After another quarter of selling off bank stocks, Berkshire Hathaway (BRK.A -0.01%) (BRK.B -0.11%) and its legendary chairman and CEO, Warren Buffett, are clearly getting more selective in the sector. As a result, there's a new pecking order among Berkshire's bank investments.

By reducing its position in Wells Fargo from 237.6 million shares after the second quarter to 127.4 million shares at the end of the third, Berkshire has knocked the onetime favorite out of its top three bank holdings. But which banks have survived the cut?

With banks facing high credit costs and a lower revenue outlook in the ultra-low-rate environment, let's take a fresh look at Berkshire's three favorite banks at the end of September.

A photo of Warren Buffett

Image source: Getty Images. 

1. Bank of America

If you follow Buffett, this should come as no surprise. At the beginning of the third quarter, Buffett went on a huge buying spree, purchasing more than $2 billion of Bank of America (BAC -0.83%) shares and increasing Berkshire's stake in the company to right around 12% of outstanding shares.

Bank of America has held up relatively well during the coronavirus pandemic, generating earnings of roughly $12.4 billion through the first three quarters of 2020, despite setting aside more than $11 billion to prepare for future potential loan losses. Buffett seems to be extremely pleased with how CEO Brian Moynihan has turned the bank around since the Great Recession, and with the relative stability of the balance sheet.

Bank of America is now Berkshire's second-largest equity holding right behind Apple, and you may see the Oracle of Omaha look to buy more. Recently, Berkshire received approval from the Federal Reserve Bank of Richmond to purchase as much as 25% of Bank of America's outstanding shares.

2. American Express

You may know it as a credit card company with great rewards points, but American Express (AXP 0.01%) is first and foremost a bank. And it's one that Buffett loves. At the end of the third quarter, Berkshire maintained its position in the company, holding on to more than 151 million shares. It's the exact same position Berkshire had in the company at the end of 2019. At Friday's prices, American Express made up almost 7% of Berkshire's portfolio.

It's a great sign of confidence from Buffett. Credit card companies can be susceptible to higher loan losses, especially during a downturn, and a decent amount of American Express' business is in the travel and entertainment space, which has seen extremely limited activity this year due to the coronavirus pandemic. But the consumer has held up better than expected during the coronavirus pandemic, and American Express has built enough reserves to cover future losses that are equivalent to more than 8% of its total loan book. In mid-March, toward the beginning of the pandemic, Buffett called the American Express brand "special," and his actions so far support that belief.

3. U.S. Bancorp

Buffett has also essentially maintained his position through the pandemic in the $540 billion asset U.S. Bancorp (USB -0.85%), based in Minneapolis.

Berkshire currently owns close to 132 million shares in the company, which is equivalent to just under 10% of the bank's outstanding shares (and about 2.6% of Berkshire's portfolio). This is a real testament to U.S. Bancorp because Berkshire this year has sold large portions of its stake in other regional banks with strong track records, such as PNC Financial Services and M&T Bank. But it's hard to disagree with this decision, because U.S. Bancorp is one of the best in the business. Year after year, the bank generates strong, consistent returns for investors.