Bank ETFs Shine As US Banking Profit Hits Decade High In Q3

Image: BigstockKey TakeawaysU.S. banks posted their highest Q3 profitability in over a decade, driven by strong margins.Stable net interest margins and rising capital markets activity lifted earnings across major banks in 2025.ETFs like FTXO offer diversified exposure to bank profits as growth moderates but stays solid.The U.S. banking industry is closing 2025 on a powerful note, with third-quarter profitability having reportedly reached its highest level in over a decade (as per a recent report by the S&P Global Market Intelligence Unit). This robust performance, driven by favorable interest rates and a resilient economy, must renew investor focus on the industry as we head into 2026. For those looking to gain exposure to this banking resurgence while mitigating the risks associated with any single stock, considering diversified bank exchange-traded funds (ETFs) may present a compelling investment strategy. These funds offer a way to capture the sector's overall growth potential.Factors Influencing the 2025 Profit SurgeThe U.S. banking industry's strong performance this year can be attributed to several catalysts working in unison:Resilient Net Interest Margin (NIM): Despite the Fed's multiple rate cuts this year, U.S. banks managed deposit costs effectively, while maintaining lending yields. This helped them preserve better-than-expected net interest income and resulted in wider margins.Strong Credit Quality: Despite economic uncertainty, consumer and business balance sheets have remained relatively healthy, leading to low loan delinquency rates and minimal provisions for credit losses.Increased Capital Markets Activity: A resurgence in mergers, acquisitions, and debt underwriting has fueled non-interest income for major investment banking divisions.Robust Trading Revenues: Heightened market volatility in fixed income and equities allowed major institutions to capitalize on increased client flow and proprietary trading gains.2026 Remains a Tailwind for Bank ETF HoldersAs we enter 2026, the outlook for the U.S. banking industry remains bullish but complex. While the initial "profit pop" from onshoring and deregulation has been realized, the next phase of growth will likely come from AI-driven productivity gains and a steadying credit environment.While net interest margins may plateau as funding costs adjust, banks will enter the year with elevated earnings, stronger capital, and improving fee income from investment banking and wealth management.So, the pace of profit growth may moderate, but margins can be expected to remain healthy by historical standards. For investors, holding a collective portfolio of banks via ETFs should be increasingly profitable. It allows exposure to the entire industry's profit margin — from the massive investment banks to resilient regional lenders — without the volatility of a single-stock risk like a bank’s unique credit quality concerns.Bank ETFs to Watch for 2026Considering the aforementioned discussion, here we have offered a few prominent ETFs that provide broad exposure to the U.S. banking industry.First Trust NASDAQ Bank ETF (FTXO - Free Report)This fund, with assets worth $274.6 million, provides exposure to 49 US companies within the banking industry. Its top three holdings include Citigroup (C - Free Report) (8.63%), Wells Fargo (WFC - Free Report) (8.43%), and Bank of America (BAC - Free Report) (8.04%). FTXO has surged 21.6% year-to-date. The fund charges 60 basis points (bps) as fees. It traded at a volume of 0.03 million shares in the last trading session.State Street SPDR S&P Bank ETF (KBE - Free Report)This fund, with assets under management (AUM) worth $1.41 billion, provides exposure to 102 companies that are Asset Management & Custody Banks, Diversified Banks, Regional Banks, Diversified Financial Services institutes, and Commercial & Residential Mortgage Finance institutes.Its top three holdings include Comerica (CMA - Free Report) (1.26%), BankUnited (BKU - Free Report) (1.17%), and Bank of California (BANC - Free Report) (1.16%). KBE has surged 15.4% year-to-date. The fund charges 35 bps as fees. It traded at a volume of 1.30 million shares in the last trading session. Invesco KBW Bank ETF (KBWB - Free Report)This fund, with market value worth $6.21 billion, offers exposure to 26 companies primarily engaged in U.S. banking activities. Its top three holdings include Goldman Sachs (GS - Free Report) (8.63%), Morgan Stanley (MS - Free Report) (8.53%), and Wells Fargo (WFC) (8.27%).KBWB has rallied 31.4% year-to-date. The fund charges 35 bps as fees. It traded at a volume of 2.07 million shares in the last trading session.More By This Author:TeraWulf Vs. Riot Platforms: Which Bitcoin Miner Stock Is The Smarter Investment?3 Manufacturing Stocks Benefiting From Supply-Chain Shifts Into 20263 Stocks To Watch Near All-Time Highs: COF, MAR, TSLA