10-K: York Water Co. Navigates Growth, Rate Hikes Amid Profit Dip

The York Water Company reported a slight net income decrease in 2025 despite revenue growth driven by customer expansion and rate increases, as it continues significant infrastructure investments and strategic acquisitions.

Summary

• Net income decreased by 1.3% to $20,058 thousand in 2025 from $20,325 thousand in 2024.
• Operating revenues increased by 3.4% to $77,488 thousand in 2025 from $74,959 thousand in 2024.
• The total customer base grew from 79,771 to 81,292 in 2025.
• Average water customers increased by 1,165 to 73,580 in 2025, and average wastewater customers increased by 490 to 7,011 in 2025.
• Operating expenses rose by 6.1% to $49,783 thousand in 2025, primarily due to higher depreciation, wages, maintenance, and technology upgrades.
• Interest on debt increased by 15.3% to $10,262 thousand in 2025 due to increased long-term debt and higher interest rates.
• Allowance for funds used during construction (AFUDC) decreased by $1,232 thousand to $820 thousand in 2025.
• A non-recurring gain on life insurance of $831 thousand was recorded in 2025.
• Effective March 1, 2026, the PPUC authorized an annual increase in water rates of approximately $16,000 thousand and wastewater rates of approximately $2,850 thousand.
• Capital expenditures for 2025 were $48,725 thousand, including main extensions and enterprise software upgrades.
• The dividend payout ratio relative to net income was 63.7% in 2025, up from 60.2% in 2024.
• Return on year-end common equity was 8.3% in 2025, lower than the five-year historical average of 10.3%.
• The efficiency ratio (net income divided by revenues) was 25.9% in 2025, below the five-year average of 31.0%.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a neutral-to-slightly-negative report. While revenue growth and successful rate increases are positive, the decline in net income, return on equity, and efficiency ratio, coupled with rising expenses, indicates operational challenges that temper the positive aspects.

Positives

• The Company achieved consistent customer growth, adding 1,521 new customers in 2025, primarily through acquisitions and organic expansion.
• Operating revenues increased by 3.4% in 2025, driven by customer growth and revenues from the distribution system improvement charge (DSIC).
• Significant rate increases were approved by the PPUC, effective March 1, 2026, expected to generate an additional $18,850 thousand in annual revenues.
• The Lake Williams dam armoring and spillway replacement project was completed in 2023 at a total cost of approximately $40 million, enhancing infrastructure resilience.
• The Company maintains a strong water supply, with an average daily availability of 41.1 million gallons compared to average daily consumption of 23.7 million gallons as of December 31, 2025.
• Compliance with federal and state water quality and environmental regulations, including the Safe Drinking Water Act, Clean Water Act, and Lead and Copper Rule, ensures safe and reliable service.
• Standard & Poor's affirmed the Company's credit rating at Awith a stable outlook on July 30, 2025, reflecting financial stability.
• The Board increased the quarterly dividend by 4.0% in Q4 2025 to $0.2280 per share, demonstrating a commitment to shareholder returns.
• A robust cybersecurity risk management program is in place, with active Board oversight and engagement of third-party experts for assessments and testing.

Negatives

• Net income decreased by 1.3% in 2025 compared to 2024, primarily due to higher operating and interest expenses.
• Return on year-end common equity declined to 8.3% in 2025, falling below the Company's five-year historical average of 10.3%.
• The efficiency ratio decreased to 25.9% in 2025, indicating a reduction in the Company's ability to control expenses relative to revenues, compared to its five-year average of 31.0%.
• Operating expenses increased by 6.1% in 2025, driven by higher depreciation and amortization, wages and benefits, distribution system maintenance, and technology upgrades.
• Interest on debt increased by 15.3% in 2025, reflecting an increase in long-term debt outstanding and higher interest rates.
• Allowance for funds used during construction (AFUDC) decreased significantly by $1,232 thousand in 2025 due to a lower volume of eligible construction.
• Total per capita water consumption was approximately 1.6% lower in 2025 than in 2024.
• Drought watch and warning declarations in the Company's service territories as of February 18, 2026, could potentially impact future revenues and operating expenses.

Risks

• Changes in weather or climate, including drought conditions or extended periods of heavy precipitation, can impact water usage, demand, and revenues.
• Natural disasters, including pandemics, and the effectiveness of the Company's pandemic plans, pose operational and financial risks.
• The level and timeliness of rate relief granted by the Pennsylvania Public Utility Commission (PPUC) may not be sufficient to cover costs or provide an adequate return.
• Changes in government policies or regulations, including the tax code, and the impact of government shutdowns, could affect operations and financial condition.
• The ability to obtain necessary permits for expansion projects may be challenging.
• Material changes in customer demand, including the impact of conservation efforts, could negatively affect water sales volumes.
• Changes in economic and business conditions, particularly interest rates, can impact borrowing costs and financial performance.
• Loss of customers could reduce revenues and profitability.
• Unanticipated capital requirements, especially those related to increasing environmental and safety regulations, could strain financial resources.
• The impact of acquisitions on integration and financial performance carries inherent risks.
• Changes in accounting pronouncements could affect financial reporting.
• Changes in the Company's credit rating or the market price of its common stock could impact financing costs and investor confidence.
• The ability to obtain sufficient financing, including lines of credit or long-term debt/equity, on favorable terms is crucial for funding capital expenditures and acquisitions.
• Cybersecurity risks, including unauthorized remote access, malware, ransomware, insider threats, denial of service attacks, unsecured human-machine interfaces, outdated technology, network segmentation issues, and phishing scams, could disrupt operations, compromise data, and incur significant costs.
• Inflation, particularly the continually increasing costs to maintain and expand service capacity, may not be fully recovered through timely and sufficient rate increases approved by the PPUC.
• Pension accounting estimates, such as future compensation increases, mortality, discount rates, and expected return on plan assets, are subjective and could lead to increased future contributions and expenses.

Future Outlook

Revenues for 2026 are expected to increase due to new rates effective March 1, 2026, and continued customer growth from acquisitions and organic expansion. Depreciation and amortization expense is projected to rise due to additional utility plant investments, and other operating expenses are expected to increase with rising costs for water/wastewater treatment and system maintenance. Interest expense is anticipated to increase due to higher long-term debt, potentially offset by an equity offering. Allowance for funds used during construction (AFUDC) is expected to remain consistent. The effective tax rate for 2026 is projected to be higher than 2025 due to lower tax deductions. Anticipated construction and acquisition expenditures for 2026 and 2027 are approximately $48,000 thousand annually, with plans to secure permanent financing in 2026 to repay the term loan. The Company expects to maintain its dividend amount in 2026, and management is preparing for union contract negotiations, aiming for a fiscally responsible agreement.

Management Comments

• "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 continues to review and consider opportunities to expand this initiative [billing and collection services] to further diversify the business."
• "The Company's performance in 2025 was strong under the above measures [operating revenues, net income, EPS, ROE, customer growth, complaint rate, efficiency ratio]."
• "Management is confident that its ratio [efficiency 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."
• "The Company expects revenues for 2026 to increase due to an increase in rates effective March 1, 2026, and the continued increase in the number of water and wastewater customers from acquisitions and growth within the Company's service territory."
• "The Company expects to secure permanent financing in 2026 to repay this term loan."
• "Management believes the Company will have adequate capacity under its current line of credit to meet financing needs throughout 2026."
• "Management believes it is currently in compliance with all of these restrictions [debt covenants]."
• "The Company has not experienced a material impact on business or operations from these [cybersecurity] attacks."
• "Management believes it is more likely than not that the Company will realize the benefits of these deductible differences [deferred tax assets]."
• "Management is currently preparing for negotiations with the union leadership. The Company expects to reach an operationally and fiscally responsible agreement with no interruption of service."

Industry Context

StockSavvy.ai notes that as an investor-owned, regulated utility, The York Water Company's profitability is heavily influenced by regulatory approvals for rate increases and its ability to manage infrastructure investments. The focus on acquisitions and expanding billing services aligns with a broader utility trend of seeking growth avenues beyond traditional service expansion, especially in a mature industry. The emphasis on cybersecurity reflects increasing industry-wide awareness of critical infrastructure vulnerabilities, particularly for essential service providers.

Comparison to Industry Standards

• The Company is the oldest investor-owned water utility in the United States, operating continuously since 1816, indicating a long history of stability and operational expertise.
• The return on year-end common equity of 8.3% in 2025 is below its five-year historical average of 10.3%, suggesting a need for improvement to meet historical performance benchmarks within the utility sector.
• The efficiency ratio of 25.9% in 2025 is also below its five-year average of 31.0%, indicating a decline in expense control relative to revenues compared to its own historical performance. Management expresses confidence it will compare favorably to peers, but no specific peer comparisons are provided in the filing.
• The Acredit rating with a stable outlook from Standard & Poor's is generally considered strong for a utility, reflecting financial stability and access to capital markets.

Corporate Governance

Legal Proceedings

• There are no material legal proceedings involving the Company.

Stakeholder Impact

• Shareholders are impacted by the slight decrease in net income and lower return on equity, but also benefit from the 4.0% dividend increase and expected future revenue growth from rate increases and acquisitions. Potential for dilution exists from future equity offerings.
• Customers will face higher water and wastewater rates effective March 1, 2026. They benefit from ongoing infrastructure investments, such as dam improvements and lead service line replacements, ensuring reliable and safe service. Customers are subject to potential voluntary water usage reductions due to drought conditions.
• Employees hired before May 1, 2010, participate in defined benefit pension plans, while those hired after are eligible for an enhanced 401(k) plan. Unionized employees will undergo contract negotiations in 2026.
• Creditors benefit from the Company's affirmed Acredit rating with a stable outlook and management's stated compliance with all debt covenants and restrictions.
• Regulatory Authorities (PPUC, DEP, EPA, SRBC) continue to oversee the Company's operations, including rate setting, environmental compliance, and water resource management, ensuring adherence to public utility standards.

Next Steps

• Completion of sitework around the Lake Williams dam and reservoir in 2026.
• Reassessment of the Lake Redman dam spillway capacity following the completion of work on the Lake Williams dam.
• Continued pursuit of bulk water contracts and acquisitions both within and outside its current service territory.
• Development of elementary school and childcare facility mailings in preparation for LCRI sampling compliance by 2037.
• Negotiations for the union contract expiring April 30, 2026.
• Securing permanent financing in 2026 to repay the $10,000 thousand term loan.
• Potential debt and equity offerings in 2026 and 2027 to fund anticipated construction and acquisition expenditures.
• Continued expensing of asset improvements for tax purposes under IRS Tangible Property Regulations (TPR) in the future.
• Annual review of the committed line of credit for a potential extension of its expiration date (currently September 2027).
• No planned contributions to defined benefit pension plans in 2026.
• Evaluation of the assignment of its service line protection plan to a third-party provider.

Key Dates

Recommendation

The York Water Company operates in a stable, regulated utility sector, providing essential services. While the 2025 results show a slight dip in net income and key profitability ratios (ROE, efficiency ratio) compared to historical averages, the approved rate increases for 2026 are substantial and should significantly boost future revenues and profitability. The company's consistent customer growth, strategic acquisitions, and ongoing infrastructure investments are positive long-term drivers. However, rising operating and interest expenses, coupled with a decrease in AFUDC, present near-term headwinds. The Acredit rating and stable dividend growth are attractive for income-focused investors. Given the mixed performance in 2025 but strong forward-looking regulatory support and growth initiatives, a "Hold" recommendation is appropriate, suggesting investors monitor the realization of expected revenue increases and expense management in 2026.

Keywords

Water Utility, Wastewater Utility, Pennsylvania Public Utility Commission, SEC Filing, 10-K, Financial Performance, Customer Growth, Rate Increase, Capital Expenditures, Cybersecurity, Dividend, Debt, Acquisitions, Regulatory Assets, Pension Plans, Infrastructure, York Water Company, YORW