Strategic balance sheet restructuring: Key trends for 2026

Financial institutions are entering 2026 with a clearer rate outlook but continued pressure on margins and capital efficiency. After several years of interest rate volatility, many financial institutions are reassessing their balance sheet positioning, with strategic restructuring emerging as a deliberate way to enhance long-term performance.

Below, we outline what institutions are evaluating, how common restructuring tools work, and what leadership teams should consider as they plan for 2026.

What Is Balance Sheet Restructuring?

Balance sheet restructuring refers to intentional actions to optimize earnings, manage risk, and improve liquidity or capital positioning. While restructurings can involve individual transactions, they are most effective when treated as a coordinated strategy.

In practice, restructuring often includes:

• Selling underwater securities to reposition the portfolio for higher yield
• Redeploying capital into assets aligned with current rate and credit expectations
• Adjusting funding mix to strengthen liquidity or improve cost of funds
• Using complementary transactions, such as sale-leasebacks, BOLI/CUOLI restructuring, or debt issuance, to accelerate capital recovery or offset Day 1 losses

Ultimately, the goal is to realign the balance sheet with expected market conditions and leadership’s priorities around growth, profitability, and resilience, recognizing that restructuring often requires realizing near-term losses to create longer-term value.

Reasons for Restructuring

Institutions are pursuing balance sheet restructuring in 2026 for several strategic and economic reasons:

• Capitalize on a steadier rate environment. A more predictable rate path allows institutions to sell lower-yielding assets, reinvest at current yields, and reduce extension risk.
• Improve long-term earning power. Selling at a loss creates a near-term impact, but the higher reinvestment rate boosts future income and helps absorb credit costs or margin pressure.
• Strengthen liquidity and flexibility. Redeploying into shorter-duration assets or into cash cushions can support funding stability, regulatory ratios, and overall optionality as deposit competition intensifies.

Complementary Transactions That Can Offset Day 1 Losses

As institutions consider the sale of underwater securities to improve portfolio yield or rebalance interest rate exposure, some are pairing those sales with complementary transactions designed to generate a Day 1 gain. When structured appropriately, these secondary actions can help offset realized losses, shorten the earnback period, strengthen regulatory capital ratios, and enhance overall strategic flexibility while remaining compliant with accounting and regulatory guidance.

Below are two of the most commonly used transactions to complement a securities sale, along with considerations when no accompanying action is pursued. While other strategies exist, these approaches have gained the most traction among financial institutions heading into 2026.

Sale-Leaseback Transactions

With real estate pricing becoming more favorable for sellers, sale-leaseback deals are gaining traction as a way to access capital tied up in real estate while maintaining operational continuity.

These agreements allow institutions to:

• Sell owned properties, such as branches or office buildings
• Immediately lease them back under long-term agreements
• Redeploy capital into higher-yielding opportunities

Sale-leasebacks are increasingly paired with portfolio repositioning to accelerate capital recovery, making them a core component of broader restructuring strategies.

To achieve favorable Day 1 accounting treatment, sale-leaseback transactions must be structured carefully and aligned with applicable accounting guidance. Engaging an accounting advisor early in the process can help avoid unintended consequences that could undermine the expected financial benefits.

For more information on sale-leaseback transactions, read our related article.

BOLI/CUOLI Restructuring

Bank-Owned Life Insurance (BOLI) or Credit Union-Owned Life Insurance (CUOLI) continue to be widely used for funding employee benefits and enhancing returns. However, restructuring these products to recognize Day 1 gains requires careful attention because:

• ASC 450 prohibits recognizing gains before they are realized or realizable.
• Aggressive accounting treatments can invite regulatory scrutiny.

Institutions should consult accounting advisors or audit teams before entering into new agreements to evaluate structure, timing, and financial statement impact.

In addition, some institutions are exploring life insurance-based investment pools that offer more stable returns with limited exposure to market volatility—an option gaining interest amid uncertain rate paths.

When No Accompanying Event Is Used

Some institutions choose to sell underwater securities without pairing the transaction with a secondary event. While the earnback period typically extends several quarters, this approach appeals to leadership teams that prioritize simplicity and transparency.

Institutions pursuing a standalone restructuring should consider the following:

• Engage the board and governance early. Discuss the rationale, economics, and long-term benefits well before execution.
• Coordinate closely with the broker and bond accountant. Joint planning helps model earn back, reinvestment scenarios, and regulatory impacts.
• Keep discussions strategic. Focus on pools or categories, not individual securities, to stay centered on overall economics, risk, and long-term performance.

In many cases, the reinvestment benefit alone provides a compelling economic outcome, making standalone restructuring a practical and efficient choice.

We Can Help

The pace of balance sheet restructuring is accelerating, driven by liquidity pressures, regulatory changes, and market volatility. Institutions that take a disciplined, forward-looking approach, balancing risk, capital efficiency, and tax strategy, will be best positioned to thrive in 2026.

For those considering accompanying events to offset Day 1 losses, the timing and design of these transactions may create meaningful capital and tax benefits, but only if certain conditions are met and the transactions are properly structured.

If you’re considering a restructure, reach out early so transactions can be aligned with the most advantageous accounting treatment. Contact a member of our Financial Services Group to start the conversation.

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The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.