The U.S. banking sector is looking better in 2013 than it did in 2012, 2011 and so on. Balance sheets, credit metrics and underlying asset values continue to recover. Still, the recession was not that long ago and economic growth has hit serious headwinds. The public needs to be vigilant about financial risk ahead of another round of major U.S. bank stress tests. Regulators will soon decide which of the large American banks will be permitted to return more capital to their shareholders via higher dividends and stock buybacks. 24/7 Wall St. has recalibrated its list of the seven safest banks in America for 2013 and beyond.

Several banks were very close to meeting all of our financial, historic and transformative criteria, and they may be eligible for the list of safest banks in 2014, or even after the stress tests and after decisions have been formalized over returning capital to shareholders. Some of the data may seem investor oriented, but the reality is that institutional depositors, creditors and trading partners generally evaluate peers with many of the same metrics. The global economic recovery has lost some steam at the same time that the stock market has recovered. The public needs to know which of the larger banks are safe, regardless whether the economy stabilizes or worsens again.

The criteria to be among the safest banks has to be very strict by nature. It also has to apply to the larger institutions, which are either money-center banks or have multiple-state geographies. To make the list, a bank either had to have a minimum of 100 branches or it had to have retail branches in multiple states as the base level for relevance and importance. We used banks with a minimum market capitalization of $3 billion and a minimum asset base of $20 billion. These safest banks had to have the bulk of their image tied to retail and commercial banking operations with many branch offices (probably eliminate, we said above). This eliminated the great fiduciary banks such as State Street Corp. (NYSE: STT) and Bank of New York Mellon Corp. (NYSE: BK), even though they certainly would be considered among the safest banks. It also eliminated the bank holding companies with no retail banking operations, such as Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS).

24/7 Wall St. took a “Made in America” approach as well, and we screened out U.S. banking outfits that are actually subsidiaries of foreign banks. We also screened out the banks that were still in the process of making large, game-changing or transformative acquisitions, which are too difficult to evaluate in order to avoid absorbing any hidden or unknown risks.

With credit ratings becoming a risk again after a U.K. sovereign downgrade, and on the heels of the fiscal cliff and spending sequestration, all these banks also had to be considered investment grade by the major credit ratings agencies. A minimum hurdle of a 7.0% return on equity had to be seen, and we included the return on assets in this analysis as well. These safest banks had to have a minimum divided yield of 2.0% for their common stockholders, as proof that management believes that it can continue returning capital to shareholders through good and bad times, while still maintaining normal operations.

We screened out the nondiversified banks to avoid too many fluctuations throughout the business cycles. For an investment angle, we also gave preference to the banks where Wall St. analysts have a consensus price target above the current share price, indicating that some underlying value potentially remains. If a bank’s common stock was less than $10.00 per share, it had to have its metrics well above average among the largest banks.

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While Bank of America Corp. (NYSE: BAC) was the best performing of the 30 Dow Jones Industrial Average stocks in 2012, it and the money-center banking giant Citigroup Inc. (NYSE: C) actually do not qualify to be in the safest banks in America, even though the reality is that these banks are almost certain to survive another recession. The Federal Reserve deems them to still be problem banks, and they have so far not been freed up to raise their dividends or to increase share buybacks. That may change ahead, and the reality is that these banks are believed to be strong enough to weather most negative scenarios under the impending stress tests.

Finally, we eliminated banks that we did not feel would survive another recession. Consumers have to keep their money somewhere other than under their mattresses. Having an extremely safe bank to protect your hard-earned cash, nest-eggs and safety deposit boxes in hard times is much more important than how high of a rate depositors can get on certificates of deposit and in their checking and savings accounts. As far as quality is concerned, Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) has large stakes in three of the seven safest banks.

In mid-2012, banking regulators proposed to incorporate Basel III capital changes for substantially all U.S. banking organizations. Our list of safest banks shows the Tier-1 ratio today as well as the company’s projected Tier-1 ratio under the proposed rules. This also helps to eliminate any problems over safety and vulnerability ahead. If Basel III is finally adopted as proposed, the threshold for the Tier 1 common equity ratio will be 7%, consisting of a minimum level plus a capital conservation buffer.

Based on the analysis, we anticipate that future lists of the safest banks in America may include 10 or even 12 banks, rather than seven, because many banks only missed one criteria yet exceeded other hurdles handily. We still are not evaluating the community or single-region banks due to size or single geography risks. That being said, many of those community banks have better ratios than any of the larger safest banks in America.

This is the 24/7 Wall St. list of the seven safest banks in America for 2013 to deposit money into, ranked in order of safety, size by assets, and reach.  Our rank is based on financial stability, size by assets, and by reach.

7. BOK Financial Corp. (NASDAQ: BOKF)
> Market cap: $4 billion
> Total assets: $28.1 billion

BOK Financial Corp. (NASDAQ: BOKF) is small compared to the major banks, but it also had one of the few credit rating upgrades (from Fitch, to A from A-) in 2012. Its net income of $351 million in 2012 may sound small compared to the rest of these banking giants, but it is classified as an overcapitalized bank. The return on assets was 1.32% and the return on equity was 12.23%. Its Tier 1 capital ratio of 12.59% is also high on the list of safest banks, and its Tier 1 common equity ratio under a fully phased in Basel III framework was approximately 12.15%. BOK has continued to raise its dividend (even through the Great Recession), and it hinted at raising its payout ratios to the common holders after a special dividend was paid in 2012. It now offers a 2.55% dividend yield. Shares are trading around $59.50, its book value is $43.29 per share and analysts have a mean price target of $61.25. The bank holding company is based in Tulsa, Okla., and its common branch names in other states are Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust.

6. M&T Bank Corp. (NYSE: MTB)
> Market cap: $13.4 billion
> Total assets: $83 billion

M&T Bank Corp. (NYSE: MTB) is based in Buffalo, N.Y., and dates back to 1856. M&T was ranked as number four on our list of America’s safest banks in 2012, but it has dropped to number six due to its pending $3.7 billion acquisition of Hudson City Bancorp Inc. (NASDAQ: HCBK), versus its current market cap of $13.4 billion. The bank can absorb this acquisition, as it has a long history of acquisitions, but Hudson City has lost some of its former strength and we have not yet seen what the combined finances will look like after the approval vote in April of 2013. On its own, M&T would remain number four, but this merger is close enough to transformative that it moved down two slots. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) owns almost 5.4 million M&T Bank common shares, worth about $560 million. More proof that the deal will be absorbed well is that shares have risen handily from just over $80 when it was added to the safest bank list in mid-2012 (pre-Hudson City M&A announcement) to more than $104 today. M&T’s net income was $1.03 billion in 2012, with a return on average assets of 1.29% and return on equity of 10.96%. The bank is in the top 20 largest banks, with more than 700 branches in eight states in the Northeast and eastern seaboard. M&T pays out a dividend of about 2.7% to its common stockholders, and its dividend has been static at $0.70 per quarter going back to 2007. The stock is trading at almost $105, and Wall St. analysts have a consensus price target of $107.64. Its book value per share has not been updated but was $71.58 per share as of the third quarter of 2012.

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5. KeyCorp (NYSE: KEY)
> Market cap: $8.9 billion
> Total assets: $89.2 billion

KeyCorp (NYSE: KEY) earned $827 million in 2012. Its return on assets was 0.96% and its return on equity was 8.5%. The bank represented its Tier 1 common equity ratio as 11.16%. It operates through almost 1,100 retail branches in 14 states in the Rocky Mountains, Northwest, Great Lakes and Northeast. It remains impressive that KeyCorp is on the list of safest banks when you consider that it is headquartered in Cleveland, where many troubled loans arose. The bank pays a 2.1% yield to its common shareholders. The share price is now just barely under the $10 per share preference, up from $7.50 when it first landed on the safest bank list in 2012. Its shares trade at $9.50, versus a stated book value per share of $10.78  and versus a consensus price target of $9.81.

4. PNC Financial Services Group Inc. (NYSE: PNC)
>Market cap: $33.2 billion
>Total assets: $305 billion

PNC Financial Services Group Inc. (NYSE: PNC) is based in Pittsburgh and is the ninth largest bank in America by assets, with expansion taking place in the Southeast. The acquisition of RBC’s branches in the U.S. for almost $3.5 billion was nowhere close enough to change its rank. This deal and a mortgage charge pressured earnings. PNC has almost 2,900 branches in 17 states, and it also has an internal CEO transition taking place. Net income was about $3 billion in 2012, and its return on equity was dragged down to 8.31% from 9.56% a year earlier. Its Tier 1 common capital ratio was 9.6%, and it gave a Basel III Tier 1 common capital ratio projection of 7.3%. PNC pays a dividend of about 2.5% to its common holders and is likely to get approval to raise its payout as it has in 2012 and 2011. The bank’s return on assets is 0.97% and the return on equity is 7.2%. PNC was strong enough financially to close its National City acquisition at the end of 2008, when there was so much risk in the financial markets. PNC’s stock trades at $62.90, versus a book value per share of $67.05 and an analyst consensus price target of $68.33. The bank pays a 2.5% dividend yield to its common holders, and it owns more than one-fifth of the great asset management firm BlackRock Inc. (NYSE: BLK), worth close to $8.5 billion.

3. U.S. Bancorp (NYSE: USB)
> Market cap: $63.7 billion
> Total assets: $353.9 billion

U.S. Bancorp (NYSE: USB) often is overlooked as a money-center bank because it is a super-regional located in Minneapolis.  It is the fifth largest commercial bank in the United States and caters to millions of consumers. Its net income was more than $5.6 billion in 2012, with a Tier 1 common ratio of 9.0% and a Tier 1 common equity ratio of approximately 8.1% under the proposed Basel III rules. The bank had a return on assets of 1.65% but boasted a very high return on equity of 16.2%. U.S. Bancorp operates more than 3,000 branch locations and 5,000 ATMs, and its operations are spread out over 25 states. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) owns more than 61 million shares, now worth more than $2 billion. U.S. Bancorp pays its common shareholders a 2.3% dividend yield, but its finances are strong enough that we expect regulators to approve more dividend hikes and continued share buybacks, as the company applies for them. The share price of $33.88 compares to a book value of $18.31 per share, and analysts have a consensus price target of $36.85. This big bank received an upgrade from S&P in late August 2012 but was downgraded by Moody’s in December 2012.

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2. J.P. Morgan Chase & Co. (NYSE: JPM)
> Market cap: $186 billion
> Total assets: $2.4 trillion

Jamie Dimon is still the king of bankers, but the London Whale’s multibillion trading loss, which was overlooked and minimized, helped to remove this bank from being the safest bank in America. A growing shareholder call to split Dimon’s chairman and CEO roles is another point of contention, but the reality is that the bank’s finances are solid and it has the biggest fortress balance sheet of all banks. Dimon even has said under testimony that the only risk to the bank’s failure is a collision of the earth and moon. J.P. Morgan Chase & Co. (NYSE: JPM) made a profit of $21.3 billion in 2012, with a return on assets of 0.92% and a return on equity of 10.72%. Its represented Basel I Tier 1 common equity ratio was 11.0%, and it projected that its Basel III Tier 1 common ratio was 8.7%. It is largely expected that regulators will allow Jamie Dimon to raise the dividend and begin more aggressive share buybacks. Its current common dividend yield for shareholders is 2.5%. The share price of almost $49 compares to a book value per share of $51.27 and a Wall St. consensus price target of $53.03. J.P. Morgan has more than 5,600 branches around the nation and is still adding branches each year.

1. Wells Fargo & Co. (NYSE: WFC)
> Market cap: $188 billion
> Total assets: $1.42 trillion

Wells Fargo & Co. (NYSE: WFC) remains the undisputed safest bank in America. This bank makes its money lending and acting as a bank more than through brokerage or investment banking and trading. Its net income in 2012 grew 19% over 2011 to $18.9 billion. The bank’s return on assets was 1.46%, with a return on equity of 13.35%. Wells Fargo represented its Tier 1 common equity ratio as 10.12% under Basel I, and its estimated Tier 1 common equity ratio was 8.18% under current Basel III capital proposals. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) owns a stake worth more than $16 billion and has reportedly acquired yet more shares. The safest banking giant in America is so safe that it was allowed to raise its dividend ahead of other banks, and it now offers a 2.87% dividend yield to the common holders. While shares trade at almost $36, its book value per share is $27.64, and Wall St. analysts have a consensus target price of $39.30. Wells Fargo has branches in almost every state in America, with more than 9,000 stores and 12,000 ATMs.

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