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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___to___
Commission file number 0-24000

ERIE INDEMNITY COMPANY
(Exact name of registrant as specified in its charter)

Pennsylvania
25-0466020
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)

100 Erie Insurance Place,Erie,Pennsylvania16530
(Address of principal executive offices)(Zip Code)

814870-2000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Class A common stock,stated value $0.0292 per shareERIENASDAQ Stock Market, LLC
(Title of each class)(Trading Symbol)(Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ☒ 

The number of shares outstanding of the registrant’s Class A Common Stock as of the latest practicable date was 46,189,068 at October 22, 2021.
 
The number of shares outstanding of the registrant’s Class B Common Stock as of the latest practicable date was 2,542 at October 22, 2021.


2

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

ERIE INDEMNITY COMPANY
STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share data)
Three months endedNine months ended
September 30,September 30,
2021202020212020
Operating revenue  
Management fee revenue - policy issuance and renewal services
$504,891 $484,551 $1,462,880 $1,412,096 
Management fee revenue - administrative services14,471 14,910 43,985 44,494 
Administrative services reimbursement revenue162,410 147,710 473,133 451,229 
Service agreement revenue6,067 6,310 18,048 19,418 
Total operating revenue687,839 653,481 1,998,046 1,927,237 
Operating expenses
Cost of operations - policy issuance and renewal services430,326 409,546 1,268,650 1,202,903 
Cost of operations - administrative services162,410 147,710 473,133 451,229 
Total operating expenses592,736 557,256 1,741,783 1,654,132 
Operating income95,103 96,225 256,263 273,105 
Investment income
Net investment income18,858 10,645 49,605 20,353 
Net realized investment gains1,610 5,915 5,183 1,635 
Net impairment recoveries (losses) recognized in earnings130 (122)216 (3,192)
Total investment income20,598 16,438 55,004 18,796 
Interest expense, net1,034 3 3,082 8 
Other expense541 964 1,608 1,588 
Income before income taxes114,126 111,696 306,577 290,305 
Income tax expense23,903 22,480 63,759 59,786 
Net income$90,223 $89,216 $242,818 $230,519 
Net income per share  
Class A common stock – basic$1.94 $1.92 $5.21 $4.95 
Class A common stock – diluted$1.72 $1.71 $4.64 $4.41 
Class B common stock – basic and diluted$291 $287 $782 $742 
Weighted average shares outstanding – Basic
  
Class A common stock46,189,035 46,189,030 46,188,729 46,188,544 
Class B common stock2,542 2,542 2,542 2,542 
Weighted average shares outstanding – Diluted
  
Class A common stock52,305,245 52,310,429 52,307,859 52,312,588 
Class B common stock2,542 2,542 2,542 2,542 
Dividends declared per share  
Class A common stock$1.035 $0.965 $3.105 $2.895 
Class B common stock$155.25 $144.75 $465.75 $434.25 

See accompanying notes to Financial Statements. See Note 11, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations. 
3

ERIE INDEMNITY COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Three months endedNine months ended
September 30,September 30,
2021202020212020
Net income$90,223 $89,216 $242,818 $230,519 
Other comprehensive (loss) income, net of tax  
Change in unrealized holding (losses) gains on available-for-sale securities(3,732)6,143 (9,808)11,358 
Amortization of prior service costs and net actuarial loss on pension and other postretirement plans
3,463 2,659 10,389 7,979 
Total other comprehensive (loss) income, net of tax(269)8,802 581 19,337 
Comprehensive income$89,954 $98,018 $243,399 $249,856 
 
See accompanying notes to Financial Statements. See Note 11, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations.
4

ERIE INDEMNITY COMPANY
STATEMENTS OF FINANCIAL POSITION
(dollars in thousands, except per share data)
September 30,December 31,
20212020
Assets(Unaudited)
Current assets:
Cash and cash equivalents$235,996 $161,240 
Available-for-sale securities30,627 17,697 
Equity securities10 19 
Receivables from Erie Insurance Exchange and affiliates, net503,413 494,637 
Prepaid expenses and other current assets55,003 52,561 
Accrued investment income6,104 6,146 
Total current assets831,153 732,300 
Available-for-sale securities, net906,877 910,539 
Equity securities86,270 94,071 
Fixed assets, net277,939 265,341 
Agent loans, net59,462 62,449 
Deferred income taxes, net17,153 12,341 
Other assets57,704 40,081 
Total assets$2,236,558 $2,117,122 
Liabilities and shareholders' equity
Current liabilities:
Commissions payable$280,540 $262,338 
Agent bonuses88,556 110,158 
Accounts payable and accrued liabilities148,282 150,706 
Dividends payable48,200 48,200 
Contract liability35,853 36,917 
Deferred executive compensation10,757 17,319 
Current portion of long-term borrowings2,075 2,031 
Total current liabilities614,263 627,669 
Defined benefit pension plans192,808 164,346 
Long-term borrowings92,273 93,833 
Contract liability18,098 18,878 
Deferred executive compensation14,477 14,904 
Other long-term liabilities17,783 9,444 
Total liabilities949,702 929,074 
Shareholders’ equity
Class A common stock, stated value $0.0292 per share; 74,996,930 shares authorized; 68,299,200 shares issued; 46,189,068 shares outstanding
1,992 1,992 
Class B common stock, convertible at a rate of 2,400 Class A shares for one Class B share, stated value $70 per share; 3,070 shares authorized; 2,542 shares issued and outstanding
178 178 
Additional paid-in-capital16,496 16,487 
Accumulated other comprehensive loss(77,562)(78,143)
Retained earnings2,491,842 2,393,624 
Total contributed capital and retained earnings2,432,946 2,334,138 
Treasury stock, at cost; 22,110,132 shares held
(1,167,490)(1,163,670)
Deferred compensation21,400 17,580 
Total shareholders’ equity1,286,856 1,188,048 
Total liabilities and shareholders’ equity$2,236,558 $2,117,122 

See accompanying notes to Financial Statements. 
5

ERIE INDEMNITY COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Three and nine months ended September 30, 2021
(dollars in thousands, except per share data)

Class A common stockClass B common stockAdditional paid-in-capitalAccumulated other comprehensive (loss) incomeRetained earningsTreasury stockDeferred compensationTotal shareholders' equity
Balance, December 31, 2020$1,992 $178 $16,487 $(78,143)$2,393,624 $(1,163,670)$17,580 $1,188,048 
Net income73,566 73,566 
Other comprehensive loss(5,289)(5,289)
Dividends declared:
Class A $1.035 per share
(47,806)(47,806)
Class B $155.25 per share
(395)(395)
Net purchase of treasury stock (1)
9 0 9 
Deferred compensation(846)846 0 
Rabbi trust distribution (2)
876 (876)0 
Balance, March 31, 2021$1,992 $178 $16,496 $(83,432)$2,418,989 $(1,163,640)$17,550 $1,208,133 
Net income79,029 79,029 
Other comprehensive income6,139 6,139 
Dividends declared:
Class A $1.035 per share
(47,805)(47,805)
Class B $155.25 per share
(394)(394)
Net purchase of treasury stock (1)
0 0 0 
Deferred compensation(3,668)3,668 0 
Rabbi trust distribution (2)
97 (97)0 
Balance, June 30, 2021$1,992 $178 $16,496 $(77,293)$2,449,819 $(1,167,211)$21,121 $1,245,102 
Net income90,223 90,223 
Other comprehensive loss(269)(269)
Dividends declared:
Class A $1.035 per share
(47,805)(47,805)
Class B $155.25 per share
(395)(395)
Net purchase of treasury stock (1)
0 0 0 
Deferred compensation(279)279 0 
Balance, September 30, 2021$1,992 $178 $16,496 $(77,562)$2,491,842 $(1,167,490)$21,400 $1,286,856 

(1)Net purchases of treasury stock in 2021 include the repurchase of our Class A common stock in the open market that were subsequently distributed to satisfy stock based compensation awards.
(2)Distributions of our Class A shares were made from the rabbi trust to a retired director and an incentive compensation deferral plan participant in 2021.

6

ERIE INDEMNITY COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Three and nine months ended September 30, 2020
(dollars in thousands, except per share data)
Class A common stockClass B common stockAdditional paid-in-capitalAccumulated other comprehensive (loss) incomeRetained earningsTreasury stockDeferred compensationTotal shareholders' equity
Balance, December 31, 2019$1,992 $178 $16,483 $(116,868)$2,377,558 $(1,158,910)$12,820 $1,133,253 
Cumulative effect adjustment (1)
(1,075)(1,075)
Net income59,326 59,326 
Other comprehensive loss(29,576)(29,576)
Dividends declared:
Class A $0.965 per share
(44,572)(44,572)
Class B $144.75 per share
(368)(368)
Net purchase of treasury stock (2)
4 0 4 
Deferred compensation(772)772 0 
Balance, March 31, 2020$1,992 $178 $16,487 $(146,444)$2,390,869 $(1,159,682)$13,592 $1,116,992 
Net income81,977 81,977 
Other comprehensive income40,111 40,111 
Dividends declared:
Class A $0.965 per share
(44,573)(44,573)
Class B $144.75 per share
(368)(368)
Net purchase of treasury stock (2)
0 0 0 
Deferred compensation(3,568)3,568 0 
Rabbi trust distribution (3)
704 (704)0 
Balance, June 30, 2020$1,992 $178 $16,487 $(106,333)$2,427,905 $(1,162,546)$16,456 $1,194,139 
Net income89,216 89,216 
Other comprehensive income8,802 8,802 
Dividends declared:
Class A $0.965 per share
(44,572)(44,572)
Class B $144.75 per share
(368)(368)
Net purchase of treasury stock (2)
0 0 0 
Deferred compensation(371)371 0 
Balance, September 30, 2020$1,992 $178 $16,487 $(97,531)$2,472,181 $(1,162,917)$16,827 $1,247,217 

(1)The cumulative effect adjustment is related to the implementation of credit loss allowance accounting guidance effective January 1, 2020.
(2)Net purchases of treasury stock in 2020 include the repurchase of our Class A common stock in the open market that were subsequently distributed to satisfy stock based compensation awards.
(3)Distributions of our Class A shares were made from the rabbi trust to a retired director in 2020.

See accompanying notes to Financial Statements.
7

ERIE INDEMNITY COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine months ended
September 30,
20212020
Cash flows from operating activities
Management fee received$1,496,372 $1,434,070 
Administrative services reimbursements received471,395 432,133 
Service agreement fee received18,048 19,418 
Net investment income received27,957 26,817 
Commissions paid to agents(726,411)(696,447)
Agents bonuses paid(119,778)(104,301)
Salaries and wages paid(160,784)(146,420)
Employee benefits paid(24,592)(24,067)
General operating expenses paid(180,028)(193,613)
Administrative services expenses paid(471,523)(440,531)
Income taxes paid(63,504)(72,576)
Interest paid(3,114)(5)
Net cash provided by operating activities264,038 234,478 
Cash flows from investing activities
Purchase of investments:
Available-for-sale securities(267,067)(338,093)
Equity securities(45,654)(66,847)
Other investments(605)(788)
Proceeds from investments:
Available-for-sale securities sales108,869 89,264 
Available-for-sale securities maturities/calls142,614 92,731 
Equity securities54,303 55,000 
Other investments903 589 
Purchase of fixed assets(38,097)(52,289)
Loans to agents(5,648)(3,773)
Collections on agent loans7,224 5,635 
Net cash used in investing activities(43,158)(218,571)
Cash flows from financing activities
Dividends paid to shareholders(144,600)(134,821)
Net payments on long-term borrowings(1,524)(1,470)
Net cash used in financing activities(146,124)(136,291)
Net increase (decrease) in cash and cash equivalents74,756 (120,384)
Cash and cash equivalents, beginning of period161,240 336,739 
Cash and cash equivalents, end of period$235,996 $216,355 
Supplemental disclosure of noncash transactions
Transfer of investments from limited partnerships to equity securities$0 $13,041 
Operating lease assets obtained in exchange for new operating lease liabilities$2,379 $4,107 
Liability incurred to purchase fixed assets$13,102 $496 

See accompanying notes to Financial Statements.
8

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
Note 1.  Nature of Operations
 
Erie Indemnity Company ("Indemnity", "we", "us", "our") is a publicly held Pennsylvania business corporation that has since its incorporation in 1925 served as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange ("Exchange").  The Exchange, which also commenced business in 1925, is a Pennsylvania-domiciled reciprocal insurer that writes property and casualty insurance.
 
Our primary function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. We also act as attorney-in-fact on behalf of the Exchange with respect to all claims handling and investment management services, as well as the service provider for all claims handling, life insurance, and investment management services for its insurance subsidiaries, collectively referred to as "administrative services". Acting as attorney-in-fact in these two capacities is done in accordance with a subscriber's agreement (a limited power of attorney) executed individually by each subscriber (policyholder), which appoints us as their common attorney-in-fact to transact certain business on their behalf.  Pursuant to the subscriber's agreement for acting as attorney-in-fact in these two capacities, we earn a management fee calculated as a percentage of the direct and affiliated assumed premiums written by the Exchange.

The policy issuance and renewal services we provide to the Exchange are related to the sales, underwriting and issuance of policies. The sales related services we provide include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as additional commissions and bonuses to agents, which are earned by achieving targeted measures. The underwriting services we provide include underwriting and policy processing. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.

By virtue of its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. The amounts incurred for these services are reimbursed to Indemnity at cost in accordance with the subscriber's agreement and the service agreements. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.

Our results of operations are tied to the growth and financial condition of the Exchange. If any events occurred that impaired the Exchange’s ability to grow or sustain its financial condition, including but not limited to reduced financial strength ratings, disruption in the independent agency relationships, significant catastrophe losses, or products not meeting customer demands, the Exchange could find it more difficult to retain its existing business and attract new business. A decline in the business of the Exchange almost certainly would have as a consequence a decline in the total premiums paid and a correspondingly adverse effect on the amount of the management fees we receive. We also have an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for its management fee and cost reimbursements. See Note 12, "Concentrations of Credit Risk".

Coronavirus ("COVID-19") pandemic
In March 2020, the outbreak of the coronavirus ("COVID-19") was declared a global pandemic. The uncertainty resulting from COVID-19 continues to evolve and the pandemic’s ultimate impact and duration remain uncertain at this time. We are unable to predict the duration or extent of the business disruption or the financial impact given the ongoing development of the pandemic and its impacts on the economy and financial markets.


9

Note 2.  Significant Accounting Policies

Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, refer to the financial statements and footnotes included in our Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission on February 25, 2021.

Use of estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Reclassifications
Certain amounts previously reported have been reclassified for comparative purposes to conform to the current period’s presentation. "Federal income taxes recoverable" is now included in "Prepaid expenses and other current assets" in the Statements of Financial Position. “Equity in earnings (losses) of limited partnerships” is now included in “Net investment income” in the Statements of Operations. The reclassifications had no effect on previously reported net income.



10

Note 3.  Revenue

The majority of our revenue is derived from the subscriber’s agreement between us and the subscribers (policyholders) at the Exchange. Pursuant to the subscriber’s agreement, we earn a management fee calculated as a percentage, not to exceed 25%, of all direct and affiliated assumed written premiums of the Exchange. We allocate a portion of our management fee revenue, currently 25% of the direct and affiliated assumed written premiums of the Exchange, between the two performance obligations we have under the subscriber’s agreement. The first performance obligation is to provide policy issuance and renewal services to the subscribers (policyholders) at the Exchange, and the second is to act as attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to all administrative services.

The transaction price, including management fee revenue and administrative service reimbursement revenue, includes variable consideration and is allocated based on the estimated standalone selling prices developed using industry information and other available information for similar services. A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term. Management fees are returned to the Exchange when policyholders cancel their insurance coverage mid-term and premiums are refunded to them. The constraining estimate is determined using the expected value method, based on both historical and current information. The estimated transaction price, as reduced by the constraint, reflects consideration expected for performance of our services. We update the transaction price and the related allocation at least annually based upon the most recent information available or more frequently if there have been significant changes in any components considered in the transaction price.

The first performance obligation is to provide policy issuance and renewal services that result in executed insurance policies between the Exchange or one of its insurance subsidiaries and the subscriber (policyholder). The subscriber (policyholder), receives economic benefits when substantially all the policy issuance or renewal services are complete and an insurance policy is issued or renewed by the Exchange or one of its insurance subsidiaries. It is at the time of policy issuance or renewal that the allocated portion of revenue is recognized.

The Exchange, by virtue of its legal structure as a reciprocal insurer, does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Collectively, these services represent a second performance obligation under the subscriber’s agreement and the service agreements. The revenue allocated to this performance obligation is recognized over a four-year period representing the time over which these services are provided. The portion of revenue not yet earned is recorded as a contract liability in the Statements of Financial Position. During the three and nine months ending September 30, 2021, we recognized revenue of $7.8 million and $31.7 million, respectively, that was included in the contract liabilities balance as of December 31, 2020. During the three and nine months ending September 30, 2020, we recognized revenue of $7.6 million and $31.0 million, respectively, that was included in the contract liabilities balance as of December 31, 2019. The administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Statements of Operations.

Indemnity records a receivable from the Exchange for management fee revenue when the premium is written or assumed by the Exchange. Indemnity collects the management fee from the Exchange when the Exchange collects the premiums from the subscribers (policyholders). As the Exchange issues policies with annual terms only, cash collections generally occur within one year.


The following table disaggregates revenue by our two performance obligations:
Three months ended September 30,Nine months ended September 30,
(in thousands)2021202020212020
Management fee revenue - policy issuance and renewal services$504,891 $484,551 $1,462,880 $1,412,096 
Management fee revenue - administrative services14,471 14,910 43,985 44,494 
Administrative services reimbursement revenue162,410 147,710 473,133 451,229 
Total administrative services $176,881 $162,620 $517,118 $495,723 
11

Note 4.  Earnings Per Share
 
Class A and Class B basic earnings per share and Class B diluted earnings per share are calculated under the two-class method. The two-class method allocates earnings to each class of stock based upon its dividend rights.  Class B shares are convertible into Class A shares at a conversion ratio of 2,400 to 1. See Note 10, "Capital Stock".

Class A diluted earnings per share are calculated under the if-converted method, which reflects the conversion of Class B shares to Class A shares. Diluted earnings per share calculations include the dilutive effect of assumed issuance of stock-based awards under compensation plans that have the option to be paid in stock using the treasury stock method.

A reconciliation of the numerators and denominators used in the basic and diluted per-share computations is presented as follows for each class of common stock: 
Three months ended September 30,
20212020
(dollars in thousands, except per share data)Allocated net income (numerator)Weighted shares (denominator)Per-share amountAllocated net income (numerator)Weighted shares (denominator)Per-share amount
Class A – Basic EPS:
Income available to Class A stockholders$89,484 46,189,035 $1.94 $88,486 46,189,030 $1.92 
Dilutive effect of stock-based awards0 15,410 — 0 20,599 — 
Assumed conversion of Class B shares739 6,100,800 — 730 6,100,800 — 
Class A – Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares
$90,223 52,305,245 $1.72 $89,216 52,310,429 $1.71 
Class B – Basic and diluted EPS:
Income available to Class B stockholders$739 2,542 $291 $730 2,542 $287 
Nine months ended September 30,
20212020
(dollars in thousands, except per share data)Allocated net income (numerator)Weighted shares (denominator)Per-share amountAllocated net income (numerator)Weighted shares (denominator)Per-share amount
Class A – Basic EPS:
Income available to Class A stockholders$240,830 46,188,729 $5.21 $228,632 46,188,544 $4.95 
Dilutive effect of stock-based awards0 18,330 — 0 23,244 — 
Assumed conversion of Class B shares1,988 6,100,800 — 1,887 6,100,800 — 
Class A – Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares
$242,818 52,307,859 $4.64 $230,519 52,312,588 $4.41 
Class B – Basic and diluted EPS:
Income available to Class B stockholders$1,988 2,542 $782 $1,887 2,542 $742 

12

Note 5. Fair Value
 
Financial instruments carried at fair value
Our available-for-sale and equity securities are recorded at fair value, which is the price that would be received to sell the asset in an orderly transaction between willing market participants as of the measurement date.
 
Valuation techniques used to derive the fair value of our available-for-sale and equity securities are based upon observable and unobservable inputs.  Observable inputs reflect market data obtained from independent sources.  Unobservable inputs reflect our own assumptions regarding fair market value for these securities.  Financial instruments are categorized based upon the following characteristics or inputs to the valuation techniques:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs for the asset or liability.
 
Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service.  Our Level 1 securities are valued using an exchange traded price provided by the pricing service. Pricing service valuations for Level 2 securities include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data.  Pricing service valuations for Level 3 securities are based upon proprietary models and are used when observable inputs are not available or in illiquid markets.
 
Although virtually all of our prices are obtained from third party sources, we also perform internal pricing reviews, including evaluating the methodology and inputs used to ensure that we determine the proper classification level of the financial instrument and reviewing securities with price changes that vary significantly from current market conditions or independent price sources.  Price variances are investigated and corroborated by market data and transaction volumes. We have reviewed the pricing methodologies of our pricing service as well as other observable inputs and believe that the prices adequately consider market activity in determining fair value. 

In limited circumstances we adjust the price received from the pricing service when, in our judgment, a better reflection of fair value is available based upon corroborating information and our knowledge and monitoring of market conditions such as a disparity in price of comparable securities and/or non-binding broker quotes.  In other circumstances, certain securities are internally priced because prices are not provided by the pricing service.
 
When a price from the pricing service is not available, values are determined by obtaining broker/dealer quotes and/or market comparables. When available, we obtain multiple quotes for the same security. The ultimate value for these securities is determined based upon our best estimate of fair value using corroborating market information. As of September 30, 2021, nearly all of our available-for-sale and equity securities were priced using a third party pricing service.


13

The following tables present our fair value measurements on a recurring basis by asset class and level of input as of: 
September 30, 2021
(in thousands)TotalLevel 1Level 2Level 3
Available-for-sale securities:
Corporate debt securities$567,966 $555 $561,214 $6,197 
Collateralized debt obligations114,004 0 114,004 0 
Commercial mortgage-backed securities