KeyCorp (NYSE:KEY), a regional bank heavily affected by the ongoing banking crisis, has managed to withstand a significant decline in its stock value, which has lost nearly a third of its worth since the beginning of 2023. Despite this downturn, the bank has shown resilience with only a 3.1% year-over-year drop in deposits in the second quarter.
KeyCorp's primary business model, which involves collecting deposits and lending them to other customers, is under pressure due to changes in interest rates. The Federal Reserve's current policy of increasing rates to curb rapid inflation is creating a new dynamic for the bank.
The impact of these changes is evident in KeyCorp's deposit figures. Non-time deposits such as bank and checking accounts decreased by 3.9% from the first quarter and by 11.3% from the second quarter of 2022. Conversely, time deposits like large CDs worth $100,000 or more saw substantial growth, increasing by 61% sequentially and 159% year over year. Other time deposits also significantly rose by 40.2% from the first quarter and an extraordinary 476.3% from the same period in 2022.
This shift towards higher-interest products is consistent with a rising rate environment where customers are moving their money to products that offer higher returns. This change significantly affects KeyCorp's business model.
Another critical indicator of this shift is KeyCorp's cost of deposits which has seen a nearly 25-fold increase year over year, from a mere 0.06% in the second quarter of 2022 to 1.49% in the second quarter of this year.
Despite these challenges, KeyCorp continues to navigate the turbulent market conditions. The rate at which customers are leaving is not rapid enough to threaten the bank's survival. However, rising rates are altering customer banking habits, forcing KeyCorp to adapt. These changes are contributing to an increase in costs and necessitate close monitoring by shareholders as they evaluate this regional bank stock.
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