a lower distribution system improvement charge, or DSIC, allowed by the PPUC. The DSIC reset to zero on March 1, 2026 when the rate order took effect. Total per capita consumption for 2026 was approximately 2.5% lower than the same period of last year. For the remainder of the year, the Company expects revenues to increase due to the increase in rates, higher summer demand 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.

Operating expenses for the first six months of 2026 increased $3,142, or 12.9%, from $24,286 for the first six months of 2025 to $27,428 for the corresponding 2026 period. The increase was primarily due to higher expenses of approximately $927 for distribution system maintenance, $708 for wages and benefits, $339 for purchased power, $299 for wastewater treatment, $252 for insurance, $247 for the provision for uncollectible accounts, and $243 for depreciation and amortization. Other operating expenses increased by a net of $127. For the remainder of the year, 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 the first six months of 2026 increased $57, or 1.2%, from $4,940 for the first six months of 2025 to $4,997 for the corresponding 2026 period. The increase was primarily due to an increase in short-term and long-term debt outstanding. The average debt outstanding under the short-term borrowings and line of credit was $27,922 for the first six months of 2026 and $22,481 for the first six months of 2025. The weighted average interest rate on the line of credit was 4.40% for the six months ended June 30, 2026 and 5.49% for the six months ended June 30, 2025. Interest expense for the remainder of the year is expected to decrease due to the repayment of the term loan and line of credit upon the completion of the underwritten common stock offering in April 2026.

Allowance for funds used during construction increased $230, from $376 in the first six months of 2025 to $606 in the corresponding 2026 period due to a higher volume of eligible construction. Allowance for funds used during construction for the remainder of the year is expected to increase based on a projected increase in the amount of eligible construction.

Other income (expenses), net for the first six months of 2026 reflects increased expenses of $5 as compared to the same period of 2025. Higher charitable contributions of approximately $20 were offset by higher earnings on life insurance policies of approximately $15. For the remainder of the year, 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 the first six months of 2026 decreased $784 as compared to the same period of 2025 due to higher deductions for the Internal Revenue Service, or IRS, tangible property regulations, or TPR. The Company’s effective tax rate was (5.8)% for the first six months of 2026 and 1.2% for the first six months of 2025. The Company’s effective tax rate for the remainder of 2025 will be largely determined by the level of eligible asset improvements expensed for tax purposes under IRS TPR each period. The Company expects the level to be lower in the remainder of the year than the first six months, increasing the effective tax rate

Rate Matters

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

The Company does not expect to collect a DSIC or file a rate increase request in 2026.

Acquisitions and Growth

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

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

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 fourth quarter of 2026 at which time the Company will add approximately 140 water customers.

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

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

Capital Expenditures

For the six months ended June 30, 2026, the Company invested $21,102 in construction expenditures for main extensions, wastewater treatment plant construction, and an upgrade to the enterprise software system, as well as various replacements and improvements to infrastructure and routine items. 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.

The Company anticipates construction expenditures for the remainder of 2026 of approximately $26,800 exclusive of any potential acquisitions not yet approved. In addition to routine transmission and distribution projects, a portion of the anticipated expenditures will be for additional main extensions and an upgrade to the enterprise software system, as well as various replacements and improvements to infrastructure and routine items. The Company intends to use primarily internally-generated funds for its anticipated construction and fund the remainder through line of credit borrowings, proceeds from its stock purchase plans and customer advances and contributions. Customer advances and contributions are expected to account for between 5% and 10% of funding requirements during the remainder of 2026. The Company believes it will have adequate credit facilities and access to the capital markets, if necessary, during 2026 and 2027, 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 June 30, 2026, the Company had no borrowings on its line of credit and had a cash balance of $555. Upon completion of the underwritten common stock offering in April 2026, the Company repaid its line of credit and generated a cash balance. The Company expects the cash balance to be fully utilized in 2026, after which 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 the three months ended June 30, 2026, higher revenue levels as compared to the three months ended December 31, 2025, 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 including taxes, customers’ water usage, weather conditions, customer growth and controlled expenses. During the first six months of 2026, the Company generated $17,241 internally from operations as compared to the $13,603 it generated during the first six months of 2025. The increase was primarily due to higher net income.

Common Stock

On April 17, 2026, the Company closed an underwritten public offering of 1,521,739 shares of its common stock, with an offering price of $28.50 per share. On April 22, 2026, the Company closed on the full exercise of the underwriters’ option to purchase an additional 228,261 shares of its common stock at the same price. Huntington Capital Markets acted as sole book-running manager and Seaport Global Securities acted as co-manager for the offering. The Company received net proceeds in the offering, after deducting offering expenses and underwriters’ discounts and commissions, of $47,634. The net proceeds were used to repay the Company’s short-term borrowings under its term loan and 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 60.5% as of June 30, 2026, compared with 51.7% as of December 31, 2025. Based on the equity percentage falling to near 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.

The Company has the ability to issue approximately $10,000 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 line of credit before refinancing with long-term debt or equity capital. As of June 30, 2026, the Company maintained an unsecured line of credit in the amount of $50,000 at an interest rate of the Secured Overnight Financing Rate plus 1.17% with an unused commitment fee and an interest rate floor. The Company had no borrowings under its line of credit as of June 30, 2026. Upon completion of the underwritten common stock offering in April 2026, the Company repaid its line of credit. The Company expects to extend the maturity for this line of credit into 2028 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 anticipated financing needs throughout 2026 and 2027.

Term Loan

The Company maintained a $10,000 unsecured, committed term loan. Interest was payable monthly at an interest rate of SOFR plus 1.35% as established on the first day of each calendar month. Upon completion of the underwritten common stock offering in April 2026, the Company repaid this term loan.

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 financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 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 39.5% as of June 30, 2026, compared with 48.3% as of December 31, 2025. Based on the debt percentage nearly reaching fifty percent, the Company completed an underwritten common stock offering in April 2026 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.

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 TPR.

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 June 30, 2026.

Credit Rating

On June 30, 2026, 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. 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 allowed the Company to replace customer-owned service lines at its own initial cost. The Company recorded 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 $2,093 and $2,087 through June 30, 2026 and December 31, 2025, respectively, and is included as a regulatory asset. The tariff modification expired on March 8, 2026. The Company has filed a Lead Service Line Replacement Plan with the PPUC and is awaiting a decision. If approved, the plan would establish the requirements for, and the associated cost recovery mechanisms related to, the future replacement of customer‑owned lead service lines.

Labor Relations

The current union contract expired on April 30, 2026. Management and the union leadership have agreed to honor the expired contract and continue to work under its terms. Both sides are negotiating in good faith and the Company expects to reach an operationally and fiscally responsible agreement with no interruption of service.

Drought

As of June 29, 2026, Pennsylvania state officials maintained a drought watch for 11 counties in Pennsylvania, including York and Adams Counties within the Company’s service territory, and a drought warning for 8 counties in Pennsylvania, including Franklin and Lancaster Counties within the Company’s service territory. The watch calls for a voluntary reduction in nonessential water use of 5 to 10 percent and the warning calls for a voluntary reduction in nonessential water use of 10 to 15 percent. These measures could potentially impact future revenues, operating expenses, and net income depending on the length and severity of the dry conditions.

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. There has been no significant change in accounting estimates or the method of estimation during the quarter ended June 30, 2026.

Off-Balance Sheet Arrangements

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 6 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.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the Company’s President and Chief Executive Officer along with the Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report are effective such that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No change in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.