Updated from 9:39 a.m. EDT

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Bank of New York

(BK) - Get Report

Monday posted third-quarter earnings that met Wall Street's expectations, as strong foreign exchange trading boosted profits.

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The bank said third-quarter earnings rose to 49 cents a diluted share, in line with the 19-analyst

First Call/Thomson Financial

consensus estimate, from the year-ago 42 cents. Third-quarter net income totaled $363 million, up 16% from $313 million, excluding adjustments, a year earlier.

Bank of New York attributed the growth in profits to its continued focus on an array of fee-based services, including foreign exchange and securities trading. In recent years, the bank has sought to boost its bottom line by branching out from traditional bank revenue sources such as loan interest income. At midafternoon, the stock was up $1.88, or 3.7%, at $53.

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As a result of that strategy, the bank said noninterest income accounted for 62% of total revenue in the latest quarter, a 2% increase over the year-ago period. Bank of New York said fee revenue growth was strong across all product lines, particularly in its global trading operations. In its securities servicing business, fee revenue increased 37% to a record $437 million, while foreign exchange and other trading revenue rose 31% to $59 million, helped by growing global trading volumes.

On the Mark

Analysts seemed pleased with the latest results, particularly in the securities processing business. "The important thing is the processing fees, which were on the mark," said Kevin Timmons, banks analyst at

FAC Equities

in Albany. Timmons also pointed to the gains posted in private client services and asset management fees, which rose 26% to $77 million from the year-ago period. Timmons, whose firm hasn't done any underwriting, rates the stock a buy.

The bank's expense management also drew positive comments from analysts. Timmons noted a "nominal" increase in expenses compared with the second quarter, saying the bank exercises "tight control" on costs and typically has "very low single-digit growth in expenses." Non-interest expense at the bank, which is known for its conservative accounting, rose to $635 million from $515 million in 1999. The bank said the increase was primarily due to acquisitions and investment in technology.

Chip Dickson, banks analyst at

Lehman Brothers

, echoed the sentiment, calculating that at current expense levels, the bank is making 65 cents for every dollar of revenue growth. Lehman hasn't underwritten for the company, and Dickson rates its shares buy.

Despite the increasing emphasis on fee-based services, lending operations also performed well in the quarter with net interest income rising 14.7% to $492 million from $429 million in the year-ago period, and 3% against the second quarter.

At a time when many banks' lending margins are being pressured by a jump in interest rates, Bank of New York managed to post an increase in its third-quarter margin, to 3.05% from 2.91% in the second quarter. Timmons said the improved margins reflect changes in the balance sheet, noting a greater contribution from capital and non-interest bearing deposits.

Bank of New York is "still a bank by charter, but it has a whole series of fee-based businesses in which it has become either the powerhouse, or one of the powerhouses. Those businesses are humming right along as well as expected," said Timmons.