First Foundation Inc. just delivered its Q1 2024 earnings, and while the headline numbers might not scream 'comeback story,' a closer look at the transcript reveals something far more intriguing. Nestled amidst the financial jargon and industry-standard reassurances lies a subtle, yet significant shift: a deliberate emphasis on a 'culture change,' particularly within the bank's core operations. This isn't just about operational efficiency. This whispers of a 'return to roots,' a subtle realignment that could signal a stealthy turnaround far more impactful than any interest rate cut the Fed might have in store.

The key phrase, repeated like a mantra throughout the call, is 'relationship banking.' It's almost as if First Foundation is rediscovering the fundamental building blocks of banking success: trust, personal connections, and understanding the unique needs of its clients. This is a stark departure from the transactional, rate-driven approach that characterized much of the bank's recent past, particularly in 2022 when the multifamily loan spree fueled rapid growth, but arguably at the expense of nurturing deeper client relationships.

This 'invisible handshake,' this renewed focus on the human element of banking, is already manifesting in tangible ways. Scott Kavanaugh, First Foundation's President and CEO, recounted a personal anecdote that speaks volumes. Attending a presentation by one of the bank's loan clients, Kavanaugh, in a spontaneous move, directly inquired about securing a deposit relationship. The response? 'Well, no, you never asked.' Days later, the client transferred funds, contributing to the bank's $300 million deposit pipeline.

"This is not an isolated incident. The transcript is peppered with references to a deliberate shift towards outbound, proactive engagement, particularly within the branch network. Chris Naghibi, Chief Operating Officer, explicitly stated his vision: branch managers not confined to their offices, but actively engaging with clients, understanding their needs, and offering tailored solutions. This is about anticipating client requirements before they're even articulated, about building trust and forging long-term partnerships."

The numbers, while still nascent, start to paint a picture of this cultural shift gaining traction. Core non-brokered deposits, a key indicator of sustainable funding, increased to 64% during the quarter, compared to 60% in the previous quarter. Noninterest-bearing demand deposits, the most coveted type of funding, jumped to 17% from 14%. While these figures are partially attributed to seasonal factors, the underlying message is clear: First Foundation's renewed focus on relationship building is attracting stable, cost-effective funding.

Deposit Composition Trends

The following chart illustrates the shift in First Foundation's deposit composition, highlighting the growth in core non-brokered deposits and noninterest-bearing demand deposits.

Here's a hypothesis worth exploring: this cultural shift could be far more potent than any near-term interest rate movements. While a Fed rate cut would undoubtedly provide a welcome boost to First Foundation's earnings, a sustainable turnaround hinges on building a resilient, deposit-rich balance sheet, a foundation forged on long-term client relationships. If this 'culture change' truly takes hold, if First Foundation successfully re-establishes itself as a trusted partner to its clients, the bank could witness a virtuous cycle.

Improved client relationships lead to increased core deposits, a lower cost of funding, and enhanced profitability. This, in turn, empowers the bank to invest in its C&I lending platform, a segment that not only offers attractive yields but also fosters deeper, stickier client relationships. The result? A stealthy, yet sustainable turnaround, a success story built not on market whims, but on the enduring power of the 'invisible handshake.'

Of course, this is still early innings. The full impact of this cultural shift remains to be seen. However, the subtle yet persistent emphasis on relationship banking throughout the Q1 2024 earnings call suggests that First Foundation might be onto something significant, a strategic realignment that could redefine the bank's future, regardless of the Fed's next move.

"Fun Fact: First Foundation is known for its philanthropic endeavors, particularly in the areas of education and affordable housing. This commitment to community building aligns perfectly with their renewed focus on relationship banking, further strengthening their brand and deepening client loyalty. It's a subtle, yet powerful reminder that successful banking is not just about numbers; it's about people."