Hilltop discloses material weakness tied to its loan-loss allowance

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Hilltop Holdings in Dallas disclosed that it found a material weakness tied to its loan-loss allowance.

The $14.8 billion-asset company said in a press release Thursday that a recent review determined that it did not design and maintain effective internal control over the process for determining the qualitative factors for estimating the allowance.

Though the board’s audit committee traced the issue back to late last year, Hilltop said it should be able to avoid restating past financial statements. The company said it will likely amend several past filings to include disclosures about the material weakness.

Hilltop said it has evaluated the material weakness and has made “significant progress updating its design and implementation of internal controls to remediate the … control deficiency and enhance our internal control environment.” The plan includes enhanced documentation and quantitative analysis of the factors considered when estimating the allowance.

The company said it is on pace to implement the remediation plan before filing its third-quarter filing with the Securities and Exchange Commission. It said it plans to evaluate its updated internal controls design and determine whether the controls operate effectively during the current quarter.

Hilltop also said it expects to have a loan-loss allowance of $80 million to $100 million on Jan. 1, reflecting its adoption of the Current Expected Credit Loss standard. The estimate includes a change in reserve for unfunded commitments.

The allowance was $55.6 million in the third quarter.

Hilltop’s third-quarter profit more than doubled from a year earlier, to $79 million. The results included a $41 million increase in income from loan sales and mortgage production volume.

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