Bank of New York (NYSE:BK) last week announced fourth-quarter results that mirrored the strong performance delivered by Mellon Financial (NYSE:MEL), its merger partner in a transaction that is expected to close later this year.

BoNY reported net income of $1.79 billion for the fourth quarter and $3.01 billion for the full year 2006. Results included gains from the sale of the bank's retail unit to JPMorgan Chase (NYSE:JPM) in a deal that marked the final milestone in BoNY's transition from a provider of traditional banking services to a company engaged primarily in securities processing and asset management. Adjusting for the effect of the sale and certain merger and integration costs, fourth-quarter net income increased by 7% from the previous year and full-year earnings grew by 10%.

Revenue from continuing operations increased by 13%, an improvement driven largely by strong gains in securities servicing fees and asset management income. BoNY is a global leader in securities servicing, which is mainly about providing back-office support in connection with securities issuance and trade execution and settlement. Of the product groups that comprise the bank's securities servicing division, issuer services fees posted the best results with double-digit gains, reflecting the increasing globalization of the financial services industry. BoNY's role in such related functions as corporate trust and servicing employee investment plans will only be enhanced by its pending combination with Mellon Financial. BoNY's strong improvement in asset management fees reflects both the effect of market appreciation in assets under management, and the higher performance fees earned.

BoNY's overall performance improved by a number of key metrics, including better returns on equity and assets compared to 2005. While the bank's balance sheet had suffered for years because of its high concentration of loans to the telecommunications industry, credit quality now appears solid compared to prior years, based on recently reported levels of loan allowances and charge-offs. Assets under custody total $13 trillion, ranking BoNY just behind the top custody bank, JPMorgan Chase. The two banks will trade the No. 1 and No. 2 positions when Mellon's custody business is added to BoNY's.

One disappointment in BoNY's results was the 12% increase in expenses, which consequently moderated the firm's earnings growth. A significant reduction in expenses is, of course, one of the more compelling virtues of the merger plan between BoNY and Mellon.

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