FAIR VALUE MEASUREMENTS

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, impaired loans and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities. Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market exchange prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include marketable equity securities and SBA-guaranteed securities traded on an active exchange. Level 2 securities include GSE issued mortgage-backed securities and collateralized mortgage obligations, municipal bonds, and corporate debt securities. Level 3 securities include certain corporate debt securities with limited trading activity. The following table provides the components of the change in fair value of level 3 available for sale securities for the periods presented.



	Successor Company				Predecessor Company
	Year Ended December 31, 2013		Period from February 1 to December 31, 2012		Period from January 1 to January 31, 2012

Level 3 available for sale securities at beginning of period	$	—	$	—	$	—
Purchases	7,505		—		—
Sales	—		—		—
Unrealized gains	78		—		—
Level 3 available for sale securities at end of period	$	7,583	$	—	$	—

Loans. Loans are not recorded at fair value on a recurring basis. However, certain loans are determined to be impaired, and those loans are charged down to estimated fair value. The fair value of impaired loans that are collateral dependent is based on collateral value. For impaired loans that are not collateral dependent, estimated value is based on either an observable market price, if available, or the present value of expected future cash flows. Those impaired loans not requiring a charge-off represent loans for which the estimated fair value exceeds the recorded investments in such loans. When the fair value of an impaired loan is based on an observable market price or a current appraised value with no adjustments, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available, or the Company determines the fair value of the collateral is further impaired below the appraised value, and there is no observable market price, the impaired loan is classified as nonrecurring Level 3.

Foreclosed Assets. Foreclosed assets are adjusted to fair value upon transfer of loans to foreclosed assets. Subsequently, foreclosed assets are carried at lower of cost or net realizable value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. Given the lack of observable market prices for identical properties and market discounts applied to appraised values, the Company generally classifies foreclosed assets as nonrecurring Level 3.

Interest Rate Lock Commitments. The fair value of interest rate lock commitments is based on servicing rate premium, origination income net of origination costs, fall out rates and changes in loan pricing between the commitment date and period end. There have been no changes in valuation techniques during the year ended December 31, 2013. Interest rate lock commitments are measured at fair value on a recurring basis and are classified as Level 3. The following table provides the components of the change in fair value of interest rate lock commitments for the periods presented.



	Successor Company						Predecessor Company
	Year Ended December 31, 2013			Period from February 1 to December 31, 2012			Period from January 1 to January 31, 2012

Interest rate lock commitments at beginning of period	$	795		$	268		$	212
Issuances	2,909			2,465			134
Settlements	(3,350		)	(1,938		)	(78		)
Interest rate lock commitments at end of period	$	354		$	795		$	268

The difference between the gross issuances and settlements for the period is included in mortgage banking income within non-interest income.

Derivatives. Derivative instruments include interest rate swaps and caps and are valued on a recurring basis using quoted market prices, dealer quotes, or third party pricing models that are primarily sensitive to market observable data. Currently outstanding derivatives are classified as Level 2 within the fair value hierarchy.

The following tables summarize information about assets and liabilities measured at fair value.



			Fair Value Measurements at December 31, 2013
	Assets/(Liabilities) Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description			(Level 1)		(Level 2)		(Level 3)
Securities available for sale:
U.S. government-sponsored enterprise securities	$	14,673	$	—	$	14,673	$	—
SBA-guaranteed securities	65,880		65,880		—		—
Residential MBS	205,260		—		205,260		—
Corporate bonds	110,740		—		103,157		7,583
Commercial MBS	5,938		—		5,938		—
Municipal obligations - non-taxable	601		—		601		—
Other debt securities	253		—		253		—
Marketable equity securities	1,043		1,043		—		—
Impaired loans	8,264		—		—		8,264
Foreclosed assets	10,823		—		—		10,823
Interest rate lock commitments	354		—		—		354
Derivative assets	4,363		—		4,363		—



				Fair Value Measurements at December 31, 2012
	Assets/(Liabilities) Measured at Fair Value			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
Description				(Level 1)		(Level 2)			(Level 3)
Securities available for sale:
Residential MBS	$	76,777		$	—	$	76,777		$	—
Commercial MBS	6,885			—		6,885			—
Corporate bonds	32,508			—		32,508			—
Municipal obligations - non-taxable	18,926			—		18,926			—
Other debt securities	1,157			—		1,157			—
Marketable equity securities	58			58		—			—
Impaired loans	5,084			—		—			5,084
Foreclosed assets	5,837			—		—			5,837
Interest rate lock commitments	795			—		—			795
Derivative assets	210			—		210			—
Derivative liabilities	(103		)	—		(103		)	—

Quantitative Information about Level 3 Fair Value Measurements



	Valuation Technique	Unobservable Input	Range	Fair Value at December 31, 2013
Recurring measurements:
Investment securities	Pricing model	Illiquidity or credit factor in discount rates	1-2%	$	7,583

Interest rate lock commitments	Pricing model	Pull through rates	80-85%	$	354

Nonrecurring measurements:
Foreclosed assets	Discounted appraisals	Collateral discounts	15-50%	$	10,823

Impaired loans	Discounted appraisals	Collateral discounts	15-50%	$	8,264
Impaired loans	Discounted expected cash flows	Expected loss rates	0-75%	$	8,264

The significant unobservable input used in the fair value measurement of the Company’s interest rate lock commitments is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. Generally, the fair value of an interest rate lock commitment is positive (negative) if the prevailing interest rate is lower (higher) than the interest rate lock commitment rate. Therefore, an increase in the pull through rates (i.e., higher percentage of loans estimated to close) will result in the fair value of the interest rate lock commitments increasing in a gain position, or decreasing in a loss position. The pull through ratio is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. The pull through rate is computed based on historical internal data and the ratio is periodically reviewed by the Company’s mortgage banking function.

Due to the nature of the Company’s business, a significant portion of its assets and liabilities consist of financial instruments. Accordingly, the estimated fair values of these financial instruments are disclosed. Quoted market prices, if available, are utilized as an estimate of the fair value of financial instruments. The fair value of such instruments has been derived based on assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimates. Accordingly, the net amounts ultimately collected could be materially different from the estimates presented below. In addition, these estimates are only indicative of the values of individual financial instruments and should not be considered an indication of the fair value of the Company taken as a whole.

Cash and Cash Equivalents. The carrying amounts for cash and cash equivalents are equal to fair value.

Investment Securities Available for Sale. See discussion related to fair value estimates for securities available for sale in the fair value hierarchy section above.

Investment Securities Held to Maturity. The fair value of the one corporate bond classified as held to maturity is estimated based on recent issuance prices on subordinated debt from companies with a similar credit and liquidity profile. Due to the non-marketable nature of this bond, it is classified as Level 3.

Loans Held For Sale. The fair value of mortgage loans held for sale is based on commitments from investors within the secondary market for loans with similar characteristics.

Loans. Expected cash flows are forecasted over the remaining life of each loan and are discounted to present value at current market interest rates for similar loans considering loan collateral type and credit quality.

Federal Home Loan Bank Stock. Given the option to redeem this stock at par through the FHLB, the carrying value of FHLB stock approximates fair value.

Bank-Owned Life Insurance. Bank-owned life insurance investments are recorded at their cash surrender value, or the amount that can be realized upon surrender. Therefore, carrying value approximates fair value.

Purchased Accounts Receivable. Purchased accounts receivable, which are classified in other assets on the consolidated balance sheet, are initially recorded at fair value and generally have maturities between 30 and 60 days. Due to the short duration of these assets, the carrying value approximates fair value.

Deposits. The fair value of demand deposits, savings, money market and NOW accounts represents the amount payable on demand. The fair value of time deposits is estimated by calculating the present value of cash flows on the time deposit portfolio discounted using interest rates currently offered for instruments of similar remaining maturities.

Short-Term Borrowings and Long-Term Debt. The fair value of short-term borrowings and long-term debt are based upon the discounted value when using current rates at which borrowings of similar maturity could be obtained.

Accrued Interest Receivable and Accrued Interest Payable. The carrying amounts of accrued interest receivable and payable approximate fair value due to the short maturities of these instruments.

Derivative Instruments. See discussion related to fair value estimates for derivative instruments in the fair value hierarchy section above.

The following tables summarize the carrying amounts and estimated fair values of the Company's financial instruments.



	December 31, 2013
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	100,779	$	100,779	$	100,779	$	—	$	—
Investment securities available for sale	404,388		404,388		66,923		329,882		7,583
Investment securities held to maturity	500		500		—		—		500
Loans held for sale	8,663		8,663		—		8,663		—
Loans, net	1,382,623		1,377,270		—		—		1,377,270
FHLB stock	8,929		8,929		—		8,929		—
Bank-owned life insurance	33,148		33,148		—		33,148		—
Derivative assets	4,717		4,717		—		4,363		354
Purchased accounts receivable	18,725		18,725		—		18,725		—
Accrued interest receivable	5,387		5,387		—		5,387		—
Financial liabilities:
Deposits	1,675,309		1,677,253		—		1,677,253		—
Short-term borrowings	126,500		126,726		—		—		126,726
Long-term debt	72,921		72,397		—		—		72,397
Accrued interest payable	1,817		1,817		—		1,817		—



	December 31, 2012
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	50,463	$	50,463	$	50,463	$	—	$	—
Investment securities available for sale	136,311		136,311		58		136,253		—
Investment securities held to maturity	180		410		—		—		410
Loans held for sale	16,439		16,439		—		16,439		—
Loans, net	759,418		763,572		—		—		763,572
Federal Home Loan Bank stock	2,307		2,307		—		2,307		—
Bank-owned life insurance	19,976		19,976		—		19,976		—
Derivative assets	1,005		1,005		—		210		795
Accrued interest receivable	5,154		5,154		—		5,154		—

Financial liabilities:
Deposits	873,222		876,674		—		876,674		—
Short-term borrowings	7,500		7,456		—		—		7,456
Long-term debt	19,864		19,821		—		—		19,821
Derivative liabilities	103		103		—		103		—
Accrued interest payable	476		476		—		476		—