Are Regional Banks Like UMB Financial and SouthState at a Buyable Valuation Amid Economic Uncertainty?

The current economic landscape is a volatile mix of Federal Reserve rate-cut expectations, trade policy uncertainty, and inflationary pressures. For regional banks like UMB Financial (UMBF) and SouthState (SSB), these headwinds have triggered market sell-offs, with both stocks dropping 3.4% in early August 2025 following a weak jobs report and new tariffs. But are these dips masking long-term value? Let's dissect whether the market's overreaction creates an opportunity to invest in fundamentally strong regional banks with resilient balance sheets and growth trajectories.

The Macro Headwinds: Rate Cuts, Tariffs, and Trade Uncertainty

The Federal Reserve's anticipated rate cut in September 2025 has sent shockwaves through the banking sector. Regional banks, which rely heavily on net interest margins (NIMs), face shrinking profitability as spreads between loan and deposit rates compress. Meanwhile, new tariffs on 92 countries have raised fears of a global trade war, disrupting supply chains and potentially slowing economic growth. The Bank-Level Uncertainty (BLU) index has spiked, signaling reduced liquidity and loan issuance for banks.

Yet, history shows that markets often overreact to short-term volatility. For example, UMB Financial's stock has outperformed the S&P 500 over five years (137.53% vs. 90.70%), and SouthState has delivered 120.77% returns in the same period. If these fundamentals remain intact, today's sell-off could be a buying opportunity.

Valuation Metrics: UMB Financial vs. SouthState

UMB Financial's trailing P/E ratio of 12.28 and forward P/E of 10.04 make it one of the most attractively priced regional banks. This compares favorably to SouthState's 13.78 trailing P/E and 11.40 forward P/E. Both companies trade at a discount to the broader market's 23x P/E, but UMB's lower valuation suggests stronger investor confidence in its earnings potential.

UMB's balance sheet is a testament to its resilience. Post-acquisition of Heartland Financial, it boasts a Common Equity Tier 1 (CET1) ratio of 10.11%, well above the “well-capitalized” threshold. Nonaccrual loans stand at just 0.28% of total loans, and the company's provision for credit losses (86 basis points) reflects disciplined risk management. SouthState, while slightly less leveraged, maintains a CET1 ratio of 11.0% and a Total Risk-Based Capital ratio of 13.7%, indicating a similarly robust capital position.

Strategic Growth and Operational Leverage

UMB Financial's recent performance underscores its strategic agility. In Q2 2025, it reported $2.96 in EPS, beating estimates by 24.89%, and grew average loans by 12.7% to $36.4 billion. Its cost-savings initiatives ($124 million projected savings) and expansion into mortgage and fund services position it to outperform peers. SouthState, meanwhile, has focused on expanding its footprint and improving customer service, though its earnings growth (0.35% YTD) lags UMB's 12.51%.

Both banks benefit from strong deposit growth. UMB's average deposits rose 10.7% to $55.6 billion, while SouthState's liquidity position includes $3.56 billion in total cash. These deposits provide a stable funding base, insulating them from rate-cut impacts to some extent.

The Case for Caution and Opportunity

The market's reaction to macroeconomic risks has undervalued both UMB and SouthState. However, investors must weigh these factors:
1. Rate-Cut Impact: A 100-basis-point rate cut could reduce UMB's NIM by ~15%, based on its current leverage.
2. Trade Policy Risks: Tariffs may disproportionately affect SouthState's commercial and industrial loan portfolios.
3. Valuation Gaps: UMB's lower P/E ratio and higher earnings growth justify a premium over SouthState.

For long-term investors, the key question is whether these headwinds are temporary. If the Fed's rate cuts are limited to 50–75 basis points and trade tensions ease, UMB and SouthState's strong balance sheets and growth trajectories could drive recovery. UMB's forward P/E of 10.04 and SouthState's 2.59% dividend yield (SSB) make them appealing for a diversified portfolio, provided macroeconomic risks are monitored.

Conclusion: Buy UMB, Monitor SouthState

UMB Financial's combination of low valuations, strong capital ratios, and operational leverage makes it a compelling buy at current levels. SouthState, while well-capitalized, faces higher valuation multiples and less robust earnings growth, warranting a “monitor” stance. Both banks are resilient, but UMB's recent outperformance and strategic initiatives position it as a stronger candidate for capital appreciation in a post-uncertainty environment.

In a world of macroeconomic volatility, regional banks with disciplined balance sheets and growth-focused strategies may yet prove their mettle. For investors willing to look beyond the noise, UMB Financial offers a compelling case for a long-term buy.