FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2013

FAIR VALUE MEASUREMENTS

NOTE 13 — FAIR VALUE MEASUREMENTS

The following table presents the Company’s assets and liabilities measured at estimated fair value on a recurring basis based on the fair value hierarchy:

(Dollars in thousands)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
March 31, 2013
Liabilities:
Common stock warrant liability	$	—	$	—	$	3,800	$	3,800
December 31, 2012
Assets:
Investment securities, available for sale	$	3,060	$	—	$	—	$	3,060
Liabilities:
Common stock warrant liability	$	—	$	—	$	2,350	$	2,350

The following table presents the reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2013 and 2012:

(Dollars in thousands)	Beginning Balance		Income (Expense) Realized in Earnings			Transfers In/Out of Level 3		Purchases		Issuances		Settlements		Ending Balance
Three Months Ended March 31, 2013
Common stock warrant liability	$	2,350	$	(1,450	)	$	—	$	—	$	—	$	—	$	3,800
Three Months Ended March 31, 2012
Contingent consideration	$	3,597	$	(74	)	$	—	$	—	$	—	$	—	$	3,671
Common stock warrant liability		1,403		3			—		—		—		—		1,400
Total	$	5,000	$	(71	)	$	—	$	—	$	—	$	—	$	5,071

From time to time, the Company is required to measure certain assets and liabilities at estimated fair value. These fair value measurements typically result from the application of specific accounting guidance under GAAP and are considered nonrecurring fair value measurements under ASC 820. The following table presents financial and nonfinancial assets and liabilities measured using nonrecurring fair value measurements at March 31, 2013 and December 31, 2012:

(Dollars in thousands)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
March 31, 2013
Assets:
Preferred stock (other assets)	$	—	$	—	$	2,000	$	2,000
Common stock (other assets)		—		—		1,940		1,940
Real estate owned, net (discontinued operations)		—		—		468		468
Commercial real estate investments, net		—		—		51		51
Total	$	—	$	—	$	4,459	$	4,459
December 31, 2012
Assets:
Preferred stock (other assets)		—		—		2,000		2,000
Common stock (other assets)		—		—		1,940		1,940
Real estate owned, net (discontinued operations)		—		—		416		416
Commercial real estate investments, net		—		—		33		33
Total	$	—	$	—	$	4,803	$	4,803

The following table summarizes the total gains (losses) on assets and liabilities recorded on a nonrecurring basis for the periods indicated:

	Three Months Ended March 31,
(Dollars in thousands)	2013			2012
Loans held for sale, net(1):
Continuing operations	$	—		$	2,776
Discontinued operations		—			69
Real estate owned, net		(283	)		(522	)
Commercial real estate investments		—			(121	)
	$	(283	)	$	2,202

(1) Loans held for sale, net were measured at fair value as of March 31, 2012, however, they do not appear in the table presenting financial and nonfinancial assets and liabilities measured using nonrecurring fair value measurements at March 31, 2013 and December 31, 2012, above, as there were no loans classified as held for sale as of those dates.

The Company’s Level 3 assets and liabilities include financial instruments whose values are determined using valuation techniques that incorporate unobservable inputs that require significant judgment or estimation. The following table presents quantitative information about the valuation techniques and unobservable inputs applied to Level 3 fair value measurements as of March 31, 2013 and December 31, 2012:

(Dollars in thousands)	Estimated Fair Value March 31, 2013		Valuation Technique	Unobservable Input	Range (Weighted Average)
Assets:
Preferred stock (other assets)	$	2,000	Market approach	EBITDA		$2.5-$4.5 million ($3.5 million)
				Sales multiple		2.5x-4.0x (3.1x)
				Control discount		25.0% (25.0%)
Common stock (other assets)		1,940	Market approach	EBITDA		$40.0-$60.0 million ($47.5 million)
				Sales multiple		6.7x-10.1x (8.5x)
Real estate owned, net (discontinued operations)		468	Market approach	Marketability discounts		20.0% (20.0%)
				Estimated selling costs		8.0% (8.0%)
	$	4,408
Liabilities:
Common stock warrant liability	$	3,800	Lattice option pricing model	Exercise multiple		2.8x (2.8x)
				Volatility		51.0% (51.0%)
				Expected term		6.4-6.5 years (6.5 years)
(Dollars in thousands)	Estimated Fair Value December 31, 2012		Valuation Technique	Unobservable Input	Range (Weighted Average)
Assets:
Preferred stock (other assets)	$	2,000	Market approach	EBITDA		$2.5-$4.5 million ($3.5 million)
				Sales multiple		2.5x-4.0x (3.1x)
				Control discount		25.0% (25.0%)
Common stock (other assets)		1,940	Market approach	EBITDA		$40.0-$60.0 million ($47.5 million)
				Sales multiple		6.7x-10.1x (8.5x)
Real estate owned, net (discontinued operations)		830	Market approach	Marketability discounts		20.0% (20.0%)
				Estimated selling costs		8.0% (8.0%)
	$	4,770
Liabilities:
Common stock warrant liability	$	2,350	Lattice option pricing model	Exercise multiple		2.8x (2.8x)
				Volatility		51.0% (51.0%)
				Expected term		7.1-7.2 years (7.1 years)

Significant unobservable inputs used in the fair value measurement of preferred stock include EBITDA, a sales multiple and a control discount. Significant increases in EBITDA or the sales multiple, or decrease in the control discount would result in an increase in the estimated fair value of preferred stock, while decreases in EBITDA or the sales multiple, or increase in the control discount would result in a decrease in the estimated fair value of preferred stock.

Significant unobservable inputs used in the fair value measurement of common stock are EBITDA and a sales multiple. Significant increases in EBITDA or the sales multiple would result in an increase in the estimated fair value of common stock, while decreases in EBITDA or the sales multiple would result in a decrease in the estimated fair value of common stock. There is currently no readily determinable fair value for these securities, however, there may be in the future.

Significant unobservable inputs used in the fair value measurement of REO are marketability discounts and estimated selling costs. The Company utilizes third party collateral valuation services and real estate Internet websites to estimate the fair value of REO and adjusts these values to account for various factors, such as historical loss experience, anticipated liquidation timing and estimated selling costs. Significant increases in these assumptions would result in a decrease in the estimated fair value of REO, while decreases in these assumptions would result in a higher estimated fair value.

Significant unobservable inputs used in the fair value measurement of common stock warrant liability include the exercise multiple, volatility and expected term. The Company uses these unobservable inputs in a trinomial lattice option pricing model. Significant increases in the exercise multiple or significant decreases in volatility or the expected term would result in a decrease in the estimated fair value of common stock warrant liability, while significant decreases in the exercise multiple or significant increases in volatility or the expected term would result in an increase in the estimated fair value of common stock warrant liability.

FASB ASC 825, Financial Instruments, requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. The following tables present the carrying values and fair value estimates of financial instruments as of March 31, 2013 and December 31, 2012:

			March 31, 2013
(Dollars in thousands)	Fair Value Hierarchy		Carrying Amount		Estimated Fair Value
ASSETS
Continuing operations:
Cash and cash equivalents		Level 1	$	51,599	$	51,599
Loans receivable, net		Level 3		25,955		31,200
Preferred stock (other assets)		Level 3		800		2,000
Common stock (other assets)		Level 3		1,940		1,940
Discontinued operations:
Cash and cash equivalents		Level 1		132		132
FHLB stock		Level 1		2,051		2,051
Commercial real estate investments, net		Level 3		51		51
LIABILITIES
Continuing operations:
Lines of credit		Level 3	$	4,500	$	4,500
Long-term debt		Level 1/3		46,174		44,400
Common stock warrant liability		Level 3		3,800		3,800

			December 31, 2012
(Dollars in thousands)	Fair Value Hierarchy		Carrying Amount		Estimated Fair Value
ASSETS
Continuing operations:
Cash and cash equivalents		Level 1	$	53,699	$	53,699
Investment securities, available for sale		Level 1		3,060		3,060
Loans receivable, net		Level 3		24,372		24,850
Preferred stock (other assets)		Level 3		800		2,000
Common stock (other assets)		Level 3		1,940		1,940
Discontinued operations:
Cash and cash equivalents		Level 1		162		162
FHLB stock		Level 1		2,051		2,051
Commercial real estate investments, net		Level 3		51		51
LIABILITIES
Continuing operations:
Lines of credit		Level 3	$	1,000	$	1,000
Long-term debt		Level 1/3		47,052		44,538
Common stock warrant liability		Level 3		2,350		2,350

The Company used the following methods and assumptions to estimate the fair value of each class of financial instrument at March 31, 2013 and December 31, 2012:

Cash and cash equivalents

Cash and cash equivalents are recorded at historical cost. The carrying value is a reasonable estimate of fair value as these instruments have short-term maturities and market interest rates.

Investment securities, available for sale

Investment securities, available for sale are comprised of corporate bonds. Estimated fair values for investment securities, available for sale are based on quoted market prices, where available.

Loans receivable, net

Loans receivable, net, consists of residential real estate loans, commercial real estate loans, commercial lines of credit and commercial term notes. The estimated fair values of commercial real estate loans and commercial lines of credit consider the collateral coverage of assets securing the loans and estimated credit losses, as well as variable interest rates, which approximate market interest rates.

The estimated fair value of the residential real estate loans is based on several factors, including current bids and market indications for similar assets, recent sales, discounted cash flow analyses, estimated values of underlying collateral and actual loss severity experience in portfolios backed by similar assets.

The estimated fair value of the commercial term note is based on a discounted cash flow analysis, which includes assumptions about the amount and timing of expected future cash flows, discounted at rates that reflect the inherent credit, liquidity and uncertainty risks associated with the underlying borrower.

Preferred stock

Preferred stock, classified in other noncurrent assets, consists of 4.00% cumulative convertible preferred stock of a privately held commercial loan borrower of Signature Special Situations. The preferred stock has a stated value of $2.0 million and is convertible to 45.0% of the common stock of the company, on a fully diluted basis. The estimated fair value of preferred stock is based on estimates of EBITDA, a sales multiple, a control discount and the current liquidation value of the investment.

Common stock

Common stock, classified in other noncurrent assets, consists of securities the Company received in exchange for its position in a privately held company’s defaulted corporate bonds pursuant to the issuer’s plan of reorganization in bankruptcy. As of March 31, 2013, there was no readily determinable fair value for the common stock. The estimated fair value of common stock is based on the results of operations of the issuer since emerging from bankruptcy, including EBITDA and a sales multiple.

FHLB stock

Federal Home Loan Bank (“FHLB”) stock, classified in assets of discontinued operations, is recorded at cost. Sales of these securities are at par value with the issuer and can be redeemed five years following the surrender of FIL’s charter, which was surrendered in July 2008. Based on the financial condition of the counterparty, the carrying value of the FHLB stock is a reasonable estimate of fair value.

Commercial real estate investments

Commercial real estate investments, classified in assets of discontinued operations, include participations in community development projects and similar types of loans and investments that FIL previously maintained for compliance under the Community Reinvestment Act. The fair value of commercial real estate investments is based on various factors including current bids and market indications of similar assets, recent sales and discounted cash flow analyses.

Lines of credit

Lines of credit are short-term borrowing facilities, used primarily to support ongoing operations. The carrying value is a reasonable estimate of fair value, as these instruments have short-term maturities and market interest rates.

Long-term debt

Long-term debt includes Notes Payable, term loan and seller notes. The fair value of Notes Payable is based on quoted market prices. The fair value of the term loan is based on the market characteristics of the loan terms, including a variable interest rate, principal amortization and maturity date, generally consistent with market terms. The fair value of the seller notes is based on the market characteristics of the loan terms, scheduled and accelerated principal amortization and maturity date, generally consistent with market terms.

Common stock warrant liability

Common stock warrant liability is a derivative liability related to the Warrants, which includes anti-dilution and pricing protection provisions. The fair value of the common stock warrant liability is based on a trinomial lattice option pricing model that utilizes various assumptions, including exercise multiple, volatility and expected term.