On Wednesday, Bank of New York (NYSE:BK) announced strong results for the second quarter and the market cheered, bidding up the company's stock price by more than 7% to close at $34.08. Can the company and its stock, which has traveled sideways for years, extend this upward performance?

Second-quarter results were released against the backdrop of Bank of New York's recently announced asset swap with JPMorgan Chase (NYSE:JPM). That deal, which has yet to close, will trade Bank of New York's retail branch network for JPMorgan Chase's corporate trust business. Bank of New York's management considers the transaction to be the defining act of the company's transformation into an organization focused primarily on custody and securities servicing functions. Accordingly, Wednesday's earnings announcement highlighted the performance of those continuing operations.

Non-traditional bank activities did indeed post impressive results. Securities servicing fees increased by 17% year over year. Foreign exchange and trading income grew by 29%. Net interest income, which is the difference between the bank's cost of funds and the interest earned from making loans, increased by 9% on strong deposit growth in the bank's corporate trust business. Overall, Bank of New York's income from continuing operations increased by 16% from last year's second quarter, generating $0.52 diluted earnings per share. The bank delivered a robust 18% return on equity.

Custody and securities servicing activities generate fee-based income, which tends to be more stable and have less credit risk than interest income. Bank of New York, State Street (NYSE:STT), and Mellon Financial (NYSE:MEL) are the industry leaders in the commodity business of custody, which is essentially safekeeping and maintaining records for portfolios managed by investment advisers. With nearly $12 trillion under custody, Bank of New York has achieved the scale and expertise to profit from this low-margin business.

Bank of New York shares are selling at low multiples compared with the bank's rivals, and that may make the stock appealing to investors concerned about risk. But there's reason to believe that Bank of New York shares may finally be ready to realize some upside potential. The globalization of investment activity and the development of foreign capital markets promise to continue to drive business to Bank of New York, already the market leader in services such as global custody, clearing, institutional trust, foreign exchange, and transfer agency. With its focused business model and strong operating leverage, Bank of New York seems poised to show investors impressive earnings growth.

For related Foolishness:

Join in the discussions:

JPMorgan Chase is a Motley Fool Income Investor recommendation. If you're looking for a safe place to deposit your investing dollars, check out Income Investor free for 30 days, and we'll guide you toward some of the market's best dividend-payers.

Fool contributor Michael Leibert welcomes your feedback. He owns shares in Bank of New York. The Fool has an ironclad disclosure policy.