NEW YORK (TheStreet) -- State Street (STT) - Get Report and Goldman Sachs (GS) - Get Report subsidiaries lead TheStreet's "recommended" list of large banks and thrifts, boosting 2009 earnings during a bad year for the banking industry.

TheStreet Ratings

assigned financial strength ratings of B-plus ("good") or better to 962 U.S. banks and savings-and-loan institutions based on fourth-quarter financial reports, down from 1,035 the previous quarter.

Earnings among the largest U.S. banks recovered faster than those of the overall industry. Many of these banks benefited from their diversified business models, which helped them bring in revenue from sources other than lending, such as trading, custody services, investment banking and asset management. Many of these banks also increased their capital, with tier 1 leverage ratios increasing for six of the largest 10.

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Boston-based

State Street Bank & Trust

, a unit of State Street, had $154 billion in total assets as of Dec. 31 and reported a strong fourth quarter, with net income of $653 million, or a return on average assets (ROA) of 1.81% and a return on average equity (ROE) of 18.57%, with a boost from $422 million in gains on asset sales.

The bank posted a net loss of $1.7 billion for 2009 because of a $3.2 billion second-quarter loss, after the holding company consolidated off-balance-sheet loan conduits and took $3.7 billion in charges.

The holding company also raised capital during the second quarter and repaid $2 billion to the government it had received through the Troubled Assets Relief Program, or TARP, in October 2008.

Supporting his firm's "buy" recommendation for State Street,

Bank of America

(BAC) - Get Report

Merrill Lynch analyst Kenneth Usdin said the shares were trading for 12.5 times its estimated earnings for 2011, a "steep discount" to the company's historical price-to-earnings averages. He expects the shares to rise 20% to $54 during the next year. The shares have gained 2.9% this year.

Goldman Sachs Bank USA

, a unit of Goldman Sachs, maintained its B-plus rating, posting a solid quarter with ROA exceeding 3% and ROE over 20%.

The most profitable bank on the list based on ROA and ROE was

World Financial Network National Bank

of Columbus, Ohio, a subsidiary of

Alliance Data Systems

(ADS) - Get Report

. Alliance Data provides various services related to private-label credit cards and customer loyalty programs, including rewarding air travel miles to hotel customers and other rewards programs for various companies, including

Visa

(V) - Get Report

.

World Financial Network National Bank's earnings derive mainly from credit card securitization. Even with the second-highest tier 1 leverage ratio on the list, it achieved a 33% ROE during the fourth quarter, illustrating how lucrative the private-label credit card services and securitization business is for Alliance Data.

In a report from last week supporting is firm's "overweight" rating for Alliance Data,

First Analysis Securities

analyst Lawrence Berlin said he "would not be surprised to see 15% earnings per share growth" in 2011 and 2012. While Berlin said a share price of $110 in 2012 would be possible, based on the company's price-to-earnings ratio of 11 and earnings approaching $10 per share in 2012. Its shares are down 1.6% this year, closing at $63.99 on Wednesday.

The second-most profitable institution based on ROA was Los Angeles-based

Bank of New York Mellon Trust Co., NA

, a subsidiary of

Bank of New York Mellon

(BK) - Get Report

.

Free Financial-Strength Ratings

TheStreet Ratings

issues conservative financial strength ratings on the nation's 8,500 banks and savings and loans. They are available on the

Banks & Thrifts Screener

.

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Reported by Philip van Doorn in Jupiter Fla.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.