Second to None By Putting Clients First

Juwana Zanayed – First Vice President – Director of Treasury Management Sales 

When the word “second” is in your name, it isn’t really a matter of trying harder—it’s about taking a “second-to-none” approach in everything you do. For this $2.3 billion bank, that means not just keeping pace with industry innovations, but also finding ways to get the latest products and services to our clients as soon as they emerge.

Local to You

This concept of timely delivery is a key component in serving as a niche provider for mid-market businesses. Old Second’s local executive management team helps deliver solutions when the client needs them. From Aurora to Chicago, from Elgin to Joliet, Old Second has provided timely solutions for our local clients.

Businesses also want an accessible treasury provider, not a distant figure you might expect from a large bank, headquartered far away. Availability is one of the hallmarks an Old Second client can depend on, year after year.

Being local to our clients also means our business operates in the same market their business operates. We understand market forces that are unique to our geographic footprint. That firsthand knowledge of the client’s immediate market puts us at an advantage over an out-of-state decision-maker.

Consistency Works

Over 50 percent of our current commercial banking clients have been with us for more than 10 years. Such continuity in a relationship means familiarity. As a business, you don’t want to retell your story over and over. You’d rather work with a bank that already knows you, where you’ve been, how you’ve grown and where you’re headed.

Lasting relationships also mean our clients like what we’ve done for them. We like to think of the longevity of our client relationships as a signpost to the effectiveness of our solutions. Think of a product you have used for years when you could have chosen an alternative. You stick with what gets the job done. Our years of client loyalty speak to the success of our business model.

Decisive and Customized

That’s why customization to the client’s business makes sense. Our loan officers and treasury management advisors are empowered to take direction from their clients. Because we are local, accessible and have a large suite of innovative solutions, we are equipped to provide fitted solutions.

We consider many aspects of a business, including cash flow, automation processes and mechanisms of fraud prevention. And, each aspect of the business is examined in light of maximizing the client’s bottom line.

Once a specialized product suite is assembled, each client is able to manage every aspect of their business via O2 Online Banking. It’s a one-stop-shop dashboard that puts control in the client’s hands. We consider it all part of our “second-to-none” approach.

For more information on our treasury management and commercial banking services, click here, or contact a Treasury Management Advisor directly at 877-866-0202. We can’t wait to talk to you about what we can do to keep your business growing.

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National Data Privacy Day: 8 Tips for Keeping Your Personal Information Safe

Robert M. Duplessis, CRISC, CISM, CBVM, Senior Vice President—Information Security Officer 

January 28 is National Data Privacy Day. Its observance serves as a reminder that maintaining the privacy of your personal information is a year-round responsibility.

What’s at Risk

At the heart of the battle for your privacy is your personally identifiable information (PII). PII is any combination of data points that can lead to your identification. The more information a hacker can pull together on you the easier it becomes to obtain more, with the goal being to steal your identity.

This information may include your email address and full name—data readily available online. But, it also includes your:

  • Social Security number
  • Driver’s license
  • State identification
  • Financial account numbers
  • Medical information
  • Passwords
  • Address
  • Cellphone number

Companies like ours work diligently to protect your privacy and your data. We only collect the information we need to do business with you. We safely dispose of personal information when it is no longer needed. Unless required by law, we do not share your information without your permission or knowledge. (For more on Old Second’s privacy policies, click here.)

Every website, health care provider, insurance and financial company you deal with should have a similar policy. If they don’t or there is something about their policy that makes you uneasy, you should consider doing business elsewhere. However, it isn’t just businesses that collect data you need to be concerned about.

What You Can Do

Protecting your privacy is a shared responsibility. Every time you share your dog’s name or your child’s photo on Facebook, post vacation photos on Instagram or update your new job title on LinkedIn, you are adding to what hackers can find out about you and those you tag. Consider what Alexa and Google Home know! Then, consider how much information would be needed to start guessing your passwords.

The reality is that none of us will stop posting, sharing or using products that enhance our daily lives. What we can do, however, is take some precautions before we do. Here are some things to consider adding to your regular routine that can help safeguard your PII and that of your family members and friends.

  1. Revisit your social media settings. Make sure you know who you are sharing information with and whether you really want to. Also consider living less “in the moment.” Share photos and locations after you’ve left them.
  2. Tag only with permission. Not everyone wants their location and activities broadcast or their children’s names made public. Be respectful of the privacy of others.
  3. Manage your passwords. Change them regularly and refrain from using one to access everything. Many companies and services now use double authentication options. Consider opting into them.
  4. Monitor your credit reports. Whether your information was involved in a data breach or not, take advantage of your ability to order a report for free from each of the three reporting agencies each year. A credit-monitoring service, while an added expense, also may be warranted if your information was hacked, since hackers do not necessarily use your information right away. They may sit on it until your free year of monitoring is up.
  5. Keep your software and apps current. Updates and patches are intended to address vulnerabilities in the system. Also, uninstall apps and programs you no longer use. Hackers could use them as back doors into your system.
  6. Check your credit and debit card charges regularly. As soon as you see something odd, call your card issuer and cancel your card. Replacement cards arrive within days.
  7. Use caller ID. Every piece of information, including your voice, is fodder for scammers. If someone calls you and you don’t recognize the number or the caller’s name, do not feel compelled to pick up. Often, by entering the number in a Google search, you can confirm it was a fraudulent call.
  8. Refrain from clicking through links in emails. While legitimate companies provide links for convenience, you are better off signing onto your online account the way you typically do, just to be safe, or calling the customer service number you have on file for them.

For more tips and information on keeping your personal information safe, we maintain a variety of resources on our website. Also, feel free to call 877-866-0202 . We are always happy to talk through your concerns, privately.

The Truth About Student Loans and Mortgage Applications

David M Kozuh, First Vice President Sales—Residential Lending David Kozuh, Vice President—Residential Lending   Things have changed. But, not in the way many potential borrowers think. Many still think it’s harder to get a mortgage than it used to be. Not necessarily. Despite the Financial Crisis of 2007–2008, banks have been helping homebuyers and owners take advantage of the low interest-rate environment all along. Even Millennials, despite their student debt loads, have been getting approved for mortgages. It’s also still possible to get a mortgage with a down payment of less than 20%. And, first-time homebuyer programs that provide money for down payments may even make it a little easier to afford a new home than in 2008. What Has Changed Since the crisis, the process of applying for a loan has improved. Many lenders, Old Second included, have made initiating a loan request even easier, leveraging online and mobile technology for applications, document gathering and communication. But, the biggest change involves the way an application is now processed. It takes longer…much longer. What could be done inside of 30 days in 2008, may now take longer. No home loan lender is immune—we are all subject to the same regulations. And, it’s about to get a little worse. It’s Not You, It’s the New Federal Regulations Whether you are a first-time homebuyer or an experienced homeowner, in the aftermath of the financial crisis there has been a return to the kind of lending standards—operational checks and balances—that most of us have used to apply to loans for decades. Those standards require time to analyze and verify that each mortgage applicant is qualified for and entering into the right type of loan for their financial circumstances. As of Oct. 3, a new rule from the Consumer Financial Protection Bureau, “Know Before You Owe,” will take effect. It is intended to offer additional protection by ensuring you understand the terms and consequences of your loan agreement at closing. This new rule will add a few more days to the closing process for all mortgage lenders no matter how automated their internal processes are. While a degree of patience has re-entered the mortgage process, we believe it ultimately ensures that you’ll gain full advantage of our expertise. Whether it’s a 30-year fixed mortgage, an adjustable rate, a line of credit for remodeling or a refinancing into a 15-year loan that will help you retire mortgage-free, our goal is—as it’s always been—to make sure you enter into the right financing structure.

Student loans are a reality for millions of Americans, many of whom are Millennials with dreams of becoming homeowners. However, contrary to a widely held belief, the two things—student loans and homeownership—are not mutually exclusive. You can afford to have both, even when you use a mortgage to buy your home.

How Student Loans Impact Mortgages

When you apply for a mortgage, the lender will look at your existing debt. That typically includes outstanding credit card balances, car loans and student loans (whether they are deferred or not). We then look at what you are paying toward each on a monthly basis, versus what your make, to determine how much would be left over to make payments on a mortgage.

Generally, lenders are required by the loan programs not to accept an application if your existing debt-to-income (DTI) ratio will exceed a certain level. The last thing we want is to create financial stress by letting you borrow more than you can comfortably afford to repay. However, there are ways to decrease your DTI that can make it easier for you to both afford and qualify for a mortgage.

Manage Your Student Debt

Student loans, especially those that are part of the federal loan programs, tend to have low interest rates and long payback periods. There are also several repayment options available to you to ensure your payments are affordable. Among these is an income-based option, which ties your monthly payment to your income. As your income changes over time, the payment adjusts to what you can afford. For many, this means that they have lower monthly payments in the early part of their careers. That can leave them with enough discretionary income to make mortgage payments while repaying their student loans.

Student loans can also be deferred, which frees up monthly income. Although, when you borrow, we will still consider the loan in our calculations, typically using a figure of 1 percent of the outstanding balance in our analysis of your monthly debt load. However, if you are considering applying for a mortgage through the Federal Housing Administration (FHA) program, your deferment will not be a factor in the DTI calculation.

Other Preventive Measures

Often, the bigger obstacle to qualifying for a mortgage is not how much student debt you have but how well you’ve handled it and how much non-student debt you are carrying. Before applying for a mortgage, it helps to address these factors first.

For instance:

  1. Have a year or more of on-time payments. Know what you owe, when it is due and whom you are expected to repay. Missing payments or a history of late payments will come back to haunt you when you apply for a mortgage.
  2. Manage your debt. Repay credit card balances and establish a pattern of paying them off in full each month. If you are working through an outstanding balance, look for options that might lower your rate and allow you to speed up your payback period.
  3. Carry only your debt obligations on your record. If you have debt but your parents are repaying it or a portion of it, it should be shifted off your record, where it counts toward your DTI, and into their names. Depending on the circumstances, there are a variety of ways to do this. It’s something your lender can discuss with you.
  4. Don’t focus so much on the down payment. There are many first-time homebuyer programs that were designed to make monthly payments affordable, using a low down payment. For some student debt holders, therefore, it may make sense to save for a 3 percent down payment and direct the rest of their discretionary income toward paying down their student loans before applying for a mortgage.
  5. Don’t assume; talk to a lender. We have access to a variety of loan programs and strategies and know which local incentives you may qualify for that would help your cause. As bankers, we are also able to look at your total financial picture for ways to set you up for long-term financial success.

To learn more about your best options for qualifying for a mortgage, whether you have student loans or not, give us a call at 877-866-0202. Let’s sit down and talk about what we can do to help you realize your homeowning goal.

Borrower Assets: How Much Is Enough When Buying Real Estate?

Jeri Ott, Vice President/Mortgage Loan Originator 

While most discussions about purchasing real estate focus on having sufficient funds to make a down payment, there is more to save for than just this amount. Borrowers are required to show proof that they have sufficient additional funds saved to cover any closing costs and an amount equal to at least two months of future loan payments. This is true whether the purchase involves a primary residence or a vacation home.

Joint Ownership

Buying a property in partnership with someone else can make it more affordable. However, the reserve requirement will be the same as it would be if either individual alone made the purchase. For instance, in the case of a vacation home owned by two families, each may agree to split all expenses and payments evenly. However, the underwriting standards necessary to approve the mortgage will view each owner from the perspective of whether they could carry the entire debt on their own. Each will also be required to have sufficient reserve assets to cover two months of full payments.

A Higher Standard for Income-Producing Properties

When it comes to being approved for a mortgage against investment properties, the liquid asset reserve requirement rises to the amount needed to cover six months of mortgage and tax payments. Even though this type of property typically has rental income that will help cover the mortgage expenses, lenders are required to verify that assets exist to cover the loan should an interruption in occupancy occur.

This need to demonstrate a more substantial cash reserve—which can include bank and brokerage accounts, as well as retirement savings—can also impact homebuyers who aren’t purchasing a home for investment purposes but who are buying a property that is considered income producing. This is a common occurrence in the areas served by Old Second.

Many of our borrowers purchase homes situated on farmable land with acreage rented out to farmers. Others may be looking to acquire a horse farm with the intent of renting out the stalls they won’t be using. More recently, some of our home-buying clients have applied for mortgages on properties that have cell towers on them.

In these cases, not only are higher reserves required, the mortgages themselves may have different requirements, including a need for higher down payments and nonconventional loan structures.

Understanding Before Making an Offer

Whether the property you want to buy is your first home, an investment property or offers the potential for a steady stream of income that will help offset your mortgage payment, talking through the nuances of underwriting requirements with a lender as experienced in nonconforming home loans as they are with conventional requests is beneficial. Higher reserves, different expectations regarding debt-to-income ratios and other considerations—including how much of a down payment you need to gain access to a better interest rate—ultimately affect the amount of liquid assets you will need to have on hand and the interest rate you may be charged.

To discuss your best options for borrowing to fund your real estate purchases, call me at 630-365-5190. Let’s sit down and talk about the best loan structure for your situation.

Getting the Most from Holiday Shopping

Jodi McKinley, Branch Manager—Oswego 

Spending during the holidays can be both freeing and terrifying at the same time. It’s nice being preoccupied with thoughts of what others might enjoy and need, but it tends to feel like money is leaking from your wallet. To help you maintain a sense of control, here are seven tips to keep your spending and holiday enjoyment on track.

  1. Have a total figure in mind. When you know how many gifts you need to get and how much you want to spend on each one, it’s easier to afford your own generosity.
  2. Work those discounts and promos. Study the Black Friday promo flyers, which many stores release weeks in advance, and check for promo codes and in-store coupons either before shopping or while you wait in the register line. Researching purchases before you leave home can pay in another way in that many stores will price match.
  3. Remember to redeem. The holidays are also a good time to see if any of your loyalty programs allow you to turn points into gift cards. You can redeem the cards at stores you’ll be shopping at or give them as gifts.
  4. Stay safe. You may want to rely more heavily on your credit card during the shopping season and carry less cash than usual. With a credit card, if something were to go wrong, such as your wallet being stolen, your liability would be zero, provided you report the occurrence to the issuer promptly. With cash, there is no recourse.
  5. Freeze right there! Old Second debit cardholders can also download the SecurLOCK™ Equip app. At the first sign of trouble, you can lock your debit card down while you determine if it is misplaced, stolen or comprised. If you find it later, you have the option of unlocking it again.
  6. Add up the “damage.” When the bills come in, take a moment to add up what you spent and use this total to help budget for the 2018 holiday season. Options like the Old Second Club Savings Account can help. This is a limited-duration account that pays out your accumulated balance once a year in time for holiday spending. It is available through our branches and enables you to use automatic transfers to put aside money for use next year.
  7. Be careful about your credit limits. Spending up to your limit on a credit card may make sense to you, but it can lower your credit score. It’s best not to use more than 35%–50% of your available credit in any one month, especially prior to an anticipated big purchase like a car or a home that will involve a loan request.

Whether today finds you in a spending or saving mode, we have the strategies and services that can help you do both well! Give us a call at 1-877-866-0202 or visit any Old Second Bank branch to talk about what we can do to help you achieve your spending and savings goals.

 Holiday Shopping Stats

Consumers expect to spend as much or more in 2017 as they did in 2016, when they spent an average of $1,189 each.Source: PwC 2017 Holiday Outlook Report, page 6, Viewed 10/09/2017 https://www.pwc.com/us/en/consumer-markets/2017-holiday-outlook.html

Is a Home Equity Line of Credit Right for You?

Jackie Link, Branch Manager—Sugar Grove (NMLS# 996284)

Unless you’ve bought or sold your home recently or know someone in your area who has, you may be pleasantly surprised by its current market value. In fact, selling prices have been on a multiyear rise.

While the added appreciation in home equity is nice, it also means you may have additional borrowing power. That’s something you may want to gain access to through a home equity line of credit. (HELOC).

How a HELOC Works

A HELOC is a tool that allows homeowners to borrow a percentage (typically 70%- 90%) of the difference between the amount they have outstanding on their mortgage—if they have one—and the current market value of their home. As a revolving line of credit, it bears resemblance to a credit card but with a much higher borrowing limit.

Unlike most credit cards, the interest rate you are charged on a HELOC is lower since the line is secured by a home. For most homeowners, the interest is typically tax deductible, making it even more cost effective. However, you will want to verify with your own tax professional to make sure you qualify to take this deduction.

The rate on a HELOC will vary with the general level of interest rates. At Old Second, we use the U.S. Prime Rate as our benchmark and then add a fixed-margin rate to that, based on your financial information. We make the process easy and walk you through every step.

Although HELOCs are offered on a variable-rate basis, our clients can always switch to a fixed-rate option if they are concerned interest rates will rise. Instead of having the flexibility of paying only interest each month, payments under the fixed-rate option will include a specific amount of principal as well.

While different lenders offer different structures, Old Second’s HELOC provides 10 years of access. You can borrow and repay as often as you want during that time. If the line isn’t renewed after 10 years, it converts into a loan with a 20-year repayment plan, behaving like a second mortgage.

Qualifying for a HELOC is like qualifying for a mortgage, though a little less intense. There are no upfront fees and we charge a $50 annual fee (with the first year waived) as long as it remains open along with a pre-payment fee when applicable.

When to HELOC

As a personal cash management tool, you can access your line pretty much whenever you want by writing a check or calling to arrange a transfer. We see our clients using them to:

  • Spend before receiving, such as taking a vacation before receiving a year-end bonus.
  • Fund remodeling and home repair expenses.
  • Repay higher interest loans or credit card balances.
  • Cover large or unexpected expenses, from weddings and college tuition to replacing a car or paying medical bills.
  • Make a down payment on a vacation property.

Because HELOCs are both flexible and reusable, many homeowners take them out before they have an actual need. That way, they have a ready source of funding whenever the need arises.

To talk about how you might benefit from adding a HELOC to your financial toolkit, give us a call at 1-877-866-0202 or visit any Old Second Bank branch. Let’s talk about what we can do to help you achieve your goals.

Mortgage Tips for the Self-Employed

David Kozuh, First Vice President—Residential Lending David Kozuh, Vice President—Residential Lending   Things have changed. But, not in the way many potential borrowers think. Many still think it’s harder to get a mortgage than it used to be. Not necessarily. Despite the Financial Crisis of 2007–2008, banks have been helping homebuyers and owners take advantage of the low interest-rate environment all along. Even Millennials, despite their student debt loads, have been getting approved for mortgages. It’s also still possible to get a mortgage with a down payment of less than 20%. And, first-time homebuyer programs that provide money for down payments may even make it a little easier to afford a new home than in 2008. What Has Changed Since the crisis, the process of applying for a loan has improved. Many lenders, Old Second included, have made initiating a loan request even easier, leveraging online and mobile technology for applications, document gathering and communication. But, the biggest change involves the way an application is now processed. It takes longer…much longer. What could be done inside of 30 days in 2008, may now take longer. No home loan lender is immune—we are all subject to the same regulations. And, it’s about to get a little worse. It’s Not You, It’s the New Federal Regulations Whether you are a first-time homebuyer or an experienced homeowner, in the aftermath of the financial crisis there has been a return to the kind of lending standards—operational checks and balances—that most of us have used to apply to loans for decades. Those standards require time to analyze and verify that each mortgage applicant is qualified for and entering into the right type of loan for their financial circumstances. As of Oct. 3, a new rule from the Consumer Financial Protection Bureau, “Know Before You Owe,” will take effect. It is intended to offer additional protection by ensuring you understand the terms and consequences of your loan agreement at closing. This new rule will add a few more days to the closing process for all mortgage lenders no matter how automated their internal processes are. While a degree of patience has re-entered the mortgage process, we believe it ultimately ensures that you’ll gain full advantage of our expertise. Whether it’s a 30-year fixed mortgage, an adjustable rate, a line of credit for remodeling or a refinancing into a 15-year loan that will help you retire mortgage-free, our goal is—as it’s always been—to make sure you enter into the right financing structure.

Being self-employed and in control of your professional life is empowering. However, when it comes to borrowing money to purchase a personal residence, it can also put you at a disadvantage, if you are not properly prepared.

The Challenge

The main issues for self-employed mortgage applicants arise from proving income is sufficient and consistent enough to support a mortgage payment and supplying the “correct” version of income on the application.

When you are an employee, reporting your earned income is straightforward. You state your salary and bonuses and back up the amounts for verification purposes with W-2 forms and tax returns. The lender can easily call your employer as a final check.

When you work for yourself, you may have an accumulation of 1099s and invoices if you have a variety of clients or gigs. Some self-employed borrowers may own and run multiple businesses, which means the only way a lender can verify income is to pour through dense tax return schedules. It is a much messier and time-consuming process.

Even then, the income many self-employed individuals report on their tax returns may differ from their actual take-home pay. One of the advantages of being self-employed is taking more expenses as business deductions to minimize tax bills. This is great at tax time, but it can diminish your borrowing power.

When Income Isn’t Income

Some self-employed borrowers report gross receipts as income. However, this is business revenue. Income is found on line 38 of the federal tax return. It is a much lower number.

Working With You

While income qualification is essentially a standard requirement, it can help to work with a lender that has the flexibility to customize a mortgage to your circumstances. For instance, Old Second doesn’t package all of its mortgages for resale, the way many larger banks and online mortgage firms do. We hold a collection of mortgages for our own portfolio. This gives us the flexibility to customize more of our mortgages to our clients’ circumstances. We can take the time to understand your situation and even talk to your accountant to develop a more accurate assessment of your household’s cash flow.

What You Can Do

For some practical tips on how to improve your mortgage application’s appeal, click here for our infographic of suggestions. To learn more about how Old Second can help you qualify for a mortgage, give us a call at 1-877-866-0202 or start the application online at oldsecond.com.

Whether you are a serial entrepreneur or a member of the gig economy, knowing what to expect when applying for a mortgage and preparing accordingly can enable you to exercise more control over how lenders perceive and process your application.

Did Your Credit Score Get a Boost?

Roger Legner, Vice President—Residential Lending 

Recent changes in the information appearing on your credit report may give your score an added boost. It’s estimated that 12 million consumers can expect a 10- to 20-point gain once information on tax liens and civil judgements is removed by the three credit reporting bureaus. While modest, those gains could help mortgage borrowers with scores hovering near 610 or so earn a loan approval. For those with higher scores, it could mean access to a slightly better interest rate on their loan.

Why the Change Occurred

Credit scores are like a big cauldron filled with the factors of your financial life. They reflect your past use of credit as much as your lack of history and your timeliness in making payments. They are also an accounting of your current and previous debt levels. Until recently, any tax liens that you might have had, court judgements and unpaid medical expenses were also included in this financial stew.

Going forward, reports of those tax liens and court judgements will disappear from your record, and medical expenses will also be removed at a later date. Although you still owe the amounts, they will no longer be reported due to widespread inaccuracy in the outstanding balances and personal information. Often, information related to judgements and liens not only appeared with incomplete information, it was posted to the wrong records.

5 Tips for Improving and Maintaining Your Credit Score

Whether or not you are impacted by the changes, there are still many other ways to improve your credit score. Here are five of the best moves you can make.

Tip #1: Have credit outstanding. Even if you pay your credit card bills off each month, using your cards is a positive for scoring purposes.

Tip #2: Keep your utilization rate low. It’s actually better to have multiple credit cards with balances well below the maximum for each account than it is to use one card in a way that brings you close to its limit monthly. For instance, your utilization rate is better if you charge $300 to two cards, each having $1,000 ceilings than if you charge $600 to one card with a $1,000 limit.

Tip #3: Refrain from closing accounts. This is especially advisable when you intend to apply for a loan. Closing accounts increases your utilization rate over all your credit accounts. One of our clients recently closed all his accounts, deciding to go to an all-cash payment method. His score dropped from 812 to 708!

#4: Make timely payments. It isn’t about how much credit you have but how well you handle it. Lenders look at your score for reassurance that you will repay them and view late payments as a red flag that may signal financial issues.

#5: Check for accuracy. While the recent changes were made to improve the accuracy of credit records by removing the items most likely to contain errors, accuracy is not a given. This is especially important in light of recent cyberattacks that may have compromised personal credit information. Visit www.annualcreditreport.com at least once a year to review your records.*

There Isn’t Just One Score

While you can review and exert control over your credit record, different lenders use different scoring systems to interpret it. For instance, a residential mortgage report will look at and score your credit history differently than a retailer will. Similarly, different mortgage programs have different minimum scoring requirements.

To discuss your credit history and score, as well as how it might affect your chances for a loan approval, give us a call at 815.361.6469. One of our residential lenders would be happy to walk you through the different mortgage programs available to you and any additional steps you might want to take to help get you through the door of home ownership sooner.

*With the recent announcement of a cyberattack on consumer data housed at Equifax, you should visit www.equifaxsecurity2017.com to see if your information was compromised. If it was, you will have the option of enrolling in a year of credit-report monitoring.

T+2: What a Change in Settlement Dates Means to You

Brad Johnson, CFA CFP® Vice President—Investment Officer 

A seismic change hit the securities markets on Sept. 5, 2017, without causing so much as a ripple. That is the day financial companies, Old Second included, will figuratively flip a switch and begin settling stock, ETF, corporate and municipal bond, and some limited partnership transactions two business days after their trade dates. Previously, trades settled on a T+3 basis, or in three business days.

What This Means to You

With the change to T+2, when you sell exchange-traded securities you will receive your money one day sooner than in the past. As a buyer, you can expect to pay and take ownership of these securities one day earlier. Treasuries and most mutual funds are unaffected. They will continue to offer a faster settlement.

While shortening the settlement cycle seems like a big deal, it mainly will affect mindsets. It also may require a bit more planning, at least initially, to ensure cash is available to accommodate the earlier payment date.

For corporate cash managers, the shortened cycle may also mean adjustments in their liquidity strategies. However, increased efficiency should be the end-result.

Why the Change?

The change reflects the electronic nature of securities transactions. Today, there is no need to accommodate paper-based delivery of securities, which is where the processing delay originated. It’s also a move that will align the United States and Canada (which will be making the switch to T+2 at the same time) with settlement procedures already in practice on other global market exchanges.

Also, T+2 will help reduce some market, counterparty and credit risk, specifically for firms that clear transactions. With less time to settle, there is less time for things to go wrong. When they do the response and resolution should similarly occur that much faster.

Once the markets and investors have had an opportunity to adjust to T+2, a move toward T+1 is expected to follow, which would improve efficiencies further. In addition, some experts suspect that the switch could eventually lead to lower collateral requirements when securities are pledged against loans. However, we are not there just yet.

Should you have any questions about how the change to T+2 affects your trading or cash management strategies, call me at 1-630-906-5545.

Guardianships: Someone to Watch Over Them

Michele Morgan, Vice President/Trust Officer MorganM_BUS003xqc

The one thing you should know about guardianships—also known as conservatorships—is that they protect individuals who are unable to make sound decisions for themselves. As court-ordered arrangements, they result in the appointment of an individual or corporation to handle that person’s care and/or financial matters.

The arrangement lasts as long as necessary. In the case of a minor, that may be until they reach the age of 18. For an adult, it could be a lifelong appointment or just until they sufficiently recover from a health issue.

Circumstances That Lead to the Need

Guardianships are subject to state laws, and established by a court proceeding in the individual’s home county. Where children are involved, there is typically a large sum of money—either an unexpected inheritance or a personal injury settlement. Adult guardianships generally arise due to a temporary or permanent disability or an injury.

When the need arises, there are two different roles created in a guardianship: one involving the “Guardian of the Person” where the named individual or corporation is appointed to oversee the needs and care of the individual. The second role is the “Guardian of the Estate” to oversee the individual’s financial matters.

Guardians can be family members, unrelated individuals or, as mentioned above, corporations. Where large sums are involved, judges often prefer to see a bank serve as the guardian of the estate or, at the very least, as a co-guardian to ensure the assets will remain in place to support the individual throughout their life. Regardless of who is appointed the court requires an annual report to ensure the current arrangements continue to serve the needs and best interests of the individual.

Guardianships for children end at the age of 18 with a proceeding that determines the individual is now capable of making rational and prompt decisions about their own care and finances. For adults, a physician typically supplies a statement verifying they’ve regained the capacity to assume responsibility for their own care and finances.

Guardianships versus Powers of Attorney or Estate Plans

The need for a guardianship arises from the lack of other legal documents, such as powers of attorney or an estate plan. Sometimes, family members are overwhelmed by the medical side of caring for a loved one or have trouble agreeing on a course of action. In such cases, they may petition the court to appoint an impartial corporate guardian, especially to oversee financial matters. This saves family members from having to account to the court for how money is spent and from having to reimburse the estate if any charges are deemed inappropriate later.

Compassion Is Part of the Arrangement

While having the court involved in the care and financial matters of a loved one may seem invasive, judges involved with cases like these typically act as extended family members, especially where juveniles are involved. They take a genuine interest in ensuring each person gets what they need to be the best they can be. Compassion carries the day.

To learn more about guardianships and how Old Second can be of assistance in this area, please call me at 630-844-3222. I’m here to help get you the answers you need as you consider your family’s options.