Bank ETFs Shine as US Banking Profit Hits Decade High in Q3

Core Insights - The U.S. banking industry is experiencing its highest profitability in over a decade, driven by favorable interest rates and a resilient economy as 2025 closes [1][10] Factors Influencing Profit Surge - Resilient Net Interest Margin (NIM) has been maintained despite Federal Reserve rate cuts, allowing banks to preserve net interest income and achieve wider margins [3] - Strong credit quality has resulted in low loan delinquency rates and minimal provisions for credit losses, despite economic uncertainty [4] - Increased capital markets activity, including a resurgence in mergers and acquisitions, has boosted non-interest income for major investment banking divisions [4] - Robust trading revenues have been generated from heightened market volatility, benefiting major institutions through increased client flow and proprietary trading gains [5] Outlook for 2026 - The outlook for the U.S. banking industry remains bullish, with growth expected to be driven by AI-driven productivity gains and a steady credit environment [6] - While net interest margins may plateau, banks are entering 2026 with elevated earnings, stronger capital, and improving fee income from investment banking and wealth management [7] - Profit growth may moderate, but margins are expected to remain healthy by historical standards, making bank ETFs a profitable investment option [8] Bank ETFs to Watch - First Trust NASDAQ Bank ETF (FTXO): Assets worth $274.6 million, exposure to 49 U.S. banking companies, top holdings include Citigroup (8.63%), Wells Fargo (8.43%), and Bank of America (8.04%), surged 21.6% year to date [9][11] - State Street SPDR S&P Bank ETF (KBE): Assets under management of $1.41 billion, exposure to 102 companies, top holdings include Comerica (1.26%), BankUnited (1.17%), and Bank of California (1.16%), surged 15.4% year to date [12][13] - Invesco KBW Bank ETF (KBWB): Market value of $6.21 billion, exposure to 26 U.S. banking companies, top holdings include Goldman Sachs (8.63%), Morgan Stanley (8.53%), and Wells Fargo (8.27%), rallied 31.4% year to date [14]