Associated Banc-Corp’s Strategic Balance Sheet Shift Unmasks Hidden Value in 2025

The banking sector faces a crossroads: short-term pain from elevated rates and balance sheet adjustments versus long-term gains from margin stabilization and deposit resilience. For Associated Banc-Corp (ASBC), the first quarter of 2025 reveals a compelling story of financial discipline masking in GAAP losses, positioning the bank to capitalize on its repositioned balance sheet for sustained growth.

The Nonrecurring Noise vs. the Core Signal
Associated’s Q1 2025 results were clouded by lingering nonrecurring losses from its 2024 balance sheet repositioning—a necessary but costly exercise. The Q4 2024 hit included a $148 million loss from investment sales and a $130 million mortgage portfolio settlement, dragging down noninterest income by $266 million compared to Q1 2025. However, strip out these one-time items, and the core story shifts:
- Noninterest income growth: Excluding adjustments, the bank expects 0-1% growth in 2025, a modest but stable trajectory.
- Expense discipline: Noninterest expenses dropped $14 million in Q1 2025 due to reduced prepayment costs, with adjusted expenses growing just 3-4% this year.
This paints a picture of a bank rebuilding its foundation, not collapsing under its own weight.
Net Interest Income (NII): The Engine of Resilience
The real star here is net interest income, which rose to $286 million in Q1 2025, a 12-13% annualized growth rate for 2025. The driving force? Margin expansion.
The net interest margin hit 2.97%, up 16 bps sequentially and 18 bps year-over-year, thanks to a 23 bps decline in funding costs. Even as loan yields dipped slightly (a reflection of broader rate cuts), the cost of deposits—a critical lever for banks—dropped sharply.
This margin momentum isn’t a fluke. The bank’s balance sheet repositioning—shrinking riskier assets and stabilizing its liability mix—is paying off. With deposits growing 2% sequentially and 4% year-over-year, the bank is building a sticky, low-cost funding base, shielding it from future rate volatility.
Deposits: The Quiet Strength
Deposit trends are often overlooked in banking analysis, but they’re the lifeblood of a bank’s franchise. Here, Associated is delivering:
- Core customer deposits (a non-GAAP metric excluding volatile items) rose $503 million in Q1, with management guiding to 4-5% growth in 2025.
- Noninterest-bearing deposits—the cheapest and most stable form of funding—rebounded sequentially, though slightly down year-over-year.
Crucially, this growth isn’t just about volume. The bank’s deposit mix is improving: money market deposits surged 1% sequentially, signaling customers are choosing Associated’s products over alternatives. In an era where banks battle for market share, this is a strategic win.
The Balance Sheet’s Payoff: Capital and Credit
The repositioning didn’t just boost margins—it strengthened the bank’s capital position. The CET1 ratio rose to 10.11%, comfortably above regulatory thresholds. Meanwhile, credit metrics remain pristine: nonaccrual loans at 0.44% and net charge-offs at 0.12%, underscoring management’s risk discipline.
These metrics matter because they allow the bank to reinvest in growth without compromising safety. The balance sheet isn’t just a cost center—it’s a strategic asset.
The Case for Long-Term Value
Critics might focus on Associated’s GAAP losses or the pain of asset sales. But the adjusted story tells a different narrative: a bank surgically addressing short-term headwinds to secure long-term gains.
- Margin stability: The 2.97% NIM is now at its highest level since mid-2022, and the repositioning has created a low-cost liability base that can weather future Fed moves.
- Deposit momentum: Core growth targets are aggressive but achievable, given the bank’s regional dominance and product stickiness.
- Capital flexibility: With CET1 above 10%, Associated can return capital to shareholders or pursue accretive deals—options that smaller peers can’t match.
The market has yet to fully price in this turnaround. Shares trade at just 1.1x tangible book value, a discount to peers even as fundamentals improve.
Investment Thesis: Buy the Dip, Own the Turn
Associated Banc-Corp’s Q1 results are a blueprint for banking resilience in 2025. The nonrecurring losses are distractions; the real story is margin expansion, deposit growth, and capital strength. For investors willing to look past the noise, this is a buy-the-dip opportunity in a sector primed for recovery.
The path forward is clear: the bank’s balance sheet repositioning has created a high-margin, low-cost foundation for sustained NII growth. With shares down 18% year-to-date on macro fears, this is a chance to lock in a deep-value entry into a bank with both near-term catalysts and a long-term moat.
Act now before the market catches on.
DISCLAIMER: This analysis is for informational purposes only and does not constitute investment advice. Always consult a financial advisor before making investment decisions.
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