Bank Earnings Are Mixed—These 2 ETFs Offer Very Different Paths to a Recovery

Key Points

• Third-quarter bank earnings are giving investors a closer look at the financial sector's strengths and weaknesses.
• Banking ETFs offer a way to invest in the industry without choosing individual bank stocks.
• The SPDR S&P Bank ETF and iShares U.S. Regional Banks ETF offer different ways to capitalize on banking trends.

Bank earnings season is here, with major U.S. financial institutions like JPMorgan Chase NYSE: JPM and Goldman Sachs NYSE: GS offering mixed results for Q3 2026. JPMorgan posted an unusual miss to adjusted earnings per share (EPS), even while net revenue rose more than 8% year over year (YOY). Goldman, on the other hand, easily beat analyst estimates for both top and bottom lines thanks to the healthy equities trading.

With other major and smaller regional banks providing earnings updates to come, investors have an opportunity to take different approaches to betting on the broader banking industry as a whole with exchange-traded funds like the State Street SPDR S&P Bank ETF NYSEARCA: KBE and the iShares U.S. Regional Banks ETF NYSEARCA: IAT. If investors anticipate additional divergence in Q3 results among bank stocks, these funds may help mitigate risk while still offering broad exposure to the space. Still, they are very different from one another and may thrive in different conditions.

KBE vs. IAT: How Their Holdings and Weightings Compare

KBE tends to offer broader access across the banking industry, following an index of bank stocks of different sizes and structures. Notably, it uses a modified equal-weight approach that gives smaller banks a huge leg up relative to their impact in a market-cap-weighted portfolio.

By contrast, IAT is a U.S. regional bank fund with a portfolio weighted by market capitalization. This means that larger regional institutions will have the greatest impact on the fund's performance.

Both funds do more than just offer access to the largest financial institutions available to investors, and they have different levels of risk. KBE, for instance, has about 109 holdings, more than triple the number in IAT's basket. This also comes with greater diversification across bank sizes and business types, and over-concentration is not a concern given KBE's equal-weight allocation approach.

IAT, on the other hand, is a fairly narrow play on a smaller set of specific types of banks, with two in particular—U.S. Bancorp NYSE: USB and PNC Financial Services Group NYSE: PNC—dominating, each with about 15% of the total portfolio allocation.

Which Market Conditions Could Favor KBE or IAT?

KBE's wider exposure to bank stocks and sub-industries may make it a winner if there is an uneven recovery across the sector. If interest rates fall, KBE could benefit if conditions begin to support additional lending and a broader soft landing.

IAT could outperform KBE if some of its specific holdings see a rally, or if there is a regional-bank recovery that affects multiple positions. If funding costs stabilize and concerns about commercial real estate fade, for example, it may give investors more confidence in regional lenders, which in turn may boost IAT. This fund could also benefit from falling interest rates if deposit costs decline faster than asset yields.

Both funds are likely to do well during a period of broad economic expansion, but are more vulnerable in the event of a recession or banking crisis. In this latter case, though, KBE may be better positioned if this weakness is concentrated across regional banks.

As earnings season continues, investors should pay attention to both deposit trends and credit quality. Delinquency rates, net charge-offs, loan-loss provisions, and other metrics can provide a fuller picture of whether a bank is facing increased pressure from borrowers. Deteriorating credit quality could be a negative for both of these ETFs.

Valuations are also an important consideration. If one set of banks appears to be pricing in a stronger recovery, for example, this may expose one or the other of these funds to greater downside risk if earnings disappoint. KBE's equal-weight approach means it may be less susceptible to being swayed by individual stocks—but this can be a bad thing if shares trend upward, just as it can help minimize declines in the opposite scenario.

Both funds trade for about the same expense ratio (0.35% for KBE and 0.37% for IAT). KBE is the larger and more heavily traded of the two funds, although neither is likely to present significant liquidity concerns for most traders. At the same time, these ETFs have not distinguished themselves from one another in terms of performance this year—both are up only 1%-2% year to date (YTD). For investors interested in the banking space, the decision may come down to the weighting of the two funds and their different sub-industry focuses.