Strategy Pulse: On preserving profits, reasonable optimism and a ‘vast improvement’ in leadership

The team at Umpqua Bank, which runs more than 300 offices in eight states and is the largest lender headquartered in the Northwest, recently released its 2025 Business Barometer Report, which focuses on how small and midsized companies are faring in this topsy-turvy economy and where they’re investing their money and time. If you’re looking for some optimism about the path of the economy, check out this takeaway: Among the nearly 1,300 business leaders Umpqua surveyed in the spring, expectations that the economy will improve over the next year were near or at four-year highs this spring—and they delivered that assessment weeks after tariff headlines had become commonplace.

Also among the Barometer’s findings: Middle-market executives haven’t lost their appetite for mergers and/or acquisitions. More than half of respondents plan to gradually adjust their prices over the next year. And most executives are in no hurry to dismantle their foreign-based manufacturing operations. You can download the full report at Umpqua’s site right here.

To dig deeper into the dynamics behind the survey and the mindset(s) of Umpqua’s customers, EndeavorB2B’s Geert De Lombaerde spoke with Richard Cabrera, Umpqua’s California-based head of commercial banking. Below are some excerpts from their conversation on sentiment, strategy and management, lightly edited for clarity and brevity.

De Lombaerde: One of the ideas I’ve noticed in recent weeks is that many corporate executive teams are finished sitting on their hands and waiting for the uncertainty to clear. Are you seeing a similar attitude shift among small- and midsized firms?

Cabrera: I see it more. I’ve heard that. I’ve heard that for the last, say, 90 days that we’ve been in a period of limbo. We just can’t stay here anymore. We have to make decisions. Interest rates are going to be what they are. […] I get what the Fed is doing because I don’t think from what I hear from our customer base that inflation has gone away. You’re looking at price increases in the supply chain that either have to be passed along or absorbed. I think the feeling is let’s absorb these as best we can so that we have minimal price increases to put forward.

So if that’s the case, then we’re looking at our cost structure. So how do we source our product better than we’re sourcing it now? And how do we work on our overhead? What tools can we use for efficiency such as AI and automation, robotics so that we can preserve our margin and contain price increases? Almost everybody has that position today.

You mentioned absorbing price increases versus passing them on. There’s been a lot of chatter lately around who is eating the cost of tariffs and who can pass on at least some of the cost impact. Is the pricing conversation inevitably a little bit different for smaller firms because they might be even more reticent to raise their rates? How do you talk to a small business customer about having the confidence to do that?

Midsized businesses have more resources. They have availability to capital and commercial credit. They have far greater resources than small businesses, for which we’ll put the line at $10 million in revenue and at the most maybe 50 to 100 employees. But many small businesses are smaller than that so they have very limited resources. […] They really bear the brunt of all of this, everything that’s happening economically.

And you can see that in the Barometer’s numbers in terms of their attitude toward cutting versus investing or growing versus staying put or possibly cutting back.

Oh yeah. But the Barometer showed that they were far more optimistic. Usually, it’s middle-market companies that have the optimism and there’s a delta between middle-market businesses and small businesses. That has condensed and small businesses actually showed a lot of optimism throughout the survey. Now, granted that the time frame here was in late spring.

I think the hope comes from the fact that the economy is still moving forward. But it’s not growing much at all right now and there hasn’t been a particular shoe to drop—whether it’s employment or inflation, at least in the reported numbers being out of control. Right now, it is more around, “OK, what’s the impact that I’m going to face from tariffs. So how does this get resolved?”

I feel that we’re closer to resolution on that and it will be solved and you’ll say, “OK, so we have a 3% increase in our total cost. We can manage that. We can manage the 3%; we can’t manage the 10.” If you have economic activity and you don’t have people who have totally withdrawn from the economy, then we can be optimistic because there are certain things we can control.

There’s a school of thought that says companies are better run these days than they were 15 years ago, 30 years ago—that the management of them is just better. Is that what you see in your world? And what does that look like to you day-to-day when you’re talking to clients?

Yes, generally I would agree with the position that companies are run better today. They’re more thoughtful about how they do business, thoughtful from a view as to, “Who is our customer, what market do we serve, how do we access them with our product? Then looking at that product, what does it cost us to acquire the product or to make the product?”

There’s more planning because generally there is more automation that is done. I’ll just speak in a manufacturing context here: There’s a lot more automation that has come. A lot of this came was being developed prior to the pandemic and really took on a life of its own through the pandemic all the way up until 2023.

So how do we access automation and become more efficient? How do we have better inventory management? All of these management techniques are better today. The digital transformation, using digital technology to give us information and acting on that information, has helped. And then the way that we make our product so that we’re less labor-reliant. Labor became a really big issue through the pandemic and it’s becoming an issue again—not because of the pandemic, but because of immigration policy.

That’s the technical part of management. But the leadership part of management is better in communicating outbound to its communities that they serve, who they are, how they’re positioned. That has gotten much better, more thoughtful. Then internally, to their own employees as to who the company is and the division of responsibility and labor: I’ve seen a vast improvement over the last five years compared to the other 35 that I’ve been in the business.

Progress doesn’t happen over a 2:1 curve. It’s a stair step. And so you can see that there’s a sea change that took place in the pandemic. That thoughtfulness, those principles in terms of how the pandemic caused everybody to redefine themselves, reinvent themselves and do things better with less.

So, in many respects, we’re kind of thankful that people and companies went through that period. They learned the hard lessons of the pandemic to withstand what we’re going through right now.

Is there a limit to how those lessons can be applied to today?

Only the limit of the human imagination and spirit. Again, people are going to survive and find a way to preserve their way of life and livelihood. I see that all the time. That’s what I love about this business and the companies that we bank and do business with. They’re incredibly resilient.

We talked earlier about the inward focus of many companies as they wait for more clarity. How long do you see that attitude persisting?

Right now, I don’t know. I don’t have a crystal ball. I see that there’s reasonable optimism, there’s resilience. “We have headwinds but I think we can sustain the headwinds. We’re going to focus on what we can control so there is a focus on supply chains and sourcing. There’s a focus on what can we do in terms of how we do business and rely on our digital tools, AI and then move toward automation. And we’re going to keep an eye out for our competition.”

I do think management has been laser-focused on their product and their customer. All of those things suggest, “OK, we can operate. We can operate fine barring a Black Swan event.” It is a very consistent thing.

I think all of us would feel a lot better if we just saw more growth as opposed to low growth or even contraction. […] Because there is another voice out there that things are really bad and we’re reaching a tipping point where it’s going to go the other way. You can spin the facts to kind of tell the story that you want to tell.

The story I’m telling you is really grassroots from what we see. It’s reflected in our own balance sheet and our own lending and it’s not that bad. I can look at our portfolio and it’s performing. Non-performing loans are at historical lows for the bank right now. That would suggest that we’re smart and we pick the right borrowers. There could be some truth to that.

But as we’re moving forward and really listening and saying, “Hey, what are your needs and what are you thinking about over the next six months,” I don’t think anybody can really tell you. [But] I can tell you that the moves that they are making make sense. They make sense in terms of what I talked about in the positioning down to the product and for services that they provide and then what does it cost to do this and how can we preserve a profit margin.