WESTAMERICA BANCORPORATION Fair Value Disclosure

Note 11: Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Debt securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, loans individually evaluated for credit loss, certain loans held for investment, debt securities held to maturity, and other assets. These nonrecurring fair value adjustments typically involve the lower-of-cost or fair-value accounting of individual assets.

 

In accordance with the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification, the Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in the principal market or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance.

 

The Company groups its assets and liabilities measured at fair value into a three-level hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. When the valuation assumptions used to measure the fair value of the asset or liability are categorized within different levels of the fair value hierarchy, the asset or liability is categorized in its entirety within the lowest level of the hierarchy. These levels are:

 

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New York Stock Exchange. Level 1 includes U.S. Treasury and equity securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 includes mutual funds, federal agency securities, mortgage-backed securities, corporate securities, commercial paper, collateralized loan obligations, municipal bonds and securities of U.S government entities and U.S. government sponsored entities.

 

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

 

The Company relies on independent vendor pricing services to measure fair value for equity securities, debt securities available for sale and debt securities held to maturity. The Company employs three pricing services. To validate the pricing of these vendors, the Company compares vendors’ pricing for each of the securities for consistency; significant pricing differences, if any, are evaluated using all available independent quotes with the quote most closely reflecting the market generally used as the fair value estimate. In addition, the Company evaluates debt securities for credit losses on a quarterly basis. As with any valuation technique used to estimate fair value, changes in underlying assumptions used could significantly affect the results of current and future values. Accordingly, these fair value estimates may not be realized in an actual sale of the securities.

 

The Company regularly reviews the valuation techniques and assumptions used by its vendors and determines which valuation techniques are utilized based on observable market inputs for the type of securities being measured. The Company uses the information to determine the placement in the fair value hierarchy as level 1, 2 or 3.

 

 

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Assets Recorded at Fair Value on a Recurring Basis

 

The tables below present assets measured at fair value on a recurring basis on the dates indicated.

 

		At December 31, 2025
		Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3) (1)
		(In thousands)
Debt securities available for sale:
Agency residential MBS		$	184,346			$	-			$	184,346			$	-
Agency commercial MBS			707,560				-				707,560				-
Securities of U.S. Government sponsored entities			302,412				-				302,412				-
Obligations of states and political subdivisions			45,722				-				45,722				-
Corporate securities			1,804,080				-				1,804,080				-
Collateralized loan obligations			424,614				-				424,614				-
Total debt securities available for sale			3,468,734				-				3,468,734				-
Equity securities held for trading			466				466				-				-
Total securities measured at fair value		$	3,469,200			$	466			$	3,468,734			$	-

 

⁽¹⁾ There were no transfers into or out of level 3 during the year ended December 31, 2025.

 

		At December 31, 2024
		Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3) (1)
		(In thousands)
Debt securities available for sale:
Agency residential MBS		$	211,060			$	-			$	211,060			$	-
Agency commercial MBS			6,966				-				6,966				-
Securities of U.S. Government sponsored entities			292,117				-				292,117				-
U.S. Treasury securities			4,955				4,955				-				-
Obligations of states and political subdivisions			62,186				-				62,186				-
Corporate securities			1,835,937				-				1,835,937				-
Collateralized loan obligations			982,589				-				982,589				-
Total debt securities available for sale		$	3,395,810			$	4,955			$	3,390,855			$	-

 

⁽¹⁾ There were no transfers into or out of level 3 during the year ended December 31, 2024.

 

Assets Recorded at Fair Value on a Nonrecurring Basis

 

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost or fair-value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at December 31, 2025, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end. No assets that were recorded in the balance sheet were measured at fair value on a nonrecurring basis at December 31, 2024.

 

																		For the
																		Year Ended
		At December 31, 2025																December 31, 2025
		Carrying Value				Level 1				Level 2				Level 3				Total Losses
		(In thousands)
Loans:
Commercial		$	707			$	-			$	-			$	707			$	-
Total assets measured at fair value on a nonrecurring basis		$	707			$	-			$	-			$	707			$	-

 

Level 3 – Valuation is based upon present value of expected future cash flows, independent market prices or estimated liquidation values of loan collateral, generally. The unobservable inputs and qualitative information about the inputs are not presented as the inputs were not developed by the Company.

 

Disclosures about Fair Value of Financial Instruments

 

The tables below are a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized, excluding financial instruments recorded at fair value on a recurring basis. The values assigned do not necessarily represent amounts which ultimately may be realized for assets or paid to settle liabilities. In addition, these values do not give effect to adjustments to fair value which may occur when financial instruments are sold or settled in larger quantities. The carrying amounts in the following tables are recorded in the balance sheet under the indicated captions.

 

The Company has not included assets and liabilities that are not financial instruments such as goodwill, long-term relationships with deposit, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes, and other assets and liabilities. The total estimated fair values do not represent, and should not be construed to represent, the underlying value of the Company.

 

		At December 31, 2025
		Carrying Amount				Estimated Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2 )				Significant Unobservable Inputs (Level 3 )
Financial Assets:		(In thousands)
Cash and due from banks		$	567,801			$	567,801			$	567,801			$	-			$	-
Debt securities held to maturity			819,574				812,580				-				812,580				-
Loans			714,909				716,439				-				-				716,439
Financial Liabilities:
Deposits		$	4,840,019			$	4,836,933			$	-			$	4,772,998			$	63,935
Securities sold under repurchase agreements			137,298				137,298				-				137,298				-

 

		At December 31, 2024
		Carrying Amount				Estimated Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2 )				Significant Unobservable Inputs (Level 3 )
Financial Assets:		(In thousands)
Cash and due from banks		$	601,494			$	601,494			$	601,494			$	-			$	-
Debt securities held to maturity			844,634				807,838				-				807,838				-
Loans			805,520				795,849				-				-				795,849
Financial Liabilities:
Deposits		$	5,011,850			$	5,007,644			$	-			$	4,929,612			$	78,032
Securities sold under repurchase agreements			120,322				120,322				-				120,322				-

 

The majority of the Company’s standby letters of credit and other commitments to extend credit carry current market interest rates if converted to loans. No premium or discount was ascribed to these commitments because virtually all funding would be at current market rates.