New roots will grow, encouraged by a much friendlier medium (the ones that were growing outside the pot were seeing air, since there wasn't much in the pot) Don't worry about that lower leaf.. it'll drop in the course of time. The crown (which is where the growth happens) looks fine.
Is it normal to even be seeing the smaller new leaf at the bottom and top leaves to be yellow?
I have increased watering but see no improvement.
Alas, this does not look good. Especially the yellowing of the top leaves. The crown may have already died. If that is the case, if the roots are good there is the possibility of a new basal growth, so don't dump it.